“The Chinese will save Detroit.”

“Toledo is booming, thanks to Chinese investors.”

“Half of LA/Orange County/fill in the SoCal City will be Chinese within ten years.”

I have heard all the above recently and I don’t buy a word of it.  I thought about these comments today when reading a Slate Magazine article, entitled, “How China Could Save Detroit.

Here’s the deal.

1.  China isn’t going to save Detroit.  Detroit is (as of 2010) about one percent Asian.  That’s 7,500 Asians and I doubt that even half of this number is Chinese.  This is down 2,000 (more than 20 percent) since 2000.  Where are the Chinese who are going to save Detroit?  Why would the Chinese want to save Detroit by buying houses and living there when there are so few already there — yes, I am assuming that most Chinese would prefer to live in US cities where there are already other Chinese.  Detroit used to have nearly 2 million people.  It is now down to about 700,000.  What would “saving” it even look like?

2.  Toledo isn’t exactly booming. Its unemployment rate is nearly 9.0%, which is higher than Ohio as a whole, which in turn, is higher than the United States.

3.  Yes, I understand that some very wealthy Chinese have purchased homes in Southern California, but what evidence is there that this is going to continue, much less accelerate?

4.  The Slate Article mentioned how “Chinese Interest in the EB-5 immigrant investor program has grown threefold since 2008, with the Chinese now making up 80 percent of applicants.  But all that means is around 2,500 Chinese Eb-5 investors a year.  Even if Detroit were to receive 10 percent of them (and why would it), that’s only 250 people.  And if were to sell one shirt to 10 percent of the people in China….

And here’s the kicker.  I am “just not seeing it,” with the “it” being some massive influx of Chinese investment into the United States, such that it becomes a game-changer. And when I talk to my friends and colleagues who should be seeing it, they aren’t either.  Now I am sure that there are some realtors in places like Orange County that are doing a bang up business helping Chinese buy homes, and I also know that there are tens of thousands (maybe even hundreds of thousands) of people in the United States employed in Chinese owned factories, but I just do not see Chinese citizens coming here in large enough numbers to significantly tip any mainline economic numbers.  Yes, Chinese investment in the United States is important and growing, but let’s keep it in perspective.

According to the Rhodium Group, Chinese greenfield investment in 2013 in the United States totaled about $14 billion.  That’s about USD $44 per capita. Forty-four dollars.  And I have to think that at least some of that $44 per person would have entered the United States from some other country had China not been the one doing the buying.

Chinese investment in the United States may help at the edges, but it isn’t going to save Toledo or Detroit, much less have a major impact on the country as a whole.  I am from Michigan (about halfway between Detroit and Toledo) and I can remeber the “Japanese are coming racism” from an earlier era and I worry that there is a bit of that with “the Chinese are coming” trope.

Perspective people.

What do you think?  Is Chinese investment going to change America, and if so where and how? Am I missing something here?

Many years ago, a friend of mine came to me with a plan to start a blog on how China impacts American lives, both knowingly and, more often, unknowingly. His blog would discuss China’s influence on American politics, economics, culture, food, media, etc. I liked the idea and suggested he name his blog “Ubiquitous China.” He loved the name but never started the blog. I thought of that blog today upon reflecting on my recently completed summer vacation in Pentwater, Michigan.

If I were a good writer, now would be the time to wax poetic about the Lake Michigan lakeshore. But since I am not, I will merely “steal” a few paragraphs on Pentwater from a lawyer who covered this same turf (literally) — Kevin Lacroix, in his D&O Diary Post, Summer Time:

One of the many gifts my wife brought to our marriage was a generations-long family tradition of spending summers in Pentwater, Michigan. If I were, like a true Michigander, to hold up the back of my left hand as a map of Michigan’s mitten-shaped lower peninsula, I would point to the outside knuckle at the base of my little finger, to show where Pentwater is located, on the eastern side of Lake Michigan, between Muskegon and Ludington.

