Cultural differences in contract negotiation

Sometimes, cultural differences bring difficulties in doing business in China. One of the big differences out there is the approach to contract. As this is a basis of any business relation let us explain how Western and Chinese visions of a contract differ, in order to better understand why this often turns into a mutual incomprehension.

The first consequent difference is that Chinese companies are uncomfortable with well-written complete contracts that tie them down on most or all key issues, whereas such contracts are exactly what Western companies are looking for. The main difficulty then comes from the Chinese companies often pushing to have vague contractual commitments that allow for constant re-negotiating and clarifying of points as the transaction progresses.

If the Chinese company accepts to sign a precise contract, they will often try to turn it into a ridiculously precise contract, trying to cover every possible outcome, even the least reasonable and likely ones. They do make sure they are ready for anything, because in China good faith negotiation and commercially reasonable contract interpretation is unknown.

The problem is, both side see the other’s way of drafting contracts as unfair. Westerners consider that changing the content of the contract in the middle of its execution is unfair as it does not allow you to know what is expected of you. Chinese consider that for any contract that requires a continuing performance over time, any attempt to bind them and impose certainty on their behavior is unfair and contrary to reality, as the attempt to impose certainty on the uncertain future makes no sense. The behavior of every side is seen by the other as unfair, and as a proof of bad faith.

These visions are both deeply carved in their respective cultures. Chinese are disappointed that Westerners refer to a piece of paper instead of trying to fairly adapt to new market realities; and Westerners are disappointed that Chinese put more faith in human bonds than in documents.

As a result, Westerners consider that the negotiation of a contract is only temporary and ends when the contract starts, whereas Chinese people tend to see it as an ongoing process during the contract.