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With China Friends Like These....

By Dan Harris and Steve Dickinson

"Beware of the pat on the back It just might hold you back." From the song, "Smiling Faces Sometimes," by Joan Osborne Had an interesting conversation with a China client the other day. For obvious reasons, I am going to have to be a bit vague on things, but here goes. This company is in an industry very much related to government. By this I mean that it pretty much cannot avoid working with Chinese authorities in just about everything it does. This company was a great client of ours for a good spell, but we had not been hearing from them for an overlong time so I called. I learned that they are pretty much winding down their China business because their main (and pretty much only) government contact recently became persona non grata. When this contact went on the outs with one governmental entity (yes, I am being intentionally vague here too), pretty much all governmental entities started wanting to have nothing to do with my client. Within weeks, its thriving China business was tanking and try as they might, there was nothing they could do. I have heard this story many times: 1. I was working on a massive deal to sell paint to the Korean navy for all of its ships when the person with whom the deal hinged (the son of the President) showed up on TV doing a perp walk. No son of President, no deal. 2. My law firm used to be totally dialed in to a particular Russian province because one of our paralegals was the daughter of a very powerful vice-governor. But when the vice-governor got murdered, nobody in that province wanted to have anything to do with us for years. 3. We had a client with a thriving business in China, in tandem with the son of a high level military official. The high level military official ingloriously retired and things went from super-easy for the business to way tougher than for others. It eventually closed down. I am not saying never do business in China because of "connections." But I am saying that if some or all of your business is going to rely on connections, you at least better account for the risks that contacts, like fame, can be fleeting.

Full post as published by China Law Blog on May 05, 2010 (boomark / email).