Q: I am about to enter a MOU with a company in China. Is this a contract?

A: In China, a Memorandum of Understanding (MOU) is a common starting point for any project. The MOU is not a legally binding agreement in China. A Chinese MOU outlines the objectives, framework of collaboration, the scope of services and activities to be responsible for each party.

The signing of an MOU is a form of goodwill between parties which enable them to proceed to the next phases of the project. If there is no MOU, then there is no common ground for either party to move forward. There is no moral obligation to proceed further and future progress will be uncertain. Think of a Chinese MOU as a framework for collaboration.

The usual next step after the signing of a Chinese MOU is to negotiate a formal contract, sometimes referred to simply as “The Agreement”. The contract/agreement is based on the principles of the MOU and signed at a later stage. As the prevailing Chinese law and the law from western societies can be drastically different, my actual experience in successfully finalizing a contract within the Chinese legal context is that there must be a degree of mutual trust and understanding to be successful.

The detailed interpretation of legal clauses from each party’s viewpoint can be damaging both to the satisfactory completion of the contract and to the relationship of the signing parties.

Thanks to Paul Doherty, AIA. He is the managing director of General Land Corp. (http://www.general-land.com), a full-service, global real estate development firm with a focus on the Asia Pacific market. He is an author, educator, analyst and consultant to Fortune 500 organizations, global government agencies and prominent institutions and is on the board of directors of the International Facility Management Association (IFMA). He can be contacted at pdoherty@general-land.com.

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