For 20+ years in Chinese Asia I've made notes about the cross-culture divide, things I saw, did or heard, even the odd flash of insight and understanding. I post a new tip every two weeks or so, and link to the previous tips in case you missed them. You can receive the tips by email; for more information contact me.

Are Chinese Contracts Just Words On Paper?

Westerners and Chinese have the same business goal: make money. But while the goal is the same the methods used are not. This confuses Westerners in Chinese Asia.

The Western method is clear and simple: negotiate a binding contract between both parties. Once signed, the contract defines the future - what will happen and when, and what the penalties are if it's not followed. In essence the contract becomes the relationship and, as all contracts have an end, also determines the length of the relationship.

Chinese view things differently. To Chinese, the way both parties deal with each other over time is what is important. Certainly they will (often willingly) sign a contract, but in their minds it is a statement of what they hope will happen, not a promise of what they will do no matter what.

Chinese see the future as uncertain, or, as a popular idiom puts it, "Man may propose but the Gods decide." Furthermore, Chinese see a relationship as never-ending ... if both sides act reasonably with each other.

Ahh, but what does reasonable mean? To Westerners it means, "follow the contract no matter how hard," to Chinese it means, "be willing to adjust the contract if the overall situation changes." The Western definition is based on timely performance, the Chinese definition on timeless flexibility.

Chinese contracts are more than just words on paper, but less than the absolute moral and legal commitment Westerners expect. Use a Chinese contract as leverage, not a blueprint. When (not if) Chinese ask you, "How can you ask me to follow the contract (because I will lose money if I do)", be flexible. By giving in one area you can ask for consideration in another and, if you view the relationship as a never-ending, give-and-take partnership, what you receive as consideration will over time balance out what you give away by being flexible.

It works. Just don't expect your legal department to understand it.

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