How to negotiate with Chinese companiesIn this series of posts I am looking at themes explored by Lucian Pye in his work Chinese Commercial Negotiating Style. Pye concludes that the way most Sino-Foreign negotiations are conducted helps the Chinese side apply its preferred strategies and tactics. My first post looked at how Chinese companies tend to control the preliminaries during what I have called the “courtship” phase. The second post considered what Pye has to say about the Chinese tendency to prefer agreements on generalities. In this third post I examine what he has to say about specific Chinese negotiating tactics.

According to Pye, Chinese negotiators tend to use the following tactics:

Open with flattery — In response to flattering remarks the foreigner feels compelled to give an enthusiastic affirmation. The foreigner is then called on to give an emphatic denial of a feigned, self-deprecating remark. This puts the foreigner on the back foot from the outset.

Operate on two levels — There is the manifest level of bargaining about the concrete and there is also the latent level at which attempts are made to strike emotional bargains based on dependency. Chinese negotiators seek relations in which the foreigner will feel solicitous toward China, thus implicitly becoming a protector and more a superior than an equal.

Focus on mutual interests — Westerners like to think of themselves as conciliators. The Chinese tend to reject the principle of compromise and prefer instead to stress mutual interests. When mutual interests have been established it is easier to ask the foreign party to bear a heavier burden without protest.

Use meetings as seminars — Negotiations are seen partly as information-gathering operations. Foreign competitors are played off against against one another to extract maximum technical intelligence from presentations. Negotiating sessions are used frequently for training purposes. The foreigner is encouraged to perform so as to impress the passive Chinese host. The obliging guest entertains in repayment for hospitality and brings “gifts of knowledge”. Put simply, Chinese companies often claim to want to do a deal with you when all they really want is to get access to your technology or know-how. I cannot stress enough how often our China lawyers see this sort of situation.

Blur the lines of authority — You can’t tell who reports to whom or where the apparent leader fits in the hierarchy of the Chinese company. Negotiating teams tend to be large but the lines of authority are diffuse and vague. Chinese negotiators are often unsure of their mandates and of the probable decisions of their superiors. They therefore tend to give inaccurate signals about the state of negotiations. Foreigners persist in trying to find a particular person who has command authority at each level. In China it cannot be assumed that power is tied to responsibility. Proof of a person’s importance often lies precisely in their being shielded from accountability.

Never say “no” — Chinese negotiators will frequently seem to be agreeing when they say something is “possible” but often this is an ambiguous way of saying “no”. They will often respond with silence to a proposal and then at a much later date suddenly return with interest.

Never telegraph their next move — Chinese negotiators don’t telegraph their next moves through displays of emotion. The level of friendliness or impersonality remains the same whether negotiations are heading for success or failure. This brings surprises. Warm and progressively friendly meetings can lead to disappointing outcomes. Chinese negotiators are quite prepared to end meetings or negotiations on a negative note. As negotiators often have little authority they often find it prudent to maintain a negative attitude. At the same time, apparently disinterested negotiators can suddenly announce that a positive agreement is possible.

Exploit Chinese members of the foreign team — Ethnic Chinese associated with the foreign team will be sought out in the belief that they are naturally sympathetic to China. Our China attorneys have also seen many instances where an Ethnic Chinese person on the foreign side is accused of disloyalty for not siding with the Chinese side in the negotiations — always in Chinese, of course.

Use “shaming” — Chinese negotiators may be quick to point out “mistakes” in an effort to put the foreign party on the defensive. There is a deep belief that people will be shattered by the shame of their faults so there is a tendency to make an issue over trivial slip-ups and misstatements.

Make big asks — Chinese negotiators often have no hesitation in presenting what they must understand are unacceptable demands. These demands are often accompanied by a hint that they will be withdrawn in return for only modest or symbolic concessions. Extreme language is often used to obtain symbolic victories.

Stall — Chinese negotiators are masters of creative use of fatigue. They have, according to Pye, great staying power and almost no capacity for boredom. These traits keep foreigners’ hopes alive. This approach may also reflect lack of experience, bureaucratic problems or a subordinate’s fear of criticism from above. Conversely, when agreement reached it is often the Chinese who become impatient for deliveries by the foreigners. For more on this tactic, see Doing Business In China Requires Patience. Don’t Just Be Leaving On That China Jet Plane.

