Sometimes the best way to secure land is to work around the rules, Toh Han Shih writes In the Pearl River delta, sometimes it can be difficult for even the most well-intentioned to stay within the bounds of the law. When leasing land, for example, companies can find that their only choice is following the law and losing business, or breaking the law to do business. Chinese law required that when a foreign investor wanted to set up a business on a piece of land, the land must be commercially tradeable, or 'granted land', said Barbara Mok, a partner at United States law firm Jones Day. Winston Zhao, the partner in charge of Jones Day's Shanghai office, said foreign investors wanting to invest in existing factories on land collectively owned by the local community in the Pearl River delta were required by law to pay a fee to the government to convert that land to granted land. However, some overseas investors had set up factories on collectively owned land in contravention of regulations, Mr Zhao said. One reason was the owners might be reluctant to accept the conversion of the property, thus handing it over to the state forever, he said. He cited a local land bureau official in the Pearl River delta who implicitly encouraged one of Mr Zhao's British clients to go around the law. The British firm wanted to set up a centre to process and sell telephone accessories to multinational companies in the mainland. To do this, it planned to acquire the equity interest of a Hong Kong company that had an existing processing facility on land collectively owned by the community. When the community chose not to accept conversion, Mr Zhao and the British company visited the local land bureau in search of a legal remedy. 'My client wanted to do things right. That turned out to be a nightmare,' Mr Zhao said. The land bureau official said following the law would be costly and take one to two years to complete. But the official hinted this was not necessary. Companies could just lease the collectively owned land without going through procedures, the official said, according to Mr Zhao. 'The official told us: 'Everybody does this',' he said. 'Being a good woman is not easy,' Mr Zhao told the land official. 'My client asked me should we be a good woman or a bad woman?' The British firm, which eventually bought the Hong Kong firm, had no choice but to ignore the regulations if it wanted to do business. The company was later sold to a multinational, but the legal problem remained and was now in the hands of the new owner, Mr Zhao said. 'When there is a disparity between what is done and the law, the mentality of local Chinese chief executives and officials is such that what can be done in practice prevails. When foreign businesses come to China, they face tremendous challenges, as the legal, political and economic systems are different. On top of this, changes are going on every day and there are disparities between practice and theory, and the practice varies from place to place within China.' Jones Day, which advises multinationals on doing business in China, maintained close contacts with Chinese officials because they had the authority to interpret the law, Mr Zhao said. 'One reason there is rampant corruption in China is officials are given the authority to interpret, implement and enforce the law without checks and balances.' Some Chinese judges were badly paid and subject to the influence of local interests, Singaporean lawyer Tan Chong Huat said. Ms Mok said: 'It is a matter of understanding how the system works, knowing which are the people you can talk to and which are the people you cannot talk to because you may be alienating other important people.' Ms Mok related the case of a senior executive with an American firm who had been arrested in China. 'From the client's point of view, he was innocent as he had been following what had been suggested to him by local customs authorities. But from the viewpoint of Chinese law, there were irregular practices,' she said without elaborating. Jones Day eventually secured the release of the executive. 'We do not do anything that is not according to the regulations, but if you just make a formal application to the judge, it may take ages and [still] not get the person released.' According to a survey of 481 Hong Kong companies with factories in Guangdong, conducted by the Federation of Hong Kong Industries, only 8 per cent believed that resorting to Chinese courts was the best way to solve disputes in the region. An overwhelming 68 per cent believed the most effective means was through private channels or the local government, the survey found. Ms Mok also knew of instances where local Chinese officials encouraged foreign firms to adopt certain practices even though they were against the law. In some joint ventures, the foreign partner insisted on following the law, while the Chinese partner would baulk at doing so, she said.