Planet Aexus – China

China was ruled by various dynasties for much of its history but the most influential was the Han Dynasty which laid the foundations for the culture we know today. Later famous dynasties, like the Song and the Tang, continued to refine the culture and bring new innovations to the world including printed money, a permanent navy, and a complex system of government that ruled over 100 million people.

When the Chinese Civil War broke out, the new leader, Mao Zedong took over the communists and led the CCP on a famous “Long March” to a distant area of China. There they regrouped and eventually gained the strength to force Chiang Kai-shek out of China and to the island of Taiwan. Mao Zedong established the People’s Republic of China on October 1, 1949. This new government was strongly allied with the Soviet Union and modelled its government after Soviet communism. In 1958, Mao Zedong embarked on a new plan called the “Great Leap Forward”. Unfortunately, this plan backfired, and China experienced a terrible famine including widespread starvation and death. Over the next several decades, China would struggle with political reforms and economic policy, slowly recovering and becoming a major world power with the second largest economy in the world.

Principal Industries in China

The main sectors driving China’s economy are services, manufacturing and agriculture. These three sectors combined make up almost 80% of China’s GDP.

Other Important Industries

In addition, China is also involved in textiles and apparel, petroleum, cement, food processing, automobiles and other transportation equipment.

Doing Business in China

China has always been an attractive proposition for overseas firms seeking expansion. Originally considered a difficult market to enter, things have become significantly easier thanks to a variety of recent reforms. This is demonstrated by China rising to number 31 in the World Bank’s 2019 Ease of Doing Business rankings report — a jump of 14 places over 2018’s ranking. This leap was enough to earn China recognition as one of the world’s top ten most improved economies for ease of doing business for the second year running.

Add to this the factors that made China attractive in the first place such as its vast population of 1.4 billion, rapidly growing economy and expanding consumer base thanks to a greater emergence of the middle classes and you can see that China is no longer just a manufacturing hub but a lucrative international market.

While the conditions within China are undoubtedly attractive, there are some significant political and cultural challenges to be aware of. However, despite these hurdles, China remains an indispensable market for any company considering expansion.

The View from the Ground Part 1

When describing a country and its culture, you can write down all the facts and figures you like but if you want the full story, you need to get the perspective of someone with a lived experience of being there. That’s why we’ve asked Pieter to give us his take on what it’s like to live and work in China.

I would say doing business in China is far, far different than the Netherlands in the way that you close deals with your business partners which includes going out to dinner together then the karaoke bar and drinking together. Also, it’s generally seen as disrespectful if your dinner party host wants to drink alcohol with you and you decline. It is typical that 10- or 20-times during dinner the host will get up and will want to clink glasses. Not only is it seen as disrespectful if you decline but it is also seen as a sign of weakness if you cannot keep up with the drinking level. Showing respect is very important, so if the person you’re drinking with is more senior, whether it be age or in business class or if it’s like the CEO and they want to clink glasses with you, your glass should be lower than theirs as a show of deference. The other person also wants to be polite of course so, they will move their glass position to the lower level too and it continues on like that.

Something else that’s disrespectful is the Dutch way of paying because it’s considered impolite to ask the host to split the bill so each person can pay for their own share. If you’re invited to dinner, it is understood that the other party is paying for everything and don’t even think about asking to pay for any of it. They may say “Going Dutch” in Chinese, it’s actually a phrase but it’s not seen as a good thing. The only way to counter this is to say, “okay, I will invite you next time and I’ll pay.”

Another important part of Chinese business culture is the phrase 966, which means you’re expected to work from 9 until 6, 6 days a week. This is basically part of the working culture, not just in the tech companies but also just any major corporation in China. While this is culturally normal, the younger generation don’t want to do this anymore. That’s because despite these hours being normal, if you work overtime, which is also quite common, then you end up with no social life. You’ve been working all week and only have Sunday to rest.

