Owen D. Nee Jr. Interview |
Posted April 2009 |
As the author and co-author of two Business Laws of China titles, with a third title pending, what inspired you to begin this project?
Chinese commercial law is an important subject for Western-trained lawyers ... Chinese law is interesting because it evolved from a Communist, state-planned economic system that in a period of just 30 years managed to convert itself ... into a powerhouse of trade and investment. While America's regulated, market economy developed from a totally unregulated environment of laissez faire into one in which the law moderates the forces of capitalism and mercantilism, China is heading toward the same destination from the very opposite starting point.
You were the founder of the China practice at Coudert Brothers, which was the first foreign law firm to establish offices in Beijing and Hong Kong after China began opening up in the 1970s. What prompted you to make this move?
Professor Jerome Cohen, who was of counsel to Coudert at the time, led the firm in its foray into Hong Kong in 1973, and then into China in 1979. I had lived in Hong Kong in the 60s as a teacher at the Chinese University, where I first studied Chinese while teaching English, before going to law school. The opening of China – which was a complete reversal of the policies I had glimpsed when the Red Guards spilled over into Hong Kong in 1967 – was so profoundly revolutionary that curiosity compelled me to take whatever opportunities presented themselves. In other words, I went along for the ride. At the time, most law firms other than Coudert saw it as a millennium of effort for a miserly return.
Focusing on the Mergers & Acquisitions in China title, what are the most important points for readers to take away?
It is important for anyone acquiring a business in China to consider first whether one's own business model will work in China, and second, whether the target company's model works, and what the differences are.
With the recent wave of product liability concerns centering on products manufactured in China, and the resulting public attention, do you have any specific recommendations for businesses and their lawyers?
In most of the cases of product liability failures arising in China, the problem originates in the supply chain to the final product manufacturer. When the emphasis is only on the cost of the supply, then unregulated bandit manufacturers will find a way to put melamine in the milk or lead in the paint. In an acquisition, a buyer should study the procurement department's methods and see what sort of testing is required of a company's suppliers.
In the western media, China – and doing business in China – tends to give rise to concerns about China's record of human and political rights. In your practice, have any of these topics proved challenging to your objectives?
What most Americans do not realize is that Tiananmen Square, for all of its unfortunate consequences, led to the rise of China as a nation. The 400 million pulled out of poverty have largely the students of Tiananmen Square to thank for it. The reason for this is simple: at the conclusion of the slaying of students in the Square, the Army told the Communist Party that it would never turn on the people again, and – if the Party wanted to remain in power – it would have to think of a way to make itself popular enough with the people to do so.
From that point on, the Party knew that it needed to make the people wealthier no matter what and to accomplish that goal, the Party adopted the capitalist system. That is why the surge of growth takes place after 1989, throughout the 1990s, and into this decade.
Where do you see similarities between the legal systems of China and the United States, especially regarding commercial interests, and where do both systems diverge the most?
The two systems, one of which started from complete state planning and the other from a point of no regulation, are coming closer together at an alarming speed. China continues to liberalize its economy and the United States is about to enter a new period of regulatory growth. Both countries practice regulated capitalism in their financial systems and market mechanics in their domestic trade – with China holding somewhat greater legal powers to intervene in the process than the United States government, but less able to immediately enforce its will upon market participants because of rule of law issues.
The only clear difference remaining is that the United States is a two-party system and China is a one-party system. So to the extent that the Democrats and Republicans are different from each other, then maybe China and the United States are different.
A topic very much on everyone's mind is the current economic situation here in the U.S. and abroad. Would you share your thoughts on the situation, both in the U.S. and in China, and how the developments might affect doing business in China?
Setting aside the causes of the current economic slump, both the Communist Party of China and the Democrats in America need to solve the problem to remain in power. The difference between the countries is that the United States has a system where a change of government is not only peaceful, but routine. China does not.
This makes it more likely that China will solve the problem first, since the stakes matter more to the decision-makers who currently govern. The Democrats – even if they lost in 2012 – know their turn will come again; not the Communist Party of China.
I think we may learn a very interesting economic lesson from this situation. If government action can solve a recession, then China will come out of the recession first and within a relatively short period replace the United States as the world's dominant economic power. But if government action cannot solve a recession, and only human ingenuity, new ideas, and new products can do so, then the United States will come out of the recession slightly ahead of China and will maintain its position for some considerable period.
Where do you see China in 20 years, in terms of its economy, its status among global powers, and its overall development?
In 20 years, China will have become a liberal democracy with many political parties, many of which may be regionally based. Its economy will be equal to or have surpassed that of the United States, but growth rates in both economies will be about the same, so that the relative positions – notwithstanding China's large population advantage – will continue for some time to come.
What I am not sure of is the next five to 10 years and whether China's transformation to a liberal democracy will be slow and steady or pockmarked by periods of violence and revolution.
One would tend to bet on slow and steady, since the Chinese are a very practical people with good judgment. It is difficult, however, to think of an example of when a king or single party gave up power to liberal, democratic reformers willingly.