Learning ‘The Way of The Dragon’

Learning the Way of the Dragon: General Business Advice for China

This is a an excerpt from a chapter out of my latest book – “Secrets of Success for Architects in China”. It is a selection of general advice about doing business in China.

If you wish to succeed in the business you are doing in China, then the information is this chapter is essential. The contributors to this book have shared their deep insights into the specific nature of the architecture business, but there is a more general cultural framework that wraps around all business in China. The perspectives explored in this chapter are parts of that general framework that haven’t been covered in the interviews. For example, I haven’t shared any secrets of staff management here since the contributors to the book have commented on this aspect from the particular point of view of architecture.

More than ten years ago, in 2005, I published The Way of the Dragon, a book of business advice gained from living and working in China since the beginning of the 1990s. I was really fortunate to have worked with some partners who were deep inside the Chinese system—one of whom (dear Mr. Jiang) really liked to teach me every lesson he knew about how to navigate that system. I was lucky, also, that the book received a very good critical review and was used by more than fifteen MBA programs, becoming a (minor) bestseller.

Even though the entire fabric of China’s business, social and international environment has changed during the last ten years, at a speed that is simply breath-taking and has defied all predictions, there are still huge differences in how business operates in the West and how it operates in China—which is why doing business here can be exhilarating and extremely rewarding on the one hand and extremely frustrating on the other. God only knows how much hair I have pulled in the course of the last twenty years.

But rules are rules, and you have to know them to succeed in China, whatever you are doing. This chapter is about understanding those rules and working with them to enhance your general chances of success. What follows is a capsule version of some of the things you will need to learn in order to be that smiling success that you already dream of being. Business in China is a complex subject, and the more time you spend here, the more you’ll realize how little you know. This overview should get you heading in the right direction.

That said, let’s hit the big one—the subject that causes more misunderstanding for foreigners than anything else—on the head right off the bat.

Guanxi

One of the most common and erroneous statements I hear from foreign businesspeople intent on doing business in China is how good their guanxi, or local relationships, are. Nothing stirs more angst and despair in these same businesspeople than when their business takes a flying leap off a cliff with no parachute. That’s when they discover that, in fact, the guanxi they thought they had was neither “their” guanxi nor reliable.

Guanxi is a system of relationships developed over five thousand years of Chinese history. In the absence of a well-structured legal system, guanxi provides a way in which business deals can be done with a degree of safety and certainty. By creating strong and mutually beneficial relationships with people in positions of power and authority, the businessperson creates an informal legal and insurance system.

The word guanxi derives from two characters in the Chinese language that carry a couple of different ideas. Literally, guanxi means “turn off the system,” but it has another meaning that indicates “holding onto a belt”—so in a way guanxi means holding onto to someone and using that relationship instead of the system to do business.

Guanxi is also very closely related to three other Confucian concepts: ganqing, which is a measure reflecting the depth of feeling within an interpersonal relationship; renqing, or the moral obligation to maintain a relationship; and the idea of “face,” which refers to social status, propriety and prestige.

Guanxi works with all of these concepts. It is written into the Chinese DNA and acts as a protective mechanism in business. There is a very high degree of mistrust in Chinese circles, which is why you see so many family members working in companies. Family, at least, are trusted not to go out, steal the IP and set up in competition. The order of trust is family first, classmates second, friends third—and then, finally, guanxi partners.

Guanxi is both a friendship and a bank of favors. To operate correctly, guanxi relationships must be mutually beneficial. In China, anyone who aspires to progress cannot afford to upset others and create enemies, so general social interaction is conducted pleasantly. Through social exchanges made over a period of time, a relationship based not only on mutual liking, but also on the principle of “You scratch my back and I’ll scratch yours” is built up. The person with the power may put himself at risk of censure by becoming involved in various deals and therefore must be compensated for his risk and effort. Favors received must be returned at some stage. Individuals keep an unspoken mental debt and credit ledger, both in business relationships and in every other area of human society.

This may sound like a very mercenary way to conduct human relations, but guanxi works effectively, keeping social discord to a minimum. Developing the correct relationships is necessary for navigating a society that has scant resources and a huge population. People in China who are adept at making friends and looking after those friends are the people who rise to the top. This is one reason why, in the Chinese mind, the concept of two opposing political parties fighting each other to reach consensus is repellent. I believe the Chinese way of conducting relationships compares favorably with that of dog-eat-dog societies in which progress depends upon removing opposition.

Businesspeople must cultivate relationships at all levels of society if they wish to see their companies succeed. By establishing a wide circle, they will always have someone to call on when they encounter a problem in a particular area. But just what is the process of building this circle?

A businessman starts the process of negotiation with a suitable partner. As part of the Chinese way of doing business, they will eat together. At this meal—usually their first—the Chinese partner will generally bring along his heaviest cannon, his foremost guanxi partner.

During this first meeting, the two sides of a potential cooperation each get to understand the relative strengths of the other in a Chinese-relationship sort of way. This is a deadly serious game—a sort of “my gun is bigger than your gun” kind of game. Here, in this test meeting, is where the harness is put on your partner. If you go to this meeting with no one Chinese representing your position, then the harness is neatly and firmly slipped over your neck.

Your partner’s guanxi, by the way, is not your guanxi but is his own guanxi. When you meet the party secretary, the mayor or the governor at this first meeting, do not assume that he is there on your behalf. Your Chinese partner has lined this person up as the overseer of his interests in business. Mistaking the power of this person as belonging to your side of the partnership is wrong.

Before entering into a relationship with a Chinese businessman, you need to have spent time developing your own guanxi relationships. These relationships cannot be developed overnight. They require time and sincerity: time to break through the reticence of the person you are developing and sincerity in showing him that you understand how things work.

