China contract lawyerOne of our China lawyers got an email the other day from a US company saying the following:

I read one of your blog posts saying that it almost always makes sense to draft a contract with a Chinese company in the Chinese language and to say that Chinese law applies and the dispute will be resolved in a Chinese court. Here is my contract which I will be translating into Chin00606ese. As you can see, it says Chinese law will apply. I also have chosen the Shanghai People’s Court as the Court because I understand that is the best court in China. Can you quickly tell me if you agree with what I have done here.

I was “nominated” to respond to this email and I did so as follows:

Sorry, but there is no way we can give you any legal advice without knowing a lot more about your goals with this contract, your fears with this contract (preferably ranked) and more about you and your Chinese counter-party. What I can tell you from five minutes skimming your contract is that translating a contract into Chinese and saying Chinese law applies does not make the contract appropriate for China. This contract has many provisions that do not make sense for China and will never be enforced and other provisions that are probably harmful to you. Your listing of a specific court in China is probably not a good idea, nor is your provision calling for a cooling off period before you can sue.

Let me break down and briefly explain the concerns I quickly noted in my email because the problems (and even the number of problems) in this contract are incredibly typical of what our China attorneys often see in contracts drafted by people — including lawyers — without substantial real world China contract drafting experience.

  1. Translating a contract into Chinese does not make the contract appropriate for China. It just doesn’t. Just as is true of every language and of every country, there are certain words and phrases that courts just know and if you nail the phrase exactly you will likely have no problem and if you do not come close to nailing the phrase at all you may or may not have a problem. But if you come close to nailing the phrase, but don’t, you are likely to have a major problem because the court will think the contract is specifically intended not to nail the phrase and specifically intended to call for something different than the usual. Then of course there are all the times where people put in provisions that simply will not work under Chinese law.
  2. Listing a specific Chinese court for your dispute is usually a mistake. Chinese courts tend to ignore any attempt by contracting parties to dictate where a matter will be litigated. Chinese courts usually determine jurisdiction based on the nature of the claim, the amount of the claim, the location of the parties, and the location of the witnesses to the dispute. If your choice of Chinese court jurisdiction is wrong (and it probably will be because China has speciality courts and complicated jurisdictional rules) your mistake could raise questions about the validity of Chinese Court jurisdiction or create other confusions.  The reason for crafting a dispute resolution clause is to avoid the expense, time, and  uncertainty of where and how your disputes will be resolved. Trying to get too specific about the Chinese court will likely only delay resolution and increase uncertainty and expense.
  3. Cooling off periods usually do not make sense. Suppose your Chinese manufacturer has started making and selling your product all around the world. Do you really want to be unable to bring a lawsuit to stop that as quickly as possible? Do you really think if this happens it will make sense for your company to have to spend 60 days “amicably” trying to resolve your dispute with this company and then have to spend another few months choosing a mediator and then an additional 4-10 months trying to reach agreement via mediation? Of course not.

What are you seeing out there?

China employment contractEmployers in China are presumed to have greater bargaining power than their employees and therefore China’s labor laws tend to provide China employees with substantial protections and China courts typically favor employees in disputes with their employers, especially foreign employers. If you as a foreign employer want to avoid legal problems, you should strive to hew to the employment laws, especially when it comes to drafting your employment contracts.

China employment contracts are not a time to get creative and a recent court case out of Guangdong confirms this. In this case, an employee and a Guangzhou-based employer entered into an employment contract for a fixed term (more on this later). The parties explicitly agreed on a contract damages provision stating that if either party terminates the contract without good cause before the end of the contract term, the breaching party shall pay the other party 200% of the employee’s salary for the remainder of the term. This provision was intended to be effective both ways: it did not just apply to the employer.

The contract was properly executed and the employer eventually terminated the employee before the end of the term — about four years into employment, with about six years remaining on the term. The employee then sued the employer for double damages for unlawful termination and for the contract damages per the employment contract: 200% of salary for the six years remaining on the term. The employer argued that it was entitled to damages because the employee had deceived them in securing his job by falsely claiming to be a foreign expert.

The appellate court ruled that Chinese law prohibits imposing a penalty on employees unless an exception applies, which it rarely does and it did not in this case. The appellate court also upheld the damages provision as applied to the employer and held the employer liable for the contract damages. The court ruled that the damages provision as applied to the employee was illegal whereas that same provision as applied to the employer did not violate any laws. The employer therefore owed the employee 200% of his salary.