As I have said before, Pye never moralizes or suggests there is anything wrong with the Chinese approach. He merely points out how different it is from the typical Western approach, leaving readers to conclude that foreigners ignore or disregard Chinese negotiating tactics at their own peril. This is certainly consistent with our view that one should not rush to blame the Chinese when things go wrong.

In my final post in this series I will outline Pye’s tips for foreigners when negotiating with Chinese companies.

I spoke last year at a doing business in China conference where the keynote speaker stressed the need for companies doing business with China to adjust their China business plans to China’s Five-Year Plan. If you want to know where China is going over the next five years, read its Five-Year plan, as China has and will continue to hew closely to it. If your China business plan coincides with China’s Five-Year Plan, your likelihood of success will be considerably greater than if it does not.

The other day my friend Greg Anderson, who also just happens to be one of the most knowledgeable people around on China’s auto industry and the author of the highly acclaimed book, Designated Drivers: How China Plans to Dominate the Global Auto Industry, left the following Facebook post:

If Tesla understood the purpose of China’s green car incentives, they wouldn’t be wasting time on this futile quest. It’s all about pushing Chinese automakers to develop their own proprietary green technology. Reduction of auto emissions is only secondary.

I do not know if Greg is right about Tesla in China, but I do know that I instantly saw in that small post what has happened with so many of my law firm’s environmental clients in their quest to sell into China. When we first started this blog way back in 2006, we were really gung-ho about American companies profiting off China’s proclaimed desire to clean up the environment.  We believed that our clients that possessed the best and the cheapest clean-up products and services would thrive in China, but few of them did.

We attributed their failure to thrive mostly to the various governments in China favoring local companies due to payoffs. After seeing Greg’s post, I have to think China’s technology goals might also have been a factor, cause when doing business in China, the policy matters.

What do you think?

When we first started this blog, the media was obsessed with “doing business in China stories.” Nearly every week there would be a good first person account from someone recounting what it is/was like to do business in China. I often found those pieces quite helpful as they tended to deal with on the ground specifics and I always feel like I am channelling Ronald Reagan by taking the example of one business and extrapolating it to a massive and diverse country.

For those who like such things, here is a partial list of some of those posts:

Most importantly, we always love it when someone with real on the ground China business (not China law) experience sets forth some of the same China maxims as us.

I am in a writ large mood today because I just read a very helpful doing business in China article, entitled, An Architect’s Guide to Working in China. The article provides ten tips for doing business in China and must of those tips apply to any sort of company seeking to succeed at business in China, particularly any service companies that are doing business with Chinese companies.  Here are my three favorite tips, with my comments in italics.

  • Make sure that your client is able and willing to pay for your work. Insist on being paid up-front, if possible, and never agree to do any unpaid work. A very good tip. If the Chinese company is not willing to pay you a large amount upfront, there is a very good chance you will never get that large amount ever.  
  • Many projects may have, at least initially, more to do with ‘market research’, ‘branding’, ‘image’ or ‘positioning’ and not actual design. In other words, do not let yourself get sucked into giving away so much advice that you essentially do the work for nothing.  
  • Don’t assume that as a Westerner you could somehow override and ignore Chinese planning law, Chinese building regulations or any unwritten Chinese rules and standards, even if they seem entirely unreasonable to you. This applies to whatever business you have in China. China is not going to change its laws for you, no matter how unreasonable you may find them to be. 

All good advice, don’t you think?

I urge you to read the full article.

I am about to heartily recommend a book that I have not read, nor even seen.

The book is The Big Four and the Development of the Accounting Profession in China (Studies in the Development of Accounting Thought, by Paul Gillis. And despite not having read the book, I am quite certain it will make for a helpful read. I am certain of this because Paul Gillis knows as much about the big picture China accounting issues as any other English language speaker out there. Paul has written extensively and well (both on his blog and elsewhere) about the Big Four in China and about China big picture accounting issues and if his book were nothing but a compilation of previous writings (which it is not), it would still be well worth the read. Paul is to whom I refer journalists and others seeking answers to China accounting questions because he is the guy with the answers.

