BUSINESS CUSTOMS IN CHINA | Facts and Details

BUSINESS AND PERSONAL RELATIONSHIPS IN CHINA

20080314-card exchange cushman wake.jpg
Exchanging business cardsPersonal relations are an integral part of doing business in China. Chinese tend to look down on the American way of putting the bottom line before human beings and their habit of solving problem through litigation rather than personal contact. An American professor attributes the Chinese' success not to the fact they work harder but that they work together.Chinese tend to put more faith in personal contacts that contracts. A signature on a contract is often viewed only as the first step in a negotiation. Sometimes Chinese have few qualms about violating the terms of contract but are reluctant to lose face with some they respect for or have a close relationship with.Seniority is often regarded as more important that achievement or skill. If you do business in China it is a good idea to have someone over 50 representing your company. The Chinese respect age.

Chinese like to do business in person rather than on the phone. They also greatly appreciate Western partners or clients who are knowledgeable about Chinese culture. One American businessman told the New York Times, “It’s a very unique culture, and it’s very closed. You really have to gain their confidence first.”

Websites and Sources: Etiquette and Protocol protocolprofessionals.com ; Gift Customs: Chinatown Connection Chinatown Connection ; Eating and Drinking Customs: Chinese Food Culture asiarecipe.com ; Chinese Banquet Eitiquette orientalfood.com

Contacting Chinese Clients

20080314-citizen03 mclc 1927.jpg

It can be difficult to approach a Chinese firm directly. Generally you need an introduction from a third party, ideally someone who knows you and the people you wish to contact. If you don't know anyone in the company you wish to contact there are companies and consulting firms that specialize in being third parties.

The Chinese usually exchange cards upon introduction. A businessman will usually distribute 200 or 300 cards a year, if not more. During first time meetings business cards are usually exchanged but not with the degree of protocol and formally as with Japanese. Everybody hands out business cards. Guests are supposed to offer their cards first. Accept a business card with both hands, read it, nod and place it in your wallet. It is considered rude to put a business card in your pocket without reading it first. Try to have a business card printed in English on one side and Chinese on the other. Make sure it has your title on it and the business card looks good and is not bent or soiled.

On their first official visit to China foreign companies are advised not to send their top people. It is a bad idea to appear overeager. One former businesswoman in Shanghai told the Washington Post, “If you are in a hurry, you are a loser.”

Entertaining Chinese Clients

When figuring out the business expenses, Chinese companies often figure in 5 percent of their operating costs as gifts and entertainment. The owner of a factory making a new product usually makes the rounds of potential clients, giving out gifts of cigarettes and liquor as he goes. It is sometimes customary for foreigners to offer clients or potential clients a gift. A bottle of Scotch or some good imported wine is usually appreciated.

Entertaining is a big part of business in China. It often revolves around banquets. Wait for Chinese contacts to invite you and don't feel obligated to pay them pack. The ordering is usually done for you. See Banquets Under EATING AND DRINKING CUSTOMS IN CHINA factsanddetails.com

Chinese business dinners tend to be men-only affairs with a lot of drinking and sometimes a visit to a karaoke or hostess bar (where women are paid to flatter customers), or even a brothel. includes prostitutes. Chinese hosts sometimes feel they lose face if their foreign friends don’t indulge themselves and have a good time.

Chinese Meeting and Office Customs

20080314-factpory cadrres at meeting u wash.jpg
Meeting of factory cadres

For meetings and negotiations men should wear dark-colored suits and conservative ties; women should also wear a suit in conservative color. Taking off your jacket is acceptable if your Chinese counterparts do the same.

At business meetings presentations should addressed to the most senior person present. Low level employees don't speak up unless they are spoken to. If tea or another drink is offered to you accept it even if you don't want it. Accept drinks that are offered with both hands.

Don't schedule meetings for lunchtime or around holidays. Give yourself plenty of time in China so you have the flexibility to reschedule or have additional meetings. Bone up on Chinese customs and history. The Chinese are very proud of their past. Avoid any mention of Taiwan or Tibet.

Conferences are typically dry affairs with boring speeches, swapping of business cards, and banquets full of dishes and toasts. When writing don't use red ink. Some regard it as bad luck. Don't tell your contacts when you are leaving. They may try to postpone an agreement until the last minute.

