What Constitutes a “China Practice”?

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Defining those who talk a talk from those who walk the walk

Op-Ed Commentary: Chris Devonshire-Ellis

Mar. 2 – I rarely comment about the English language blog community in China, as part of it has metamorphasized into a somewhat rabid free speech free-for-all, sponsored by a great deal of boorish nonsense and bile, and that’s not something I want to publish, promote or be involved with. The other half of it, however, conducts itself in a professional manner with some great commentary. Yet on this occasion, I wish to speak up and comment partly about blogs and how to spot the pretenders from the do-ers. (some readers may groan and redirect to a sports site, others please bear with me).

The occasion that warrants this article is not my previous embarrassment over having to apologize to the Chinese Ministry of Finance for inadvertently leaking US$/RMB positions three years ago, but rather the recent, somewhat disturbing trend from some reasonably well-known blogs to actively lambast well-known, high-profile China commentators. I myself have been put through the mill on this, however this concept of criticizing in actively unpleasant manners some of the foreign business community’s brightest and most productive has, I feel, lead to a stage whereby the English language blog community really needs to take a look at its collective ethics and journalistic standards.

For example, while I’ve never met Shaun Rein, he is a well-respected blogger and regularly features as a guest on CNBC and Forbes. It’s not expected (least of all, I am sure, by Rein himself) that everyone agrees with him, but he does stimulate important debate and he does have, as has been pointed out on numerous occasions, a voice that is an alternative from the mainstream. Maverick? Possibly. Intelligent? For sure. Knowledgeable about China? Definitely. Rein’s articles, and the effort he puts into sharing them with a wider audience, deserve at least respect, if not agreement on their points. However, over the past few weeks, a noisy body of native English language speaking bloggers have been taking him, and others, to task, and some of it in a nasty, personal fashion. That is an over-reaction. It is also rude, and I additionally question the motivation behind it.

While reading through some of this material, it struck me how many of the sites hosting these opinions, and the comments hosted upon them, did not actually appear to be from China. Perhaps fed a diet of homegrown rhetoric, or mainstream news, they regard Rein as an outsider whose opinions should be resisted at all costs. However, Rein does have several things going for him, which, prior to angrily reaching for the keyboard, should make a reasonable man pause before typing out loud objections and personal insults.

Firstly, he is not just a journalist, or a blogger. Shaun Rein runs a successful marketing practice in China, based in Shanghai. That business, CMR, is fully capitalized and invested in (I presume by Shaun) and is a respected player in China market research. Ergo, Shaun Rein is not merely a “commentator” or a “blogger” – he is running a business, in China. He is also, by all accounts, rather good at it. Now, if I wanted to obtain market research in China, or even read commentary about doing business in the country, who would be a better bet? Someone based overseas? Or someone like Rein, running a business on the ground? Someone, in fact, who is in-country, in China. I know which would be my choice.

The point of this article is not to lionize Shaun Rein. But he is an example of someone whose word should be, in my opinion, if not agreed with, then certainly valued. But valued against what?

Herein lies the rub. There are many, many English language blogs about business in China. However, very few are actually written in country. One example is a law-focused blog, whose actual practice does not possess an office in China. Yet it deems itself able to criticize the words of someone like Rein and is also comfortable with hosting others (needless to say, under pseudonyms) who do even worse. Vitriol, personal attacks and inappropriate language are all commonly used to disagree with an opinion or to promote the author’s prose at all others expense, and to ridicule other professionals. (You can read a summary of the online criticism leveled at Rein here) Yet despite not having a legal presence in China, this particular practice and its blog constantly harangue others who do. This has included Rein, myself, a number of Hong Kong lawyers, and practically all this business’s competitors. Needless to say, he’s something of a star among the blogging community (hey we all like to see lawyers get flamed), but fellow professionals remain unconvinced. There’s nothing wrong with expressing an opinion (as long as its legal), however the outward hostility and the hosting of nasty, sometimes libelous comments about other China-related businesses, individuals and competitors is inappropriate as well as being highly unprofessional.

