China Law Blog

The Asianist favorably commented on our recent post criticizing a Sydney Morning Herald article for giving wrong advice on China business.   In language more colorful than we lawyers could ever muster, the Asianist's James Na agreed that the trend of foreign business in China is to move away from joint ventures and guanxi towards wholly foreign owned enterprises and business networks.  Mr. Na took our post a step further, by noting the following:

"I am increasingly hearing from expatriates who are doing business in China that:

1) You often get screwed when you get a partner/joint venture.

2) Developing your own network takes a lot of work and much local know-how, but produces very handsome dividends in the end, particularly outside super large cities like Shanghai -- in other words medium size-cities where fewer foreign firms venture. Untapped, but still lucrative and has economy-of-scale, apparently.

3) "If you must suck up to any government official, do so with the local ones, not central government ones as China is much more decentralized than people assume, particularly in "retail" running of regulations."

I particularly like the Asianist's comment that "China is much more decentralized than people assume."  In a recent article, Spiegel Online (part of the big German news magazine, Der Spiegel), put it even more bluntly:  "Provincial officials and managers customarily ignore edicts issued by the planners in Beijing."

Even Spiegel Online (though correct on the result) is wrong to think local officials consistently ignore Beijing.  The reality is that Beijing has quite intentionally and quite clearly given local governments authority over approval of the vast majority of business projects in their respective locales.  Since local authorities have this power, their actions are actually consistent with central government policy.

I am convinced one of the primary reasons so many believe Beijing controls all foreign business in China is because so much is written about its control.  James McGregor's excellent book, One Billion Customers, is a classic example of this.  Most of the examples in the book involve Beijing governmental interference, yet that is because most of the examples involve huge projects that have the potential to invade the government's turf, like setting up a nationwide television station, a nationwide cell phone service, and a nationwide press service.  It just is not a story to write about how a Pizza Hut opened in Xiamen or a Carrefour opened in Qingdao without any influence one way or the other by Beijing.  Additionally, so much of the press on China comes from Chinese mega-cities like Beijing, Shanghai, and Hong Kong, which have an incentive to propagate their own importance. 

Decentralization in China is a fact and the smart foreign business starts local and then radiates outward only when necessary.  In our representation of SMEs in China, we rarely deal with Beijing at all.