Offices are generally open. Private offices are generally only held by top managers. Team work is emphasized over individual initiative. It is considered rude to complain directly to a superior. The Chinese often deal through an intermediary or have subtle, ways of getting their messages across. Ass kissing and looking busy are condoned behavior.

Preparedness is greatly valued. Sometimes Chinese businessmen look down on American businesses for being unprepared and lacking knowledge of Chinese and international methods of doing business. Punctuality and reliability are greatly valued, even though Chinese are not great practitioners of these virtues. Give yourself plenty of time, allowing for traffic delays and such, and don't be late. However, Chinese sometimes overlook themselves and postpones meetings at the last moment.

Business Gift Giving in China

“Any time is an occasion for giving a gift,” Christine Lu, chief executive of the luxury investment group Affinity China, told the New York Times. “It’s customary and will say a lot about your character, what you know and your intentions.” Gifts should not be expensive, so they are mistaken for bribes, Cynthia Lett, founder and director of the Lett Group, a protocol training company said. “If you’re going to give something pricey, it has to be something with your logo on it, or it has to have some relevance to your business. You give it to the organization or the institution; you do not give it to the individual for his or her own use.” [Source: International Herald Tribune Business Navigator, January 3, 2011]

Choosing gifts that take traditional Chinese beliefs into account may not be necessary these days, but it is always better to be cautious. Ms. Lett suggests selecting books of photographs or items handmade by local artisans. She tells the story of a business group from the U.S. state of Georgia that could not come up with a new gift idea. The group had already given books on Georgia and the U.S. national parks, “so we ended up making a ruler with all of the different colors of granite that they had in their quarries there. It was 12 different colors. And it went over fabulously.”

Wrap gifts in red, which is considered lucky; avoid black, white and blue, colors that are used for funerals. Giving eight of anything is considered good luck, while four is bad. (The word for “four” sounds like the word for death.) Do not give clocks or watches (which suggest a time limit on the relationship) or anything sharp like scissors or a letter opener (cutting off the relationship).

When it comes to presenting gifts, know that tradition says they are offered — and refused — three times. Today, “the “refuse thrice” rule exists but is not followed super strictly,” says Laurie Underwood of China Europe International Business School. “In general, it is expected that you will politely refuse a gift at first — or an offer to dinner or a snack or use of an umbrella — several times before accepting it, and that if you offer a gift or food to a Chinese guest, they would first refuse it, even if they really want it.” So do remember to keep offering if a client refuses something. “It is awkward when a foreigner only offers once,” she says. And do not wait for holidays. “Do you know how many moon cakes people get at the Mid-Autumn Festival?” Ms. Lu says. “They all get stacked up at the door, and you forget who gave what.” Give a gift when it is appropriate, she urges. “That’s when it will mean the most, especially if it looks like a lot of thought went into it.”

Businesswomen Behavior in China

“In general, Chinese tend to be less fussy about women colleagues,” says Ms. Underwood of China Europe International Business School. “For example, a young staffer would rush to open the door for his boss but leave his female colleagues to open their own door. Meanwhile, a female Chinese assistant would feel very awkward if her male Western boss opened the door for her.” [Source: International Herald Tribune Business Navigator, January 3, 2011]

Ms. Lett of the Lett Group says: “From my experience, and I only have my experience to go on, they are as respectful to me and the women I’ve taken over as they are to the men, as long as the women behave themselves. They get flustered with any kind of behavior that would be suggestive. They just don’t know what to do with it.” Ms. Lett says she has seen Western women acting in a sexual manner “in a business context, and I just cringe, because I can see the reaction on the faces of the men — somewhat surprised and somewhat disgusted.”

She makes suggestions about dress with that assessment in mind, especially for the mainland: “You have to keep a sense of modesty. Your dress should be, if you’re wearing a skirt, knee-length or longer. If you’re wearing a blouse, it should be long-sleeve, not short-sleeve. Slacks are O.K., if they’re well tailored. They should be neutral in colors. Brown, black, dark blue — really good colors. They don’t like high heels in business. So keep it two inches or lower,” or five centimeters. “And cleavage should be eliminated completely. They don’t go for cleavage. They don’t go for anything suggestive at all. So keep it conservative.”

Job Searching Customs in China

In the Maoist era, the government fen pei system guaranteed jobs to everyone. People had no real say in where they worked: they were told by the government where to work. The best jobs tended to go to those with best connections with the Communist party. One think tank researcher told the Los Angeles Times, "In 1985, you sat in school and waited for a teacher to tell you, 'This work unit has this many openings,' and what kind of jobs you should look for.'"

