How to Do Business with China: An Inside View on Chinese Culture and Etiquette

AuthorHouse™ UK

1663 Liberty Drive

Bloomington, IN 47403 USA

www.authorhouse.co.uk

Phone: 0800.197.4150

© 2014 Dr. Shengfei Gan. All rights reserved.

No part of this book may be reproduced, stored in a retrieval system, or transmitted by any means without the written permission of the author.

Published by AuthorHouse  10/27/2014

ISBN: 978-1-4969-9107-2 (sc)

ISBN: 978-1-4969-9106-5 (hc)

ISBN: 978-1-4969-9108-9 (e)

Any people depicted in stock imagery provided by Thinkstock are models, and such images are being used for illustrative purposes only.

Certain stock imagery © Thinkstock.

Because of the dynamic nature of the Internet, any web addresses or links contained in this book may have changed since publication and may no longer be valid. The views expressed in this work are solely those of the author and do not necessarily reflect the views of the publisher, and the publisher hereby disclaims any responsibility for them.

Contents

Acknowledgements

Author’s Note

1. Introduction: The China Impact

Made In China

Import And Export

Economic Influence

The Chinese Are Coming!

Preparing For A China Venture

2. The Future Of China

Is The China Boom Over?

The Challenges

The Wealth Gap

Pollution

An Economic Bubble?

State Owned Enterprises

Private Sector

Banking And Finance

Property Bubble

Corruption

Social Unrest

Political Instability

Political Reform

Separatists And Terrorism

China’s Influence In The World

Doomed To Collapse?

An Optimistic View

Coast And Inland

Rural And Urban

Private Business

Intellectual Capital

The China Model

3. A Brief History Of China

Dynasties

A Long And Rich History

Xia Dynasty

Shang Dynasty

Zhou Dynasty

Qin Dynasty

Tang Dynasty

Yuan Dynasty

Killing For Power

Unification

United Or Divided?

Hong Kong And Macau

Taiwan And Tibet

Feudalism

Westernization

Foreign Invasions

The Opium Wars

The First Opium War

The Second Opium War

Communist China

Contemporary China

The Open Door Policy

4. Chinese Language

A Challenging Language

Language And Cultural Values

Word Sequence

Position Of Key Words

Dates And Addresses

Decisions And Reasons

Pronunciation

The Written Language

Idioms

Cause And Effect

Direct And Indirect Expressions

Implications

Grammar

Chinese Names

First Names

Translation

Speaking The Language

In Summary

5. Chinese Culture

Country And Family

Fundamental Values

Confucianism

Ren, Yi, And Li

Taoism

Unification Of Humanity And Universe

Order And Stability

Obedience

Fatalism

Law And Human Emotions

The Doctrine Of Mean (Golden Mean)

A Long-Term View

Life And Death

Yuan Fen

6. Cultural Roots: Yin-Yang

A Brief History Of Yin-Yang

The Basics

Basic Relations Of Yin And Yang

1. Unification Of Yin And Yang

2. Opposition Of Yin And Yang

3. Interdependence Of Yin And Yang

4. Mutual Consumption Of Yin And Yang

5. Transformation Of Yin And Yang

Yin-Yang Balance

Imbalance

Understanding Yin-Yang Relationships

Predicting The Future

The Five-Elements Doctrine

1. Mutual Generation

2. Mutual Subjugation

3. Extreme Subjugation

4. Counter Subjugation

Taoism And The Yin-Yang Story

Chinese Mentality And Yin-Yang Story

Business Application

7. Doing Business The Chinese Way

Eating And Drinking

Three Meals A Day

Table Manners

Chopsticks

Drinking And Toasting

Paying The Bill

Beliefs And Superstitions

Number Of Dishes

Fish

Leftovers

The Business Banquet

Greetings

Shaking Hands

Bowing

Other Greetings

Business Meetings

Preparation

Arrival And Seating

Meeting Procedures

Conclusion And Follow-Up

Gift Giving And Receiving

Chinese New Year

Weddings

Birthdays

Business Occasions

Guanxi

Exact Meaning

Reciprocity

Relationships

Development And Maintenance Of Guanxi

Be Careful

Entertainment

Use Caution

Massage

The Concept Of Face

Giving Face (Gei Mianzi)