So if China accounting is your thing, read the book.

For a pretty comprehensive list of recommended English language books on China (with a slant towards those that are instructive for doing business in China or practicing China law) check out A New China Book List.

This post is by Grace Yang, one of our China lawyers resident in Beijing. Grace has her B.A. from Beijing University and her J.D. (law degree) from the University of Washington. Grace is licensed to practice law in Washington and New York States and she will be sitting for the China bar exam this fall. The below post stems from a recent project/memo Grace did for one of our American clients doing business in China.


We are often asked whether it is legal to pay a non-Chinese employee from both the China WFOE and from a company outside China (usually the US parent company).  The answer to that question is an easy yes, but the tax issues that arise from that are where things get difficult.

It is perfectly legal for an American company to pay its American employees from both China and the United States. However if your American employees are resident in China for more than 183 days in any calendar year, you must pay taxes in China on the combined U.S.-China salary of your employees. This obligation to report and pay taxes is stipulated in the Circular of the State Administration of Taxation on Income Tax Paid by the Enterprises with Foreign Investment and Foreign Enterprises for Their Employees on Behalf of Their Enterprises Abroad (Guoshuifa [1999] No. 241).

The Circular on Questions Concerning Tax Payments for Wage and Salary Income Gained by Individuals without Residence within the Territory of China (Guoshuifa [1994] No. 148), mandates that if your employee works in China for less than 183 days in a calendar year, he or she is obligated to pay taxes only on that portion of salary received from the China WFOE when he or she was in China.

But if your employee works in China for more than 183 days but less than 365 days and so long as your employee did not live in China for a full year prior to this year, your employee must pay China taxes on the salary paid by the China WFOE and on the salary paid by your US entity during the period he or she is in China. In other words, your employee must pay taxes on whatever salary was earned in China, no matter who pays it.

If your employee works in China for over one year, but less than five years, your employee must pay China income taxes on the salary received from the China WFOE as well as on the salary received from your US entity during the time your employee is in China.

Don’t let the above throw you off, it is actually quite simple: if your employee works in China for 183 or more days in any calendar year, both you and your employee must pay tax on the combined U.S.-Chinese salary. There is no way around this obligation. We advise our clients to take this seriously, because failure to comply with this rule can result in penalties for both the WFOE and for the employee.

The problem is that foreign companies have customarily ignored this rule and while Chinese tax authorities have recently become much more aggressive in enforcing it. The issue normally arises when the employee applies to renew his or her visa. If the employee has resided in China for more than 183 days, the local tax authority will request a copy of the employee’s US tax return. If the employee fails to provide the US return, that employee’s visa gets denied. If the employee does provide the U.S. tax return, the tax authorities assess the tax, along with interest and penalties.

Our China attorneys are aware of several cases where foreign employees were denied entry into China after 183 days of residence for failing to report their combined salaries. We also are aware of multiple cases where the Chinese tax authorities took very aggressive penalty actions against WFOEs for failing to report and pay taxes on the combined salary of their high level China company managers. The risk of noncompliance is therefore significant.

So what should your WFOE do? Report the combined salary and pay the full tax, or ensure your employee resides in China no more than 182 days in any calendar year. In part II (coming tomorrow), we explain why you really do have no choice in this.

Okay, no sooner do I tout a list of ten keys for doing business in China but a loyal reader sends me another such list by which he swears. This list was created by Michael Witt, an INSEAD Professor of Asian Business and it makes up a Forbes article, entitled, The Ten Principles For Doing Business In China. It is described as “ten insights intended to help your business be successful in its China operations” and it too contains excellent pointers for foreign companies doing business in China.

Here is that list with my comments in italics:

1. Do your homework. When China operations get into trouble, a lack of preparation is a common theme. Very true. I hate to say this, but in my experience, foreign companies that get in trouble in China are usually at fault for not having better prepared.  