To put it bluntly, your guanxi partner wants to know how he will benefit from his relationship with you. The answer to this question isn’t necessarily how your guanxi partner will benefit financially—although that is not an uncommon occurrence. Rather, guanxi partners help each other in many ways. For your guanxi relationship to prosper, you need to find ways of helping your partner, so that when you need his help, he is prepared to reciprocate.

An example of the kinds of help you could provide as a foreigner might be offering to teach your guanxi partner’s son or daughter English. It could be in the form of arranging education abroad for his family. Use your imagination and take a genuine interest, and you’ll think of other possibilities: Help with a vacation. Supervision and help if his family is already abroad. Assistance with a visa. Something else that you can offer that will show your sincerity.

Spending time with your guanxi partner is essential. You need to create a strong bond of friendship with him or her. If your intended guanxi partner is a drinker, then dinners and nights at the karaoke bar are appropriate. If he is not a drinker, then family occasions, mah jiang (mahjong) nights and visits to the countryside at the weekend will be your activities of choice. The Chinese saying “You get to know your friends on a long journey.” aptly describes the time it takes to create relationships. You must become a trusted ally of your guanxi partner; in other words, you must become a true and sincere friend.

Once you have developed your own network of solid guanxi partners—and this network can be small or even just one person—you can then use these relationships to amplify your power. This is the true power of guanxi and the reason why you can build effective networks quite quickly if you have already spent the time on the ground to find your way around and make some relationships.

Let me give you an example: We had a company loan that needed to be rolled over every year and the entire amount paid back before a new rollover loan could be paid out—another little quirk from China. The transition to a new loan means six to eight weeks of bridging finance and a lot of hope and prayer that everything goes well. One year, after being told that we had been approved for the rollover loan, we had raised the bridging finance and were waiting for the new rollover loan to hit the company bank account. Seven days before D-day, the bank informed us that it had (unilaterally, without any discussion with us) cancelled the loan because of a bad experience with another company in the same industry. So sorry.

Apoplectic was more like it! The bottom line was, we had seven days in which to raise another loan—and this is how guanxi really works: A director of the company had a classmate who was president of the provincial bank. Call 1. Go to dinner. Explain problem. Can you help? Answer: Not personally, but I have a” friend” (euphemism for guanxi partner) who might. Calls 2 and 3: introductions. Arrange a lunch. Same story. Same result. On to contact 3, and then to 4, to 5, to 6 and then, finally, to contact 7, which meant seven banquets in that one week (no wonder I am fat!). We got a positive reply from a senior member of a bank who agreed to extend the same loan. The paperwork was done and the money transferred literally—and this is not an exaggeration—two hours before the time when bad things would have started happening to the company. And the really interesting thing was, the bank that extended the new loan was the same bank that had cancelled the first loan!

Now, the first contact had to be rewarded with some suitable gift of sincerity—not with money, since guanxi is not corruption, but with some nice gifts worth perhaps 2,000 to 3,000 RMB—to say how much we appreciated the assistance.

And that is how to use guanxi to get things done.

There are a few axioms for guanxi and connection building that might be helpful:

Appear to be strong

You must create an aura of power around yourself. Never reveal your weaknesses. A lack of capital, connections or technology should definitely be concealed from others. The level of your apparent strength will attract people of an equivalent level of strength and power.

Establish and maintain a network of mutual obligations

In developing relationships, you should build up a network of “creditors” and “debtors.” The best way to do this is to approach one of your friends with whom you have credit, drawing on this resource to do a favour for another friend, thus establishing a debt. Eventually, you will have a complex web of people around you, all of whom will respond to your call for assistance when it is required.

Choose friends with care

By all means, make friends with ordinary Chinese citizens, but be sure to cultivate friendships with influential and important people, just as you would cultivate any other business asset, because these people will be exactly that—business assets, as well as friends.

Do not mistake acquaintances for real friends

Do not assume that someone you meet at an official meeting is your friend or connection. These individuals are doing their jobs and attend thousands of such meetings. Real connections are developed in a social and informal manner.

 Never mix your connections together

Do not mix your connections together. If you do, you will fail in the goal of building your relationships. Officials do not like to be invited to a social occasion to which you have invited other officials they do not know (or even those with whom they are familiar). Subtle power plays will emerge quickly—although you may not notice—and both sides will become tense. Even introducing your Chinese friends to each other in a non-business environment can be risky. While there may be no problem, it is very common for two Chinese friends to distrust each other until they have sorted out their own relationship.

Tend your network

Once you have developed a network, tend it as you would a garden. Make sure your connections are regularly invited to your social occasions: Christmas, birthday parties and New Year’s events. It is best to host gatherings in your home, if your home reflects your apparent strength. Remember your friends’ special days—send small, not-too-expensive gifts to them and their families on their birthdays and festivals.

Once you have spent time and money building a network of reliable connections, you can draw on these relationships to manoeuvre around obstacles and get ahead. To do this, you have to critically analyse the needs of the people in your circle of connections and identify the “levers” you must use in just the right way to have them act on your behalf.

 

  • You need your own independent relationships directly concerned with the area of industry you intend to enter.

 

  • Your guanxi partners must have authority and power over the company you wish to deal with. They are the reigns you will apply to bad behavior in the marketplace.

 

If you can master this one business difference in China, then you will be successful. And that statement brings us to my personal mantra, which is the only way you are ever going to get a guanxi network built:

Boots on the Ground

I have adopted this phrase as a personal business-advice mantra because it is one of the most important factors in creating success in China. You can’t win and hold ground if you don’t put boots on the ground. Look at Syria: Bombing from the air only causes more problems. Likewise, you cannot build a guanxi network without spending the requisite time on the ground needed to build it.

Ask yourself why Japan, an old enemy of China, is so successful as an investor in China. Although China and Japan have strong economic and diplomatic ties today, the Chinese people still have considerable residual ill feeling toward Japan as a result of the Second Sino-Japanese War, which took place more than fifty years ago. Despite this, the Japanese have the highest rate of investment in China of any foreign country and are generally successful in their enterprises. Why should this be so?