This particular blog is not the only offender, however the premise seems to be that merely by commenting on a blog about China, even from thousands of miles away, you can still be an expert. This one, among others, has no problem with referring to itself, albeit sometimes obliquely, as “being in China,” or “our China practice,” or its “years of China experience,” or even “our man in China” – whatever that means. I don’t get it, other than the technique being a particularly aggressive form of cheap online marketing. I also don’t understand the general acceptance of this behavior, nor the need for the characteristic criticism of those of us based in China that these blogs constantly make. So my question then becomes: “What constitutes a China practice?”

In my view, (and there will be people with other opinions on this) qualifying as a China practice means that you have invested and capitalized your business in Mainland China. I believe it’s that simple.

Doing so of course means spending money, getting approvals, hiring local staff, paying tax in China, and abiding by China’s laws. Not doing so is the cheap option. That’s fair enough, but I would then question the ethics of such non-China-licensed operators in criticizing to unacceptable levels those businessmen, like Rein, who do. The Reins of this world not only commentate about China, but they walk the walk. That talking the talk then becomes far more valuable dollar for dollar than the operator based overseas who isn’t extant in the PRC.

There’s another, more serious legal issue that deserves a mention here, and it’s the question of indemnity and insurance. When hiring a professional services firm, indemnity kicks in to protect the client in three ways:

1. Your insurance policy will expect you to hire a business that is operating legitimately in China in order for you to mitigate against any claims that may arise for wrongful advice. Hiring a practice to provide advice on matters of China business that is not actually legally operational in China may invalidate that insurance. Insurance companies are not responsible for choosing wise counsel. You are, and should you need advice on matters of China, go to a practice legally and professionally established there.

2. Practices in China will be governed by a regulatory authority. Obviously, this differs from industry to industry. In law for example, China practices, including foreign firms, must be registered with the Chinese Ministry of Justice. If they are not they are not authorized to provide opinion or assistance on matters of Chinese law. The rules are very clear. In other industries, other pertinent bodies exist as applicable. If no specific regulatory body covers an industry sector, then the Ministry of Commerce regulates. This means that in the event of any complaints over standards, a regulatory body can be approached in China to lodge a formal complaint against a service or other provider if a client feels they have grounds to do so.

3. Businesses in China must be capitalized in China. It means they must commit to holding assets in China. As the registered capital commitment to a business in China is also its limited liability status, it provides further security to the client that assets are in China in order to mitigate against any claims or liabilities (to the extent of the limited liability). This is in addition to any assets that may be held elsewhere in different jurisdictions, and adds a further level of security in the face of protecting yourself from wrongful advice.

This is why it is important when considering who to listen to, and who to take advice from when discussing China business. Businesses should ascertain the exact status – in China – of their advisers. Professional service firms extant in China will list their China offices on their web site, together with addresses and phone numbers. Such businesses are also required to display, in each office, their official China business license, which also lists details of their limited liability, among other important information. For details on such licenses – and all foreign invested businesses must have them – please see this article, “China Due Diligence You Can Conduct Yourself” for how to read them and what they say. If a business that suggests it has a China practice does not list any China offices on its web site, it almost certainly does not have a real China presence. And if still not sure – ask for a copy of their license. Even in Chinese, foreign firms must provide their name in the language of their country of origin (for example, our China business licenses also have our firm’s name in English. This is precisely to avoid confusion and fraud). The credibility of a China practice is actually easy to find out – all it takes is a question, and a quick view of just one document.

When it comes back to the recent online criticism of the likes of Shaun Rein (and there have been others) it pays to note which China blogs tolerate untoward commentary and which do not. Hosting aggressive comments by people using pseudonyms and launching personal attacks does not indicate any level of professionalism. Rather, it is an indication that the blog or business concerned is trying to bridge the gap in China credibility perception by attempting to blur the distinctions between their lack of any China legal presence and financial commitment, and those who really are a China practice.

Chris Devonshire-Ellis is the Founding Partner and Principal of Dezan Shira & Associates and the Publisher of China Briefing. He has lived in China for over 20 years, while his firm maintains 10 offices throughout the country. He is also the Vice Chairman of the Business Advisory Council for the Regional UNDP initiative. He may be contacted at chris@dezshira.com, or please visit the practice at www.dezshira.com.