Another thing that is very important, which is also something that taught me a lot is that there will be one million obstacles in doing business but there are also a million and one ways through it. Whereas here in Europe, the number of hurdles that are being thrown at you are far fewer and you have to deal with them when they happen. With the Chinese though, there’s always something out of nowhere, there’s a legal or a banking problem or a paperwork problem, especially for foreigners obviously, but there are also more ways that you can get out of it. So, it’s very, very stressful. Far more stressful than it is here in Europe where everything is pretty much clear and structured, so you know what’s legal and you know what is illegal.

Some people might associate these business issues with corruption but it’s really not. There was a massive corruption crackdown and one particular area that stood out was gift giving. So, normally during business dinners, people would bring very expensive bottles of baijiu or wine, basically as a bribe. The implication being, here I am bringing you an expensive gift, because I want your business. It’s very much a grey area, and at least here in the Netherlands it’s far easier to know where the line is before you cross it. So, there is still a culture of bribing and gift giving and I’m sure it still helps, and it still happens a lot but there has been a severe crackdown, at least at the government level anyway.

If I’m a foreigner in China who wants to do business and I want to approach a government official or a businessman, it’s relatively easy. It’s something special, they don’t see foreigners a lot and it’s very important that once you have those meetings you need to establish that business is actually going to happen. That’s because some people never had any intention of doing business with you in the first place. They just saw this as an opportunity to make friends with a foreigner. Others say they’re too confused about the foreign way of doing business or this is not good enough or something like that. I do need to clarify that this is what happens when doing business in a second-tier city in China. So, I’m not talking about Beijing, because in the larger cities they are a little bit more used to foreigners and most of the foreigners who go to China will end up in Shanghai or Beijing. But, as for the normal way of approaching people, it will not be through email because email didn’t really take off here like it did in the West. They still use it obviously, but connections normally happen through some other kind of platform whether it be WeChat or a business event or through a mutual connection. And, this is one of the most important things to do in China – build up your network. This is not only for directly doing business but also if you “know this guy” and “I’m looking for this in this kind of person” or “this agency we discussed”. That kind of thing. So, it’s far more common that I will speak with someone, and he will then forward me on to someone else I need to speak to, and I will also redirect people to others within my network. Also, it is very easy to build up a network, especially for foreigners. All you have to do is go to a couple of chamber events or go to a couple of community events, sign up in the business community and before you know it you have like a very large group of connections.

These are solid connections too because from my experience in this second-tier city where there were maybe 2,000 foreigners, you are automatically going to make a better connection.

You’re both in this special territory and you’re both the outsiders as compared with the locals, so it’s easier to ask for referrals or for any help. Not only does this mean you become friends, but you have each other’s back because you’re both foreigners and you can expand both of your networks even faster, making referrals easier. For example, it would be very difficult to approach a Chinese person without a referral, especially if you do not speak Chinese. I mean, I could go online and search for a company and for a specific person within that company. It is relatively easy to find contact information like that. But, if I try to reach out to him, without knowing him and if I don’t speak a word of Chinese and he doesn’t speak English, it’s going to be a problem to communicate. This is why you always see one foreigner and one Chinese going to business meetings together in which the foreigner is the one who makes the decisions and is the more senior person. The other person is the facilitator who can open doors to certain people, setup meetings and perhaps handle things like translation and help with paperwork.

Just like in the West, there is a big push for women entrepreneurship. In the last couple of years or so, events have been popping up everywhere for women entrepreneurs to give presentations to other potential women entrepreneurs. It’s like it is in the West and women are getting and taking more and more chances for themselves. While there is no specific government assistance for female entrepreneurs, they are managing well but it is still a male dominated society in terms of work.

