In the past half century, Chinese enterprises have persistently pursued international expansion. Their journey has evolved from the early stages of reform and opening-up through the global financial crisis, the Belt and Road Initiative, the challenges of the pandemic, and, most recently shifting geopolitical dynamics.
This continually changing global commercial landscape has compelled Chinese enterprises to become increasingly self-reliant and adaptive as successive generations ventured abroad in search of new commercial frontiers.
In these overseas operations, the most significant risks typically arise from commercial disputes, the outcome of which can often determine an enterprise’s fate. Therefore, prudent preparation is essential.
This article outlines several core challenges enterprises face in cross-border disputes, and proposes strategic responses aiming to support their international endeavours.
Cultural gaps
Partner
Hui Zhong Law Firm
Tel: +86 21 2226 1255
E-mail: zhaofang@huizhonglaw.com
Think tank data reveals that, from 2005 to 2023, Chinese enter- prises invested a total of USD1.43 trillion in overseas investment projects, nearly half of which ended in failure.
Project failures inevitably lead to commercial disputes, the outcomes of which frequently determine an enterprise’s future business model and core interests. It is well known that Chinese enterprises unfortunately lose cross-border cases nine times out of 10. Fundamentally, this stems from their inadequate attention to the cultural differences inherent in overseas operating environments.
The commercial and regulatory landscapes abroad differ profoundly from those in China, being shaped by distinct local historical and cultural contexts. Chinese enterprises should not simply apply a domestic mindset to interpret these systems, as doing so may exacerbate disputes.
To effectively mitigate friction and manage risk, they must begin by understanding these differences.
The critical role cultural background plays in securing commercial co-operation is underscored in The Truth About Cross-Cultural B2B Relationships, a study jointly released by the International Chamber of Commerce, Jus Connect and McCann Press in 2024.
The underlying principles governing business deals vary greatly from one jurisdiction to another. Failure by transacting parties to consciously adopt each other’s viewpoint and address cultural gaps can result in ambiguously defined rights and obligations, potentially leading to intractable disputes down the line.
Chinese business thinking, which typically values guanxi (connections), often results in enterprises paying scant attention to contractual specifics during signing, aiming instead to foster a co-operative spirit and leaving open the possibility of revising terms subsequently.
Western business norms, however, place a higher premium on the written terms agreed on during contract execution, which are not subject to casual amendment.
When disagreements occur, third-party decision makers typically adjudicate based on the “objectively verifiable” contract terms established at the time of agreement. In the habit of flexible concessions during contract formation, this may place Chinese enterprises in a vulnerable position.
Divergence in evidence rules
Partner
Hui Zhong Law Firm
Tel: +86 21 2226 1277
E-mail: wujiji@huizhonglaw.com
Evidence lies at the heart of cross-border dispute resolution. Variations in evidence rules across different legal systems lead to distinct litigation approaches and mindsets
Under common law systems, for example, the discovery process (document disclosure) obliges parties to disclose documents relevant to the case prior to trial, whether or not those documents support their own position. This system is counterbalanced by privilege rules that permit certain types of evidence to remain confidential.
Chinese businesses have limited understanding of these disclosure duties and privilege exceptions. The reason lies in domestic practice, where litigants usually submit only evidence that bolsters their claims.
Although China has a “document production order” similar in concept to discovery, its application is relatively narrow. Also, Chinese law does not feature explicit privilege doctrines, which restricts Chinese parties from effectively invoking such protections in overseas proceedings.
These differences in legal rules fundamentally shape evidentiary thinking: Chinese lawyers tend to focus on whether a document favours their client, while common law lawyers first assess whether a document is privileged and thus exempt from disclosure.
In short, resolving cross-border disputes requires a shift in evidentiary mindset – from selecting which documents to submit to determining which documents need not be submitted.
Privilege rules represent an elaborate and detailed set of procedures, demanding prudent analysis in concrete situations. One common example occurs if a party excerpts a conclusion from a legal opinion in its pleadings. The opposing party could claim this act of selective disclosure waives privilege over the whole document, thus requiring complete disclosure of the relevant legal advice.
Therefore, for legal professionals advising Chinese businesses on overseas expansion, a profound comprehension of jurisdictional differences in evidence rules and their underlying logic is indispensable to competently defend the substantive interests of their clients in cross-border conflicts.
Cross-cultural challenges
Resolving international disputes generally entails navigating legal processes and regulations across different legal systems, which requires seamless co-operation among foreign and Chinese lawyers alongside the internal legal departments of the Chinese enterprise involved.
Beyond mere technical legal hurdles, the fundamental disparities in thinking patterns and cultural context among legal practitioners from different backgrounds pose more substantial obstacles, often resulting in inefficient collaboration and communication.
For instance, it is common for Chinese enterprises engaged in overseas arbitration or court proceedings to rely on their foreign legal team to devise a key strategy, with their domestic counterparts confined to basic factual preparation and translation duties, leaving them largely excluded from strategic oversight.
Since external lawyers may be unfamiliar with the client’s commercial drivers and corporate ethos – and the client itself may have limited knowledge of foreign procedural rules – this division of labour risks generating misguided case decisions and could even undermine the achievement of set goals.
Therefore, Chinese legal teams should play a more substantial role in cross-border dispute resolution, effectively bridging the cultural and cognitive gaps between their domestic clients and international counsel.
The key lies in maintaining close communication with the Chinese client to accurately understand their core needs, while also accurately interpreting and conveying these requirements to the foreign legal team and participating in case decision making accordingly.
Zhao Fang is a partner at Hui Zhong Law Firm. She can be contacted by phone at +86 21 2226 1255 and by email at zhaofang@huizhonglaw.com
Wu Jiji is a partner at Hui Zhong Law Firm. She can be reached by phone at +86 21 2226 1277 and by email at wujiji@huizhonglaw.com
