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Contracts in China – and beyond

December 7, 2011

Yesterday I attended a ‘China Outsourcing Seminar’, sponsored by (among others) the Chinese Ministry of Commerce.

Although the audience represented a wide mix of interests and perspectives, contracts and contracting practices proved to be a major discussion point. On the one hand, people were asking some of the stock questions about intellectual property, data privacy and the like. But the more interesting discussions revolved around whether or not contracts are accepted and have purpose in China.

The point that emerged was that they have a very definite purpose, but it is not the same as the way they are typically used in the West. First, all experienced practitioners in the Chinese market have grasped the fundamental importance of building relationships. “Contracts are a milestone on the way to working together”, commented one speaker. “A true win-win is key – and it is essential to understand that contracts must be maintained, updated, a reflection of current conditions and circumstances.”

The lawyers who presented also reflected this view. “The contract process is key to getting understanding. There is a tendency (in the West) to rush to the ts&cs rather than gaining understanding on what the parties are trying to achieve and what mechanisms are in place to do it”.

Several of those presenting acknowledged that enforcement of contracts is an issue – and hence suggested that the contract is far more about creating a platform for understanding and the management of change than it is about developing a vehicle for litigation. They observed that this situation is in no way unique to China – it is in fact the norm for much international business, especially in low-cost markets.

So if the business people have grasped this point – and consequently place such high value on the contract – how much longer must it be before the contracts community itself makes the adjustment and switches the focus of its attention and negotiations to establishing effective relationships rather than theoretically water-tight legal contracts?

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