Pentwater was established in the years after the Civil War as a lumbering and furniture making center. There is still some manufacturing in town, but now the lovingly maintained Victorian homes from that earlier time are mostly occupied by retirees. The village’s main street runs parallel to the Lake Michigan shoreline, and perpendicular to Pentwater Lake, which connects to the big lake through a channel.

All true for me as well.

Pentwater has all of 857 people. Ludington, around 20 miles North, has a few families over 8,000 people and Muskegon, about 45 miles South, has almost 40,000 people. The big things to do in Pentwater are to hike the state and national parks, ride the dunes, swim in Lake Michigan, race go-carts, play miniature golf, eat great corn, and eat great cherries, all of which we do every time we are there. And if you are there at the right time you can go to the town’s “big” Homecoming parade and then watch the fireworks from the beach.

Which is my segue to China.

We were there at the “right time” this year and the fireworks were shockingly good. How can a town of 857 people afford such great fireworks? China. Without knowing a thing about the price of fireworks, I know enough to know (based on a conversation a few years ago with a fireworks guy on an airplane) that fireworks from China are (or at least were) continually getting better and cheaper. So obviously China reaches even into places like Pentwater.

China also reaches to Ludington, where we go to get groceries at either Meijer’s or Wal-Mart, either of which probably qualify as the largest store to which I have ever been, and both of which are, of course, stocked with clothing, electronics, food, and pretty much everything else from China.

But it is Muskegon that spurred me to write this post. Good “ole” Muskegon.

Cause one day, I ventured far from Pentwater to meet an old China-based friend of mine, Kurt Braybrook. Kurt has been living in Shanghai for around 20 years, providing business consultancy services to mostly American companies trying to figure out China. Kurt grew up in Grand Rapids, Michigan — the truly big city in the area with nearly 200,000 people. As a side-note, when I was growing up in Kalamazoo, Michigan, which is around 45 miles south of Grand Rapids, we would refer to it as “The Big GR,” probably 95% sarcastically and 5% reverentially.

Kurt left Grand Rapids for China right after college and he has been there ever since, which standing alone, makes him an expert on China changes during that time. When Kurt and I realized that there would be only around 100 miles separating us this summer, we determined that we had to meet up and we chose Muskegon for that. After extensive consultations with my foodie younger brother, I picked lunch at Mia & Grace.

Before I get to my conversation with Kurt, I want to tell you a little about Mia & Grace and the conversation I had with the server when I ordered. Mia & Grace calls itself a “farm to table restaurant” and it is. Most importantly, the food there is absolutely excellent. But when I walked up to order, the very polite and earnest young server asked me if I had been there before, and when I told her that I had not, she went into the following spiel:

Well, then you should know that we are a farm to table restaurant and what that means is that everything is local and slow cooked so please be prepared to wait.

Impressed by her earnestness, and being the nice guy that I am, I bit my tongue and resisted my usual comeback to this sort of thing, which is usually something like the following:

I’m going to be ordering a Diet Coke and I just want to make sure that everything in that is local. It is right? And what about the salt? I didn’t realize that was being mined locally these days. Oh, and are you saying that none of your spices come from outside the area either?

But instead, I simply ordered a baked pretzel, a shrimp po’ boy (there is no way the shrimp could have been local) a chocolate chip cookie (no way the cocoa that went into the chocolate could have been local) and my proverbial Diet Coke, or as I say in China, my Jen-He Cola. And again, I want to emphasize that the food was great.

But here’s the thing. How much of today’s emphasis on local foods is a reaction to China? I think a lot and I say that because the rise in that emphasis corresponds pretty closely with the rise in food imports from China. What do you-all think about this? Has the influx in Chinese products (not just food) coming to America influenced the rise in localism and even the increasing desire among young people to be farmers? Ludington and Muskegon and Grand Rapids all have super high quality and well known local breweries. My home town of Kalamazoo produces Bell’s Beer, considered by many to be the best in the US. Is the turn to craft breweries and craft distilleries in the US also a reaction to China? At least in part? I never took a single sociology class, so I’m qualified to say that I think it is.

