One of the biggest differences anyone from the United States faces when trying to engage in business in China deals with culture. While U.S. business is generally rooted in an understanding of terms spelled out in contracts, those with experience in the ways of China appreciate that there’s an emphasis on relationships.
That should not be taken to mean that the importance of contracts is somehow diminished in China – only that other factors can carry serious weight as well. For example, there is a great deal of localization when it comes to judicial proceedings in China and officials in individual jurisdictions might not recognize a contract – especially if it doesn’t happen to exist in both the foreign language and Chinese.
The power of the code of conduct
The value China places on contracts is demonstrated by the facets of law that apply to employment contracts. If you are a foreign entrepreneur looking to begin operations in China, you need to know that the law calls for you to have a signed contract with every employee. The law also calls for such agreements to be in place within the first month of an employee’s start of work. Penalties for violating the rules can be very costly.
One other provision of employment law also requires that employee contracts be renewed on some regular basis. If a new contract isn’t entered into properly, you could be required to compensate the employee financially.
Legal observers also know that contracts are not enough. Under the complex nature of Chinese law, contracts are not enforceable if not accompanied by a detailed employee handbook or code of conduct, the receipt of which must also be acknowledge in writing by each employee.
For the greatest level of protection, the wise employer will consult experienced counsel to be sure all proper documentation is in place before hiring occurs, regardless of the size of operations.