In reaching its decision, the court noted that China’s labor laws allow for penalties against employees in only the following two circumstances:

  • Pursuant to an education reimbursement agreement, an employer can require its employee reimburse the company for the education expenses if the company pays major expenses for an employee’s employment-related education or training, but the employee quits the company upon completion of the training.
  • Pursuant to a non-compete agreement, an employer can require an employee pay a penalty to the company if the employee violates any non-compete terms by, for example, working for a competitor after leaving employment.

Except for the two circumstances above, an employer and an employee may not agree on any provision that requires the employee pay a penalty to the employer.

Bottom line: Chinese laws are strict about when an employer can impose a penalty on an employee and employers typically cannot contract around China employment laws. For these reasons, it rarely makes sense to draft an employment contract with provisions that purport to do otherwise.

China contract lawyersDespite all that you may have read about China’s economy being on the downswing and despite all that you may have read about China factories closing, our China lawyers are starting to see distinctly tougher negotiating by China factories. We attribute this to the following:

  1. To greatly simplify, ten years ago China factories made socks and rubber duckies and with thousands of factories capable of making these things competition was incredibly intense. On top of this, price was oftentimes the foreign buyer’s only real concern. Today, China factories are making incredibly complicated products and oftentimes few or sometimes only one China factory has the capability to make the exact product the foreign buyer wants. Sometimes a China factory even holds a patent for some aspect of the product and so that factory is the only factory that can produce the product with that one aspect. Needless to say, being unique or nearly unique increases pricing power.
  2. To again greatly simplify, ten years ago, there were a number of China factories that knew little to nothing about pricing. It would not be an exaggeration to say that our China lawyers oftentimes dealt with China factories that did not even know their costs, leading us to often joke that they would make up for their selling widgets at a dollar under their costs by selling massive quantities of widgets. Most of those factories either wised up or no longer exist.
  3. Read all you like about factories closing in China, but recognize that there are plenty of profitable China factories these days with very good long term relationships with good stable foreign buyers. Those China factories are in no rush to take on your production on bad terms.

So what we are seeing now is a power shift, with Chinese factories more and more often gaining the upper hand. In subtle ways, this is making our job as China lawyers more difficult, while increasing legal fees for our clients. In the old days, our typical scenario would be that we would draft a manufacturing agreement (a/k/a OEM or ODM contract), send it to the Chinese company and get it back signed within 24 hours. Nowadays, it is far more common for us to receive pushback from the Chinese company on terms, including on terms to which the Chinese company previously agreed with our client. Needless to say, one of the more common push-backs is on price, with the Chinese factory oftentimes saying something like, we quoted $5 per widget with the understanding that we would have 90 days to produce after receiving the PO and now you are asking for 45 days (even though the email trail reveals that our client had made clear it was 45 days all along).

We are also seeing increased toughness even in the pre-quoting stage from China companies. About a month ago, I received an email from a foreign buyer telling me that a potential supplier was saying that it would sign an NNN Agreement with the foreign buyer agreeing not to use any secret information provided by the foreign buyer to compete with the foreign buyer, but if the foreign buyer ended up using another supplier to make its widgets, it would not be bound by the NNN Agreement. In other words, it would be free to use the foreign buyer’s top secret information to compete with it. The foreign buyer asked if something like this would work, to which I replied as follows:

No, this will not work. Not at all. This could be terrible for you. Imagine this scenario. Imagine you get quotes from five other good manufacturers ranging from $5 per widget to $7 per widget, but this one Chinese company is quoting you at $12 per widget. Do you pay the obviously inflated $12 per widget price, because if you do not, that Chinese company can (and likely will, otherwise why is it’s price quote so out of line with everyone else’s) will start making your widgets and competing directly with you. So you can see why this is not acceptable. We have actually never heard of a Chinese company making this sort of proposal so you should not face this situation with any other potential suppliers.

But then yesterday, one of our China lawyers got a similar email from a foreign buyer asking us essentially the same question. I discussed all of this with co-blogger Steve Dickinson and his response was “that’s what’s so cool about Chinese companies. They tell you what they are going to do. These two Chinese companies are saying if you don’t choose us we will steal your product. The choice is up to you. It’s up to our clients to listen”

I guess that is true. To which I can only ask whether you our readers agree that doing business in China and with China is only getting tougher.

For more on China manufacturing pricing, check out China Manufacturing Agreements: Binding Contract or Contract Terms.