Some assume that it is because the Japanese are Asian and therefore understand the “Asian mind game,” but this assumption does not hold true. The rules for doing business and the way of thinking in Japan are completely different from those that prevail in China. If the Japanese can overcome the negative feelings surrounding a history of mutual hostility to successfully invest in the Chinese market, what prevents Westerners from doing the same, when we enjoy a high regard in the eyes of most Chinese?

The answer is actually quite simple: The Japanese are masters at learning how to do business in other countries and getting the better of their opponents, even while playing the opponent’s own game. Japanese companies spend enormous amounts of money on intangibles such as research, information and forming connections before they even enter negotiations.

Generally, a Japanese businessperson will spend some months (or years) in preparation before even contacting a likely partner. The money spent in the initial stages would stagger some Western individuals, who want to see an immediate return on every cent invested. Whether it is better to spend the money up front and see your business succeed or hang on to your cash, only to lose it in an unsuccessful venture, is entirely up to you. I know where I would rather see my money go.

Sun Zi’s Art of War opens with a statement concerning the importance of knowing oneself and one’s enemy. Sun Zi (perhaps better known in the West as Sun Tzu) says that knowing yourself will ensure victory perhaps fifty per cent of the time, according to the rules of probability. To ensure victory in every battle, however, he says that you must know your enemy as well as you know yourself.

To know your Chinese “enemy” as well as you know yourself requires both close study and close scrutiny. I recommend that you read as many books about China by as many different authors as you can—and that you spend as much time as you have available on the ground in China, simply learning, before entering into deals.

If resources do not allow you to spend much time in China, you must be prepared to buy this knowledge, either by employing China experts on your staff or by securing the services of a recognized consultant or achiever in the marketplace. Both of these options are expensive, but unless you can do your own research in China, there is simply no other way to enter the Chinese market successfully.

If you fly into China clutching a “great deal” and stay for two days, a week or even two weeks, do not begin to think you will learn even one iota about China. If you are going to stand any chance at all in the Chinese business environment, plan on spending some months in the country laying the necessary groundwork. Spending several months in China before doing business is, in my view, absolutely essential. It is during this apparently unproductive time that your future business is made. Over the years I have counselled literally hundreds of companies, and the successful ones all share the same factor: They have boots on the ground. The person with boots on the ground is the one whose job it is to answer the 150 questions that have to be answered before stepping into the deal.

Now, it is a little different with architecture because architecture, as mentioned previously, enjoys almost a super-status in China. Because of this, architects often are allowed an easier road in China. As the environment for architecture changes (such as with edicts banning “strange and weird”—read foreign—buildings), boots on the ground are going to become more important for architects as a basic principle.

The architects who have contributed to this book have almost exclusively adhered to the principle of Boots on the Ground—and have achieved astounding success in China.

Partners

Nothing in China will affect your chance of success more than your choice of partner(s). Even if you elect to form a wholly owned foreign enterprise (WOFE) rather than a joint venture, you will still have de facto “partners” because the relationships you have with the companies and markets you are selling to will make or break you.

If you are an architect coming to China for the first time, you need to be able to sort out the good from the bad. One way of learning how to recognize the “bad” is by contacting the various introductory agencies that the Chinese government has set up to help foreigners into the market. Most likely, you will be invited to a dinner or a meeting at which you can meet representatives of a selection of local design institutes and local architecture firms that may be considered suitable partners for the venture you are proposing.

At best, you will be introduced to a range of people from whom you can learn various aspects of doing business in China. At worst, you will meet a range of “hopeless cases,” chosen by officials who see involvement in a joint venture as a way of getting them out of trouble. It is unlikely that you will meet representatives of vibrant, thriving businesses—ideal partners—as these people are generally too busy making money to worry about cooperative ventures.

Partnerships in architecture are somewhat different than general business partnerships in China. One of the major reasons for this difference is the requirement that so much of the local construction drawing work be done by the monolithic local design institutes (LDIs). Being a true partner to these organisations is difficult from the design point of view. These LDIs, however, will play a huge role in the construction phase if you are designing in China and are generally held to be essential for completing your projects.

During the last decade, however, China has experienced massive growth in the number of modern local firms opening up in China. Probably the most famous is that of the Pritzker Prize–winning architect Wang Shu, a forty-eight-year-old whose practice is based in Hangzhou. It is these firms that a new, foreign entrant into the market most likely will be targeting as potential partners. You’ll be seeking a fit in terms of creative impetus and style, as well as with your area of architectural specialization.

Ultimately, though, the rules of a successful partnership will follow this general advice: The maxim of impossibility is all-pervasive in China, so in any deal where completion of the negotiation seems very easy, warning bells should ring for the Western businessperson. We will look at this more closely in the section “Walk Slow, Run Fast.” If you find a very cooperative partner right at the beginning, it is likely that this individual or company is the wrong partner for you.

When your Chinese partner is extremely willing to conclude a deal quickly, or if government permission is granted without any trouble, it is a good indication that something is not quite right. Generally speaking, the obstacles that emerge during a negotiation are the means by which suitable partners are able to identify one another. Obstacles are part of the system.

The best partners are elusive because the companies that are not actively seeking to become involved with you are ideal. You have to find them and woo them as though you were wooing a life partner. And a romantic courtship is very much what that process is like: There is a well-known Chinese aphorism, “Chinese marry with the head and do business with the heart.”

For a partnership to succeed in China, a number of factors have to align. First, there must be a bond of mutual respect between the parties that has been developed into a firm friendship along the lines already discussed. (Trust me on this: Even if you think a business partner is only a business partner, in China, if the relationship hasn’t been developed properly, at some stage things will fall apart.) Second, with a fully engaged partner running the partnership in China, most of the advice in this book—apart from the advice on choosing the right partner—becomes superfluous, since the partner is going to be managing the business “with Chinese characteristics.”

