The Economy: China firms are tough foes even on U.S. turf


WASHINGTON >> U.S. companies have found it can be tough to do business in China. Now, as more Chinese firms invest in the United States, U.S. companies are finding it can be hard to contend with the Chinese on American turf, too.

Chinese companies can hide behind complex corporate structures. They can keep assets back home. And they can use connections to Beijing to assert immunity from America's legal system.

Consider one Texas company that thought it had scored a victory.

Five months ago, an arbitration panel awarded Tang Energy Group at least $69 million after a contract to build wind farms collapsed and left Tang fighting for survival.

The celebration didn't last long.

The company the panel ruled against — Aviation Industry Corp., a conglomerate owned by China's government — challenged the award. AVIC argued that the arbitration panel was stacked against it and that it wasn't directly involved in the wind project, though its subsidiaries were.

AVIC had another argument, too: As an arm of China's government, it said, it isn't subject to the authority of American arbitration panels — or courts.

Disputes growing

Such disputes are destined to grow as Chinese companies invest more in the United States and sign more contracts on U.S. shores. China's investment in the United States reached a record $15.7 billion in 2015, the Rhodium Group consultancy reports.

"Chinese companies are flush with cash," says AVIC's lawyer, Cedric Chao of DLA Piper in San Francisco.

Disputes with Chinese companies are complicated by China's blurry lines between public and private. Many Chinese companies with the clout to export and invest overseas are owned by the state or enjoy powerful ties.

The Chinese government backed two companies that were accused of rigging the price of Vitamin C in the U.S. market. The Chinese Commerce Ministry said the companies were following Chinese law when they set prices. The companies lost in 2013, but the case is on appeal.

There's some hope that the task of fighting Chinese companies in U.S. courts will ease as they deepen their investment in the United States and their assets become easier to seize.

And as they increasingly expand internationally, they will need to manage their reputation and won't want to be known for eluding courts and skipping out on legal bills, says Dan Harris with the law firm Harris Moure in Seattle.

But for now at least, Harris says the Chinese can't always fathom how U.S. courts operate, aren't used to judges who are mostly immune to bribes and don't understand the consequences of defying court orders.

Several state-owned companies have invoked the 1976 Foreign Sovereign Immunities Act. The act says foreign government agencies can claim immunity unless they're directly involved in commerce — a status that's subject to dispute.


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