ISSN 2330-717X

How To Negotiate Contracts With Chinese Companies – OpEd

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This article is covering my professional experience and business contract advice on contract negotiation with Chinese companies. It is said that negotiation tactics are universal, but negotiations with the Chinese companies, signing contracts and project execution are more or less different. We international negotiators work on the win-win principle. We give and take, then we end up tying all up.

That’s not how things work with the Chinese. Contract negotiations for Chinese companies are a “War”. During the negotiation period and after that, the Chinese apply the rules of “The Art of War” written by Sun-Tzu 2500 years ago at every stage. Do read this best-selling book, then start negotiating with the Chinese. 

This book isn’t written only for fighting foot soldiers.

Many Chinese companies in the construction of imported coal or domestic coal power plants receive Chinese exim project financing support and they received overseas jobs at very cheap prices. Our domestic investors are unprepared for these negotiations. They are  victims of the Chinese negotiation tactics. Projects are creeping, performance guarantees do not meet, completion times are prolonged, temporary admission, final admission are very cursory. There is no backup equipment, or the backup is too small. 

After final completion, the plant is down quickly. Electrofilters worn out, and quickly fail, flue gas desulphurisation systems are disabled. The designs are usually incorrect for the designated fuel. 

Domestic coal cannot operate as 100% base fuel, it is necessary to use large amounts of continuous supplementary liquid fuel. There is almost no serious penalty for all of these, no sanctions are applicable.

Negotiate with Chinese companies first in your own country in your own environment. If not, do it occasionally in a third country. If all these are not possible, then do it in a city you’ve been to in China before. The worst alternative is to negotiate a contract in a faraway remote Chinese city you don’t know.

First unauthorized young Chinese company staff will greet you at the airport and then they ask you when you will return. Don’t give them your timetable. Your information is immediately shared on the other side and they will pressure you to the last day, to the last hour. Tell  them  you didn’t purchase your return ticket yet and you will buy  after the negotiation,

During the negotiation, the Chinese side constantly raises irrelevant new problems. They have ample time to play. They wait, they want you to accept everything. This tactic is used to wear down the buyer side. All this is very natural for them. Do not eat any meal before signing with the other party. Socializing is very dangerous.

At the end of the negotiation, the Chinese side prepares a high profile signing ceremony, attended by the top officials of both sides. On the day of the signing ceremony, they come up with very important problems before the contract. They say that the contract should be revised on basic issues. Typically, the requirements of a bank on the Chinese side, an insurance company, or a regulatory government agency have been put forward and requests for revision of the contract requested. 

The cancellation of the signing ceremony is at issue, and your senior officials have already arrived. They make time pressures before the signing ceremony, and they ask for changes in the key issues of delays, performance penalties, prices, which are problematic for themselves. Do not call the top officials of your company and your institution to the signing ceremony, do resist the conditions you agreed on first, do not step back, insist. Let the signature ceremony be canceled. Let the flight ticket be bought again. You take your contract to the end, don’t compromise.

Chinese negotiators bring the main problems to the table over and over again. The agreement is signed, then the project begins, followed by the Chinese people have not talked about until then the legal requirements of their state regulatory institutions put forward. They want contract change.

They make an infinite number of revision requests in the project. There are endless revisions. Naturally, they do this to wear out the other side. Their culture finds this application normal. Each new revision takes time to review, the work is delayed, the responsible party is plays with the contract. The initial agreement means nothing for the Chinese, but it is absolute for you. Do not retrieve, do speak the terms of penalties, do not take any revision, do not accept, because it will not end.

The signing ceremony may be important to you, in fact it does not matter to them at all. Be resistant to any change, do not bend, or accept any revisions. As you resist, you gain the respect of the Chinese side. As you lose, you are despised. Feel free to apply the termination, compensation, penalty clauses of the contract. Don’t sacrifice your contract and your project to Chinese negotiation tactics. When you leave the matter, these deceiving tactics do not end, you cannot prevent the Chinese to manage project tactics, concession requests, numerous revision requests and you wear out.

Make take-or-leave agreement with the Chinese. Because the concession requests do not end. The Chinese do not like long-term contracts. They like short staggering contracts that they can play on, change, and leave to drag. They scrutinize every article of the contract you put before them, and they repeatedly ask for clarification. They do this at the lowest level with unauthorized, newly recruited young staff. In the meantime, they make counter-suggestions and insist on making the most compelling hard penalty articles void. With their obviously malicious, full of commercial illogical, crazy nonsense, you struggle with their counter-substances. Press firmly, insist, do not regress, protect your conditions, if they do not agree, leave the  deal, do not go back with a bad deal.