China trademark takedown
China trademark takedowns

China’s lack of an affirmative trademark use requirement allows trademark owners to register marks in more classes and covering more products and services than what they actually sell. Starbucks is a prime example of a company that has taken full advantage of this strategy by (for example) registering “STARBUCKS” as a trademark in all 45 classes of goods and services.

The benefits of registering in a whole host of China trademark classes really comes into play when dealing with infringing goods on Alibaba and other e-commerce platforms. Many of our clients have found that infringement starts with their core lineup of products but quickly moves to things they haven’t released and perhaps never will. Any consumer product is fair game for knockoff artists. If they can imagine it, or more precisely if they can imagine someone buying it, it will turn up on Alibaba.

Though Alibaba is responsive when you request a takedown for a product covered by your trademark registration, they often will decline to take action if the product is outside the scope of your registration. So if an enterprising Chinese merchant began selling Game of Thrones brand deodorant on Alibaba, HBO might only succeed with a takedown request if it had already registered a trademark covering deodorant.

Registering your trademark is the only realistic way to gain trademark protection in China, and that protection is limited by the classes and subclasses of goods and services covered by your registration. If you want protection for other products, you need to register in the appropriate classes and subclasses to cover those products.

Registering in all 45 classes is not a realistic strategy for most company. But when devising your IP strategy for China, you should think about not just the products and services you intend to sell in China, but also the ones you don’t want someone else to sell under your name.

China media and entertainment lawOur Beijing-based entertainment attorney, Mathew Alderson, will be speaking on a panel at Southwestern Law School in Los Angeles on January 19th. The panel is entitled “China and Hollywood: Distribution and Censorship in a Cross-Pacific Partnership“.

Mathew’s panel is part of the Southwestern Law School’s 14th Annual Media Law Conference, whose theme this year is: Keeping the Beat in a Crazy Year: Blurred Lines and Border Crossings.

Mathew’s panel will focus on how to work within China’s legal system on new productions and on how to deal with the unique challenges China presents when doing productions there. The event will be moderated by Covington’s Nicholas Francescon. The other panelists will be J. Martin Willhite, General Counsel and COO of Legendary Pictures, and Sheri Jeffrey from Hogan Lovells. The Conference is presented by the Biederman Entertainment and Media Law Institute and the Media Law Resource Centre.

If you are interested in China media and entertainment law or media and entertainment law generally (particularly IP law), you should go. The conference runs from 1 pm until 7 pm, with the post-event reception scheduled to last until 8 p.m. Go to this link to register.

We hope to see you there.

China lawyers
Do not fall for manufacturing contract illusions

A good China manufacturing agreement must address many issues, including, most importantly, the basic business terms for purchase of the manufactured product. The key business terms are price, quantity and date of delivery. When our China lawyers draft a manufacturing agreement for a China factory, we have to determine at the outset how to address these essential terms in the agreement.

There are two options.

Option One. With respect to the purchase of goods, we make the manufacturing agreement a binding agreement for a specific quantity of product to be delivered within a specific timeframe at a specific price. The foreign buyer is obligated to purchase and the manufacturer is obligated to sell and failure to perform is a breach of contract. This type of agreement is often supported by a letter of credit.

Option Two. The agreement provides the terms and conditions for a purchase of goods contract formed only after a purchase order is submitted by the foreign buyer and only after that purchase order is accepted by the Chinese manufacturer. If the foreign buyer never submits a purchase order to its Chinese manufacturer or if the Chinese manufacturer rejects the purchase order submitted by the foreign buyer, no purchase of goods contract is ever formed. The failure to submit a purchase order is not a breach. In the same way, the rejection of a purchase order is a also not a breach. Since there is no binding contract, this type of agreement is not supported by a letter of credit.

Multinationals that purchase large quantities of product from Chinese manufacturers generally follow Option One. This provides two major benefits. First, the product price is locked for a specific period. The risk of cost changes for materials or exchange rate or anything else is borne by the two parties equally. Second, the delivery date for the product is mostly fixed, allowing the buyer to plan for seasonal variations in demand. The major risk the buyer takes is that its product will not sell and then the buyer will be “stuck” with a substantial quantity of unsold product.

Buyers not willing to take this risk follow Option Two. Option Two is typical for startups and for entities introducing a new product with an uncertain sales market. This arrangement provides the foreign buyer with substantial flexibility. It allows the foreign buyer to test the market for its product and if its product fails, the buyer is not locked into purchase obligations and being stuck with unsold product.

