Mark Joseph was indignant. He had just received a fax from a contractor in China declaring that they would not load his vessel, at anchor in Xingang port, with the coke he had purchased. 'Why not?' he asked in an urgent fax. The reply came back with no hint of an apology: 'We don't have any coke to fulfil our contract. Or perhaps you could wait for a future shipment.'
Based in New York, Mr Joseph has been a merchandiser in the coal and coke industry for over 40 years. And he thought he had seen it all - until now. Early last year, he contracted to buy 45,000 tonnes of coke from a Shanxi-based producer, for delivery in June. To get a better feel of his newly acquainted partners, he travelled to the port city of Tianjin.
Waiting for his arrival was the sales manager of the Shanxi company. Mr Joseph was taken to the wharf and shown a mountain of coke sitting at the warehouse. 'There', the salesman pointed, 'is your coke, about 12,000 tonnes of it, ready to be loaded once your vessel arrives'. Nice. But where was the rest? 'No problem. Let's go see.' Together they went to the seller's head office in Shanxi, the largest coal-producing province in China.
He was shown a large stockpile of coke, which was said to be the balance of his cargo, awaiting shipment to the port. Over a full-course dinner in Mr Joseph's honour, the president of the coke factory reassured him that he equated credibility with life itself: 'We will honour all our obligations,' he said. After those reassuring words, Mr Joseph left China.
But world demand for coke soon shot up, due to a sudden tightening of supplies. Higher prices were offered. Mr Joseph's coke disappeared. His Shanxi supplier would later give him a series of excuses about the missing shipment: it was raining; inland transport had been delayed; the government had shut down smaller mines. But his coke, of course, had been sold to somebody else. Mr Joseph's experience is by no means unique. Countless foreign businesses have had the same or similar problems when trading with Chinese companies. But there are a few things that a foreign firm transacting business in China can do to sidestep similar pitfalls:
Know your trading partner inside out. Ask politely but firmly to see his incorporation licence; go into his office; get an idea of his company's background and record in the industry. Listen to his boasts of his past achievements after a few rounds of drinks. Talk to people who have crossed paths with him.
Make a watertight contract. Give attention to each and every detail, down to the decimal point, even if it means a 20-page contract for US$50,000 (HK$390,000) worth of widgets. Then keep every scrap of correspondence - be it fax, e-mail or hard-copy amendments - on file just in case. Every piece of evidence, however trivial and innocent it may appear, matters when it comes to the showdown. Treat this documentation as if you are going to sue the day after the contract is signed.