And now for a somewhat uncommon piece of advice that usually is very hard for Westerners to get to grips with: When you set up a business with a local partner in China, consider giving the local partner 70 percent (or even 80 percent) of the shares/profit/reward. In my twenty years of personal experience, backed up by hundreds of years of other people’s experience, in China, a joint venture partnership set up like this is ultimately the most successful.

A negotiating position that I like putting on the table is a 70/30 plus 30/70 allocation—that is, 70 percent of Chinese business to the Chinese partner and 70 percent of international business to the Western partner. The reasoning behind this is quite simple—but simply effective: Your partner will be much less tempted to get up to funny business—i.e., loot the family silver—if he is looting from himself. At 70 percent and above, the family silver is generally safe. (Please don’t come and sue me over this piece of advice if it doesn’t work out that way. I did use the word generally!)

So, let’s go back over the basics so far: Boots on the Ground (investigate the entire market and your space in that market), identify the best person to associate with and then hunt that cooperation as if it were your dinner or your beloved.

Now, to your next lesson:

Driving in China

You may not have thought of it, but driving in China is like doing business in China. There are four rules—and yes, there are rules for driving, despite what you might think after your drive in from the airport. I am only going to demonstrate the relationship between doing business and driving for three of the rules.

The fourth one:

“If you are one centimetre in front of the other guy it’s your right of way.”

 isn’t such a good rule to use in business, at least if you are a foreigner. I have, however, seen it exemplified a lot in competition between local Chinese companies where any advantage, even one centimeter, will be leveraged to win the deal.

Adopt a Taoist approach to both travel and business. Relax, forget about deadlines and appointments, and simply go with the flow. If you are an uptight person, driving in China will probably destroy you—and so will business—so relax and enjoy.

  1. Flow Like Water

Water gets around any obstacle. Just watch the cars on the road: There are no lanes, there is no system—the cars just flow to where they want to go. Cross four lanes to make a right-hand turn? No problem. Stuck in traffic and in hurry? Flow around the jam wherever you can. Footpath, anyone? Red light? Pah! I don’t like that particular shade of red (and besides, I am color blind!). Just flow through the intersection carefully (or not), and get to the other side.

This is what doing business in China is like.

There are so many people, just as there are cars on the road, and all of them are intent on making their life better. When you go for a business deal, you are therefore likely to have dozens, if not hundreds, of competitors—all wanting to take your lunch.

The government has created a structure of “rule by law”—not “rule of law” —and for this reason, a huge number of obstacles block your pathway. The government has also created an enormous bureaucracy that controls every single aspect of what you are doing—and there are more roadblocks than on the Baghdad–Damascus highway. You have to flow around all of the business obstacles, just as you flow around all of the driving obstacles in your path.

Everything in China is impossible. And everything is possible. Instead of driving full speed into a brick wall, find a way around: another government official, another government department, another partner, use your guanxi, call in favors. Do whatever it takes—and note the heavy rider here: that is legal and does not involve corruption—to get around the problem. If you stay calm and patient, with the look of a meditating monk, you will find the way around the problem and do whatever it is that you want to do.

  1. Don’t Hit Anyone

Well that seems pretty obvious, right?

Wrong.

No matter what is happening, drivers must avoid an accident at any cost. Even when a car is barrelling down the wrong side of the road, you should move over and let it pass safely. Don’t insist on your right of way—because if you do, and you have an accident, then you are also at fault. The policeman who asks you why you didn’t move out of the way will not care that you had the right of way. Maybe you did—but avoidance of accidents takes precedence over all other rules.

This means that you have to watch for cyclists and anticipate where they might go. You must make way for the crazy farmer who walks out in front of you without looking. Don’t imagine that might makes right, either, as it does in some other developing countries. Whether you are driving a truck or a bus or a small car, you must avoid the possibility of an accident.

If you are involved in an accident, you will learn that everybody shares some measure of the blame. If you have injured someone, get out your checkbook (or WeChat wallet, these days) because you are going to pay for his or her medical expenses, along with compensation for income lost as a result of the injury. If there is a death, you will find the family of the victim on your doorstep, and you will be obliged to pay them compensation in proportion to your means. As a wealthy foreigner, you will probably have to pay around RMB 800,000 (USD 130,000) to the deceased person’s family—regardless of whose fault the accident was.

Okay, that’s enough of scary information. This rule applies also applies to business in a really important way: You cannot afford even one enemy in China.

One of the side concepts in the principle of guanximianzi, which no doubt you have heard referred to as “face”—is linked to another ancient concept that bodes ill for transgressors: revenge. There are tales in the lexicon of Chinese history of a seventh-generation great-grandson getting revenge on the seventh-generation great-grandchildren of an offender of family honor—an extreme example, I know. The point is that Chinese people (and, in particular, someone who has helped you) will remember a slight to their face or honor. You will find doors that were open have closed and money that you thought was yours has become someone else’s.

You must go to extraordinary lengths ensure that you do not offend anyone. That means no chewing someone out in public (a staff member, for instance), no criticism during a meeting to introduce someone’s design concepts and  no forgetting to show sincerity for favors done. . . .

  1. Expect the Unexpected

Isn’t this the truth—just as it is on the road, where there are cars flowing like water all over the place, where there are people jumping out in front of you, where farmers walk across the road with no concern that there even is a road and where people nowadays have glue on their eyelids connecting them to the screens of their smartphones? In business, as on the road, innumerable things can go wrong.

I’ll give you an example, admittedly from personal experience, but a good example:

We were buying a house, and we needed a mortgage. We signed a contract, approached the bank and were granted that mortgage. End of story, right? Over the next eight months, in the government’s zeal to cool the property market (and put all of the architects out of business), the law regarding property purchases changed four times. Four times we had everything in place to settle—and four times we had to go back and do it all over again.