People no longer wait for job assignments. They now have to go to job interviews. College graduates tend to get jobs more through their connections that abilities, test scores work experience and letters of recommendation. A university faculty advisors is instrumental in getting someone a job.

Even so many private companies today, especially those that deal with foreigners, are hiring new employees on the basis or merit and experience. The process that college graduates go through to find work’submitting resumes, attending job fairs and going to interviews — is becoming more and more like what their American counterparts go through. Many people look for jobs at job fairs known as talent markets.

Height, marriage status, age and health record can all be taken into consideration by potential employers. People have been denied jobs because they have had hepatitis in the past or are too short. Companies often refuse to hire workers who over 35 and 40. But because of the one-child police the number or workers in the 20 to 24 bracket is already starting to shrink.

People applying for jobs routinely lie to their prospective employers. One government investigation uncovered that 15,000 civil servants had used fake university degrees or bogus certificates to get their jobs. Lying about credentials is such a problem that companies can hire investigators that specialize in checking out if credentials claimed by applicants and staff members are for real.

Chinese Negotiating Customs

The Chinese way of negotiating takes long and is much ritualized than the American and Western way. Foreign business often have to make several trips to China to establish a business relationship and set up a deal. One United States government official in China "nothing much happens before the end game."

Chinese business tend to engage in a lot of small talk and ask questions about your university and company before negotiating or talking business. This is done because establishing personal relations is important in business and jumping right into business is considered rude. English usually isn't a problem. Most companies have people that speak English pretty well.

It is a good idea to begin negotiations by praising the Chinese company you are negotiating with and focusing on the positive aspects of doing business together. Don't be too aggressive or pushy. Direct your pitch at the highest ranking person rather the one who speaks the best English. Avoid surprises, be patient, respect lucky and unlucky days and numbers and don't smile or laugh too much.

Bargaining and horse trading are taken very seriously. There is a saying in China that “without a fight, you don’t get to know each other.” Chinese often present themselves as poor, developing Chinese and Westerners as rich foreigners and attempt to use that position to their advantage and expect a few breaks. But otherwise they negotiate from a win or lose approach. Many Westerners complain they take much more than they are willing to give.

Chinese Approach to Negotiations

Journalist and China expert James McGregor wrote in the Washington Post, “China is about unity, focus and leverage. Chinese officials and business executives are obsessed with a single question: What advantage do I have over you?”

Henry Kissinger wrote in Newsweek, "China' approach to policy is skeptical and prudent...impersonal, patient and aloof; the Middle Kingdom has a horror of appearing supplicant. Where Washington looks to good faith and good will as the lubricant of international relations, Beijing assumes that statesmen have done their homework, and will understand subtle indirections." The Chinese often "indicate a strong preference, not a condition....To the Chinese, Americans appear erratic and somewhat frivolous."

Beijing takes it time making decisions. Kissinger wrote: "The Chinese maneuver to induce their opposition to propose the Chinese preference so that Chinese acquiescence can appear as the granting of a boon to the interlocutor....When faced with what is considered a legacy of colonialism, China is prone to bully in order to demonstrate its imperviousness to pressure. Any hint of condescension or sign that Chinese territorial integrity is nor being taken seriously evokes strong — and to Americans, seeming excessive — reaction."

One Chinese scholar, who has written extensively about the United States, told Time, "If you treat China as a friend, he will treat you well and will never betray you. Treat him like an enemy and he'll fight back without hesitation."

Negotiating Observations

Chinese Investment banker Noboru Yoshimuru told the New York Times that: 1) American tend to use information as a tool in negotiations to get information from other people in return while Asians hide it to separate insiders from outsiders; 2) American tend to negotiate to win while Asia try to reach a point that is agreeable to both parties; 3) American tend to put their trust in numbers and logic while Chinese tend to put their trust in human relationships. [Source: New York Times magazine, June 8, 1997]

Yoshimuru said: "Asia would probably buy my product if they felt I was trustworthy. American come somewhat the other way around. If I am strictly logical and persuasive, then Americans will accept my argument and start to trust me."

It is important in Chinese negotiation for the two parties to trust one another and not embarrass each other. Americans like to start negotiation at unreachable point and then bargain from there. In Chinese eyes, Americans these levels are often embarrassing and humiliating and makes them not want to negotiate.