In terms of a culture clash, I can tell you a story about a guy who used to be my boss. He was a Dutch guy who was a very direct and very old school kind of person. He wasn’t particularly business savvy nor tech savvy and he was also the kind of person who could very directly and perhaps a little bit harshly, order you to do something, “OK this is what I need done and I want to have it now rather than tomorrow”, and it was just his way of communicating. I could handle it but the Chinese staff on his team couldn’t cope with his directness. And, I know that was because of his way of communicating. The Chinese didn’t respect him because to them it came across like the boss was shouting. To him though, he was just trying to be direct. It’s a very thin line and sometimes you will have to be strict, but the good part is that it’s hierarchical, so they have to listen to you anyway which means there’s no need to shout. If you ask politely and explain with patience and empathy what you need, it’s going to be fine.

Then of course, you have the language barrier which can sometimes be a problem too. If you have local Chinese staff who can speak some English but not perfectly, then the guy who does speak English may have to continually repeat himself and eventually he will get impatient. This is going to be perceived as impolite and they just might not do the work. So, what happened a lot in our team was that we’d hire people and they’d just quit after two or three days. I was always confused about this, and I used to tell the Chinese staff, “Yeah OK, it’s your first week, but you have to get used to everything, right? So, just wait it out a little bit longer before you make a final decision.” Many of them would still quit though and it was because the job market at the time was so buoyant that you could walk out of one job in the morning and have another in the afternoon.

The atrocities of war are still in the minds of a lot of Chinese people, despite World War 2 having ended more than 75 years ago. In fact, there was this guy at our office who actually said he

disliked all Japanese people, and he would not work at our company if we hired a Japanese person. So, I thought, yeah but that happened a long time ago and normal people didn’t have anything to do with it, so it’s in the past. And, what does the average Japanese person who lives in China have to do with it, right? You have to judge each person on their character and their personality, not on where they’re from. So, I tried to explain it to him, but he just got more and more angry. Those attitudes are starting to get better, especially with the younger generation. For the older generation, the stories they’ve heard from their parents and grandparents are keeping the feeling alive, but the younger generation are leading the change.

It’s really different doing a deal in China. As you can see now, everything is done by phone and online and I cannot even imagine what has been happening now in China, because that’s just not the way things were done. Obviously, things have changed recently because of Covid19 but typically we would hardly ever do any business by phone or video chat. We were always going out face-to-face, becoming friends first, having dinner together, becoming closer friends and that’s how the business relationship blossoms. The relationship is very important in China, far more so than it is here. In the West, if your businesses are aligned and it’s going to be a win-win for both of you, you could come to a deal quite easily and quite smoothly. In China on the other hand, they need to trust you more. That’s why the relationship building takes a bit longer but once you become their friends, then obviously the deal can be signed very quickly. What’s more, once you’re in, you’re in, which makes further deals and repeat business much easier. And, should things turn sour, there is no bad mouthing or nasty pettiness. The face-saving culture is a two-way street so the most likely outcome would be no further contact.

One thing that always made us laugh as foreigners in China, and I don’t know if this is well known, but the Chinese like to take a nap after lunch. They will take a lunch break at 12 and eat until 12:30 and then will take a nap for 30 minutes. So, you’re in the office and at 12:30, you look up from your desk for a second, and there are people sleeping everywhere. There are people asleep on the couch in reception, or in a chair, face down at their desks. What makes it even more funny is how serious they are about taking naps. People bring blankets and pillows to the office and some people actually have eye masks. We may laugh, but it’s obviously just a part of life over there.

The View from the Ground Part 2

China is such a large country and a big market that we also wanted to add the perspective of Willem on what it’s like to live and work in China.

Business cards are a very important thing. So, everyone who travels to China for business needs to be prepared to not just hand out a business card but to actually present it respectfully, with two hands. Ideally, the card will have been printed with English on one side and Chinese on the other and you should present it to the receiver with the Chinese side facing up. Apart from anything else, at least it shows you have done some homework. Sometimes, especially at exhibitions or conferences, you have European companies who come to China and are giving out their business cards in a way which would be considered very disrespectful to the Chinese.