Kurt and I had a nice lunch and then we took a long walk around Muskegon, talking about China nearly the whole time. Though our conversation ran the gamut of China topics, we probably spent the most time on the following:

1. The changeover in China opportunities from manufacturing to sales. Kurt talked of how his client mix has been gradually shifting from manufacturers to product sellers and how his training and background in advertising and public relations were helping him with this. I talked of how my law firm had been seeing the same thing for years. We talked extensively on how American companies — food companies in particular — were not doing enough to sell to the Chinese market.  A few days later, Kurt emailed me to say that he had snared a new China client: a large, Michigan fruit company looking to sell its fruit products to China. We also talked of how difficult it is for foreigners seeking to start their own retail enterprises in China and of how licensing the product or selling through a distributor is oftentimes a better way to go. We then talked about how many consultants and lawyers do not like giving this advice because the money they make from a distribution or licensing relationship will be less than what can be made by helping to set up a WFOE in China. We also discussed how American companies need to be wary of getting won over by someone in China seeking to sell their product nationwide and of how that seldom makes sense. Kurt told me of a large food company for whom he worked a few years ago that insisted on going with one distributor for all of China and signed a long-term agreement to that effect. That food company’s sales in the few China cities with which their distributor has familiarity/contacts/expertise, are going fine, but they are languishing everywhere else.

2.  It is getting tougher on foreign companies seeking to do business in China. China’s rules and regulations are getting more serious and, more importantly, enforcement against foreign companies has greatly increased. This, along with other areas of rising costs, means the cost of doing business in China has gone way up for most foreign companies.  Therefore, doing business with China should, if possible, be favored over doing business in China. For more on this, check out China Is Getting Tougher On Foreign Business. Stay Flexible And It Will Be Just Fine.… and Doing Business In China Just Got Even Tougher.

For more on doing business with China by way of a distribution contract, check out the following:

3. We also talked of how Chinese manufacturing has improved and become more professional and of how more and more Chinese manufacturers are starting to “get it.” Those Chinese manufacturers that realize product quality and customer relationships matter are gaining business at the expense of those that continue to churn out junk. I told him of how five or six years ago, about 30% of Chinese manufacturers would refuse to sign OEM manufacturing contracts with our clients, but that we had not received any such rejection in about two years. We agreed that Chinese manufacturers now realize that written contracts benefit both parties. For more on this, check out The New Role Of Written Contracts For Product Purchases In China and The New Era In China Product Supplier Relationships Requires New Contracts.

4. We discussed how Chinese investment in the United States is slowly increasing, and of how as it becomes clearer that China’s formerly breakneck economic growth is not going to be returning, we both see that investment increasing even more. Kurt talked of how so many Chinese people he knows have bought or are looking to buy real estate in the United States and of how there is considerable interest in Michigan (even Detroit) properties. He said that a large downtown office building in Grand Rapids is said to be owned by Chinese investors.

So what do you think? How has China already influenced the US and what influences do you see going forward?

Just finished reading/skimming the book, Landed China by Christopher Dillon and I quite like it.  Landed China is a guide to buying real property in China. It is clearly written, yet comprehensive and bursting with detail. Dillon has written similar books on real property in Japan and in Hong Kong and he just flat out has the formula down.

If you are looking to buy, rent, invest in, sell, loan against or do just about anything else related to real property in China, I suggest you first read this book.  It truly makes for a terrific starting point on how to buy real estate in China.

On the recommendation of a loyal reader, I just listened to Jing Ulrich talk about China’s economy over at China Money Podcast.  Ms. Ulrich heads up Global Markets at J.P. Morgan and I definitely put her on the very short list of those discussing China’s economy who actually know whereof they speak.