Losing Face (Diu Mianzi)

Gaining Face (Zheng Mianzi)

Privacy

Personal Space

Queuing

Conversation: Business Vs. Personal

Brotherhood

Language Play

The Party, Government, And Business

Communist Party Of China

Government

Business

A Three-Player Scene

8. Your China Strategy

Why You Need A China Strategy

Factors For Success

Organizational Structure

Pros & Cons

Relationship Management

Government Relations

Public Relations

News Media

Industry Relations

Community Relations

Partner Relations

Corporate Social Responsibility

Dealing With Corruption

Expat Vs. Local Manager

Overseas Chinese

Short-Term Vs. Long-Term

Lessons To Be Learned

In Summary

9. Working In China

Being A Foreigner

Communication

Generosity

Modesty And Self-Control

Friends

Business Management

Finding The Right People

Keep A Low Profile

Contracts And Guanxi

Legal Action

Local Empowerment

Speaking The Language

Staff Hiring

Counting Costs

Where And How To Start

Format Of Business Entities

Representative Offices

Equity Joint Ventures

Cooperative Joint Ventures

Wholly Foreign-Owned Enterprises

Selection Of Partners

Negotiations

Management Style

Making Mistakes

Don’t Panic!

Walk Before You Run

Have A Plan B

Author’s Afterword

Bibliography

About The Author

End Notes

ACKNOWLEDGEMENTS

The saying, No one walks alone on the journey of life is a good reflection of my situation. Being a non-native English speaker I could never have imagined writing a book in English if it were not for the tremendous help, support, and encouragement extended to me by so many kind people in my life.

The first impulse to write this book was generated in a conversation with my good friend Gary Hannan, during a business trip to China in 2006. The actual writing started in September 2011. But soon afterwards I put a half-baked draft on the shelf. Continuous inquiries from Gary put some pressure on me to get it done.

Dr Con Fauconnier has been my mentor and source of inspiration over the years. I cannot say thank you enough for his guidance and support in exploring and understanding the different business cultures in China and South Africa.

I would like to express my gratitude to Hannatjie van der Wat and Koos van der Wat. They have been incredible role models and it is through their teachings that I have grown up.

Interesting and informative discussions with Marianne Fassler and Charles Bothna have been very beneficial to me while working on this book.

Kobus van der Wath has given me a great deal of encouragement and inspiration in generating the ideas found in this book.

I am very grateful to Dr Martyn Davies for his assistance and for sharing with me his experience in promoting the business interactions between China and Africa.

Special thanks must be given to my supervisor Professor Dirk van Reenen for his advice and wisdom.

The enthusiasm and persistence I’ve received from Dr Jackie van Schalkwyk has pushed me to put my thoughts down on paper. Thank you, Jackie.

I should also take this opportunity to thank Derick de Wit for sharing his understanding and thoughts on the Chinese and western ways of doing business.

Hank Venter has always been supportive and has encouraged me to finish this book.

I would like to express my appreciation to Medeine Tribinevicius for editing and revising the manuscript.

My deepest gratitude is extended to my wife, Nini Guan. It would have been impossible for me to complete this book without her motivation and support and she has contributed tremendously to the content of the book through our daily discussions of Chinese and western cultures.

AUTHOR’S NOTE

For a long time China and the Chinese culture remained a mystery to the western world. For many years it was only a few adventurous souls who made the bold decision to travel to the Middle Kingdom and explore the wonderland that was China. They returned with treasures, including silk, tea, and porcelain, as well as many amusing and sometimes frightening stories about the people and the land. The most famous of these travellers was Marco Polo and his book, The Travels of Marco Polo, discussed current affairs and relayed tales and anecdotes from his journey across China in the 13th century. Records such as this raised curiosity in the west about Chinese culture and custom, but they did not provide all the answers for westerners to understand China.

