The Commercial Scope in China
Handling more than 300 civil cases, including accumulated abundant experience in litigation and arbitration and non-contentious cases, Zhengyang Wang has been the legal counsel for more than 30 companies and has provided contentious and non-contentious legal services to domestic financial organisations and large state-owned corporations. In this interview, he offers some great insights for businesses and their legal matters, as well as China’s market development.
What was the biggest challenge of acting as legal counsel to companies?
I believe the biggest challenge is in what ways we can prevent the legal risk and how to maximize the profits of the companies. Being a legal counsel for companies means that I am responsible for compliance issues of the companies’ business development and business models so as to prevent any potential legal risks. Furthermore, analysing the value of the new business and their models is also a part of my work. Sometimes, the riskier a business is, the higher the potential profit the company might gain.
What different considerations must you make when providing contentious legal services to domestic financial organisations, in comparison to non-contentious?
When I provide contentious legal services to domestic financial organisations, my primary consideration is the outcome of the litigation, which is to find a way to win, recover as many payments as possible, and realise the creditor’s rights. On the contrary, it is more common for me to think of the compliance review and the prevention of potential legal risks in cases of non-contentious legal services.
In what way do different corporations demand different legal advice? Can you give an example to how you ensure advice is tailored to each unique corporation?
After years of practice, we are aware that some corporations are willing to take certain risks to maximize their profits; other corporations, however, prefer to keep the risks under acceptable levels while making business plans.
For instance, the demand for architecture-related products increased rapidly during the period of fast development of China’s real estate market. In order to seize more market shares, certain companies sold a huge number of products on credit without obtaining any guarantee from the buyers. The problem is that when the market cools down, the buyers barely have the ability to reimburse the payment for products. Since no guarantee is provided, these companies fail to recover the creditor’s rights. This kind of situation is quite common among domestic corporations. In contrast, foreign-funded corporations in China are more conservative and tend to accept lawyers’ advice on obtaining guarantee whilst selling products on credit. The sales volume of these companies is not as high as other companies, but the possibility of having a distressed debt is much lower.
It is important for a legal counsel to analyse the potential legal risks carefully while providing legal opinions to corporations. Generally, I provide more than one plan for the companies, and explain the merits and demerits so that the companies can decide which plan suits them best.
How has the financial scope for corporations changed in China? How has the legal advice you provide adopted to this change?
Under China’s current economic situation, financing is not only a rare opportunity but also a grave challenge for most of the corporations in China. On the one hand, there is a wide range of investment, such as industrial investment and security investment. On the other hand, the financing cost and the risk are comparatively high.
Based on this situation, we advise the companies to operate their business moderately. They should, under the premise of effective control of risks, reasonably conduct the investing and financing activities in accordance with their operating status, and avoid scaling up blindly without counting the cost.
What common challenges do you face when acting as a Judge?
When I worked as a Judge, the major challenge was collection of the evidence. China’s market economy was underdeveloped back then, and there were not many commercial dispute cases. But the litigation system was not very complete, there was no clear provision in the law on the burden of proof for an action. The Judge was responsible to hold the court hearing as well as investigating and collecting evidence. Now, the Judges rarely collect evidence by themselves. According to the existing laws, the plaintiffs should bear the burden of proof otherwise they will have to bear any unfavorable consequences due to the failure to adduce sufficient proofs.
How can you navigate these challenges to ensure that arbitration grows in popularity in commercial settings?
Compared with litigation, arbitration has its advantages in commercial settings. Firstly, arbitration can maximally reflect the real intent of the parties; they have the right to choose the arbitrators as well as the applicable law. Secondly, it takes less time for the parties to settle the dispute through arbitration, since the arbitration award is final while there are two instances in the litigation process. Finally, the recognition and enforcement of foreign judgement has always been a task for international litigation cases. Arbitration award, however, is more likely to be recognised and enforced by foreign courts. Therefore, we usually recommend arbitration as the dispute resolution to our clients. In contrast, litigation also has some merits. In order to ensure the enforcement of the judgement, the court can, upon the request of the plaintiff, make an order to preserve the defendant’s properties. In some cases, the two parties decide to settle the dispute soon after the property preservation measures are adopted.
