Commercial Hostages: Local vs. Foreigner Business Disputes in China
Cal Poly Working Paper No. 03-442, 2020
31 Pages Posted: 29 Sep 2020 Last revised: 7 Oct 2020
Date Written: September 13, 2020
This article addresses commercial hostage situations, also sometimes referred to as debt hostages, arising from business disputes in China. We define a “commercial hostage situation” as a dispute between a foreign company and its local partner over such matters as payment, the closing of a local office of facility, the laying off of local employees, the transfer or ownership of intellectual property, etc. As part of the dispute, the Chinese partner takes steps to detain the foreigner against their will so as to pressure the foreign company into resolving the dispute. Our definition of commercial hostages does not include “exit bans” - where the foreigner is prevented from exiting China (often at the airport) by the local Chinese partner who pursued an exit ban application with the local authorities. While exit bans are also a source of pressure that foreigners doing business in China need to be concerned about, they are different than commercial hostage situations, and often serve different purposes and goals.
One challenge in studying commercial hostage situations is gathering enough cases to help gauge the factors that drive them. This study seeks to do just that – it mainly attempts to gauge the frequency of recent commercial hostage activity in China. Secondarily, it seeks to learn more about where that activity occurs and the identity of its victims. To accomplish this, Freedom of Information Act requests were submitted to six Western countries (including the U.S.) with significant China trade. English and Chinese business and legal media reports were also searched for commercial hostage cases involving foreigners. Between these two sources 47 to 65 commercial hostage incidents were identified. The vast majority occurred in or near Tier 1 cities and/or coastal regions. A disproportionate percentage involved ethic Chinese. The article concludes by providing a commercial hostage risk assessment tool for foreign businesspersons doing business in China, and their legal counsel, to consider and utilize.
Keywords: China, Business in China, Commercial Disputes, Debt Collection, Commercial Hostage, Unlawful Detention, Debt Hostage, Freedom of Information Act, FOIA
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