Chinese companies in US face legal peril

By Rong Xiaoqing Source:Global Times Published: 2017/6/22 21:58:39

Illustration: Liu Rui/GT

Two years ago, Cao Dewang, chairman of Fuyao Glass Industry Group, was invited to speak at an event hosted in New York by the National Committee on US-China Relations. That was a time when Cao had just purchased two plants, one in Illinois and the other in Ohio. He told the audience, "If you want to invest in the US, you must love it first."

He then went on to share his experience solving thorny problems in the US by showing empathy with his workforce. The plant in Mt. Zion, Illinois, had been failing and the union and the management had been fighting fiercely for years before Cao took over. Cao said that according to the contract for the deal he didn't have to keep employing the workers. But he did. "I thought they came here before me. It would be unfair to let them go," he said. He told the union leaders, "I grew up in a poor family. I know how hard life could be" to show that he understood the workers' situation. And he reached a new agreement with the union.

But Cao might have oversimplified the relationship between employers and employees in the US. Mutual understanding rarely plays a decisive role in labor conflicts here. The courts do. Fuyao has learned it the hard way.

In the past few years, Fuyao was punished by the Occupational Safety and Health Administration for work safety issues and agreed to pay a $100,000 fine and invest to improve safety at its Moraine, Ohio, plant.

Meanwhile, the United Auto Workers union filed a complaint against the company with the National Labor Relations Board (NLRB) for allegedly retaliating against workers who wanted to unionize the Ohio plant. And the NLRB then took it to court for refusing to cooperate with an investigation into the matter.

Now it has been sued by a former vice president of the Ohio facility, David Burrow, who claimed his firing last November was because he wasn't Chinese.

Some nationalists in China who were enraged by Cao's recent comments about having a lighter tax burden to do business in the US than in his home country may be laughing at him now. But Fuyao is not the only Chinese company to be dragged into messy litigation in the US after they expanded here in recent years.

The State-owned Aviation Industry Corporation of China was sued by its American partner Tang Energy for contract violations over a plan to jointly build a wind power farm in Texas. The Shenzhen-based investment company Dongdu International Group was sued by tenants for neglecting landlord responsibilities in a building it purchased in Detroit when the city went through bankruptcy.    

Such cases are likely to be a sign of things to come. At the New York event where Cao made the speech, the consulting firm Rhodium Group released a report showing that there were 1,583 Chinese companies in the US with 80,000 American employees, and direct investment from China between 2000 and 2014 had reached $46 billion. Now direct investment from China has jumped above $100 billion. There are 3,200 Chinese-affiliated companies in the US, employing more than 140,000 Americans.

Earlier this month, the China General Chamber of Commerce-USA released a survey of Chinese companies in the US, showing 60 percent of the companies are actively looking for target companies to acquire and 71 percent plan to expand their US workforce. The companies list "cultural differences in management style" as the sixth-biggest challenge they face when conducting business in the US among 21 potential issues.

The most famous legal cases that made Chinese companies plaintiffs in the US so far may have been those against toxic drywall manufacturers a few years ago. But the plaintiffs in those cases only interacted with the American people and authorities via exports, so they were able to avoid a lot of trouble by questioning the jurisdiction of the American court. But when companies establish factories in the US and hire more and more American workers, things quickly become very different.

In China, labor protection is picking up too. Disputes between employees and employers are more and more often brought to court. But things like discrimination based on nationality, age or sex orientation still sound alien to many Chinese employers who are used to having a lot of power over hiring, and firing, and wanting to employ like-minded Chinese only. It means that many Chinese companies here are vulnerable to equal opportunity-based legal cases.

There are two ways to deal with the challenge. A company can be proactive and hire local HR professionals, consultants and lawyers to make sure its practices are in line with American policies.

Or it can be reactive and only get the hoses out when the fire erupts. The latter may seem easier, especially when you consider legal fees to be normal business costs. But one may want to learn a lesson from what happened to the Chinese companies listed in American stock markets a few years ago.

Short sellers filed complaints against many Chinese companies for the discrepancies in their financial statements and dragged their stock prices down. Many companies were forced to delist and retreat back to China.

Once you make yourself an easy target, things can quickly get out of control.

The author is a New York-based journalist.


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