Another thing that will get you noticed as someone who understands Chinese culture is drinking etiquette. Drinking is a big part of the business culture because in China doing business is more about building relationships than just getting straight to the point. So, after the first meeting you will probably go for dinner and during dinner, they will order a bottle of baijiu and a bunch of beers. The first thing you will notice is that the beer glasses are not the big beer glasses like we have in Europe, instead they are very small, tiny glasses. At the dinner, each of the Chinese will continuously come up to you one after another, especially if you are with a big group as it’s the goal of the company to get the foreigner drunk. So, everyone comes to share a drink with you and clink glasses, and each time you have to down the small glass all at once, like it’s a shot. It’s not a huge problem as most people who come to China are pretty used to drinking compared to the Chinese. If you really want to show them that you know what you’re doing, when you go to cheers with them, keep your glass lower than theirs. To show you respect, they will lower their glass, so you have to do it again and this carries on until both of you are almost on the floor. A lot of Chinese are very surprised if a foreigner knows about this custom because typically you would need to be in their culture for quite a while to actually pick up on it. So, that will definitely score some points for you. It’s like having a bit of inside knowledge.

I had several different types of businesses during my 15 years in China and one of those was in the car business. I thought I knew how Chinese business works because I’ve had other

businesses before with mainly foreign customers and the production teams on my staff were Chinese. However, when the car business got going, I was now dealing with Chinese customers and that’s a totally new game. I’m not sure if this is specifically related to the car business, but I was dealing in high end cars and if there’s one thing the Chinese are known for in business, it’s their negotiation tactics. Their negotiation tactics are very, very different than ours and if you don’t know that from the start, you can get quite caught up in thinking that you’re going to make a deal from the first meeting. They will give you the impression that you’ve already scored a deal, and not just for one Range Rover but twelve of them every month. What happens though, is as the deal becomes more concrete, and this is one of their negotiating tactics, they go back to the start of the deal to make sure they’re getting the best price and they ask for a lot of discounts and so on. Once they have done that, they breakdown the deal even further but now they have a lot of insight into how much your margin is per car. Now, when the real deal emerges, they know the price for 20 cars and the price per car and they say they only want one car but at the same price as if they were buying 20. In Europe, we would consider this not just impolite but also a little underhanded. The Chinese don’t consider it rude though, they just think of it as a very common way of doing business. You need to know about this tactic though so you can counter it by not giving away too much information on your margins or things like that. Something else I learnt from the car business in China is that no matter how far you are into the deal or how the negotiations are going, don’t believe anything until you see the money in your bank account. This happens because a contract, for example, has a whole different meaning in China. They always say, relationship first, paperwork second and then they will try to hide from their obligations when it suits them.

In China, the concept of not losing face goes so deep in the society that it’s not just in business but in people’s private lives as well. Even after living here for 15 years, it’s still difficult to fully grasp. I guess it’s one of the differences between the culture in Europe and the culture here. What I can say though is that if you were working with your boss, you would never give feedback or criticism in public or when there are other colleagues there. Even when it’s one-on-one, it is very difficult for the Chinese to give you this feedback. And, when we were doing business, we would say to our staff 100 times, please tell me everything. They’re Chinese, they’re our eyes and ears on the ground. If they think we’re doing something wrong or they think we need a different approach to sell something, then they need to tell us. They won’t do this though, because for them it’s a loss of face for the boss and the hierarchy thing is at a much higher level here than in Europe. So, for them to tell you anything, it will only happen with staff who have either lived abroad, or you have worked with for a very long time. But most Chinese wouldn’t dare to say anything. The hierarchy starts at the person above you and goes up from there. They won’t say anything in presentations either in case they get something wrong. This is drilled into them at school, where they are taught to give the exact answer that’s in the book. With this kind of exactness, they won’t rely on intuition at all. So, when you assign them a task, you have to be very specific about what you want because they won’t do anything that hasn’t specifically been asked of them.