The vendor was highly impressed, to say the least, and I guess we had around a million missed calls from him before it was all over. In the end, the only way we settled on the house was to deposit—wait for it! —150 percent of the mortgage amount in a low-interest (0.5 percent) account for three months. The bank would give us a mortgage only if we were rich enough to deposit that amount and forget it for some time.

That’s the type of unexpected thing you will face.

Here’s another story, this time from business.

A foreign university spent nearly three years cultivating and developing a close relationship with a local university with the object of a joint venture to establish a foreign campus on the Chinese university’s grounds. Everything was ready for the permission to be given from the appropriate ministry in Beijing. And then the dean of the Chinese university retired. It didn’t matter one iota that the two universities had signed all of the paperwork—the incoming dean simply threw away all previous agreements and started again at square one. Regrettably for these unfortunates, after several months of intensive effort, the partners signed a new agreement—only to fall foul of an edict from the education ministry putting a hold on all new licenses for such things.

When you are driving, expect the unexpected. When you are doing business in China, never, ever fall into the trap of expecting that things will just sail on without difficulty. Usually the only way to avoid or manage the difficulties that arise is to have a good guanxi network, an adequate guanxi “harness” on the deal, boots on the ground—and ice-cold blood running in your veins.

Yin and Yang

There are infinite contradictions in the Chinese psyche. With a history of more than five thousand years, the essence of the Chinese is not ethnicity but culture. What identifies the Chinese as a people is a unique and complex range of behaviour, beliefs and systems that are shared across more than a billion individuals. It is these things that make the Chinese, well, Chinese—not a collection of ethnicities.

China has a talent for absorbing other peoples and making them Chinese over time. The Yuan dynasty—the offshoot of the Mongol empire, the largest the world has ever seen—did not stamp its seal on China; rather, China stamped its seal on the Mongols and converted their emperors into cultural Chinese. If the immovable Chinese nation had power to influence even the irresistible Mongol force, then the prospect of China changing in response to the current wave of foreign investment is extremely unlikely. It therefore behooves current entrants into the Chinese market to learn exactly how this powerful cultural tradition will affect thinking in the business world.

The Chinese traits burned into each of its souls carry a complex and sophisticated civilization forward, generation by generation. In fact, this almost genetic cultural imprint may account for a commonly stated aphorism: China does not have 5,000 years of history, it has 350 years of history repeated over and over.

Each generation learns the same cultural lessons over again—and that is the essence of the Chinese spirit.

Bo Yang, in his book Crisis of Chinese Culture, alluded to (actually, described rather categorically) this dynamic. His primary premise was that China had become a “soy paste vat,” its culture grown putrid because of the suppression of fresh ideas throughout its long, isolationist history. Now, while Bo Yang was deliberately harsh, seeking to provoke debate, there is certainly some truth in his assertions of a “pseudo-genetic imprint” on the nation that creates the circumstances for a different set of set of thinking structures than the thinking structures in the West.

One of these ingrained characteristics is the principle of Yin and Yang. Just for interest’s sake, here is what Yin and Yang stand for—and I thank Mr Google for such a concise and accurate explanation:

The yin-yang symbol represents opposite chi energies that can’t exist without each other. The black curve, with its white dot, stands for femininity, cold, night, matter, softness and passivity, while the white curve represents masculinity, spirit, heat, day, hardness and activity.

Light and dark, positive and negative—call it what you like, this duality exists in nearly every aspect of Chinese life. For me, a key to to understanding China is the recognition that for every single statement you can make about China, the exact opposite is also true. For example, it is often said that the Chinese people think in terms of fifty to one hundred years—and that statement is absolutely true. It is also true that, in a business deal, there is no thought for future business, only the profit in this particular business transaction.

This concept is hard for Westerners to understand, but if you look at it in light of China’s repetitive history, then it all makes sense: If I take my profit today then it is in my hand. Who knows what will happen tomorrow? It might be a famine, a war, a cultural revolution, a Great Leap Forward or a political revolution, so in business, the profit/benefit in this immediate transaction is essential for me to move forward.

In a way, this mindset is a very compelling example of “nowism”: seeking immediate gratification on the premises that tomorrow there will be none left. If you have ever stood in a Chinese queue, you know that everybody thinks there will be none left, so better knock down that old granny and get yours first.

In another example, think of the circles of relationship: Family and friends are in the first circle, and potential friends and partners may become part of that inner circle if they prove reliable over a period of time. If you are in the inner circle, you are safe. You will be protected by the other members of your circle and all the connections they can bring to bear. No one will harm you, and anything you ask will be done for you. This is the Confucian ideal of family values. If you are going to be successful in business in China, you must cultivate true, honest friendships. If you are not in one of the reliable circles, then you are outside—and fair game—because outside there is a jungle, and the law of the jungle prevails.

This is why there are terrible stories of people doing dreadful things in Chinese society—for example, the recent case of the little girl run over in a market in Guangzhou, seemingly in the coldest and most compassionless way. By the way, this incident sickened me, and I am not seeking to condone or justify what happened—and neither do the Chinese people, judging from the social media outrage in this incident’s wake. But because of this idea that there are circles—and you bring your best game to the inner circles of family, friends, classmates and possibly workmates—the mores and the thinking are different. Yin and Yang.

Speaking of these circles, it is a bit unfortunate that both of the commonly accepted words for “foreigner,” wai gou ren and lao wai, use the character wai, which means “outside” or “outlanders,” if you will. This implies that a foreigner is outside of the cultural understanding that only a Chinese can have.

A large number of books have been written about the principle of Yin and Yang, and the full manifestation of this is far beyond the remit of this book. Suffice it to say, however, that the duality of behaviour seen in the Chinese culture is an expression of this thousands-of-years-old concept.

Walk Slow, Run Fast

There are two sides to every business decision: the pre-decision side and the post-decision side. This is pretty much an extension of the Yin and Yang principle, however, it is the rock upon which many aspiring entrants to China founder.

