Ceremonial contracts

When I wrote Doing the China Tango, I tried to incorporate a great many of my experiences in China. Some of these experiences were good and resulted in a profitable business relationship. Others were the opposite, and I still have the scars from those learning experiences. One basic rule of thumb that I always provide to those doing business in China is that the better you understand China’s culture, history, business conduct, and societal prejudices, the more successful you’ll be.

Take, for example, Chapter 15 of Doing the China Tango. In it I mention that Chinese companies frequently employ the use of ceremonial contracts, or contracts that neither side is expected to honor. Not only do companies utilize ceremonial contracts, but they’re also utilized to a great extent by the government to show the Chinese people that positive things are happening. In China, that’s important as social harmony is the key to the government maintaining its power base and control. Subsequently, whenever I see an announcement that a huge government contract has been awarded, or there’s been a technology breakthrough, or that China has signed a trade agreement, and so on, I take it with a grain of salt. Is there a contract? Almost certainly the answer to that is yes. Does the contract bind both parties tightly together like most agreements? Almost certainly not if it’s a ceremonial contract. It’s not meant to. These ceremonial contracts are meant to convey a message rather than setting forth binding terms and conditions. They’re meant to be splashed in the news and put on the Internet. However, there’s so many holes designed into a ceremonial contract that even a member of the U.S. Congress would be proud. When you see the Chinese government announce a major contract, don’t give it too much credence. It may or may not be real. Many of these contracts are ceremonial and are meant for home-consumption.

Alan Refkin

 

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