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Chinese delegation visited the port city of Gwadar, Pakistan. The Chinese government has invested USD 250 million over the past decade to develop the port, which it will eventually control through a government consortium called the China Harbour Engineering Company. The port isn’t fully operational yet, but Chinese media’s willingness to report on the issue may be a signal that the port may finally transfer to Chinese control soon. Pakistan’s government has also publicly made it clear that it would like to hand control of the port over to China within one month.

The port is of extreme geographical significance to the Chinese, who have over the past ten years begun to flex their muscles and expand their influence far beyond their own borders. China is developing ports throughout South Asia – something often referred to as China’s ‘String of Pearls.’

For example, in July of this year, China outbid India to secure the rights to upgrade Chahabar Port, which sits in southeastern Iran along the Strait of Hormuz. And, in early August, Sri Lanka opened a Chinese-developed port at a total cost of USD 500 million. In total, China operates 15 ports in foreign countries, with most of them in Southeast Asia.

Gwadar offers China a chance at quicker oil acquisition from countries exporting through the Persian Gulf. China is the world’s largest consumer of Middle Eastern oil, meeting nearly 60% of its total energy needs from energy exports shipped through the Strait of Hormuz. After clearing the Strait, the oil must then be shipped east through the Indian Ocean, then slowly ferried through the Strait of Malacca (the narrow coastal throughway between Malaysia and Indonesia). Finally, it arrives at its destination through various ports in east China. The oil’s journey, from start to finish, is long and, often, prohibitively expensive.

The port at Gwadar would also give China something it desperately needs – a viable energy conduit that is completely free from a potential American naval blockade. Control of the port would allow the Chinese to ship their oil through the Strait of Hormuz into Gwadar, and then use overland transport to travel northeast through Pakistan. Once at Islamabad, the route will then use the also-Chinese-developed Karakoram Highway, and travel through the K2 mountain range, the second highest in the world, which lies adjacent to the Himilayas. From there, it will travel through the Pakistan-controlled Kashmir province of Gilgit-Baltistan, and will, finally, cross the Chinese border and be sent to Kashgar, a former Silk Road city located in western China’s Xinjiang Province. China has recently spent upwards of USD 18 billion to further develop roads in Gilgit-Baltistan to facilitate this process, and Kashgar is regularly the recipient of Chinese infrastructure investment. This all sounds good on paper, but the reality of transporting high profile soft targets, such as oil, through Pakistan is not as simple as our Chinese friends may think.

Gwadar sits in one of Pakistan’s most unstable provinces – Balochistan. Balochis are a fiercely independent people who are ethnically related to the also-fiercely-independent Kurds. Balochistan sees regular violence against representatives of the Pakistani government and foreigners (often Chinese). Balochis have an extensive list of grievances against the Pakistani government and do not like being ruled from Islamabad. Their situation has even attracted the attention of the U.S. Congress which, in light of China’s attempt to circumvent an American-dominated Pacific Ocean, considered a resolution in 2012 that was to suggest the funding of Balochi separatist groups. News of the resolution led to protests in both China and Pakistan, with the usual complaint that the U.S. was interfering in each country’s internal affairs.

China insists that there is no cause for alarm, and that their ‘String of Pearls’ is designed to support Chinese commercial interests, and nothing more. They have, for some time, maintained the position that India and the United States are locked in a ‘Cold War mentality’ that sees Chinese overseas ports as playing a threatening host to the People’s Liberation Army Navy (PLAN), as opposed to friendly outposts that exist solely to import/export manufactured goods. As we know, China, colonized in its past, increasingly plays the role of an international victim and regularly points its finger at Western countries for what it calls repeated attempts at limiting its outwardly-focused posture.

It’s anybody’s guess, at this point, as to China’s true intentions, but history has shown that great empires need not be built on military conquest alone. The British Empire was founded almost entirely on the establishment of overseas commercial interests – only later, when those interests were threatened, did the soldiers come. China is rising and, therefore, will begin to butt heads with those who have already risen.

But, for the sake of argument, must the Chinese have a martial mindset at the outset to be accused of doing what they are, in fact, doing? When is a counter by India or the United States, thus, warranted? I think that there needn’t be a sinister ‘master plan’ if it leads to the same result as a well-intentioned one. Chinese expansion, hostile or not, arouses great fear in India and well-founded concern in the United States. Throughout history, and in every corner of the world, countries have balanced each other, re-balanced each other, and re-balanced each other yet again. This game of ‘balance and re-balance’ plays out even between allies – how much more so must it play out between rivals? Therefore, just as Chinese expansion may not be inherently hostile, China should not consider other countries’ attempted checks on that expansion as inherently hostile either.

By seeking to avoid a rival’s check on its security through development of an overland energy route, China is acting in its best interests, and therefore doing exactly what it is supposed to do – India and the United States will do likewise, and so the world turns.

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American Bar Association’s Section of Intellectual Property Law has an interesting article entitled: Managing Trademark Investigations for Nonuse in China. The article may be found at the July/August 2013 Landslide Magazine Site.

