In just a few months of the geopolitically turbulent 2014, China has become almost the main strategic direction for Russia. However, this country has not become any clearer due to excess attention. There are still a lot of myths, there are still few specialists. The chairman of the board of partners of the S&K Vertical law firm, Lyubov Duiko, who has been working with China as a lawyer since 1999, offers her view on relations with representatives of the Celestial Empire. The S&K Vertical company opened its representative office in Beijing in 2012.

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Legal experts see many advantages in the interaction between Russia and China

Photo: Kommersant / Alexey Kudenko / buy photo

Monument to Russian shuttles in the city of Manzhouli. This image in the new history recedes before the coming transnational cooperation

Photo: Kommersant / Maxim Kvasha / buy photo

Myth: China is a super-technological power, and local companies are not interested in Russian developments.

This is wrong. There are two mistakes in this myth. China is not as technologically advanced as the skyscrapers of Shanghai might lead you to believe. Of course, local companies use foreign technologies extremely efficiently, but their own developments are still in short supply. Secondly, Russian science is not as behind as they sometimes write on Twitter. In reality, Chinese partners are interested in cooperation with our high-tech industries, and there is direct evidence of this: S&K Vertical provides legal support for the interaction of the Russian company with Jiangsu Hongda New Material Co, one of the leading companies producing silicone rubbers and rubber compounds in China, and this cooperation has been going on for fifteen years. This company has developed before our eyes, and now it has become the largest in China. In addition to the production of rubbers, they launched a large-scale production of monomers. Also, for about ten years, one of the bureau's clients has been Harbin Boshi Automation Co Ltd, a subsidiary of Harbin Polytechnic Institute. Several years ago, a partnership agreement was concluded to promote Russian advanced technologies for the production of rubber in China, and the production of machines for isolating and drying rubbers, which are the best in the world in terms of productivity and versatility, was organized. Moreover, our scientists help their Chinese colleagues develop Russian technologies. This is a successful and mutually beneficial cooperation. It is no exaggeration to say that technology is the little we can offer China. Our production is more expensive, there is plenty of investment in China, we even have our own resources, but our scientific potential is still in a growth zone.

Myth: China is aggressive towards Russia and is aimed at expansion. This affects the attitude towards Russian companies.

Of course, the presence of practically uninhabited Russian territories in Russia in close proximity to overpopulated China is a factor that must be taken into account. But all the experience of communication between S&K Vertical lawyers and Chinese partners suggests that they do not like conflicts. Most corporate disputes in their practice were resolved before trial. Everyone is interested in reaching an agreement. There was a case when a Russian client very seriously let down a large Chinese production facility, violating half of its contractual obligations. Nevertheless, competent mediation made it possible to continue cooperation without recourse to the courts. In Russia, in such a situation, everyone would have fled to arbitration and then would have been pointlessly litigating for many years. There is confidence that there will be no conflicts with Russia, but peaceful expansion will increase every year. Let's look at things realistically. There are 150 million of us, ten times more Chinese. Our task is to try to make the process of infiltration of the Chinese population into our territory the most beneficial for Russian interests. This may require certain legislative initiatives. Many experts do not see any real problems in getting hardworking Chinese citizens to take part in the development of the vast Russian expanses. If you can't stop a riot, lead it.

Myth: In China, the media and the Internet are controlled by the state, and turning to them in case of conflict, especially with government agencies, is pointless.

It’s hard to even imagine how much a newspaper article can complicate the life of a Chinese official. Let me give you an example. The wife of one entrepreneur, while in a beauty salon, began discussing some kind of bribe on the phone. One of the visitors recorded the conversation on camera and posted it on the Internet. The very next day a scandal began that had far-reaching consequences. Chinese lawyers are surprised when they read in the Russian media almost direct accusations of corruption of certain officials, which are followed by literally nothing. In China, the fight against corruption is not a slogan, but a practice. At the same time, the Chinese state system tries not to create real barriers to business. Again, a case from the practice of S&K Vertical: a Russian partner built a plant in China in four years. From scratch, without any lobbying. Unfortunately, this would not be possible in Russia. It is this combination of a fairly efficient state machine and the fear of a public scandal that makes the Chinese economy attractive from the point of view of going through all the approval procedures.

Myth: In China, the state controls all sectors of the economy.

The state strictly controls national resources. All gas, oil and similar companies are owned by the state, and sometimes this creates difficulties. One large project we were supporting was suspended because the supplier of raw materials suddenly changed his mind about cooperation. And he was alone in the country, and nothing could be done about it. There was no formal breach of contract. A monopoly is never good for business development, but in China it exists in a number of sectors. But I repeat: we are talking about resources, and these are mainly huge holdings. The state does not particularly touch medium-sized businesses. And most importantly, state corporations are forced to get rid of non-core assets and give them into private hands, which creates excellent opportunities for subcontractors. In general, it seems to me that the level of government intervention in business affairs in Russia is higher than in China, especially when it comes to the influence of geopolitics on the economy. And in the USA, as we see, political interests influence business, and quite significantly. I think it is difficult to force Chinese companies not to attend any forum.

Myth: Chinese companies are eager to enter Russia and are ready to invest in almost any industry.

