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Have Your Checked Your China Manager?
Back when I used to watch a lot of horror movies (a long long time ago), When a Stranger Calls was one of my favorites. Spoiler Alert: It was about a babysitter who was experiencing weird things and constantly getting calls from someone who kept asking “have you checked the children.” To make a long story short, the creep was in the house.
I mention that movie today because our China lawyers have been getting a spate of calls lately to assist from American and European companies who have just learned that the creep is in their house.
Let me explain by way of some examples:
1. U.S. company terminates its head of China operations and then a couple of its China employees reveal that the U.S. company’s leading supplier is owned by the former head of China operations who — almost needless to say — has been charging about 40% over market.
2. Spanish company terminates its head of China operations only to learn that it actually does not have any China operations. The WFOE this person claimed to have formed and which the home office for the last three years believed was there actually wasn’t. The head of China operations had pocketed all of the money for the WFOE and all of the money marked for China income taxes as well. Fortunately, it turned out it never made sense for this company to have a China WFOE in the first place and so it exited China and now contracts with a Chinese company to accomplish what its fake WFOE had previously done. I say fortunately because if it had to have remained in China, it would have been at risk for not having paid its China taxes. For more on this fake WFOE phenomenon check out So You Think You Have A China WFOE Or Joint Venture Or Trademark. What Makes You So Sure?
3. American company flies to China to meet with its nine employees, only to learn from one employee that it has only five employees and that the head of its China operations has been pocketing the extra funds that allegedly went to pay the salaries of the four phantom employees. For the past three years!
Why are we getting so many of these calls now? All of them can to at least some extent be traced to the downturn in China’s economy. Many foreign companies are checking on their Chinese operations more closely than previously simply because they are concerned because they are less profitable. To quote Warren Buffett: “Only when the tide goes out do you discover who’s been swimming naked.”
Do you really know who’s in your house? Have you checked your children?
We will be discussing the practical aspects of Chinese law and how it impacts business there. We will be telling you what works and what does not and what you as a businessperson can do to use the law to your advantage. Our aim is to assist businesses already in China or planning to go into China, not to break new ground in legal theory or policy.
Source: http://www.chinalawblog.com/2016/07/have-your-checked-your-china-manager.html