2. Beware of industrial dynamics. A common cause of losses in China is that foreign firms are so focused on market growth rates that they neglect the basics of competitive analysis. In the beer industry, for instance, more than 20 foreign brewers entered in the mid-1990s, each of them planning to capture on average 15 percent of their market segment. In a market lacking clear differentiation, they also found themselves competing with around 600 local brewers, many of them subsidised by local governments. Some expected these issues to disappear over time, but almost twenty years later, the fundamental situation has changed little. Many industries in China resemble the beer industry, with overcapacity, high levels of fragmentation, subsidised local competition, and foreigners willing to absorb losses from their “strategic” investments. Agreed. This also fits into the overall need to prepare.  

3. Take your time. Many companies want to get on the ground quickly. In one case, the CEO told his head of strategy to get China operations going within six months. Time pressure of this sort can create problems later on. It tends to result in sloppy planning and analysis. It shifts the attention from finding the right partner to finding any partner, regardless of partner fit. Moreover, it weakens your hand in negotiations. Your Chinese counterpart will know how to use your time constraints against you, and you will walk away with a worse deal. Completely agree. In my experience, there is a direct correlation between speed and quantity of mistakes. Again though, this fits into the overall need to prepare.

4. Chinese society is collectivist.  Chinese society is collectivist in that individuals identify with an “in-group” consisting of family, clan, and friends. Within this, cooperation is the norm. Outside it, zero-sum competition is common. Zero-sum competition means that your Chinese counterpart may not believe in win-win solutions. One can observe this, for instance, in the tendency to re-open negotiations just as everything seems settled, especially if one seemed too ready to agree with the negotiated terms; one’s counterpart may interpret this as an indication that s/he has not bargained hard enough. Absolutely true, and foreign companies that ignore this do so at their peril.  For more on negotiating with Chinese companies, check out How To Handle Chinese Negotiating TacticsHow To Handle Chinese Negotiating Tactics. Part TwoHow To Handle Chinese Negotiating Tactics. Part Three.

5. Mistrust and opportunism are endemic. There are two opposite ways of extending trust. One is to trust until given reason not to; the other is not to trust until there is enough evidence of trustworthiness. China takes the latter approach. The zero-sum competition already noted creates an incentive to take advantage of people outside the in-group. As a consequence, the Chinese tend not to trust people outside their in-group. Take your cue from them. Completely agree. Foreign companies doing business in China should not be afraid to show a lack of trust.  For more on the need for conducting due diligence in China and how to conduct due diligence in China, check out the following:

6. Trust is interpersonal and takes time to build. A common safeguard against opportunism is to build relationships of trust with persons who matter for your business. Unlike in the West, the creation of personal friendship is a prerequisite of doing business. Building friendship takes time, which is another reason to avoid rushing into things. Besides numerous invitations to sports and other events, one key element in building trust is long dinners during which everything but business is discussed. In these, alcohol plays an important role. Learn to drink intelligently. Seasoned negotiators dispose of the alcohol into their water glasses or into the wet towels most good restaurants make available. This is true, but plenty of business with China gets done these days without these sorts of personal relationships.

7. Notions of “out-of-bounds” behaviour do not necessarily match. Chinese negotiators occasionally push beyond what their Western counterparts consider appropriate bounds. For example, the representatives of a large Western firm were negotiating the distribution rights for one of their products. Their Chinese counterparts closed their initial pitch by threatening to use their political connections to prevent distribution of their products if they did not receive the rights. In another case, the Chinese party got their Western guests drunk to prevent them from being effective in negotiations the following morning (which, on the Chinese side, involved a completely different set of people). These sort of things do sometimes happen but smart companies generally have little problem in dealing with them.  

8. Chinese society is hierarchical.  Company decisions are typically reached in a top-down manner, with only the very top of the pyramid involved in decision-making. Mistrust puts limits on delegation, and supervisory control at each level is high. Be aware in negotiations that the decision is ultimately made at the very top. If your counterpart is not part of that group, s/he is typically not authorised to make major decisions but must report back to the top for instructions. Completely true.  

