Fili’s world

Deloitte’s Israeli branch - Brightman Almagor had a big conference yesterday titled "China - on the rise : the opportunities, challenges, investments, risks and returns in the Chinese market" hosting Deloitte’s China branch experts as well as Israeli and Chinese lawyers and accountant working in China.

Although I’m no accountant, and Chinese law is something I only know through blogs like China Law Blog, it was quite overwhelming listening to the various lectures. To contrast the lecture The fundamental forces and challenges shaping China’s future given by Prof. Kenneth Lieberthal at the HUJI conference last week, this business conference was all about success. Sure, people spoke about "issues", but the repeating message sounded something like "China is a sure thing - it’s the next superpower" and the lectures focused about how to best understand the underlying laws of the Chinese opportunity.

Of all the very technical lectures about Chinese law and the tax reform in Jan-2008, I’d just like to briefly summarize the Israeli lecture about recommendations for working with China :

1. Law firms in China are separated into 3 categories : small , medium and large size. Small sized law firms speak no English, so as most of the medium size, and only about 10% of the lawyers in the large Chinese law firms speak English. The large law firms are the only logical choice. It often happens that those who do speak English aren’t the lawyers who specialize in the area you need so you’ll sometimes need more than one lawyer working with you or an extremely talented law-oriented interpreter to closely accompany you.
2. There are Chinese branches of foreign law firms in China but those rarely practice local law and mainly deal with international deals. Those firms use local Chinese law firms for the China related size of those deals.
3. It is essential that you work with the local Chinese law firms because :
   1. They know their way around the Chinese law best.
   2. They have the right connections and relationships to make the deals happen.
4. The Chinese consultant’s roles :
   1. Bridging between business cultures, as foreigner rarely understand the local context.
   2. Finding potential Chinese partners.
   3. Knowing or tracking down details about how to best work through the system and maximize revenue.
5. Having a Chinese partner is highly recommended.
   1. Finding a Chinese partner can be done through connections, looking up companies of the same niche, through law and accountant firms who rely and recommend you or through business guides like the one maintained by the Israeli consulate in Beijing.
   2. Always, always, do a complete checkup on your partner before engaging business.  Of all the reported business transactions in 2006, over 70% of the deals failed. Most of those wouldn’t have happened to begin with, if the foreign companies would have checked the Chinese side before the deal was done.
   3. It takes time and resources to build the right interaction with the Chinese partner. There are no shortcuts, and it might take longer than you’re used to. One should always have a backup plan and prepare legal and non-legal guarantees should things not work out.
6. If you want information about anyone in China, the best source of information is always to go and talk to the competition. They’ll be extremely happy and willing to give you all the nasty details they can dig up on your potential partner, and this might save you a lot of hassle. When deciding who to partner with, never focus on one variable you think works best (ROI, ROE etc.), but rather form a multi-variable formula to reduce possible failure point.

Israelis still don’t know what to think of China, and here’s a short example story. Later on that evening, I had the pleasure of dining with the M&A and Corporate Finance leaders of the Beijing branch and I heard that they were interviewed to the Israeli business media (The-Marker, Globes) which asked them the strangest questions about the reasons for doing business with the "extreme totalitarian" Chinese regime that might "not honor deals" and do things like "nationalize all private assets" and "limit all foreign transactions and holdings" upon having a bad mood. Odd, but I believe that many of the Israeli business people still perceive China to be this way. Maybe these kind of conferences will help them learn a bit more about what’s happening in that part of the world.