DiligenceChina

Dan Harris and the folks at ChinaLawBlog.com finish up the week with a chilling story about China business advisors who are in desperate need of advice themselves. Dan wrote:

‘We recently took on three new WFOE formation matters for U.S. lawyers… All three of these lawyers told me they had spoken with company formation firms and had grown frustrated with the information they were being given. They relayed that these firms were not giving clear answers to many of their questions, but were instead responding by saying China’s WFOE laws were “vague” and/or “ever changing.”

What these company formation firms are saying is just not true.’

Some of Dan’s article gets a little dense for the uninitiated, but it is important stuff for all new China entrants. (DilChina has some more basic background material on business entry procedures HERE .)

The point that EVERYONE should take away from Dan’s piece, whether or not you are involved in forming a company in China, is that you need to perform thorough due diligence on ALL your Chinese service providers. Unfortunately, that includes the very people who you turn to for financial and business advice. When newcomers to China tell me, “that person is Chinese so they know about China” it makes about as much sense as saying, “Larry’s wife has lived in New Jersey since she was a kid – so of course she is an expert on the zoning regulations in Fort Lee”.

China is far away, the language is difficult and the customs are strange. Anyone who lives there and speaks English is going to naturally raise your comfort level — whether or not they really should. Now the scary thing about the CLB post was that an interesting game of “telephone” was taking place – a Chinese consultant told something to an international lawyer who was presumably giving advice to a US business client. Inaccurate information had worked its way into the process early, and it quickly became part of the basic decision-making structure.

The Chinese legal and business systems are not simple, but they are becoming more and more transparent. It is up to YOU to do your research and due diligence – and to build a network of trusted lawyers, consultants and service providers. You must figure out a way to determine who you can trust – and who is going to bury you. These articles may help.