Also I would characterize the issue with HK/Taiwan differently. Chinese politics works with different inner circles, and there are different ways of forming relationships. For example, if your business depends crucially on good relationships with suppliers and officials in Guangdong or Fuijian, a fluent Cantonese/Min-nan speaker is *very* useful (keeping in mind that not all Chinese from HK speak fluent Cantonese and not all Chinese from Taiwan speak fluent Min-Nan). Someone from Beijing is less useful. By the same token, someone in the Shenzhen local government is most certainly not in the "inner circle" of the Chinese central government. On the other hand if you do have a friend in the "inner circle" in a Beijing central ministry, they may be able to do nothing for you in Shenzhen.

Also, there are more than a few Taiwanese and Hong Kong people that view mainland Chinese with contempt. They probably aren't going to be that effective at business management.

Since Chinese business (like everything else) works on relationships, you have to see what those relationships are. There are some relationships that are unavailable/uncommon to non-mainland Chinese (membership in the Communist Party and going to the elite schools). But there some which are (i.e. going to school at Harvard and working at Goldman-Sachs). Alumni and work relationships are extremely important, and someone from HK and Taiwan that went to the same school or worked in the same investment bank as someone from the PRC is very, very useful.

What I'm seeing here is someone got burned by one "stereotype" (all Chinese are alike), and then is taking in another stereotype (all Mainland Chinese are alike) which is also going to burn him.

In order to really get your executives in the inner circle of PRC decision making, they basically have to be Party members or own favors to people who are. If push comes to shove, who are they going to take orders from, you or the Politburo?

Maybe you are in a business where having friends in the Politburo is a good thing, but you have to look at the costs. You might be able to get into the inner circle, but it's not going to be for free.

Also in some areas (banking is a bit one), foreign companies are especially welcomed because they *aren't* part of the inner circle of decision making and so can provide insights and advice that is unbiased by internal Party politics.

One thing about China is that sometimes it's a bad idea to "go native" if you just aren't. Think of it this way. If you are a Chinese in the United States, are you better off trying to open a great Chinese restaurant or a poor Cajun restaurant? Similarly, an American company in China has to seriously ask, whether they are better off trying to be a great American company doing business in China, or a mediocre Chinese one?

This sort of applies to my one branding. I'm not mainland Chinese. I'm an American-born Chinese. In a lot of situations, I'm better off in Chinese society emphasizing my "foreignness." For example, I'm very blunt, which falls into the Chinese stereotypes that people have about Americans. But sometimes you need someone that is blunt, in which you bring in the "American."

One reason that a lot of companies use HK, Taiwan, and overseas Chinese as managers is that while they have good language/culture skills, they *aren't* very connected with the inner circles of power whether they are local or national. The problem is that if you have someone that is extremely connected, then you have much less control over them.

Dan: The reality is that labor costs are still considerably less in China than in the United States or Western Europe

This is true but irrelevant. If you are thinking about thinking about China in terms of labor costs, your alternatives are not the US or Western Europe, you are likely looking at Mexico, India, Vietnam, Costa Rica, or the Chinese interior.

Dan: I always get irritated with statements like this, mostly because I only hear statements like this from company executives trying to convince the public that they are in China for reasons other than cheap labor.

One big factor here is that for an emerging market, Chinese labor isn't particularly cheap. You can get a lot cheaper labor in Angola or Uganda than you can in China. China's advantages are relatively cheap labor combined with about thirty other things.

Third world labor costs with near first world port facilities, freeways, and literacy rates. That's something that is very, very difficult to reproduce.

If you want to do something that requires large amounts of face to face interaction (finance and real estate). Then not being in the center of the action is going to hurt you a lot.