WHITHER CHINA 2019-2020

A Series of Articles by John Tulac

Welcome to Whither China, 2019-2020.  This series of articles over the upcoming weeks will help prepare any business to deal with the complexities arising out of the interactions between China and the United States and the rest of the world.

You’ll learn how China impacts every American business and consumer, even as we are largely unaware of the direct and indirect impacts. You will also be offered strategies to deal with those impacts, both in the short run and the long run.

We’ll explore China’s astounding strengths and glaring weaknesses. Is China a crouching tiger or a paper tiger? Maybe it is cornered rat?

You probably remember the old Las Vegas marketing slogan, “What Happens in Vegas Stays in Vegas.”  What happens in China does NOT stay in China.  Reading the geopolitical and economic tea leaves offers great insights to making critical business decisions.

How is your supply chain affected by China? How are your customers affected by China?  What can you do to avoid or mitigate the risks of supply chain disruption?  You’ll learn how to test your supply chain and develop realistic alternatives to dependency on China.  What can you do to embrace the opportunities that these risks also create?

Finally, we will consider ways to fight and win your own trade war with China.  Or at least survive the one we’re in. Countries can never win trade wars; countries can only win trade battles, often at great cost.  Companies, however, can win their private trade wars.  But war is hell, and has a price.

In addition to the these articles in the Inland Empire Business Daily, I’ll be a guest on Lou Desmond’s radio program on Tuesday afternoons at [5:00PM] on KMET 1490 AM. I hope you’ll join Lou and me as he drills down on the details.  I’ll be sharing actual cases and anecdotes I won’t be putting in the articles.

You may be wondering who I am and how I came to know about China.   I’m John W. Tulac, international business attorney.  It all started in the late 1970s, when I was asked as a newly minted lawyer to develop and teach a course in international business law at Cal Poly Pomona, my alma mater. 

In those days, there were no textbooks for anything relating to international law , let alone international business law, designed for undergraduates and only a couple of law school textbooks.  I started researching the old-fashioned way starting with the card catalog in the library, the Wall Street Journal, the Economist and other daily and weekly publications.  This was decades before the internet made things easy, when I walked to school uphill in the snow in both directions and mastodons ruled….oh wait, that’s for the grandchildren.

I assembled a package of course materials consisting of statutes, regulations, cases, and how-to articles.  The Department of Commerce people were very helpful, and I included a number of government publications from the Government Printing Office that were quite inexpensive or even free. 

One of the things I came across and included in the course materials was China’s Foreign Investment Law of 1979, effective January 1, 1980.  The Foreign Investment Law created a handful of Special Economic Zones where a limited amount of foreign investment would be allowed. There was also a rudimentary system for arbitration of disputes.  I studied this law intensely barely a few weeks ahead of giving it to my students.  I even included a question on the Final Exam about it.

I taught the course in the spring of 1980 and it was a success.  I was asked to continue it and this resulted in my long association as an adjunct professor at Cal Poly while maintaining a full time law practice.  The course made me realize two things:  first, they think I’m qualified to teach this stuff; maybe I could do it.  At the time I was doing business litigation for a small law firm in Los Angeles. The second thing I realized is that I knew as much or more about the Foreign Investment Law as any American lawyer, no matter how experienced.  It was an equalizer for a young lawyer and I determined to develop clients who wanted to try the brave new world of doing business in China.

As luck would have it, the firm had a client who wanted to go to China and my boss was looking for a law firm to make a referral.  I convinced the client to allow me to work with him and we managed to get a small deal done some months later.  I can claim to be one of the first American lawyers to assist in getting a deal done in China.

I was fortunate to develop a relationship early on with a Chinese lawyer, who was able to travel freely to the United States because of his extensive connections with the Communist Party (in those days, it was extremely difficult for Chinese to travel outside the country).  He opened many doors and – you may be amazed by this – never asked for bribe payments for himself or for party or government officials.  He was my China mentor and I miss him to this day.

By the end of the 1980s, I had numerous clients doing business with the Chinese and we had successfully completed over a dozen joint ventures, all of which thrived and later were sold to others.  I had excellent connections in China. I was an informal “Friend of China,” I had switched my career path to focusing primarily on international business law.  I expanded to other countries.  I was even now representing some foreign companies doing business in the United States.

The came the Tiananmen Square Massacre.  That’s what it was and that’s what I called it, then and now.  The Chinese government and party relationships instantly got chilly or discontinued.  I was no longer considered a “Friend of China.”  I said friends should be able to talk candidly in private with each other.  However, I believed that continued constructive engagement was better than disengagement, so I continued my China practice and it remained successful for my clients with no negative impact from losing some top-level connections. Indeed, one would only expect this.  China was growing extremely fast; all the big companies and big law firms were establishing themselves in China.  My high-level ties were not going to be sustainable, unless I focused exclusively on China, which I was not willing to do.

In the late 1990s and early 2000s, I represented an electric power generation team and advised on multiple power projects in China.  That was a lot of fun.  Surprisingly, not a single one of them was coal-fired.  We didn’t believe that they were in China’s best interests, then or now.  Air, land, and water pollution in China is an extremely heavy cost China is paying for its rapid development.  It is a growth opportunity for U.S. companies interested in helping China clean up and remediate.

My clients to this day do a lot of business with Chinese companies, but I do not travel to China and do not have the need to do so to represent my clients.  I have my clients, my network, multiple subscription advisory services and other resources to stay current on what happens in China. Keeping up is an essential part of my China practice.

China’s businesses today are highly diverse, with large privately owned companies producing state-of-the art technology, ponderously slow and inefficient state-owned enterprises, as well as highly effective ones, small and nimble companies, and everything in between producing both great products and a lot of dreck.

To me, China is one of the most fascinating places on earth.  The Chinese are amazing people and can be extraordinarily friendly or virtually unknowable.  They have accomplished so much in so little time despite repression, corruption and crony capitalism on a scale never seen before.  I look forward to sharing with you how to effectively do business with the Chinese here or in China, embracing the opportunities, avoiding the dangers, and mitigating the risks.

John W. Tulac is an international business attorney practicing in Claremont, adjunct professor of law at University of La Verne College of Law (retired), and Lecturer Emeritus (retired) at Cal Poly Pomona.  He is peer recognized as preeminent in international business law and holds the highest ratings for competence and ethics from the Martindale Hubbell National Law Directory.