In 1993, 700 years after Marco Polo’s journey, I made the bold decision to move to South Africa. I was searching for gold, and at the time South Africa was the #1 gold-producing country in the world. When I arrived I was astonished by the misperceptions South Africans had about China. I was often asked whether Chinese men wore long braids and if Chinese women still bound their feet. Some people even referred to the country as Red China.

It was then that I started to learn about China from the South African (or western) perspective.

In 2000, my South African employer assigned me the task of finding business opportunities in the Chinese market. At this time I put my knowledge of both Chinese and western cultures to the test and realised that the two cultures were indeed very different!

I embarked on a program of self-study and started studiously reading all that I could find about Chinese culture and business approaches, from a western point of view. As my library on this topic grew, so did my interest. Not only did I learn about how the west saw China but my comprehensive reading project also provided me with an opportunity to re-examine what I knew about China and Chinese culture.

Even though I am of Chinese descent and grew up in China, there are many aspects of the country and culture that I do not fully understand or may have ignored. That said, I did notice that many of the books I was reading fell short of an accurate understanding of China. To use a Chinese proverb, their approach was like scratching an itch through a boot.

So while I was building skills helping South Africans do business with China, I challenged myself to come up with a different take on the country. This book is the result of this challenge.

It is my hope that this book will provide you with the following:

• A simple, yet systematic, knowledge of Chinese culture and history. My approach includes a timeline of Chinese history and a look at the essential values of Chinese culture, plus a brief look at language and some useful phrases and tips for communication. These cultural touch points combine to form the foundation needed to understand and appreciate China.

• A wide-angle view on future economic and political development in China.

• Personal experience and real-life stories to illustrate the right ways of doing business with China.

• Realistic ideas and suggestions for business structure and management approaches that are suitable for the social and commercial environments in China.

• Time-tested lessons and propositions to avoid making mistakes and to ensure the success of the China venture.

It would bring me great satisfaction if this book in some way helps to open the door to China for my readers through an improved understanding of Chinese culture. I would be delighted if you would share your comments and feedback with me. I can be reached by email at [email protected] or [email protected].

Dr Shengfei Gan

17 July 2013

Johannesburg

1. INTRODUCTION:

THE CHINA IMPACT

The emergence of China as a new world power is one of the most significant development of this century. Not long ago, China was perceived as a mysterious place where everything was strange and out of order: the people, the language, the social structure, the traditional rituals, the food, and even the rites of birth and death. The strange and mysterious aspects of Chinese culture were either a source of suspicion—pop culture is rife with shady characters from the east—or it was a source of curiosity, an exotic land that could be packaged and marketed to the west.

Today, China still draws the interest of the west, but for different reasons. The country has become a hot topic at every forum and conference held on global economic development from Houston to Hong Kong. Failing to mention China at one of these discussions would be like holding a grand banquet and not serving the main course.

MADE IN CHINA

In the recent past, China had little economic impact globally and could easily be ignored. Things have changed.

Now, almost every single one of us is connected to China, if simply through the products we buy. Some people pay no mind to this fact, others hate it, but that’s neither here nor there. Products marked Made in China are displayed, sold and consumed in every part of the globe. Regardless of where you live—New York, Los Angles, London, Berlin, Johannesburg, Dubai, or Nairobi—there are always Chinese goods waiting for you to purchase. You pay for them, you take them home, you enjoy them, and you smile.

Why do you smile? The competitive price, the acceptable quality, the easy access, and the abundance of Chinese products combine to make it difficult to resist buying Made in China.