If you want an update on where China’s economy is today and where it is likely to be going in the future, I recommend you listen to this podcast.  If you want me to partially spoil it for you, read on.

In very brief summary, Ms. Ulrich noted the following:

  • China’s economy is rebounding, due at least in part to the government pumping large amounts of money into the system.
  • China real estate is in danger of overheating and so we should expect more government measures seeking to prevent this. Expect stricter enforcement of  existing laws and more cities rolling out a property tax.
  • Expect future infrastructure investment to focus on urban subways, light rail and the environment.

What do you think?

UPDATE:  While on the subject of China’s economy, just saw an excellent and informative interview of Michael Pettis by Tom Orlik (two people I put on the same “very short list” mentioned above — see my later post, entitled, Who To Read On China’s Economy?) over at China Real Time Report, entitled, “Eight Questions: Michael Pettis, ‘The Great Rebalancing.’”  Definitely well worth a read as well.

I had dinner last night with two Chinese from Nanjing and two Americans.  The two Americans are both fluent in Chinese and have each spent well over a decade living and doing business in China.  The same is true of the two Chinese.  I greatly respect all four of these people.

The topic of China real estate came up during our dinner and, and I found myself in the more bullish camp. The two Americans both argued that China’s real estate bubble has already popped and that it is only going to get much worse.  I, along with the two Chinese, argued that China’s real estate had not really “crashed” and that I did not think it was going to crash in the same way it had in the United States. The two Americans kept making fun of me and saying that I sounded “just like the realtors who try to sell property.”  I responded by pointing out that I have been pretty bearish on China real estate for a long time but that there is a big difference between being bearish and believing there will be a crash, which to me means a plunge in real estate prices so deep that properties pretty much cease selling at any price and the rest of the economy is deeply impacted.

I then talked about how China’s real estate market is different from that in the United States, mostly due to the following:

  • Urbanization
  • The Chinese government’s close ties to its banks
  • The typical Chinese mortgagee being less leveraged than the typical American mortgagee was right before the crash in the United States.  I admit to not having solid evidence to support this.
  • Real estate demand in China is due in large part to there being a lack of other investments. This alone creates and props up demand.

I hate making the “it’s different this time” argument as I do think past performance is one of the view ways on which we can judge future performance, but at the same time, Shanghai isn’t Sacramento — heck, Sacramento isn’t even San Fransisco.

As I thought more about our discussion, I started thinking about how it has all of a sudden become almost too fashionable to paint China as finished economically. When it comes to investing, I think of myself of as a bit of a contrarian, and so I am now wondering if the recent onslaught of negative news on China might actually end up being a good thing. Does the fact that just about everyone (or at least it feels like just about everyone) is negative on China’s economy and real estate mean that we should be expecting an upswing soon?  Has the China is going to fall bandwagon gotten too big or is it justified?

What do you think?

This is part II of a series of an occasional series of posts we will be running here on what our lead China lawyer, Steve Dickinson, is seeing of China’s real estate market, based on his living “on the ground” in Qingdao. Here it is:

By: Steve Dickinson

There are two types of real estate investor in China. The first are pure speculators who treat residential real estate as a source of value, far removed from its original residential use. These investors purchase multiple properties without bothering even to remodel the units for actual use. They are responsible for the spooky flats of empty condo buildings that have become so common in all of China’s cities.

The second are the normal citizens who purchase real estate as their primary residence. The high prices of the real estate bubble created by the speculators have created much pain for these normal home-buyers. Recent policies of the central government designed to contain the real estate bubble have been designed to benefit this segment of “normal” home buyers. However, it is probable that the recent collapse in real estate values has damaged these normal home buyers as much as, or even more than, the speculators.

A recent story in the local Qingdao newspaper illustrates the situation very well. The article is about Mr. Li (age 31) and Ms. Zhao (age 28), both of whom are successful young professionals. Both are college graduates. Both work in good jobs in the visual design sector. Mr. Li earns RMB 6,000 per month and Ms. Zhao earns RMB 2,000 per month. These are good salaries for young professionals in Qingdao.