Regarding network building in China, it all starts with your local network. People will share their network as long as they can benefit from it too. As an example, they’ll be like, “Oh, I introduced you to that guy, so you need to give me a kickback for that”. And, that is really common here because everything revolves around the business relationship. Also, the Chinese don’t really trust each other because there have been so many scandals in the past, like when

they copied a milk formula and it turned out to be lethal and some babies died. So, it’s worthwhile going through the network of your friends. You trust your friend and your friend trusts this guy, so it’s a safe introduction. It’s easier too because if you just want to reach out through email, they won’t trust you because there are so many cons in the business scene in China. So, building your network takes time and a lot of effort in terms of going out with your customers to sing karaoke or to have dinner together. This is because while you’re doing that, you might bump into other people and be able to build your network further. The trouble with this is that you end up working almost every evening and some people are genuinely working every night.

The Chinese don’t really have nations they prefer to trade with. The Chinese tend to know where to find the experts in each industry, so it’s not that they prefer doing business with the Dutch or with the Germans, because it really depends on the product. And, the Chinese are very good at finding out where they need to go for certain products. Going back to the car business for example, a lot of the Mercedes that we were selling to China were being built in Mexico. So, if the Chinese find this out and can get a better price by going to the source, they will do it. They will start trying to build a relationship with the Mexicans so that they can cut out the middleman. For them, it’s just a case of where the best margin lies.

Of course, whenever China is involved in something, politics is never far behind and particularly with the US. The trade war started by Trump has been continued by Biden. This is more than just posturing because he is trying to show voters that he is protecting American businesses, but it is actually having repercussions on the ground. For example, a friend of mine worked for IBM and they had a lot more business a few years ago than they do now. IBM had been working with China on servers and service provisions but now, if they have three participants in a bid and one of them is IBM and the other two are from Europe, IBM is not going to be chosen. It’s that simple and that’s the way the reality is now.

China is not the same country that it was maybe 10-15 years ago when they just had to accept everything from the bigger or more economically developed countries as it is now a superpower itself. And, they also feel like they have to show that they’re not going to get pushed around and not going to accept everything. That’s not who they are anymore. And, that’s just creating more tension in my opinion.

There’s a big history with China and Japan because Japan has never acknowledged what happened during the Second World War. This is a big cause of resentment and anti-Japanese sentiment in the country because there are a lot of people who still say that because they never apologised, the Chinese people will never forgive. Certainly, this holds true in business since if a Chinese person had the choice of doing business with let’s say the Dutch or Japanese, I think you already know who is getting the contract. I don’t think that will easily change either because it’s a very deep issue with a lot of Chinese and of course the horrific stories are passed down through the generations.

On a lighter note, you can definitely have a laugh in the office. It’s a very different type of humour though, that you have to learn to appreciate. Sometimes if we’re watching a Chinese comedy, we can find the humour a little childish. In the Netherlands and the UK, there is a lot of self-deprecating humour, and we can be harsh too, but this is something the Chinese are definitely not familiar with. And if you do make a joke for the first time in front of your colleagues, you can see them looking at each other and wondering if they’re allowed to laugh.

Business Etiquette

Chinese business etiquette is run on a strict hierarchy which must be observed at all times. This extends to things such as meeting etiquette, where even the order in which people enter the room could be an issue. You may be used to meetings in which everybody is freely allowed to air their views, but Chinese leaders and managers expect quiet obedience from their staff and subordinates. In fact, asking questions or disagreeing with something the boss says is a serious breach of protocol and a face-losing proposition for all parties involved.

Doing business in China may take longer than you are used to in your home country as business transactions are largely rooted in personal connections. To succeed in the Chinese market, it’s vitally important to build face-to-face relationships, and staff members should be encouraged to freely interact with contacts. It would also be valuable to have someone in your network who can act as a partner to make introductions.