9. Government in China is decentralised and in important respects, bottom-up.  Conventional wisdom holds that China’s governmental structure is highly centralised, with all key decisions made in Beijing. In reality, Beijing directs little of what happens throughout the country, especially in far-flung regions. To be sure, if Beijing truly wants something to happen, it will. Expect conditions to vary by location. In addition, to the extent you need to negotiate with government, it is crucial to involve the local government. Even if you have agreement from Beijing, if the local government wants to thwart you, it will. Generally, you want to be sure that both the applicable local government and Beijing are okay with your China business plans.  

10. Be conscious of the large picture. Most of the growth in China since 1978 has come from private small and medium-sized enterprises. Today, they make up about 65 percent of Chinese GDP. If so, fierce competitive battles seem likely for the future, and easy access to state money for these firms means the playing field will not be level. Government may be on your side as long as your technology is needed. Keep this in mind when selecting a partner for cooperation or considering market entry.  Sure.

I think the above list is highly accurate, but as far as being helpful for conducting business in China, I prefer Hupert’s.  What do you think?

Had lunch the other day with a bunch of people I consider to be China experts (to the extent there is any such thing).  During our lunch, GSK’s China corruption issues came up and we mused as to what was really happening in China by way of anti-corruption enforcement.  The following views were expressed:

  • China is serious about corruption and it is starting with the pharmaceutical industry because corruption is so entrenched there. China is going after both domestic and foreign companies, but we are just hearing more about the foreign companies. This is just part of China’s desire to reduce corruption because the Chinese people are really sick of it.
  • China is focusing on its pharmaceutical industry because its citizens are unhappy with medical care pricing. Why not go after a high profile foreign company to show the people that the cause of high medical care prices is foreign companies and we the government are aggressively working to solve the problem.
  • China is focusing on foreign pharmaceutical companies because it wants to do what it can to level the playing field for Chinese pharmaceutical companies. The pharmaceutical industry is of critical importance for China (both domestically and worldwide) and it does not want foreign companies dominating this industry.
Upon reflecting on that lunch, I come up with the following takeaways (pun intended):
  • Nobody really knows where and when the Chinese government will strike next when it comes to corruption. We all just know that it is striking a lot more often than it used to and striking against a much more varied list of companies (the smaller foreign companies that have gotten hit have for the most part managed to stay out of the news).
  • If you are a foreign company doing business in China in an industry the government deems important, you should be extra worried/cautious.

What are you seeing out there?

As China’s economy continues to contract, our China lawyers are getting an increasing number of inquiries from companies seeking to sell their China WFOEs. In fact, we are aware of the following currently on the market:

  • A Shanghai consulting WFOE
  • A Beijing consulting WFOE
  • A Dalian manufacturing WFOE

Back in May, in Buying And Selling China WFOE Shell Companies. Not In My Lifetime? we wrote about the difficulties inherent in selling/buying a China WFOE:

The thing about off the shelf WFOEs is exactly that: they are off the shelf and not customized. And that is where all of the problems arise. Let’s take as an example a WFOE that someone tried to interest me in many months ago. That company was in the IT outsourcing business in a second tier city. So right there, its only real potential buyer is someone who is interested in doing IT outsourcing in that second tier city. Because if the buyer of that WFOE is interested in doing anything other than IT outsourcing, it will need to petition the government to expand or change its business scope. Similarly, if the buyer is interested in doing IT outsourcing in some other city, it will need to petition the government to move its WFOE or it will need to set up a branch in that other city, and thereby have to maintain two offices. When you throw in the fact that anyone buying a WFOE will need to conduct due diligence on it to make sure that it truly does have no liabilities of any kind (including, tax, employee, environmental, tort, etc.) and you can quickly see why forming a WFOE is going to be safer and probably equally as fast and cheap. The biggest benefit in buying a shell WFOE would be speed, but it is going to be the rare instance where saving a few months will warrant the extra risk.

In WFOE Shell Company? You’re Kidding! The China Business Hand Blog nicely sets out how difficult it can be to sell a China WFOE, and this from someone who actually did it!

The China Business Hand blogger, Steve Barru, formed a WFOE in China in 1993 but when he took a job in 2005 he sought to get out from under that WFOE. As he puts it, he “could close the business and walk away or try to sell it, [but] …. it turned out that neither option was simple or straightforward.”