One side, the pre-decision side, is walking slow: Getting to determine whether this is the right decision. This is where you will tear your hair out by the roots as you wade through interminable meetings with dozens of participants. Where you literally will answer every question a thousand times. Where the “court of the drinking buddy” holds sway over the progress of the negotiations.

Perhaps I should explain, and I digress—because it all goes back to the concepts of both face and guanxi.

The Chinese businessman wants the approval of his circle of business friends—the ones he respects and usually shares a ma jiang table and a bottle of “rocket fuel” with when he is up to a new idea. The dynamic is brutal, and one that I personally abhor. Here’s how it works:

You have a meeting or ten, you do a wonderful forty-seven slide PowerPoint, sit through twenty dinners and toast the moon. Finally, your prospect says, “I’m on board. This is wonderful.”

Wooohooo . . . time for a little libation!

And then tomorrow comes. Your new bestie has been out to tell his respected circle about his new venture—and they all kindly and coldly have destroyed every bit of optimism in him.

“Oh dear,” they say. “It’s with a foreigner. How can we trust a foreigner? He could go back home. Oh dear, what if this planetary alignment happens, and you lose your money? Oh dear, it isn’t a good idea.”

When you meet on the morning after, you are greeted with an evasive look. A cold calm descends upon the deal, and you go right back to the beginning. You are now trying to whip a horse to go to water.

The court of drinking buddies has destroyed more deals in China than anything else.

But back to walking slow. Let’s say you have managed to get through every single obstacle, including the drinking buddies, put in your way. You have the deal done and the contract signed.

Time to breathe a sigh of relief.

Get running! Once that deal is done, I doubt anyone can keep up. The implementation phase of any business in China is faster than a rabbit running fast. Faster than a speeding bullet on steroids. The Chinese characteristic is to move, move, move.

I used to wonder, when I went to Chinese companies, why there were dozens of people sitting on their hands and snoozing, who never seemed to be doing anything—until the army of minions needed to be mobilised. Once the deal was on, these same people would be working eighteen, twenty, a gazillion hours a day. With a Chinese business, everything has to be done yesterday. There is no delay and a quality of execution that is absolutely a beauty to behold—right up until, I should add (strictly in jest), the building collapses.

China is the world’s best at making things happen when the decision has been made. As a foreigner, used to a different pace of life and execution, it is generally very difficult to manage the Chinese pace if you aren’t used to it. Fortunately, a lot of the donkey work is done by the aforementioned teams, which have been waiting for just such an opportunity.

A word of caution: If there are tasks that you need to attend to personally or delegate to your own team, then it is essential that you be aware of and ready for this dynamic. Many people fail in China because they are unable to keep up. The Chinese side then gets frustrated and often ends up cancelling (or walking away from) contracts.

One final word on this topic: The Run Fast dynamic is the reason why China has developed with such unbelievable quickness. Every single cog in the wheel of development has been working at top speed. Once decisions have been made—and there is not an organization on the planet that can make decisions like the Chinese Communist Party—then the resources of 1.4 billion souls are brought to bear.

Anyone need a new subway built in nine months or fifty thousand kilometers of high-speed railway?

I know just the guy.

Chops and Seals

Power in China resides in chops and seals, not in signatures. Forget this at your peril.

I deliberated over whether this topic deserved its own separate section, and then I recalled the number of times I have seen malfeasance aforethought from cheeky partners misusing the chops and seals. If you find yourself in a partnership or an association, it’s important that you take this lesson on board. If you forget about the chops, then money has a habit of flying away, never to be seen again. So, let’s start again at the top.

Chops and seals are simply official red-ink stamps. They’re used to acknowledge a document’s legitimacy in much the same way as a handwritten signature in Western countries. The two terms can be used interchangeably; however, chop most often is used to describe an individual’s personal stamp, and seal usually denotes a company’s stamp.

Throughout antiquity, the power of the emperor resided in his seal; to lose one’s seal was to lose one’s crown. Nowadays, all government departments have their own official stamps. When you register with the tax department, you will be issued with an official tax stamp, which must appear on every invoice you issue. A “legal” receipt or invoice is one with this stamp on it. If you are foolish enough to forge this stamp—or any other official stamp—expect a long, long holiday planting cabbages on some forgotten hillside in remote Qinghai province.

Western businesspeople often assume that if they have signed a document, it will be considered acceptable or legitimate by the Chinese party to the transaction. Not so. Unless a document is officially stamped with either the company seal or the personal chop of the appropriate individual—and usually both—the document is not valid, even if it has been signed. Conversely, if the correct chop is on a document, it is a legal document, even without a signature.

Be sure that your articles of association or company rules specify that a document is only valid if it bears both your personal seal and the company seal—particularly where both parties must sign an instrument—and then guard your chop as you would guard your life.

One unlucky Western businessman of my acquaintance allowed the minority partner in his company to hold the chop. The minority partner locked it in his safe and refused to hand it over when the going got tough. The Western businessman had found a buyer for the minority partner’s shareholding but could not do a single thing without the seal. Chops are issued by the Bureau for Foreign Investment, and it will not issue another one unless both parties agree and sign (chop) to that effect. Since it is both illegal and foolhardy to have a new seal made without this mutual consent, the Western company was left with no recourse. It eventually closed down and was liquidated.

Examples of this type abound, so please take care.

Eating, Drinking and Being Merry

I also debated whether to include this summary of pretty basic etiquette for Chinese socialization but decided that it is very important to understand this if you are coming to China for the first time. Mistakes made at the dinner table can make a very bad impression, and it is therefore important to understand the way socialization happens in China.

The standard form of greeting in many Western cultures is the handshake. We offer the right hand, which in the past was the sword hand. Traditionally, this gesture showed that there was no ill intent on the part of the person making the greeting. Both parties looked into each other’s eyes as a further means of demonstrating goodwill. This greeting became a means of judging a person’s character, and even today, the “wet fish” handshake is usually deemed a sign of weak character, while a shifty-eyed person is never trusted. While first impressions are not definitive, the initial greeting tells us much, within the space of a few moments, about the character of the other person.