For three years, this couple has been planning to marry. The obstacle has been that they have not been able to purchase a home. Their families do not have the resources and they have not had the savings. Mr. Li proposed that they forget about owning a home and just live in a rented apartment after marriage. As is typical in this region, Ms. Zhao refused: no home ownership, no marriage. With great reluctance, Mr. Li agreed to work on purchasing a condo.

In April of this year, they found a suitable unit in Li Cang. Li Cang is a village to the north of Qingdao city. Services there are bad and transportation is inconvenient. However, they determined that a 90 square meter unit on the 15th floor of a sprawling condo project was just about the only thing they could afford in the Qingdao area.

They completed the purchase in April on the following terms:

  • The price of the unit was RMB 9,300 per square meter. Compared to the 20,000 to 40,000 RMB per square meter price in Qingdao, this seemed reasonable to them.
  • The total price was RMB 830,000. Of this, RMB 350,000 was required as a down payment.

The couple was able to come up with the down payment by using their savings, by Mr. Li moonlighting, and with a contribution from their parents. The down payment was accumulated from the struggles of the couple and both their families over the past 10 years. For payment of the remaining RMB 480,000 of the purchase price, the couple obtained a 20 year bank loan. Payments on this loan will be RMB 4,700 per month for the life of the loan, over half of their combined total income, before taxes.

Consider the following:

  • Their down payment was actually a deposit on an uncompleted unit. The project is far from completion. At best, the project will be complete at the end of 2012. Thus the down payment money is tied up and yet the couple still have to pay rent until the project is complete. If the project is not completed there is a substantial risk that the down payment will never be returned. This risk is never discussed in China, but the risk is substantial in a declining market as we know from our experience in the real estate markets around the world.
  • This young couple has now joined the ranks of the Chinese “house slaves” 房奴”, or what we call “mortgage slaves” in the U.S. The total household income of this couple is RMB 8,000 per month, before taxes and their mortgage payment consitutes more than one half of their monthly income. They are in their early thirties. How will they save for their child’s education? How will they save for retirement? How will they save for medical emergencies? How will they save for the care of their four parents? How will they even live a normal life with about RMB 3,000 per month in disposable income? No one knows other than to say that they will suffer.
  • The total price of this 90 square meter unit is RMB 830,000. This is ten times the annual income of this young professional couple. Most economists believe that the cost of housing should not exceed 3 to 5 times annual income. The unit is therefore about twice as expensive as recommended. All of this for a condo in a not particularly nice exburb of a second tier city. 

In October, the couple became uneasy when they heard rumors that units in their project were being offered at a 90% discount. At the end of November, the couple was shocked to see advertisements in the local newspaper offering units in their same project at the price of RMB 6,300 per square meter, a 30% discount off the price they had already agreed to pay. A group of buyers formed and demanded that their purchase price be reduced to the new price or they would cancel their purchase contracts. Some members of the group picketed the sales office. The developer refused their requests. Mr. Li states that he has reviewed the purchase contract carefully and concluded that none of the buyers have the right to a refund or cancellation. He is therefore resigned to his fate and sees no reason to participate in the protests.

Ms. Zhao calculates that over the life of the loan, the couple will pay RMB 400,000 in mortgage interest that is in excess of that amount that would be paid if the unit were re-valued at the new, lower price. This makes her sad. It makes her husband resentful that she insisted on purchasing the condo unit when he had proposed that they just rent a unit. Their excitement at becoming new homeowners is now drowned
by the sorrow of the economic disaster they face. The prospect of 20 years of “home slavery” is not a good way to start a marriage. The couple has not even considered the two additional disasaters that may
be waiting for them:

  • The price drop has only just started. The couple hopes that prices will recover over time. The more likely scenario is that prices will continue to fall next year after buyers truly face the fact that the bubble has burst.
  • Once it is clear the bubble has burst, the developer of their uncompleted unit will not be able to sell units at any price. This means the project will fail, and the units will not be completed. What will happen to the substantial deposit this couple has already paid? No one knows. Chinese law provides that it must be returned. However, there are no good controls in place to guarantee that will actually occur.