Chinese investors are careful and pragmatic. In most cases, they invest if Chinese workers come along with Chinese money, and the Russian side is not always ready for this. Moreover, not everyone has a positive experience of working with Russian partners. S&K Vertical worked on recovery from Russian debtors for the world's largest export agency Sinosure. There are more than enough examples of outright fraud on the part of our compatriots, and they clearly do not lead to an increase in interest in working with Russia. Now in Russia there is some excessive “excitement” regarding friendship with China. We recommend that everyone cool down a little and look at things realistically. China is certainly interested in us, but relations with the United States, the European Union and other major partners are no less, if not a greater priority. No one will interfere with Russian companies, but no one is going to help either. Come to China, compete with world leaders, and if you can, you will stay in the market. The task is very difficult, but everything is fair.

Myth: China has a rigid political system and there is no unrest. Political risks can be ignored.

China, like probably any large country, faces the problem of internal contradictions. Sometimes this leads to specific problems for the business. In 2009, S&K Vertical lawyers negotiated with a company whose production was located in Urumqi, the capital of the Xinjiang Uyghur Autonomous Region of China. Due to mass unrest for political reasons that broke out a few weeks before our visit to China, all foreigners were deprived of mobile and Internet connections for three days, calls from the hotel for foreign guests were strictly limited, made under the supervision of a hotel employee and for just a few minutes. This year the situation has worsened: due to demonstrations and explosions on the streets of the city, the planned negotiations were disrupted due to the ban on the entry of foreign citizens into the territory of Urumqi. This certainly should not be a reason not to work with Chinese companies, but it is necessary to take an interest in the political situation.

Myth: A foreign company will always lose in court to a Chinese company.

This is absolutely not true. A foreign company will not be able to resort to the help of its own lawyers exclusively, this is a fact. A foreign lawyer does not have the right to practice in China, but if you have chosen competent lawyers, then there is every chance of defending your rights in court. China is interested in foreign investment, and therefore the state makes sure that the trial is fair. The legal system is complex, the language is different, and the Chinese certainly cannot be denied cunning. I know of many cases where foreign companies found themselves in a very difficult situation, but the reason was not legal “lawlessness,” but their own carelessness or excessive trust. Yes, China is not Sweden, every letter in the agreement needs to be checked, the partners are different, but the rule of law is strictly observed. As an expert opinion on the issue of protectionism in the Chinese legal system, it is interesting to listen to the managing partner of S&K Vertical, Sergei Slagoda, who also actively works with China, studied at Shanghai University, and in his practice there is an example that clearly demonstrates the adequacy of the Chinese judicial system. This case will be especially interesting for lawyers.

To complete this short excursion into the particularities of national business in China, here is one more “touch to the portrait.” The Chinese are considered almost terminators in matters of workaholism. This is not entirely true. After lunch, a self-respecting Chinese rests, and scheduling negotiations at this time is indecent and pointless. The Chinese, like us, love to relax.

Direct speech

Sergey Slagoda, managing partner of S&K Vertical

— China, of course, is a profitable and promising partner for all major economies of the world. It is impossible not to appreciate the importance and constant growth of Russian-Chinese economic relations. Moreover, any economic cooperation presupposes the existence of a legal framework and mechanisms for resolving disputes and conflict situations.

There is an opinion that the law in China regulates more vertical relationships between the country's leadership and the population than horizontal relationships between individuals. Which, of course, has a serious impact on the functioning of the judicial system. According to some experts, a judicial act of a Chinese court is considered not as a decision regarding two persons whose interests contradict each other, but as an act of an authority indicating how such a dispute should be resolved in the interests of society. Thus, the issue of public policy is paramount.

The problem of enforcement of foreign arbitration awards deserves special attention. According to many experts, successfully enforcing a foreign arbitral award in China is an extremely difficult task.

Formally, a foreign arbitral award, which, in the opinion of the Chinese court, has been made properly, can be enforced on the basis of the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958). At the same time, situations often arise when the relevant local court, in the process of enforcing a foreign arbitration award, begins, in fact, to reconsider the case on its merits. Many professionals who are faced with the enforcement of foreign arbitral awards also talk about the presence of “local judicial protectionism,” although in the PRC there is a special procedure aimed specifically at reducing such “protectionism” and is expressed in the fact that local courts must obtain a decision from a higher court when making a decision refusing to enforce a foreign arbitral award. However, “protectionism” can continue directly at the stage of collecting funds from the debtor.

One of the recent examples of our positive experience in enforcing a foreign arbitration award in the PRC is the issuance of a final ruling by a higher court (at the provincial court level) on the recognition of a foreign arbitration award in a complex and voluminous dispute between our client and a Chinese supplier. The actual procedure for executing the decision took about a year and a half. During the review process, the above-mentioned issue of contradiction to China's public policy was raised several times by the other side. Moreover, one of the grounds for such allegations was the fact that the country of registration of the plaintiff, one of the enterprises of a large holding structure, had established diplomatic relations with Taiwan. Nevertheless, as a result of our joint actions with our Chinese colleagues, the decision was implemented. Thus, we have refuted the assertion of some experts about the unenforceability of foreign arbitral awards in the PRC.

Descending from the Celestial Empire