Barely one week after Danone’s decision to change its approach and drop certain legal proceedings against its Chinese partner, both parties said that they have agreed to a legal ceasefire and will return to “peace talks” for the resolution of one of the most high-profile disputes between a foreign company and a Chinese partner. “Both parties agree to temporarily suspend all lawsuits and arbitrations, stop all aggressive and hostile statements and create a friendly environment for peace talks,” the companies said in a joint statement.

Last week, The Wall Street Journal ran a story which described the dispute and the background behind Danone’s decision to drop its legal proceedings against Wahaha in China. (For those who haven’t been following this case, the article provides a good summary of the key issues.)

Groupe Danone SA said it has suspended certain lawsuits against Zong Qinghou, its estranged business partner in China, and is willing to drop other legal action in an effort to encourage him to work toward reconciliation.

The response to Danone’s peace offering was cool. The Sino-French presidential summit last month prompted a call from the two governments for a speedy and amicable resolution to Danone’s dispute with its partner in joint ventures that produce Wahaha-brand drinks, Emmanuel Faber, Asia president for Paris-based Danone, said Friday.

Danone, as a result of the signals from the two governments, has suspended six lawsuits it filed in Chinese courts that allege Mr. Zong was in breach of his fiduciary duties as a director of their joint-venture business. Under the right conditions, Mr. Faber said, Danone would suspend all of its pending legal action against Mr. Zong in order to begin talks. “There is a need to create some space for dialogue,” Mr. Faber said.

Danone is locked in a battle for one of its most important global businesses, Wahaha-branded water and drinks in China, with Mr. Zong, who founded the company. The French company charges that Mr. Zong built and owns a parallel network of manufacturers and distributors for Wahaha drinks in China outside the decade-old joint venture Danone controls with a 51% share. Mr. Zong doesn’t deny he owns the businesses but says Danone has been an unfaithful partner, as well, for instance by investing in dairies that compete with Wahaha.

What caused Danone’s change in attitude? One of two events, or a combination of the two, was most likely behind Danone’s decision.

First, when President Sarkozy of France brought up the Danone/Wahaha dispute with President Hu of China in their recent presidential dinner in Beijing, President Hu undoubtedly told him that there was little he or any Chinese official could do as long as the two parties are embroiled in legal proceedings. This would be consistent with my experience in China. I have found that Chinese officials can be helpful in resolving disputes, but not if the matter is already in the courts. Once legal proceedings are brought, government officials will decline to be involved, preferring instead to let the courts decide.

Secondly, Danone may have been somewhat unsettled by the recent court decisions that went against the company in China. While Danone has claimed that it was winning in lawsuits outside China, that is not where the real issues lie. Danone’s legal actions in the U.S. were designed to gain leverage on the Chinese partner by going after assets that Wahaha or Mr. Zong may have outside China, but they would have done nothing to settle the central causes of the dispute which are in China.

In order for a purely legal strategy to work, Danone would have to win, and have its judgments enforced, in China–a very tall order indeed. It is interesting that the six lawsuits which Danone decided to drop were its lawsuits in China. Given the recent decisions, Danone probably concluded that it was unlikely to win these anyway.

Despite the coolness of Wahaha’s initial response, it appears that pressures have been brought to bear in convincing Mr. Zong to return to the negotiating table. The Chinese government undoubtedly played a major role in causing this to happen. Resolving the complex issues will not be an easy matter, but everyone has now seen that lawsuits are not the answer and will hopefully work twice as hard to resolve the disputes. After all, a peaceful resolution of this issue is in everyone’s best interests.