This article is part of a series for doing business in China. Over four blog posts, we go through eight typical risks that are easily overlooked by small and medium-sized businesses. These tips will help your company succeed in doing business with China.
Risk #5. When a Chinese company’s controlling shareholder is in serious trouble, the company can be dragged into a foreseeable debt crisis.
There are many conglomerate companies in China. The group holding companies often have complex financial arrangements and may use their subsidiaries’ assets, such as land, buildings and even manufacturing facilities, as mortgage assets to secure commercial loans. You have likely heard about China Evergrande’s debt crisis and its impact on its 1,300 project companies across China. With Evergrande facing trouble, none of its invested subsidiaries, from real estate to the electronic car maker, will easily walk away clean.
You may be dealing with only one regional importer, a manufacturing or tech company. However, it can be a wholly-owned or controlled subsidiary of a large conglomerate. If you have a long-term contract or are going to sign one, you should know who the controlling shareholder of the Chinese importing company is. You should also find out whether the company is a so-called “group holding” company. If so, it’s a good idea to check regularly whether there is any new public record indicating that the controlling shareholder is in serious trouble.
Risk #6. Did not register a trademark before exporting products to China can put your brand at risk.
Bear in mind that trademark registration is country-by-country protection. When your product is sold to another country, or sometimes even before that, someone in that country may register a mark or logo similar to yours, or may be planning to do so. Therefore, the risk of trademark infringement will substantially increase when you start negotiating contracts with companies in that country. The risk will increase more and more as your sales grow.
There are two fundamental precautious actions to take before your business starts in China. First, you should register your trademark there as soon as you plan to sell to China. Second, you should check whether your potential business partner has registered many trademarks other than its own, which may suggest they have the terrible practice of registering their business partners’ trademarks.
In our next blog post, we will look at the dangers of verbal and other loose contracts, as well as what happens when there is a discrepancy between English and Chinese written contracts.
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