But this flexibility comes at a cost. Many foreign buyers will do not realize that with this sort of agreement, there really is not agreement on business terms. If the Chinese factory decides it does not want to accept the foreign buyers’ terms it can and will simply reject the foreign buyer’s purchase order. If the Chinese factory wants to raise its price, it rejects. If the Chinese factory is unable to meet the required quantity, it rejects. If the Chinese factory is unable to meet the required delivery date, it rejects. Such a rejection is not a contract breach and the buyer has really no choice other than to accept the rejection.

At its simplest level, this situation means it is impossible for the foreign buyer to negotiate best terms with the Chinese factory. Since the foreign buyer has no real leverage, it cannot negotiate effectively on price. The foreign buyer may think it forced its Chinese counterpart to agree to a rock bottom “China price,” but the China manufacturer can easily turn the table by waiting until the foreign buyer has fully committed to the factory and is hard against a time deadline. The Chinese manufacturer then rejects an important purchase order and negotiates a price increase.

Consider what this means for a startup company with a single new product. The company has worked hard on marketing its product for the holiday sales season. After substantial effort, the startup receives enough orders. Those orders require delivery of the new product on a specific date, in specific amounts and at a specific price. The U.S. or EU buyers insist on a binding contract. The startup is obligated to perform.

Only after receipt of these orders does the startup then submit a purchase order to the Chinese manufacturer and then the Chinese manufacturer rejects the purchase order. The Chinese manufacturer may demand a higher price or it may say: “Sorry folks but you waited too long to place your order. We are all booked up and we don’t have the manufacturing capacity to handle your order.”

Consider what this means for the startup. It has fully binding sales obligations to its U.S. or EU retail customers and its failure to deliver on those obligations is a breach of contract that will subject it to a lawsuit in its home country. Its inability to fulfill its contracted for orders is both a financial liability and it also destroys the credibility of the startup as a real player in the retail field. If the startup does not have deep financial backing, it is usually impossible for it to recover from this blow. Usually, this all comes as a complete surprise to the startup, since it was operating under the illusion that it had a binding contract with its Chinese product supplier on all relevant business terms.

Our China attorneys get desperate calls and emails from U.S. and EU retailers who have unknowingly put themselves in this “no business terms” trap, but our phones ring off the hook with these from October to December. And usually all we can tell them is to do it right the next time (all while wondering if they will have a next time).

This business terms issue must be resolved for every manufacturing contract. It extends to other issues too. For example, say your contract provides for your Chinese manufacturer to provide a certain type of packaging which is included in the price of the product. The manufacturer decides to make a change. Under Option Two, the Chinese manufacturer simply rejects the purchase order and negotiates for a change. The original provision was an illusion since the manufacturer was not obligated to perform.

Warren Buffet once sad that “only when the tide goes out do you discover who has been swimming naked. The holiday season is when so many U.S. and EU companies learn that their failure to have a good manufacutring contract with their Chinese manufacturers has left them with no clothes. If you are looking to have your products made in China, the first thing you must decide is which option will apply to your purchases and you then need a contract that reflects and legalizes your decision. An illusion about your real situation with your Chinese manufacturer can and usually will lead to unpleasant consequences.

For more on what you should do to protect yourself when manufacturing in China, check out Having Your Product Made In China: The Basics on Protecting It and You.

China cybersecurity lawsThe PRC government promulgated its Cybersecurity Law on November 7, 2016, with an effective date of June 1, 2017. To say that foreign tech firms are concerned about the impact of this new law on their business in China would be an understatement. In addition to tech firms, our China lawyers have received a steady stream of questions from clients with China WFOEs who are concerned about an entirely different set of issues. Article 35 of the law states that “personal information and other important data gathered or produced by critical information infrastructure network operators during operations within the mainland territory of the People’s Republic of China, shall store it within mainland China.” Our clients keep asking what this will mean for them.

The surprising answer is not much.

Any company that operates a WFOE in China collects personal information about its employees. China’s new cybersecurity law defines personal information as “all kinds of information, recorded electronically or through other means, that taken alone or together with other information, is sufficient to identify a natural person’s identity, including, but not limited to, natural persons’ full names, birth dates, identification numbers, personal biometric information, addresses, telephone numbers, and so forth.” Certainly, the standard information any company maintains on its employees will qualify as personal information under China’s new cybersecurity law.

In the EU and various other jurisdictions, such personal information must be maintained within the jurisdiction and there should be no transfer of such information across borders. This causes many problems for companies that seek to manage an international workforce through a central location.

