The New Year has already started to see creative excuses by Chinese companies for losing financial records, with one of the best to-date involving the alleged theft of a van taking files to a firm's head office.
Livestock vaccine maker China Animal Healthcare Ltd. - suspended from trading since last March - recently said in a statement to investors that they were unable to file financial records after the van carrying them was stolen.
The write-up went: "Papers were being transported back to the Group's office in Beijing before the Truck broke down and was towed to a car repair garage, after which the driver discovered after lunch that the Truck was stolen. The Group sent staff to search for the Truck in the direction the Truck had gone. Thefts such as the Incident are a common occurrence in the Qingyuan District."
The van was found shortly afterwards, minus any financial records.
This follows a similarly suspicious story in which China Shanshui Cement Group Ltd. reported it could not retrieve company information, including financial details, after a boardroom fight.
Here is an excerpt from their official explanation "A former director of Shandong Shanshui, together with a group of gangsters, barged into the Headquarters by force on 27 December 2015, destroying the properties in the offices therein and assaulting the employees of Shandong Shanshui."
While Shanshui was up 69 per cent last year, trading was suspended in its stock last summer when it started having serious debt problems and at the end of the year, before it filed to wind up amidst a $307m default in onshore bonds.
No wonder investors are continuing to face heightened risks when dealing with Chinese companies through a disastrously turbulent stock market, mysteriously disappearing directors and ridiculous excuses for missing company records.
On top of this, legal recompense remains beyond the reach of outside investors due to Chinese firms' refusal to respond in suits for counterfeiting, patent and copyright infringements, product liability, intellectual property theft, breach of contract and other complaints.
This has led to as-yet unrealised calls for new laws that would bring Chinese companies doing business in the US to submit to the jurisdiction of its domestic courts.
At present, a legal firewall built by China around its financial services firms does not recognise any jurisdiction of the US legal system or its regulatory agencies, despite both countries signing the Hague Convention on the Service Abroad of Judicial and Extrajudicial Documents and the Hague Convention on the Taking of Evidence Abroad.
But with Chinese companies refusing to comply with treaty requirements - claiming they violate Chinese state and banking secrecy laws – the agreements come to very little in the real world.
The impasse makes it almost impossible for US companies to collect court judgments against Chinese firms in the US. And while a Chinese court can enforce a foreign judgment, it has never enforced a US judgment against a Chinese firm.
Conversely, a US court won't recognise a Chinese judgment against a US firm.
At the forefront of problems foreign lawyers face in cases against Chinese companies is the opaque nature of their real identities, not least because the courts there don’t do ‘discovery’.
Chinese courts almost never recognise US discovery orders, even disallowing discovery within domestic Chinese lawsuits, meaning external business investigations must often by commissioned by the plaintiff just to find out who and where they really are.
Worldbox Risk Management AG handles debt collection in China through a partner network, operating in various cities including Guangzhou, Shenzhen, Dongguan, Xiamen, Hangzhou, Shanghai, Beijing, Wuhan and Chengdu.
Managed by Gianluca D'Angelo, Worldbox uses different collection approaches to collect cases successfully in China from USD$10k to over USD$1m as well as larger debt scenarios not just commercial debts.
So, while 2016 has the potential to bring great rewards for investors and companies looking to expand into China, the risks should also be investigated comprehensively first, preferably using experienced agents operating on the ground.