The China Law Blog just released an interesting post, introducing the “bike lock theory of Chinese law”. Dan Harris makes the point that lawyers can help prevent quality issues by crafting a good contract. And he takes an example: how a contract can ensure that production is not subcontracted to another workshop.
What is funny is that I touched on this point in a recent post entitled Chinese suppliers and subcontracting, with basically a very similar example.
I reproduced below the most interesting part of the post:
We often put a provision in our OEM agreements (which we nearly always do in Chinese for better enforcement in China against the manufacturer) mandating that the Chinese manufacturer cannot subcontract out the manufacturing. We have been doing this for years and, as far as we know, no manufacturer has ever violated this provision. I know many of you are dubious of this record, but hear me out. Let’s say the Chinese manufacturer has 30 customers for whom it manufacturers product. Let’s say only four of those customers have a no subcontracting provision (my guess is this number is more like to be two, but for the sake of argument, let’s go with four here). The China OEM manufacturer gets really busy and has to subcontract out some of its manufacturing. It can subcontract out the product manufacturing of any of its 30 customers, so why wouldn’t it choose to subcontract out the product for the 26 customers who have no contract provision prohibiting subcontracting? I call this the bike lock theory of Chinese law because the no-subcontract provision operates like a good bike lock. The thief can still steal your bike, but why would he when there are so many easier targets out there?
This is probably surprising for many importers, who have the feeling that China has no law. But I agree with this analysis. Good advice… As usual!