The article notes that:

“In sum, one should expect to pay more but get less in terms of quality from trademark investigations in China when compared with their U.S. counterparts. As trademark practice improves in China, and as competition among investigation firms increases, we can expect quality to improve and prices to drop. In particular, if the Trademark Amendment Laws are enacted within three years of nonuse disqualifying the trademark owner from claiming damages for infringement, investigations should become even more routine.”

The article is recommended for those in need of guidance before retaining an investigator and, also, for attorneys that work with these investigators.

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The following post was written by, Tom Coyner, MBA, one of IPG’s senior business advisers. Tom has has worked in Asia for over twenty years. Please read the following post in conjunction with the articles listed at the end of this articles for needed due diligence prior to engaging in any arrangement with Chinese company.

Many foreign companies in China, for practical reasons, choose to partner with a local company to market, sell and support their products and services. While once upon a time there were legal requirements to do so, now China, in most industries, has a relatively free market in this regard.

Frankly speaking, finding a China partner company can be ridiculously easy. Finding a successful partnership, however, can be ridiculously difficult. That is, many China companies are willing to partner for all of the wrong reasons. And this may be said for a like number of foreign firms attempting to do business in China.

Many China firms look at partnering with overseas companies as a cheap and easy way to become “international,” or at least more international, via this foreign partnerships. Partnering can add to their market prestige and provide new products and services the domestic competition lacks, or that they cannot easily develop on their own. Thus, in their reasoning, sales may often be secondary to domestic market positioning.

Foreign firms often regard the China market as the most important international market for the next decade and that if they are not in China at this time, they better be in China quickly. As a result, they may be tempted to do a “quick and dirty” market entry, finding a China company selling into the right market niche and boasting a glib speaker of English or some other appropriate foreign language. After the China joint venture agreement is inked, its back on the plane without much expectation to return to China for another six or even twelve months.

These two descriptions are stereotypes, but unfortunately they are closer to the reality mark than many Chinese and foreign firms may like to admit. So what may be a better way to find and develop a successful partnership?

First, look carefully at the company and the key people on whom you will depend. Many China firms look absolutely great on paper, but it will be a couple of key people who will largely determine whether your joint venture will succeed. Certainly the Chinese company needs to be financially stable and credible in your market niche. At the same time, that company must have individuals with sufficient authority to ensure commitments with the foreign company remain at a mutually appropriate priority level.

Key people include the CEO, marketing or planning director, sales director and product support director. If you do not perceive a personal stake in the venture for each of these people, your partnership with the Chinese company may be in danger from the beginning. You should be able to accurately articulate from the Chinese perspectives why this venture is personally important to each key person. Then you should honestly compare their motivations with your own. Even if you like the company and the people, if there is a not a good match, its time to move on.

Second, consider how and with whom your company will be able to communicate. Assuming you do not have Chinese speakers in the home or regional offices, it can be critical to ensure there are capable English speakers at least in the marketing/planning and product support groups. Ideally there should also be a strong English speaker representing the China sales team, but that may be harder to find. Naturally, the larger the company, the more likely the China partner will have employees with foreign language skills.

That brings us to our third point: It is important to partner with the appropriate-sized Chinese company. It is surprisingly easy to go too big or too small. The big companies are usually part of the giant business conglomerates. Their prestige often brings instant credibility to the market for your products, but their ability to sell to other companies within their group is usually exaggerated.

Furthermore, big companies typically have annual or even more frequent organizational reshuffles. The net result can be that the Chinese in whom you have invested a great deal bringing them up to speed on your company and products may one day, perhaps without notice, be reassigned to other departments. Major corporations anywhere in the world tend to be systemically arrogant, holding the unstated assumption that you need them more than they need you. Chinese companies are no different.

Partnering with too small a company, meanwhile, may entail another set of traps. The good news is that they may need you as much as you need them – or even more so. Consequently, insure that they will be putting enough skin into the game to consider you more than simply another arrow in the quiver. The personnel you train are probably more likely to stay dedicated to your products than those of the larger firms.

However, if you are selling large capital assets, these smaller firms may themselves having to partner with other local China firms to be credible producers, marketers and supporters of your products for future customers. Additional, de facto partners mean smaller pieces of the shared pie of profits and/or higher pricing that may make your products less competitive.

Finally, even if you are able to get the right mix and balance, you have just begun the partnership. Chinese, generally, look at all written agreements as just the launching of a new relationship that will need to adapt to unforeseen circumstances. So the foreign firm should not be shocked if, almost from the very beginning, the Korean partner asks for variances from the written partnership agreement as the first real sales opportunity approaches.

Such requests for variances might be justifiable in some cases, but there are also times when the Chinese partner has not done adequate due diligence in selling or preparing support for the foreign products. At these times, one needs a reasonable adjudicator who can advise from ground zero on how to handle variance requests.

Established foreign firms usually have local representative offices with enough employees to act as the local eyes and ears and advise home office management. Those firms not yet ready to set up representative offices can outsource to consultants. IPG works with some of the leading consultants in Asia.