Unfortunately, the handshake and the frank gaze are of no use in China. In older days, to look directly into the eyes of a superior meant likely death. When the emperor ventured forth from his palace, the roads were cleared, and any unfortunates who encountered his entourage would prostrate themselves as low as they could go. They would never have dared look directly into the eyes of so magnificent a being as the emperor. This then, has developed into a cultural trait where many people consider it polite to avoid a direct gaze or a firm handshake. I do not say everybody, because with the last 30-40 years of development and opening to the world, some western customs are understood and appreciated – a firm handshake is one of these.

Similarly, there was no form of greeting equivalent to the handshake that developed into a means of communicating character between the ancient Chinese. This presents a problem for the Western businessperson. How can the true character of a person be assessed at an initial meeting?

Fortunately, there is way in which Chinese people assess each other. This all takes place at a banquet or a meal. The actual “etiquette” rules on such an occasion are much less important than the “manners” part—that is, the parts that put your character on display.

Banquets and Meals

Eating is a national pastime in China and dominates the Chinese psyche. The importance of food cannot be overestimated. Even the standard greeting between Chinese people, “Chi fan le mei you?”, means not “Hello” or “How are you?” but “Have you eaten rice today?”. Eating is therefore the key to the Chinese psyche. Some knowledge of the prescribed behavior for banquets and meals can assist the Westerner greatly. While there are formal rules governing matters such as seating order, the informal rules governing how a host behaves are more important.

Let’s start with the formal rules. If you are hosting your first banquet or meal, remember that the host always sits in the chair facing the door. The guests are seated according to their status or rank. The most important guest is given the place of honor: next to the host, on the right-hand side. The least important sits farthest away from the host, with his or her back to the door. (This custom may very well have come about because it was considered appropriate to expose the least important guest to the danger posed by any potential intruder or assassin; if there is a better explanation, it has been lost in antiquity.)

Toasts are conducted as soon as the first food arrives. To drink before the first toast is considered rude. The guest must be offered the first food. To eat before the guest has eaten would be very rude.

The informal rules concern the host’s responsibility to make the guest feel truly welcome. The host must ensure that the guest receives the best selections from the dishes; the guest’s bowl should be continually filled with delicacies. If the guest smokes, cigarettes should be offered at frequent intervals.

The host’s aim should be to overwhelm the poor guest with generosity and hospitality. The impression created must be one of total concern for the guest. Chinese people use such occasions to sum up the character of the other person, forming their judgments on the basis of his or her behaviour at the banquet.

It is not simply a matter of pushing more and more food, drink and cigarettes on the guest; your sincerity as a host will be carefully observed. Are you truly concerned with the guest’s well-being or merely seeking to impress? Do you deny yourself the best, looking after your guest, or do you think about yourself first? Are you really interested in the guest’s opinions and thoughts or merely paying false homage to the guest? These are the questions that will be answered in the minds of Chinese guests at a banquet.

A meal with your host is always a good chance to assess the Chinese party with whom you are considering doing business. Don’t worry too much about how your own behaviour will be interpreted. Remember that, as a foreigner, you are not expected to understand the nuances of Chinese etiquette. You will be forgiven any little gaffes you make.

What will not be forgiven, however, is any slip in generosity. When you host a banquet, do not do anything that will appear to be less than totally generous in the eyes of the guests. You are at the banquet to make genuine friends with the guests, and the Chinese believe that genuine friends do not stint on anything that will add to a guest’s enjoyment. I once witnessed an Australian property developer, after spending a great deal of time and money preparing for what could have been a very lucrative deal, kill any chance he had of developing a successful relationship with a group of Chinese businessmen—by arguing over a taxi fare. By haggling over a small sum, he showed his true character to the Chinese group, who immediately fixed him as an ungenerous host. The lesson is clear: A foreign host must show the utmost generosity and anticipate the guests’ every need.

To do this, it is not necessary to spend huge sums of money, going only to the most expensive restaurants. Many people make this mistake and then worry about the cost. It is better to choose a restaurant that is within your budget—and then act unstintingly. Think carefully beforehand: If everybody had the most expensive dishes on the menu, would you realistically be able to afford it? If the answer is no, then choose a restaurant farther down the list. Some of the most successful banquets I have attended have not been held at top restaurants. The hosts instead created a favorable impression because they were able to offer the best level of hospitality available at the particular restaurant chosen—and were therefore able to show their true capacity for generosity.

Having said this, if you are hosting the general secretary of the local Communist Party or the governor of a province, don’t embarrass yourself and your guest by going to a down-market place. Remember this individual’s position, as well as the fact that he or she is used to being hosted in the best places by the largest companies. You may give the impression that your financial capacity is not very substantial if you treat such a guest to a meal at a less-than-well-accepted restaurant.

Some General Company Rules and Advice

Some other traps await the unwary, but with sufficient care they can be avoided.

The following brief advice—much of it hard won—covers areas that you should look at carefully. Because China is a different market, and because Westerners find the environment challenging, it is important to keep awareness with you all the time.