Our couple and their fellow buyers are already upset with the fall in price. What will happen if the project fails and their deposits are not returned? What will happen to their bank when their mortgage loans turn out to be worthless? What will happen to the development lender when the project fails and the development loan is not repaid?

The story above is being repeated in every city in the coastal provinces in China. The impact is personal and direct. Every person in China knows at least one person who has been impacted. The effect on the economy is incalculable. Just when the government is promoting a new program to increase domestic consumption, the collapse of the residential real estate market is pushing Chinese consumers in the opposite direction. The extreme uncertainty likely means that they will freeze up, greatly reduce their spending and move into an even more intense savings mode. The result will be to freeze up the economy for a considerable period.

I must emphasize again that what I have described has already happened. It is not a projection. The situation is China’s current reality. A government cannot prevent what has already happened. It is too late. All we can do is wait and see what will be done about the situation. Current indications are that nothing will be done at all. Given the way governments work, that may be the best possible result.

What will you do to adjust to this new reality?

UPDATE: China Bystander has a really good post on China’s real estate market and its likely impacts, entitled, “China’s Property Bubble: Bursting or Deflating?

house.jpgGot the above graph from a China Tells post, entitled, “A Comparison between China and US housing Prices.”  The post seems to make the argument that housing prices in China are not so high, especially when we compare them with those in the United States:

Is China’s housing price expensive? Depends. Expensive is always a relative concept. This chart compares the housing price in a lot of Chinese cities to that of the United States, and it seems that the housing prices in two countries are quite similar.

Whoa, whoa, whoa. I think this reasoning is horrible. I agree that prices are relative, but what they are really relative to is incomes and on that score there is a huge difference between China and the United States and it is on that score that I have thought China real estate has long been over-priced.

In fact, many years ago, my law firm looked into buying a firm condo in Qingdao, China. At that point, one of our lawyers was living in a very nice condo for which we were paying about $550 a month, nicely furnished, including all utilities, including Internet and cable TV. The cost to buy that condo would have been about $300,000. One of the things that convinced me not to buy was the fact that a similar condo in Seattle would have cost about the same. The difference though is that in Seattle most people with a decent to good job could afford such a condo, but in Qingdao very few could. In Seattle (and I admit that I am speaking totally off the top of my head here), a police officer makes around $80,000 a year and in Qingdao around $4,000.  In Seattle, a school teacher makes around $60,000 and in Qingdao around $4,000. In Seattle, a young lawyer makes around $90,000 and in Qingdao it’s more like $4,000.  And whenever I would ask one of the senior lawyers in Qingdao who can afford condos like this, they would pretty much just shrug. I always had the sense that a huge swath of these condos were owned by Singaporeans, Hong Kongers and ultra-wealthy mainlanders, all for investment purposes.

Now I know the counter-arguments to the above: that China real estate will always do just fine because real estate has always been viewed as a great investment and it has always been and will always be where Asians want to put their money; that real estate in China has mostly been bought with cash and so is not highly leveraged; and that mainlanders have few other places to put their money. But let me tell you, seeing this chart only reinforces my belief that we were right not to buy that condo in Qingdao.

What do you think?  China real estate, buy or sell?