At first Barru thought that closing it down would be easy, but it being China, he was wrong about that:

Closing down the business and moving on seemed the easiest way out. Until I discovered that terminating a WFOE license involved getting approval to do so from the long list of government agencies that had approved the license in the first place. To make matters worse, shuttering the business would cost me around $2,000 in fees of one kind or another.

If I had been leaving China altogether in 2005, I would have settled up with my two employees, gone to Hong Kong to convert the company’s remaining Chinese funds to US dollars, and gotten on a plane home, letting Chinese government officials sort out what to do with an abandoned WFOE. Alas, my new job was in Beijing, so this was not an option.

I went to the primary licensing authority, the Bureau of Industry and Commerce, to ask if there was a formal procedure of some kind to make the company inactive (aka: a shell company). Nope. As long as the company existed, I would have to file monthly tax reports, complete the statutory annual audit and license renewal procedures, and meet all of the many reporting requirements of other agencies. The fact that the company would not be engaged in any business activity made no difference whatsoever.

It being so difficult and expensive to shut down his WFOE, Barru then sought to sell it, which too proved difficult:

Selling the company, even for next to nothing, quickly moved to the head of the line. But transferring the business license and my legal person status to the wannabe new owner involved far more than filling out a couple of forms.

It was the buyer who had to jump through the bureaucratic hoops. For all intents and purposes he went through the same process one goes through to establish a WFOE. With one key difference – he did not have to invest new capital in the company. The original US $70,000 in registered capital (that I had put in and had later managed, for the most part, to take out) was all that was required. Since registered capital for a WFOE had increased to US $200k by 2005, there were demands for additional investment, but rather convoluted negotiations eventually got around this obstacle. Fortunately, the buyer was located in Nanjing. The need to move the WFOE to a new locale would have been a deal breaker.

Eventually, after several months of discussions and chopping forms, all the questions about registered capital, business scope of the company, the good character of the new owner, and the license transfer had been answered and the sale was complete. The price probably covered my express mailing costs and bought me a couple of dinners. But I was out from under what had become an enormous, very time consuming headache.

As Barru so accurately observes, forming and running and even closing a business in China is going to require you to get up close and personal with your local bureaucrats:

The fact is, when you are doing business in China, the local government where you operate is your de facto partner. Chinese bureaucrats were involved in every aspect of my business over the years, sometimes in reasonable ways but on occasion as meddlesome pests sticking their noses into strictly business decisions. Even the end of my days as a WFOE owner involved getting government officials to, in effect, give me permission to let my business go.

The same holds true today, though just recently there have been some efforts in China to make WFOE formation easier, but so far we have yet to see it.

Got an email the other day from a China business consultant I know.  The email (modified a bit so as not to hide information) follows:

Hello Dan,

A quick question/insight into the Chinese business mind. We are set to go to China next month with a client and I suggested we hire a professional translator to go with us, but the Chinese company on the other side “blew a gasket,” citing confidential business information and claiming we should not bring a translator because they have a close relationship with the government. I suggested that they find a translator they trust and that seems to have been ignored.

Why the absolute insistence that no translators be allowed? Doesn’t this beg the obvious question. This Chinese company is generally doing what we want them to do overall but we would like some clarity in our discussions and we certainly want more clarity in our correspondence.

They translate for us what they think we need. Just a bit frustrating.

Any curbside thoughts?

Yes. Many. Someone is definitely being played here and there are the following markers of this just in your short email:

  • “Close relationship with the government.” This doesn’t have anything to do with your desire/need to have a translator and I am concerned this is their subtle way of threatening you. Seems they may be saying that if you do bring a translator, they will use their close relationship with the government to prevent your client from doing business in China.
  • Of what are they afraid? Why don’t they want a translator? Honest and legitimate Chinese companies tend to want clarity; dishonest and illegitimate Chinese companies tend to want obfuscation. Our China lawyers oftentimes tell our clients this when it comes to drafting contracts and it applies with even greater measure when all you are seeking is to use a translator.
  • It should be more than “a bit frustrating” that they translate for you only what theythink you need; it should scare the heck out of you.