Chinese negotiation team attending the meetings is similar to a headless or driverless horse. There is no authority among them. There is no decision maker. They put no technical or commercial binding decisions. They listen, they take notes. They must ask the senior management for approval at home. You can make reciprocal win-win concessions to get the job. Your concessions apply to them, but nothing binds them. They never bind themselves. The most competent Chinese boss finally comes to the meeting and cancels all concessions. You should ask Chinese side of the decision-maker, the last official to come, you ask the final decision maker to participate in negotiations, if not, do not negotiate. Your negotiation is in vain.

Chinese always say, “China is different.” In fact, all countries are different. Their expressions reveal the difference of negotiation. In fact, contract law is not very different from Western European or North American law, which we all agree. Chinese trade laws have already been modeled on the local environment with translation from these foreign sources over the years. The World Trade organization has the signatures of Chinese executives on the rules, international intellectual property rights, international sales contracts. There are few unusual absurdities in Chinese law.

Ask examples from the Chinese saying “China is different” sentence, law regulations and statutes. Where is it different? Do not accept private law, let everything comply with the rules of international law. Make sure your agreement is in English, and whether the English deal is valid, making a deal in Chinese is ridiculous. Technical drawings and calculations should come to your approval, be sure to be in English, their nose curls, but if they want and you do. They want to apply Chinese norms, their standards. There is no way you know Chinese norms. Ask for international norms, German or US norms. According to unfamiliar norms, goods-products-services are not to be purchased. German buys goods, services and products in accordance with German norms, American in accordance with US norms, French in French norms.

Be sure to check their drawings, and do have experienced engineers in your staff who can control them. Don’t get into the idea that “they guarantee a turnkey anyway, no need to check drawings.”

You feel that your contract is binding if the agreement is signed, everything ends there and the project starts. For the Chinese side, after the contract signing, negotiation does not end, everything has just started. The Chinese demand constant changes in project design, contractual terms and financing conditions. Stand firm, prevent change, do not accept any deviation. There will always be tension during the project, be prepared for it. It is important for us to find common ground and think “win-win”. There is no such situation on the Chinese side. Their corporate culture works on every point to win and maintain best for their side. During the negotiation, the Chinese side does not want to look negative, so at first they give a very harmonious silent appearance, don’t be fooled.

In order to proceed to the provisional acceptance period, make sure that the contractual provisions require a 60-day continuous operation test at 100% maximum continuous load with 100% base fuel. If they are sure of their design, let them accept it. The counter conditions, objections, footsteps, and other information they provide will give you serious information about the reliability of their design. This condition is the old TEK new EÜAŞ contract condition, you can take the thermal power plant passing the difficult test to the scope of temporary acceptance. Also pay attention to the scope of the backup.

Before the privatization, our public institutions did not see any Chinese power plants suitable for the purchase. Because they did not comply with international norms and standards. After reading “the 60-day non-stop rule before the temporary admission”, the Chinese dealer was already on the run. 

Your writer is waiting response from my valuable readers who have worked with Chinese people to share their experience.

After the cancelation of our missile tender, relations became sluggish, it became difficult to obtain entry visa, and Turkish exporters were subjected to unnecessary interrogations as they entered China. Chinese thermal power plant construction firms are in financial difficulties, there are high risks posed by imported coal power plants because of imported coal offshore prices getting high.  

Bank of China has the credibility rating of concern for Turkey, which always come to their agenda in bilateral talks.

The biggest scope of exports made by China to Turkey is thermal power plant equipment. Currently, with the exception of Tufanbeyli (SK Korea), the majority of the other domestic-imported coal-fired power plants in our country are being built by Chinese suppliers at very cheap prices.

According to international trade experts, there is a great imbalance in our trade with China. In 2019, we exported US $ 2 billion and imported US $ 25 billion in goods, equipment and services. This is unfair unbalanced situation, and should be rectified by our side. 

Chinese people are nice people, but their negotiation tactics are hard and ruthless, do not be victim nor fall into their bitter play.

Haluk Direskeneli

Haluk Direskeneli, is a graduate of METU Mechanical Engineering department (1973). He worked in public, private enterprises, USA Turkish JV companies (B&W, CSWI, AEP, Entergy), in fabrication, basic and detail design, marketing, sales and project management of thermal power plants. He is currently working as freelance consultant/ energy analyst with thermal power plants basic/ detail design software expertise for private engineering companies, investors, universities and research institutions. He is a member of Chamber of Turkish Mechanical Engineers Energy Working Group.

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