From the China Law Blog, November 13:
In the 1990s, I represented a number of international fishing and
timber and mining companies that did business with Russia. This was not
so long after the fall of the Soviet Union and there were a bunch of
large Russian companies — many of them formerly state-owned — looking to
do deals with my clients, mostly American and Western European
companies. My clients would set up long term deals with these Russian
companies which nearly always went bad quickly because the Russian
company would grab whatever money there was and walk away.
This would leave my clients dumbfounded at how the Russian company
would so “irrationally” sacrifice so much money in the long term to grab
a relatively small amount of money in the short term. I would find
myself explaining the following to them:
You have to understand that for most
Russian companies there is no long term. They are used to the Soviet
Union where the rules and the laws constantly and unpredictably changed
to their detriment. They do not believe they will be able to operate
freely five years or even one year from now. So though you see them as
having irrationally sacrificed massive long term gains for much smaller
short term rewards, they see themselves as having quite rationally
grabbed what they could while it was still there.
I am writing about this now because China today is feeling a lot like
Russia in the 1990s. I am getting the sense that many Chinese companies
are pessimistic about their futures and they are acting accordingly.
Our China lawyers are seeing evidence of this everywhere.
China’s economy is hurting right now.
On the one hand, food prices are soaring. See China’s consumer prices rise at fastest clip in nearly 8 years, as pork prices continue to soar. On the other hand, exports are plunging. See China’s exports decline for third successive month in October. Reliable economic indicaters (as opposed to official government statistics) paint an economy in trouble. See China’s economy is in more trouble than markets think. See also China’s car sales drop for 16th consecutive month as October falls 4 per cent. The tariffs are not helping nor is the Chinese government’s crackdown on private businesses.
On top of the economic issues, many Chinese companies have become both
wary of and angry at the West, particularly the United States. This too
makes things riskier for foreign companies.
We are seeing the results of all this in many ways.
Practically every week one of our China lawyers will get an email or a
phone call from someone who bought product from China and received
nothing in return or nothing even approaching what they actually
ordered. This sending of “junk” instead of real product has spread to
pretty much every industry in China and ordering your products from
allegedly reputable online sites provides little to no protection....MORE