One financial analyst told the Washington Post, "Return on capital and profitability are not in the Chinese vocabulary. Market share is the only game they know. They pump in a lot of money when its not clear or its justifiable."

Chinese-Style Business Practices

Chinese are known as risk takers. Their thinking sometimes goes that opportunities are rare and they must be pursued aggressively when they occur. Whole families will sometimes invest great sums of money on the chances of one member to get ahead. And, there is often an emphasis on getting rich while you can. Chinese businesses have been criticized for going after quick profits rather than looking out of the long term interest of their companies.

When starting a business Americans often go to the bank for a loan, Chinese go to friends and relatives, maybe getting the equivalent of $1,000 from one person, $2,000 from another person and maybe twenty thousand from a close relative. “We trust each other, so no interest. He know I do the same for him one day."

Many Chinese business owners like to run their companies on instinct and with total central. They Shut excessive meeting, don’t field question and don’t provide explanations and don’t tolerate a loot debate. With a firm, centered hierarchy many Chinese feel that workers spend more time talking than working.

See Superstitions.

On working in China, the film producer Ismail Merchant said. “People don’t like saying “yes” here. They think about things, and say you can’t do that when there a shooting schedule to keep.” Architects working in China voice similar complaints.

Many businesses have traditionally sought out customers by going from street to street shouting or making some noise to advertise their products. In the old days melon-seed vendors walked around banging brass gongs, chanting "Easily opened! Oh so easily opened." Joining them were clothiers banging on leather drums, fortunetellers with bamboo flutes, fruit sellers clanging on brass bowls, and barbers hammering large tuning forks. Even today people spend a lot of time at home doing their chores and the noise made by vendors lets homeowners know they are coming. Today watermelon and eggs sellers use the same methods, only they travel around in small pick trucks and hand carts using speakers connected to a tape player that repeat the same message over and over.

Customers used to slip their hands up the long sleeves of merchants and bargain with squeezes to the wrist so onlookers would not know how much they were paying.

Family Style Chinese Businesses

In his book The Spirit of Chinese Capitalism, Gordon Redding wrote, "The Chinese family business...is peculiarly effective and a significant contributor to the list of causes of the East Asia miracle." Chinese-owned companies are often family run and have family members, other relatives or family friends in all the management positions. This contrasts with Western corporation which generally rely on professional managers. One Chinese businessman told the Washington Post, "We mostly hire people because he family knows them, or because they're introduced by a family member. That way you can find someone you can trust. Chinese find it not so easy to trust other people."

Many Chinese companies are run by old patriarchs backed up by Western-educated sons and daughters. The Chinese family system is much more effective in simple organizations like shipping, real estate and the production of low-market goods such as shoes and electronic but is not as effective in sophisticated organization that spend a lot on research and development and design high-tech products.

Confucian thought adapts itself very well to the hierarchical management style. One of the key components of a Chinese family-run business is trust. The Chinese have a reputation of distrusting people outside their clan or circle. The advantages of the Chinese family system of business are that it keeps management size down and allows quick decisions to be made without lengthy meetings, which in turn allows companies to move quickly into profitable markets. The disadvantages of the Chinese family system of business are that favoritism keeps talent out and family feuds can bitterly divide a company especially after a patriarch dies.

Modest Chinese businesses like noodle restaurants and small shops. are run by husband and wife teams, with children providing labor. Women often play an important role in organizing the finances. Explaining how such a business gets started one Asian businessman told Stanley Karnow in Smithsonian magazine: "Americans make big investment, hire manager, technicians.” Asians “cannot afford that, but wife and children all work hard. At first I keep old job while wife and friend take care of store; later I quit to run business full time. Until last year we are here seven days a week, sometimes until 2 in the morning. Now we are doing OK, so we take Sunday off."

There are critics of the the Chinese family business model. One Chinese businessmen said that many Chinese businessmen suffer from “Chinese restaurant syndrome” in that “they are contents with small-scale enterprises; they are happy to making a living. But Jewish people want to be the best and make a huge company.”

Problems with Doing Business in China

In a Time magazine essay John Rothchild outlined some of the problems that foreign investors have doing business in China. "The first problem," he said, "is that the new companies have no experience in acting like companies. The idea that they are profit-making operations that owe their allegiance to people known as shareholders hasn't completely sunken in. When they get their hands on the proceeds from a stock sale, they don’t necessarily spend it for the intended purpose. Maybe they were in the textile business, but the next thing you know, the management is making a movie or opening dim-sum joints."