Of course, there are some people who think differently. During the 2004 Christmas season American writer Sara Bongiorni noticed that of the 39 Christmas gifts she bought, 25 (64%) were labelled Made in China. To make matters worse, she found that when she looked around her house, almost everything was Made in China, from the DVD player to the children’s toys to the table lamps.

Why is everything from China? she asked herself. Can’t we Americans survive without using stuff Made in China?

So as an experiment Sara decided that for one year she and her family would not use any products made in China, starting from January 1, 2004. She wasn’t sure how she would manage, but she was determined to accomplish this personal goal.

She shares her story in the book A Year Without Made in China: One Family’s True Life Adventure in the Global Economy (2007). (A Chinese translation of the book was published by China Machine Press in 2008.) In it, Bongiorni writes:

Last year, two days after Christmas, we kicked China out of the house. Not the country obviously, but bits of plastic, metal, and wood stamped with the words Made in China. We kept what we already had, but stopped bringing any more in.

The banishment was no fault of China’s. It had coated our lives with a cheerful veneer of toys, gadgets, and $10 children’s shoes. Sometimes I worried about jobs sent overseas or nasty reports about human rights abuses, but price trumped virtue at our house. We couldn’t resist what China was selling.

But on that dark Monday last year, a creeping unease washed over me as I sat on the sofa and surveyed the gloomy wreckage of the holiday. It wasn’t until then that I noticed an irrefutable fact: China was taking over the place.

Her journey wasn’t without its difficulties. She writes about trying to buy a new pair of shoes for her son and after two weeks of hunting ends up paying $60 for a pair made in Italy. Things don’t get fixed in the house because the replacement parts are made in China. She is not so naïve as to think that one person’s protest would be felt in China. Rather, her goal was to see how far China had encroached on locally made products.

The idea wasn’t to punish China, which would never feel the pinprick of our protest. And we didn’t fool ourselves into thinking we’d bring back a single job to unplugged company towns in Ohio and Georgia. We pushed China out of our lives because we wanted to measure how far it had pushed in. We wanted to know what it would take in time, money, and aggravation to kick our China habit.

[…]

After a year without China, I can tell you this: You can still live without it, but it’s getting trickier and costlier by the day. And a decade from now I may not be brave enough to try it again.

What can we learn from Sara’s experience?

We can certainly survive without buying Made in China, but in doing so we must live a life filled with high costs, inconvenience, and frustration. You can adamantly oppose buying Chinese goods, but the economic reality of most people is that they must learn to co-exist with this very real relationship with China.

IMPORT AND EXPORT

I’ve worked in the commodities business and the mining industry for over 20 years and the importance of China has never been so front-of-mind as it is now. In the first few years of this century, China represents 60% of the global demand for copper, 30% for nickel, 80% for exported iron ore, and 30% for metallurgical coal. Without China and the demand from Chinese companies many of us in the industry, and industries associated with mining, would have been out of jobs a long time ago.

At the start of the 1960s, China’s imports from the world totalled only US$1,015-million and exports were a miniscule US$875-million (1952). Over the 12-year period between 2000 and 2012, China’s imports increased from US$225-billion (2000) to US$1.8 trillion (2012). In that same period exports increased from US$249-billion (2000) to US$2 trillion (2012). Both imports and exports recorded an average annual growth of 20%. This is phenomenal! You don’t have to be a China expert to understand that China is on the rise, and fast.

If you’re in business and looking for opportunities to make money the questions you should be asking are: What can I do to benefit from China’s strength in the import and export markets? How can I take advantage of China’s growing appetites?

Geographically, Europe, the US, Australia, and China’s neighbouring countries in Asia are the main sources of supply for China. However, the South American and African continents are fast becoming new major trading partners. All discerning businessmen living in these places should be very excited by the opportunities at hand.

China is feeding the world with its ever-increasing exports, but at the same time it relies on the world for importing the various commodities it needs to feed its fast-growing economy. Without China, the world would be a very different place, but the opposite is also true, without the rest of the world, China would not be where it is.