I know I cannot turn back time, but what you really should have done was to have gone over there with someone to translate and then just introduce that person as someone there on behalf of the company. That person should not be Chinese and should not look Chinese and that person should never speak Chinese in the presence of the Chinese company. In other words, that person should be your stealth translator. It may be too late for you to pull that off, but that would have been my advice to you a few months ago. I can tell you story after story about the great stuff foreign companies doing business in China have been able to learn from stealth translators but I will save that for a later day.

What do you think?

A friend emailed me a post the other day and asked me if I agreed with him that it was the “most helpful post your blog has done for helping foreign companies doing business with China.” My response was that I wasn’t sure, but that it certainly ranked up there and that it had been so long since we did that post (more than seven years), I would run it again. Certainly though the advice in that post holds equally true (or more so) today as it did way back then.

Here is that post:

If you are doing business in or with China, you have to check out ChinaSolved. It is operated by my friend Andrew Hupert, who also operates DiligenceChina, [link no longer exists] which is one of the best China business blogs. ChinaSolved is shaping up as a terrific resource on doing business in China. It is already chock-full of useful business advice.

Its article, “Ten Commandments for Westerners In China,” [link no longer exists] is typical of the site’s excellent and straightforward advice for foreign companies doing business in China. And I found myself agreeing with nine out of ten. Here goes:

  1. “Know what you don’t know” (for many westerners, this is by far the most difficult challenge.). Any similarities between China and “back home” are purely accidental. This is a completely different culture. Do not be fooled by surface similarities or by local people who “seem to get it.” Sources of reliable information are your #1 asset.
  2. China is still a communist country – and there is absolutely zero chance of that changing any time soon.
  3. You have to show up to win. You must be physically present and put in the “face time.” There is no “autopilot” in China business. If you feel that you are too busy to learn about China, then you are certainly too busy to be successful here.
  4. If things worked well here in China, then there would be significantly fewer opportunities for competent westerners. Try not to get too frustrated by the challenges you face.
  5. Time does not mean money here. Chinese business people do not believe in “opportunity cost.” Even simple negotiations can drag on for a long time. Avoid getting sucked into an endless cycle of meetings that don’t accomplish anything.
  6. Truth, honesty, good-will and long-term benefit are all culturally-specific concepts. Don’t expect your western standards to carry over here. Win-Win is not standard operating procedure here. Do not fool yourself that your long-term relationship with a local partner means anything.
  7. Don’t check your brains in at the border. You wouldn’t hand over your company’s money, intellectual property or trademarks to a virtual stranger in Sydney, London or San Francisco and expect to make a windfall. Don’t do it in China. The people that are offering to open doors for you are the same ones that can lock you out. Beware of people who peddle their “powerful friends and great connections.” They can use them to hurt you as well as help you.
  8. Due Diligence becomes more important when the language and systems are unclear, not less important. Don’t settle for the “least worst” deal or partner. Partners don’t get more honest and relationships don’t improve as the amount of money involved increases.
  9. China will still be here next year, and in 5 years. Don’t be pressured into signing a contract or making a deal because you are afraid of “missing the boat.” The boat has been here for 4,000+ years.
  10. Having a sense of humor helps. Having a Plan B helps even more.

I agree with all but number 6.  I understand why ChinaSolved felt it necessary to put it in here, but I think it is wrong.

Truth, honesty, good-will and long term benefit are not culturally specific concepts and long term relationships with local partners mean a lot. I think ChinaSolved felt the need to put this in here to make up for the common mistake of Westerners equating a week of good businesses meetings and friendly dinners in China with being set for life. All of us (China consultants, China accountants, and China lawyers alike) who represent Western companies that are doing business with China could fill a book with stories of China deals gone bad. So let us just take it as a given that Western companies constantly make the mistake of trusting too much, too soon.

But, I personally have also have seen enough to fill a book about excellent, mutually beneficial relationships between Chinese companies and Western companies.  And, at least as far as I know, every one of those successful long term relationships was based on trust and mutual long term benefit.

So I say we downsize to just nine commandments.

What do you think?