A "Avoiding Pits" Guide for Chinese Enterprises Going Overseas to Uzbekistan

In recent years, with the proposal of the Belt and Road Initiative, the implementation of visa-free entry policies between China and Uzbekistan, and the construction of the China-Uzbekistan railway, a significant number of Chinese enterprises have expanded into Central Asia, particularly focusing on Uzbekistan. However, the booming investment landscape has also given rise to various issues. Many Chinese companies have encountered one problem after another in Uzbekistan, and even some large and medium-sized enterprises with state-owned or central enterprise backgrounds have not been spared. While many companies were initially pleased to "break even," they later received hefty fines. Drawing from my experience handling legal affairs between China and Uzbekistan since 2012, I would like to share the following insights and risk prevention suggestions for Chinese entrepreneurs who are considering or have already ventured into Uzbekistan, hoping to assist with your decision-making process：

1、 What kind of enterprises are more likely to succeed in Uzbekistan?
Nowadays, many companies believe that the competition in the domestic market is too intense and there is no profit to be gained from it, so they want to try their hand at going abroad. Based on my observation, Chinese companies that have been relatively successful in Uzbekistan have the following characteristics:
1. I have had excellent partners in Uz before, and through past trade, I have gained a good understanding of local market demand and related procedural costs. I am able to quickly open up market sales through existing channels after the iteration of new products.
2. There is a relatively abundant supply of funds, able to cooperate with the government level, with technology, funding, equipment, and negotiation power.
3. Pay attention to preliminary research and professional services such as compliance and finance and taxation.
4. In terms of business philosophy, one should not be greedy for big things or too much, focus on familiar fields, and have clear business goals.
5. Respect local culture and partners, but always maintain independent decision-making power.

2、 What are the commonalities among companies that have suffered losses in investing in Ukraine?
On the other hand, many companies that are currently "cutting ties" or even "cutting meat and leaving the market" also share the following common characteristics:
1. The number of preliminary inspections is small and the cycle is short. Basically, we just go to the local market to check the prices and immediately start investing if there is a significant price difference in the product. But what I don't actually understand is that some of Uzbekistan's trade markets are in a certain sense of "monopoly" situation, and can openly carry out "grey customs clearance". If Chinese enterprises want to establish another portal, even if they implement the same "grey customs clearance", it is impossible to succeed in the long run. Being caught once will result in serious punishment, Shanghai Customs blacklist, and even involve agency companies and consignees.
2. Likes to inquire everywhere without respecting professional business, legal, and financial advice.
As the most dynamic component of the Chinese economy, the private economy has always been the business philosophy of Chinese private entrepreneurs, which emphasizes "diligence and frugality in managing the household" and saves personnel and material costs whenever possible. But for cross-border investment, it is very dangerous. Often, one will inquire everywhere, thinking that they already know everything, but not spending money to consult professional institutions, not conducting due diligence, and finally realizing that they have been cheated, received administrative fines, or arrested before thinking about finding a lawyer. For example, Uzi's corporate credit and property status can actually be checked through specialized departments and lawyers in the early stage, but without hiring a lawyer to investigate, it is ultimately discovered that the other party is not the land owner at all. For example, Uzbekistan has strict control over all economic contracts and currency payments, but there are still many Chinese companies that prefer to pay in cash, which ultimately leads to being falsely accused of "economic fraud" or being reported as "tax evasion" by their own finance department after paying the contract price. For example, in the context of China's repeated simplification of ODI procedures, many companies still use the "Ant Moving" method to bring US dollars into Uzbekistan without declaring them, and their accounts are eventually frozen by Uzbekistan's banks for anti money laundering review, which is also confusing. For example, major economic contracts have been translated into Chinese and English versions themselves, but are ultimately invalid due to the lack of local language versions (Russian/Ukrainian), or major economic contracts have not been translated by designated translation agencies
In the past, when European and American companies invested globally, they were "one hero, three helpers" - their own business consulting agency, their own legal team, and their own accounting team, to do a good job of all cooperation. And Chinese enterprises going global is really like a brave word on their chest. Although some information can be learned through peer communication, some information may be outdated, distorted, or misinterpreted.
3. Lack of understanding and respect for local culture
Coming to a country where Muslims make up over 95% of the population, most entrepreneurs have not even read the Quran. When interacting with local partners, they may lose etiquette (such as using their left hand incorrectly, not knowing how to divide bread, inappropriate business and social styles, and even directing workers to do heavy physical labor during Ramadan), which can easily lead to missing out on good partners. Although Uzi people have a certain tolerance for foreign businesses, not everyone can tolerate them, and they may even cause life-threatening situations.
4. Language barrier, trust local translators easily
Most Chinese enterprises that jointly invest with local translators have not achieved their ideal business goals, and many translators have inaccurate translations or added their own interests during the translation process, resulting in losses for Chinese enterprises. And translators are very easy to reach a tacit understanding with the Ukrainian side not to hold themselves responsible, so in the end, it is often the Chinese company that gets hurt.
5. Be wary of the locals, but not wary of the Chinese
Many Chinese enterprises that come to Uzbekistan still have a hesitant attitude when dealing with locals, but they have no resistance to the Chinese face and quickly get along in a foreign land. However, among the hundreds of thousands of Chinese people who enter Uzbekistan, there are also many people with strange intentions. Our law firm currently handles several fraud cases, so both locals and Chinese should pay attention to business dealings.

