China Meddles In Business Dispute

International business or investment snags in China are nothing new. But a case reported by the New York Times of Chinese authorities stepping in to resolve liability issues between companies was a rare case, even for China.

Off To A Good Start-

David Ji (53), a Chinese American businessman, was exploring ways to supply DVD players cheaper than Sony DVD players, which retailed at $400 or 420,000 won apiece, in the U.S. market at the end of 1990. He signed a supply agreement with a Chinese company, the ChangHung Electric Company, in Sichuan Province in 2001.

DVD players manufactured by ChangHung and distributed by Ji’s U.S.-based company called Apex, began selling like hot cakes for $59 or 60,000 won a piece at stores like Wal-Mart. The booming sales of DVD players pushed up the sales revenues of the American company to $2 billion in 2003, from $1 billion in 2002. The Chinese company has also grown dramatically into one of the largest electronic manufacturers in China.

Unexpected Stumbling Block-

In 2003, ChangHung claimed that it incurred losses due to its American partner’s failure to make payments in a timely manner. Apex countered that the loss was caused by the Chinese company’s poor management based on its too optimistic projection of future growth. In addition, the American company argued that there were many problems with its Chinese partner’s lead time and the quality of products.

The situation took a turn for the worse when Jaoyung, who had been the vice mayor of the Chinese city where the plant was located, became president of the Chinese electronics manufacturer. He demanded that his American partner pay $470 million. Apex refused to pay, saying that the amount of the outstanding payments didn’t exceed $ 150 million.

Ji visited Sichuan province for other business in October 2004. He contacted his Chinese counterpart to address the issue, during his stay. But next morning, he found himself arrested by the province’s undercover police who came all the way from the police station, driving 800km through the night. Being detained in ChangHung’s guest house, he was threatened by his Chinese partner to give up the shares of his company.

Epilogue-

ChangHung filed a lawsuit in U.S. district court in December last year. It also sent a tape containing Ji’s testimony, a product of intimidation, to Apex. But the lawsuit is pending now because the lawyer representing the Chinese company was accused of playing a role in detaining the Chinese American businessman.

In the meantime, Apex sales have plummeted, dealing a major blow to its legendary success. Ji was released on bail, but he was banned from leaving Chengdu. The Chinese company was given $1 billion in aid, thanks to generosity of the Chinese Prime Minister Won Zabao. And the company was even complimented for safeguarding Chinese profits, by dealing with Ji, who was called a swindler, wisely.

Jin Lee leej@donga.com