ECONOMIC INFLUENCE

Up until 2004 China only ranked 6th in the global economy. One year later, it overtook France to become the 5th largest economy in the world. Another year later, China surpassed Great Britain to take 4th place in global rankings. In 2007, China overtook Germany, the strongest economy in Europe, to rank 3rd. It took a little bit longer, about 3 years, for China to surpass Japan and claim its current position as 2nd largest economy in the world, behind only the United States. It was, indeed, a surprise, but it was merely one of the surprises China had in store. Now the question remains: Will China be satisfied with its status as the #2 in the world?

The answer is: No.

As you will learn as you read this book, China and its people are for the long haul. Their history is long, their culture is long, and their plans and ambitions are all focused on the long-term.

Historically, China has already held the position of world super power. Some Chinese scholars claim that during the Tang Dynasty (618-907AD), China was contributing nearly one third of the total global economic outputs.

Angus Maddison, a researcher at Groningen University, has estimated that in year 1 (the birth of Christ), China contributed 25.4% of the total global economy. In comparison, India’s contribution was even bigger than China, at 32%, and the territory that would become the United States contributed only a tiny fraction (0.3%) of the world’s total economy.

China maintained this powerful position for over 1,500 years until its rather unfortunate decline, starting in the 18th century. This decline continued until very recently, when the country adopted an Open Door policy and started down the path to renaissance.

Furthermore, it does not appear that China’s upward trajectory will stop any time soon. Most analysts agree that it’s simply a matter of time before China surpasses the United States and becomes the #1 economy in the world. Some predict it will happen in next 20 or 25 years; others say it will take 30 years or more, but their conclusion is the same – it’s going to happen!

In a 2006 publication titled Celebrating 60 Years with a Glimpse of the Future, the Economist reported that in 60 year’s time the global economy will look very different to what it does today. Among the current top-10 countries, by 2066 the United States will slip from #1 to #3; Japan will be lucky to be included in the top-10, and China will emerge as the absolute leader.

In my view, this would be a fine development, beneficial to the entire world. A stronger China will bring with it much more benefit than harm.

I’ll explain why. Think about the Asian financial crisis of 1997. The troubles started in Thailand, where external aggressive financial forces attacked the Thai currency causing it to depreciate 18% against the US dollar in a single day (July 2, 1997). Other Asian currencies followed suit and a period of devastating financial turmoil hit the former Asian economic superstars: Thailand, Malaysia, Indonesia, South Korea, and the Philippines. In 1998 these countries saw their GDP shrink (in local currency terms) by an average of 8% and their currencies devalued by 50% against the US dollar. The damage was catastrophic. Many companies went bankrupt and there was widespread social unrest. The world watched anxiously for China’s reaction. If China followed the trend and depreciated the Chinese Yuan (also known as the renminbi or RMB), the whole region would be sucked deeper into the black hole. Fortunately, China stood firm on the RMB exchange rate, an act that effectively saved the Asian region (as well as globally to some extent), from a worse financial catastrophe. Although this response caused China to suffer some losses, ultimately the country’s economic strength made it possible for the country to play a brave and respectable role.

Again, when the global financial crisis happened in 2008 China initiated a massive, infrastructure-focused stimulus package to mobilize the domestic market and businesses for investing and spending. The RMB4 trillion (about US$600-billion) injected into the economy was, by any scale, a huge amount of money. This massive investment program contributed greatly to the country’s 9% and 9.1% GDP growth in 2008 and 2009 respectively. At less than 10%, this growth sounds modest compared with the 10% plus annual increment the country achieved over the 10 years before the crisis, but it was phenomenal in comparison with many developed countries where zero growth or even recession was recorded. There is no doubt that the Chinese stimulus package had a vital impact on keeping the country, as well as many other parts of the world, on the path to growth that eventually helped to facilitate the recovery of the global economy.