So what clients keep asking our China attorneys is whether China’s new cybersecurity laws will establish the same sort of protective system within China? The simple answer is that it will not. China does not have a comprehensive law or regulations relating to the collection, processing or transfer of employee data gathered by a WFOE or other business entity in the normal course of its China business operations and China’s new cybersecurity law does not change that situation.

The cybersecurity law specifically provides that its personal data maintenance and collection rules apply only to critical infrastructure network operators. Network operator is defined as “network owners, managers and network service providers.” In more general terms, this means telecom operators and Internet ISPs. The requirements do not apply to the China business operations of normal private businesses with respect to their normal record keeping requirements for their employees.

Even though nothing has legally changed in China, it is still best practice for foreign companies employers in China to follow the basic rules the PRC government imposes more generally in the consumer context on the collection and maintenance of personal information, including the following:

1. Be sure the disclosing party (your employee) is aware that the company maintains personal information. The company should have a written policy (in Chinese and in English) on how long that information is maintained and that policy should be revealed to the employee.

2. You should not collect more personal information than necessary.

3. You should maintain the confidentiality of the personal information you collect and maintain. That means you should limit internal access to that information and you should take proper security measures to prevent a data breach of the company’s online systems.

4. You should not sell or otherwise transfer the personal information to any third party. Stated more bluntly, do not sell employee personal information to marketers or spammers.

China arbitrationThe below is a summary of recent decisions impacting China arbitration.

Anti-monopoly disputes are not arbitrable in China

In August 2016, the Jiangsu Provincial Higher People’s Court held that anti-monopoly cases involve the public interest and therefore such disputes cannot be arbitrated between private parties. The court was hearing a case where the plaintiff had entered into a distribution ggreement with a manufacturer that contained an arbitration clause. The plaintiff sued the defendant in Nanjing Intermediate People’s Court accusing it of abuse of market dominance. Defendant alleged the court lacked jurisdiction as there was an arbitration agreement between the parties. The court not only rejected the jurisdiction objection but it also rejected the request for arbitration becuase the agreement designated more than one arbitral institute which made the arbitration agreement invalid.

The Jiangsu Provincial Higher Court affirmed the Intermediate Court’s ruling on appeal and listed the following three reasons why anti­monopoly cases may not be arbitrated:

  1. Relevant laws and judicial interpretations expressly provide for civil litigation to resolve civil monopoly disputes.
  2. Public policy considerations favor litigation over arbitration.
  3. Anit-monopoly cases involve the public interest, third­-party interests and consumer interests and therefore override the preference of the parties for private dispute resolution under the arbitration clause.

Failing to Specify The Arbitral Seat in An Arbitration Clause May Result in an Unenforceable Award: 

In Wicor Holding A.G. v. Taizhou Haopu Investment Limited the Taizhou Intermediate People’s Court refused to enforce an ICC arbitration award because the arbitration clause in the Joint Venture Agreement was invalid for having failed to specify the arbitral body for the arbitration. The Joint Venture Agreement mandated that the parties’ disputes be arbitrated “in accordance with ICC mediation and arbitration rules“ but the Court found this did not clearly specify that the ICC be the arbitral body and without a clear choice for the seat of arbitration, the arbitration provision was deemed invalid. The Supreme People’s Court upheld this ruling and since the ICC award was improperly rendered on the basis that the arbitration agreement was valid, enforcing the award would contradict the social and public policy of China.

Editor’s Note: The clear lesson from this decision — and one we have many times emphasized on these pages, is that there is a right way and a wrong way to write an arbitration provision and you will pay the price if you write one incorrectly. We estimate that around half of the China contracts our China lawyers review or see contain arbitration provisions with readily identifiable errors.

SCIA Updates its Rules to Hear Investor-State Arbitrations.

The Shenzhen Court of International Arbitration (SCIA) published updated rules that will enable it to hear investor-state disputes and to administer arbitrations under UNCITRAL rules. These updated rules went into effect in December 2016 and they make SCIA the first arbitral body in mainland China to administer investor-state disputes.

* This post was guest-written by Chris Campbell, a foreign legal consultant who graduated from Tsinghua University with an LLM in Chinese law and international arbitration. Chris has worked on various projects related to trade and International Arbitration in mainland China, Hong Kong, and East Timor.

