There is abundant perception about Chinese businesspeople not abiding by the contract. How true is it? Is there independent evidence to prove it?
In June 2016, in the Enforcing Contracts Indicator (part of the Doing Business Report) published by The World Bank, in which China scored 5th in the ranking (1st is the best). The Enforcing Contracts Indicator measures the time and cost for resolving a commercial dispute through a local first-instance court, and the quality of judicial processes index, evaluating whether each economy has adopted a series of good practices that promote quality and efficiency in the court system.
The following benchmark table will give you some ideas why China is ranked 5th:
Obviously, the general perception is questionable. Indeed, most of the cross-border disputes may be caused by cultural differences. A contract between two trading partners is not just the most important evidence in a dispute resolution, it is also an instrument for better collaboration in a deal.
The following tips will help you create a more practical Chinese contract for use:
Traditionally, Chinese do not like to go to court. If your Chinese partner is a businessperson, and not a cheater, a well written contract with the Chinese culture in mind will significantly reduce the chance of disputes.
This Credit Insight is an extract from the book Happy Customers Faster Cash, China Edition and on sale at Amazon.
More companies sell on credit to their customers in China. This book shares with you, using statistical data, the true picture of payment behavior in China. It also contains lots of cultural insights for you to better understand the business environment in China. A chapter is dedicated to discuss various aspects of China company credit reports.
Alexander has over 25 years of experience in Business Information Management and Information Technology. Previously, he has held leadership positions in the world’s leading Business Information providers, including Managing Director of Thomson Reuters Asia, and General Manager of Dun & Bradstreet (D&B), Hong Kong and Taiwan. In addition, he personally managed Hong Kong's Commercial Credit Bureau while working with D&B, and the Consumer Credit Bureau through his directorship at TransUnion Limited.