Today, rumours run high about the possible debt default in European countries such as Greece, Italy and Spain. The world has once again turned its gaze to China, which is probably the most capable country to relieve global debt worries with its massive foreign reserves (which will amount to over US$3.3 trillion by the end of 2012).

THE CHINESE ARE COMING!

The Chinese are coming! This is a cry I often hear when travelling abroad in Europe, North America, South America, and Africa.

And it’s true. The Chinese are coming, whether you like it or not. They are searching every corner of the globe to fulfil their need for raw materials, technology, human resources, management expertise, scientific research, ideas, art, antiques, used aircraft carriers, wines, mineral water—you name it.

In the year 2000, outbound investment by Chinese businesses was a mere US$1-billion, a tiny fraction of global cross-border investment. To put it into perspective, this was less than 10% of the capital injected into China by foreign entities. By 2012, China had invested over US$84-billion globally. This is an 83-fold increase over 12 years, or over 80% annual growth on average. Even during the global financial crisis, which stalled cross-border investment for many western companies, the Chinese pursuit of overseas assets did not waver. China is now the 5th largest offshore investment country in the world.

In 2004 there were limited locations in the world where Chinese investors had a presence, but they moved so quickly that only 6 years later, in 2010, Chinese projects had put down roots in most parts of the world. China moved most aggressively in Australia, Africa, and Central and Southeast Asia where rich mineral resources aligned with China’s need for raw materials to fuel growth. Today (in 2014) it is estimated that there are over 1,000 Chinese companies in Africa, turning over every stone on the continent looking for copper, gold, nickel, iron ore, etc.

There are many different ways to view this commodities rush. There are people who accuse China of stealing raw materials and other assets from their countries and some have even labelled China’s investment in Africa as a form of new colonialism. For example, during a visit to Zambia in June 2011, then US Secretary of State Hillary Clinton indirectly referred to China’s presence in Africa in this way:

We saw that during colonial times, it was easy to come in, take out natural resources, pay off leaders, and leave. And when you leave, you don’t leave much behind for the people who are there. We don’t want to see a new colonialism in Africa.

Asked whether China was a role model for Africa, Clinton answered: In the long-run, medium-run, even short-run, no I don’t [think so].

Furthermore, after the free trade agreement between China and the Association of Southeast Asian Nations (Asean) came into effect in January 2010, Walden Bello, executive director of Focus on the Global South, wrote an article proclaiming China’s neo-colonialism:

But a second look makes one wonder if the relationship with China is not reproducing the old colonial division of labour, whereby low-value-added natural resources and agricultural products were shipped to the centre while the Southeast Asian economies absorbed high-value added manufactures from Europe and the US.

Despite this criticism it is clear that in many places around the world investment from China has created jobs, prosperity, and renewal. Many African leaders have expressed positive feelings towards Chinese investment. In May 2011, Alpha Conde, the President of Guinea, stated that his country would open wide the door to Chinese companies and provide what China needs. Chinese investment stimulates economic growth in the country. It is a win-win situation. Koutoub Moustapha, the minister of international cooperation in Guinea, remarked: China’s investment is very important for Guinea and we welcome Chinese investors in agriculture and infrastructure. And we also warmly welcome Chinese investment in mining.

I can recall the speech by former Australian treasurer Dr John Dawkins speaking about China’s investment, addressing members of the China-Australia Chamber of Commerce and China International Mining Group in Beijing on 19 February 2009. Dr Dawkins told the audience:

I urge you (our Chinese friends) never to accept the bald, unqualified idea that Australians and the Australian Government are opposed to foreign investment. We all know that it plays a vital role in key sectors, especially in the resources and energy areas. Without such investment, the pace of national economic development would be less than optimal and the current account in Australia’s balance of payment would be seriously affected.

We simply need to get used to this China rush. China has worked very hard to attain its current position and to be able to invest overseas,