3、 Sincere advice from Lawyer Chen:
1. Do not infer 'Ukrainian affairs' based on' Chinese experience '.
People tend to approach things based on empiricism. Although some underlying logic is similar, entrepreneurs in unfamiliar countries and markets must maintain humility, conduct more research, communicate more, and even suggest sending someone to stay for the first half of the year. Uzi itself can experience a temperature difference of up to 60 degrees Celsius in winter and summer seasons, and its power supply is not as stable as in China. Can your production equipment really withstand the extreme cold and heat? Chinese officials only represent the government. Do you understand whether the officials here are talking to you about their own family business or government projects?
2. Valuing contracts is like valuing one's own eyes
Uzi's banks have strict supervision over economic contracts and are connected to the tax and foreign exchange departments. The contract requirements may not necessarily have a Chinese version, but must be written in Uyghur or Russian. However, there are often differences in the Chinese definitions between Uyghur and Russian versions, and a highly trusted professional translator or lawyer must verify the differences.
At the same time, in China, the finalization of the contract may be the end of negotiations, but after the finalization of the Uzi contract, it is also the beginning of formal negotiations, which will be filled with the entire process of contract performance. Changes in negotiations must also be fixed in the form of supplementary agreements for further filing.
3. It is necessary to allocate a dedicated budget for compliance and financial expenses
Professional institutions are definitely an important help for enterprises to go global. The information and cases they know may be valuable "experience information" for Chinese enterprises making decisions to go global. A good compliance system can ensure that the basic operation of the enterprise is free from the risk of illegal activities. A good financial and tax team can ensure that the enterprise's operating profits can meet expectations, costs can be controlled, and tax incentive policies can be enjoyed in a timely manner. Some companies are unwilling to spend $2000 on a project worth over 4 million for a lawyer to review. The boss signs it using a translation software, only to find out that 60% of the payment cannot be recovered and requires additional compensation Such cases abound and are heartbreaking.
4. Necessary understanding of local culture and religion is necessary
In this regard, our law firm will cooperate with relevant colleges and local teachers to record some necessary etiquette courses, and welcome friends in need to follow the official WeChat official account of Shanghai Guochuang Law Firm and the small red book account of "Chen Lvzai in Uzi".

Chen Min

Lawyer Chen Min holds a Bachelor's degree in Law from Shanghai University of International Business and Economics, a Master's degree in Law from East China University of Political Science and Law, a part-time professor and extracurricular mentor at Shanghai University of Political Science and Law, the founder of the "Guochuang Public Welfare Fund" at East China Normal University in Shanghai, a guest lecturer at Shanghai University of Finance and Economics, an outstanding female lawyer in Putuo District, a member of the Royal Institute of Chartered Arbitrators, a mediator at the China Council for the Promotion of International Trade/China Chamber of International Commerce Mediation Center, a legal advisor to the Consulate General of the Republic of India in Shanghai, and a legal advisor to the Putuo District Government in Shanghai.

Prev：Director Yao Jun and his delegation from the People's Congress of Putuo District visited Guochuang Law Firm to discuss foreign-related legal services and innovative development　
Next：Lawyer Chen Min and Lawyer Ji Xin from Hai Guo Chuang Law Firm have been hired as grassroots legal observers