 

China AttorneysBecause of this blog, our China lawyers get a fairly steady stream of China law questions from readers, mostly via emails but occasionally via blog comments as well. If we were to conduct research on all the questions we get asked and then comprehensively answer them, we would become overwhelmed. So what we usually do is provide a super fast general answer and, when it is easy to do so, a link or two to a blog post that may provide some additional guidance. We figure we might as well post some of these on here as well. On Fridays, like today.

In yesterday’s post, Defrauded by an Alibaba Seller? Here’s What To Do, we talked about what to do if you order and pay for a product on Alibaba, but receive nothing in return or something way way different from what you have ordered. In response to that post, I received two incredibly similar emails, about ten minutes apart (so similar in fact, that they may have been from the same person, using different email addresses). The emails essentially said the following:

Great post on recouping funds from an Alibaba fraud seller, but isn’t it true that even after doing all that you say in the post you will end up with nothing?

No, that’s not true. Not going to get up anyone’s hopes here, but recovering on this sort of fraud is a lot like recovering anything in China. If you can actually trace the actual scammer quickly your odds of getting maybe half of what you lost are probably a bit less than 50-50. This is just a somewhat informed estimate based on the experience of the China lawyers in my law firm and on what we have heard from other China attorneys who, but I think it is a fairly accurate measure to use to determine whether it will be worth pursuing the person or entity that stole your money. So just by way of one example. If you lost $300,000, you have a roughly 50% chance of recovering $150,000. It therefore would probably be worth it to you to spend $10,000 to get to a point where you can then make a new decision as to whether to proceed. But if you lost $30,000, you have about a 50% chance of recovering $15,000 and so it probably is not worth it to spend $10,000 to get a better feel for your chances.

Would love to hear from anyone else about how they do these sort of calculations.

 

Alibaba FraudLexology ran an excellent article the other day, entitled, Catching the Bad Guys: Recovery for a Defrauded Alibaba Buyer. The article was written by Kai XUE of DeHang Law Offices. Our China lawyers can attest to the need for this sort of article as hardly a week goes by where we are not contacted by someone with a major China Alibaba supplier problem. Note though that these issues are certainly not confined to Alibaba. The article nicely sets out how to handle a situation where you have sent payment for an Alibaba purchase but you receive “either junk or nothing and [you] can no longer reach the seller.” As noted in the article, most of these fraud situations involve a Chinese seller that “is a newly registered entity with little registered capital that uses a fake office address.”

Initiate a police report. The article notes that in a fraud case, you should report the crime to the police to try catch the fraudulent seller and to try to recoup your monetary loss. The article rightly notes the importance of going to the police quickly and ignoring various stalling tactics employed by the seller:

When confronted fraudulent sellers will reflexively claim that the matter is a commercial dispute to avoid involving the criminal justice system. For this reason, in cases of clear fraud it is advisable to proceed quickly to report to police and ignore last minute entreaties by the suspect to amicably settle. These apparent attempts by the fraudulent seller to settle not only may be an insincere attempt to delay for time but are also designed to create the appearance of a commercial dispute to dissuade police from pursuing an investigation.

The article notes the importance of going to the right police department (Hong Kong or Mainland) and of going to the police department with sufficient evidence to entice them to pursue an investigation.

Negotiating a settlement with the suspect. The article goes on to discuss how negotiating for restitution with the seller often should be undertaken, even in conjunction with the police pursuing its investigation of the seller:

Once put in detention and questioned by police, the realization of serving prison time acts as a strong impetus on the fraudulent seller to settle claims with the buyer. In exchange the buyer can agree to make best efforts to end the police investigation or ask for leniency for the fraudulent seller before the court if the case has advances to an indictment.

According to Chinese law, if an accused person returns some or all of the defrauded money and obtains a written pardon from the victim, her/his criminal responsibility may be mitigated. It’s on this basis that a fraudulent seller looks for a reduced sentence or release from detention by striking a deal with the buyer.

The article notes that one way to be able to tell whether the fraudulent seller has exhausted its available resources is “the extent that the fraudulent seller’s immediate and extended family make contributions:”

If a family member of the fraudulent seller provides a mortgage over real property or liquidates real estate assets to pay for restitution, then it’s likely that the fraudulent seller has cobbled together the maximum possible restitution payment.

 

Bottom Line: If you have been defrauded by an Alibaba seller (or any other China seller for that matter), the key is to act as quickly as you can in going to the police and in trying to negotiate repayment from the defrauding seller. The quicker you act, the more likely you are to get at least some of your money back.