BizCult blog has a rather rah-rah post on why we should all be buying residential property in Beijing, essentially right now. The post is entitled, “If Not Now, Buy Property Sometime Soon,” and it is based on a talk by Feng Lun, of Beijing Vantone Real Estate, at the recently completed Asia Society’s 18th Asian Corporate Conference on why “real estate will continue to be a good investment after the Olympics.”
I agree with the assessment that the run-up in Beijing real estate is not really based on the Olympics and I also agree that the end of the Olympics likely will not exert any real downward pressure on prices. However, I always discount those in the real estate business who say real estate prices will be going up because they have such a vested interest in believing that line and in pushing it. I mean, how many times have you heard them say they will go down? I also am skeptical of any real estate market where buying prices are so out of whack with renting prices and with median income.
What do you think about Chinese residential real estate prices in Beijing and elsewhere? Where is it likely to be hot over the next five years and where not?

As an attorney in China, I am often called in to fix things that have gone wrong on a contract between a Chinese business and a foreign company. The style for dealing with problems in China is much different than in the United States. To succeed in China, all foreigners need to learn the Chinese style of dealing with problems. If you are trying to get something important done in China, you must rely on the Chinese side to get things done. The Chinese party may be a company you have hired, your joint venture partner or an employee. But when a major problem arises, the tendency will be for all of these folks to tell you: “There is a problem. We cannot do what you need us to do. It is not my fault. It is the fault of someone else.” This statement is usually not accompanied with any plan to take care of the issue.

How do you motivate the Chinese side to take control, do their job, and resolve the problem to get things done? The basic rules in China are as follows:

  • Never show anger. If you show anger, it will not motivate the other side to act. Instead, it will likely cause the other side to freeze up and refuse to act from fear things will only get worse.
  • Go ahead and assign blame. The Chinese side will be very sensitive not to admit any fault for the problem. However, if the Chinese side is at fault, it is important this be stated clearly. At this point, you should point out the duties assigned in the contract so the Chinese side has a clear understanding of why they are at fault. In the U.S., I will usually wait to assign fault until after the problem has been solved. In China, it is the opposite. It is better to assign fault at the outset.  This gives the Chinese side the motivation to resolve the problem.
  • Rely as much as possible on human feeling and the personal connections between the parties as the motivator for resolving the issues. Make it clear some identified individual the Chinese side has come to know will suffer if the problem is not resolved. This is far more effective than an abstract discussion of what is provided in the written contract. The Chinese side is much more likely to act under the motivation of human feeling than under the abstract notion the contract requires them to act.

These basic rules were illustrated for me in a real estate transaction on which I recently worked. I represented a U.S. client purchasing a substantial piece of Shanghai real estate. We were represented in this deal by a sincere but not terribly experienced Shanghai real estate agent. It was important to the U.S. client to complete the transaction before a specific date.  My client and the seller had completed all the necessary contracts and it was now the job of the Chinese real estate agent to work with the bank and the local government to close the deal.

We were contacted by the agent three days before the closing. The agent announced that all of our careful plans to complete the closing would not work because the bank could not perform certain procedures over the weekend. In a manner typical of this type of situation, the agent announced: “The deal will be delayed by two weeks. It is not my fault. There is nothing we can do.” The agent offered us no contingency plan of any kind. Since we were entirely reliant on the agent to perform the closing procedure, this placed us in a very difficult situation. Though both my client and I were visibly upset, I carefully controlled my anger. I did, however, refuse to let the agent off the hook on the blame issue. I pointed out that we were all relying on the agent for the bank side of the transaction and that it was clearly the agent’s fault for not checking with the bank in advance on the procedures to be followed. I then pointed out the tremendous disappointment and loss that would be suffered by my client if the deal did not go through as scheduled. Then I simply stopped.

The transformation in the agent was remarkable. The agent converted from the passive giver of bad news to a dynamic problem solver. Ultimately, three staff persons were on the phones and various creative solutions were devised. The agent even delayed his trip home to attend his best friend’s wedding. As a result, on Monday afternoon at 6 p.m. we were drinking champagne in my client’s office instead of sending reports home explaining why the deal would not go through on time. This all came about because we did not show anger, and we assigned blame and we relied on human feeling as the final motivator.

How do you solve your doing business in China problems?