It is not unusual when China lawyers get together to talk about Chinese company negotiating techniques. It also is not unusual for at least one person to describe them as inscrutable. In an effort to make them more scrutable (that is actually a word, BTW), we bring you part Five of our series on How to Handle Chinese Negotiating Tactics. Part one is here, part two is here, part three is here, and part four is here.

This part 5 is based on a post by my friend Andrew Hupert, entitled, Negotiating with Chinese in your Home Market, and though it is tilted towards negotiating with Chinese citizens seeking to purchase a house in the United States, its five tips for better negotiating (set forth below with my comments in bold) have some relevance to any sort of deal with a Chinese company, particularly those involving the Chinese company seeking to do a deal in the U.S.

1. Get the lawyers and bankers out of the room in the early stages. Americans tend to lead with the contractual details and legalese. Chinese in the US aren’t as relationship-oriented as they are back in the mainland, but it’s still intimidating and off-putting to them. Relationships lead to transactions. I agree, which is why our China lawyers usually advise our clients not to have us in the room for early stage negotiating. Chinese companies do use lawyers on bigger deals and you too should have your own China attorney working for you as well but it does generally make sense to keep him or her in the background.

2. Don’t ask where the money comes from (until you have to). Due diligence is important, and you will have to check out your Chinese counter-party when transacting in the North America or Europe. But tread carefully on the “sources of income” issue. A lot of the money showing up to buy US real estate and high-value assets comes from corruption or money transfers that bend or break PRC capital control laws. When the counter-party is from mainland China, you have to find other ways to qualify buyers, and put off the due diligence until later. Very true. 

3. If there are kids involved, it’s all about education. If you are involved in real estate, then know your schools. Good public schools in the neighborhood a huge plus – since mainland Chinese are the last known people on earth to respect the US education system. Know the stats, be familiar with extracurricular options and have detailed info on private and public options in the neighborhood. Don’t worry so much about parks, recreational and athletic facilities. Even if the kids plan on making use of them, the parents still feel they gain face if their kids look like studiholics. In The Chinese Are Coming, Part XII. To A Public School Near You, we wrote about how a U.S. education can be a big factor in whether or not a deal gets done.

4.  They see themselves as international elite but still want access to Chinese stuff. Don’t go too heavy on the Chinese culture available in the area. Mainlanders with money see themselves as part of the global elite, so their buttons are aspirational purchases and acceptance by the dominant group. They respond to “you are joining the 1% status” much more than they do to “familiar Chinese masses in Manhattan.” Your job is to know where other Chinese 1% shop and access familiar services (particularly if they are traveling or living with elderly parents), but spend your time talking about the European and Ivy League neighbors and colleagues. Good cultural tip, overall.

5. Be a real American. When Japanese money came to the US in the 80s, all the brokers and headhunters took Japanese lessons and treated their counter-parties like trauma victims who would were about to break down from terminal culture shock. Chinese clients and buyers aren’t like that. They know they’re overseas, and probably worked hard to get here. When Westerners pretend to be Chinese, they dilute their value and risk embarrassment. Chinese clients come from a society where insider knowledge and connections are tied to success and effectiveness. When you are competing with an American-Chinese or mainland Chinese agent or salesman, your advantage is that you are a “real American” and can steer your mainland client through this strange and hostile market environment. Very good advice.

What do you think?  More tips?

  • Ward Chartier

    Regarding children and education, the proximity and reputation of companies that prep students for the SAT, ACT, and other tests might also help. Such businesses on the West Coast seem to have over 90% Asian clients.

    Not long ago I encountered an independent operator with just a handful of student clients, mostly Chinese, who touted his results at a cost per client of “less than a new Mercedes.” From what he said, I think his business model is to closely advise Chinese students whose parents are among the nouveau riche too busy to be involved parents.

  • 6. Be prepared for negotiation to continue post-signing.

    Seriously. You’ll need to either:
    – build in some wriggle-room in your contract (so you can give something up that means little to you but lets you play ball to get a benefit from the other side), or
    – learn to have the patience of a saint to be able to sit in a meeting room with a smile on your face and say for the thousandth time “the contract is signed, we’re not changing it”

    Too many foreigners concede the post-signing renegotiation just to make their Chinese partner “shut up and get moving”. The problem is, after the third or fourth time, they suddenly realise they’ve lost significant ground.

    Unless it’s someone you have been in business with for years (and someone you trust), never make any post-signing concession unless you get an equivalent upside that you are 100% happy with.