Do

  • Write down everything that takes place at any meeting. The Chinese party to any negotiation will probably include three note takers. These three people all write a report on their impressions of the meeting. Their reports are then cross-referenced, written up into an accurate summary and filed for future reference. You must do the same if you want to win any argument in later official disputes.
  • Make English and Chinese language equivalent before law, at least as far as disputes are concerned. By law, the language or languages to be used in official documents and correspondence must be stated in the Articles of Association to have any degree of relevancy in a court case.
  • Insist that the Chinese and English versions of the contract are word-for-word translations. There will be no sympathy if they differ when you take a lawsuit against your partner.
  • Check and double-check all photocopied documents. A company that I know of changed a contract when it was photocopied, and the foreign partner suffered.
  • Make sure you hold the power to employ and sack staff; otherwise you may be saddled with the cast-off employees of the parent company.
  • Make sure you have your own independent translator on your staff when your company opens for business. Without your own translator, you cannot be certain whether or not the information given to you is accurate or deliberately misleading.
  • Assume that someone on the “other side” at any meeting speaks perfect English. It is not at all unlikely, at the very least, that someone on the other side speaks better English than your translator. Don’t expect to be told this.
  • Watch the valuation of technology and machinery. Valuation is usually done by a separate Chinese department, the China Commodities Inspection Bureau (CCIB). If you have overvalued your contribution, expect to be found out.
  • Invite high-up government officials among your connections to your signing ceremony. The higher the government official you have at your signing ceremony, the better chance there is of it succeeding. Go for a vice-governor or vice-mayor.
  • Seek publicity. A television interview about a project is a very good thing that gives your project face. This means that the other side will then be reluctant to back out. This is very difficult to arrange if you don’t have a substantial project. Radio and newspaper publicity are somewhat easier to organise and can be arranged using your relationships and connections. The media, in fact, welcome a chance to report on foreign companies’ doings in China, since such stories are different from their usual programs.

Don’t

  • Try to be clever. This is an invitation for the Chinese partner to do the same. You will almost always come off worst. Remember the sincerity rule.
  • Accept any offer of “female company.” Prostitution is illegal in China. If you accept such an offer, it will come back and bite you in the future.
  • Be rushed into signing an agreement or letter of intent. Conditions favorable to the other party are often presented at the end of a hard week’s negotiation, because they know you have a plane to catch. Reschedule your flight, or leave an extra few days up your sleeve. (This may be difficult because you will be asked directly, at the beginning of the negotiations, when you are leaving.) It is better to change your flight at the last minute so you can give matters due consideration than to be rushed into signing a letter of intent.

Three Myths that Need Cracking

  1. I need to drink myself silly to do business in China

Not anymore. In the old days, before China got itself on its feet, this may have been true, but today’s leaders shun late-night drinking sessions and karaoke bars. Today’s leaders tend toward being sober professionals who are more interested in business discussions than in staying out enjoying the nightlife. Toasts at meals have been moderated hugely in the last twenty years, and you are unlikely to be forced to get totally smashed, unless that’s what you want, and then it is your headache the next day—enjoy!

  1. I need to pay people to do business in China

Paying people to do business is corruption, and the Chinese government views this with extreme distaste—so much so that every year the government takes a pile of corrupt officials on a journey they don’t come back from. If you are doing business in China and are asked to “grease the wheels,” walk away from the deal. If they get caught, you get caught—and that’s your business life in China down the gurgler. Forming relationships to do business in China can be done without paying bribes. Gifts such as bottles of wine, silk scarves, etc. to show your appreciation are perfectly acceptable—but don’t be tempted to add a wad of notes to secure the business.

  1. I have good contacts in Beijing. I am OK!

A connection in Beijing will not solve all of your problems, and it probably will bring you more. Beijing is the seat of the central government. People often assume that because they have developed some links with central government, they can then do business anywhere in China. Remember, “The mountains are high and the Emperor is far away.” China is a vast country—vast in both geographic size and population. Local connections are needed to do anything locally. In fact, the provinces generally run their own shows. Touting good relations with Beijing often makes the locals feel that they have been bypassed—and that’s not good for your business. Stick to the provincial/municipal level to get business moving.

 Summary

The Middle Kingdom runs on different rules. You need to get to terms with those rules if you want to swim in this pond. The country is changing in every way at a pace that is hard to imagine, and you can be a part of this miracle if you do things right.

Adhering to the different Chinese way of doing things is honestly not rocket science. You need to be sincere for a start—and that can’t be all that hard, can it? You need to be friendly or have a friendly demeanor, so that you don’t scare away the birds. You need to be focused. You need to be mindful of a debtor’s ledger of favors and generosities—a favour with no gratitude is an enemy made. Okay, maybe that’s a bit harsh, but the person whose favor you don’t appreciate will judge you badly and consider you insincere.

To sum up, here’s my advice for new business entrants to China in a nutshell:

  1. Get your boots on the ground. Spend time here. Kick around. Read. Learn. Meet. Analyse. And then do. This is the most essential piece of advice that anyone can take—from it all the other aspects of a successfully business flow. You can’t build true relationships without being there.
  1. Get some help. Develop some relationships—good, honest and sincere relationships. Tennis anyone? Glass of wine after work? Help with a visa? Teach a kid English? Get your network built. Attack this phase as if your life depended upon it—because it does. No web of relationships equals a miserable existence and probably failure in China.
  1. Use Items 1 and 2 to get yourself a good partner/partners. This will make all the difference. If you are working with partners to whom you are connected as if you were family, then the result is foregone: You will prosper.
  1. Learn to drive in China—not literally, as that might turn your hair white—but learn to drive the car of business using the same rules that drivers use on the road.
  1. Take everyone out to dinner all the time—and look after them. Seriously. The meal is the place, and the more the better.
  1. The exact opposite of everything I have just told you is also true. It’s like quantum physics: There are two states, and we don’t know which is which until we observe them. Yin and Yang. Deng Xiao Ping’s cat might have been white—but I am sure there was a black cat in there somewhere.
  1. Check all details all the time. If this is onerous, then get someone on your team to do this. Check, check and recheck. The devil truly lives in the details in China.
  1. Relax. China looks big and scary, but it isn’t. Just enjoy the beautiful nature and generosity of the Chinese people. The energy and enthusiasm. The unpredictable. The good, the bad and the ugly—you’ll find them all here. Relax and enjoy in the world’s oldest continuous civilization and culture.

So sit back, relax and learn from the masters:

名师出高徒

Renowned masters always have talented followers.

And:

不要班门弄斧  

You don’t need to teach the carpenter how to use an axe.

With the implication that you need to learn from masters as well …

 

 

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