"Chinese companies maintain a close relationship with the state enterprises," Rothchild added, "from which they came and sometimes can be pressured into making loans and even donations to their old cronies. I'm also told that the Chinese consider it very impolite to turn down a request for financial assistance. This brings us to problem No. 2: How can the Chinese companies make a profit? In many instances, their biggest customer is the state, which doesn't necessarily pay its bills on time. This leads to the disappointments and disappearing earnings."

Investors complain about the dictatorial, bureaucratic and deeply corrupt ways business is done in China. In some cases contracts are cancelled at the last minute for no apparent good reason. Other problems include no reliable laws protecting foreign investor's money and contempt among Chinese officials at all levels for notions of accountability, transparency and equity.

Strategy for Foreign Companies in China

The general strategy for doing business in China seems to be gain a toehold there, whether some tough times and be prepared to seize the moment when the market bursts open.

Jeffrey E. Garten of Wharton School of Business told the New York Times, "The Pepsis, the AT&Tts, the Honeywells and General Electric are really in it for the long term. They have very sophisticated strategies. They have really dug in and invested in Chinese communities built education institutions in China and developed webs of connections with all levels of Chinese society."

He also said, "many small companies tend to get carried away by the hype that China has suddenly become a market economy...There are pockets of it. But in order to succeed in China today, you have to establish yourself as an entity that is aligned with the government's long term goals. That does not mean Communism but it does mean training people and showing you are not a fly-by-night company and you actually care about Chinese society."

The Western companies who made the greatest profits are those that sell cheap consumer items such as Coca Cola and McDonald's, and have utilized China's cheap labor. Many companies that have made money in China have used China as a platform for manufacturing or exporting. Few have been able to cash in China 1.3 billion person market as has been hoped.

Foreign companies try to create strong bonds with the leadership in Beijing for no other reason than to sweep away obstacles created by local officials.

Culture and Business in China

Tang Shuangning, president of Everbright Bank, a fast-growing lender, told the Washington Post that managing a bank in China is no more complicated than executing a fine work of calligraphy. “Approaching a piece of white paper to write calligraphy is like mapping outa strategy in China's economy,” he said. “The lines of your writing are where you want to lead the money flow. And it all depends on how you make use of your potential power.”[Source: Simon Rabinovitch, Reuters, Washington Post, July 28, 2008]

A number of elite Chinese financier have a passion for the arts. Xiang Junbo, president of the Agricultural Bank of China, has written screenplays. Wang Yi, vice-president of the China Development Bank, which owns 3 percent of Barclays, has received praise for music compositions. Tang, the calligrapher mentione above has penned poetry, written a short biography of Zhou Enlai, Mao Zedong's faithful premier, and made pilgrimages to the towns of ancient poets Li Bai and Su Dongpo.

“For successful people at that level, it's very fashionable to talk about Chinese poetry and traditions,”Jia Lin Xie, a professor at the University of Toronto's Rotman School of Management, told Reuters. “You can show deep down that, apart from your business success, you are deeply involved in Chinese culture,” she said. “For the CEO of a big bank like Everbright, business success is almost a given but they want to establish a name. They want to be different in competing with other banks,” Xie said.

Yet for every calligrapher-cum-banker such as Tang, there are dozens more entrepreneurs whose highest art form is karaoke. Many business people in China grew up during the chaotic height of the Cultural Revolution in the late 1960s, when traditions were overturned and education was interrupted. Insecure about their grounding in Chinese heritage, they seek quick fixes, Jeongwen Chiang, a professor at the Cheung Kong Graduate School of Business in Beijing, told Reuters. “Some try to elevate themselves to acquire more culture,” he said. “They might participate in artsy events, exhibits or auctions. By amassing some art, they feel they may fill some of that void.” Cultivating calligraphy and poetry can set the more established business leaders apart from “nouveau rich” newcomers, such as miners or factory owners that have struck it rich.

Confucianism and Business in China

That businessmen want to prove their artistic bona fides is part of a deeper trend of Confucian beliefs reasserting themselves in China.One Confucian ideal that doesn’t mesh well with China's booming economy is Confucius’s condemnation of self-interested behavior. In doing this he made profit-seeking business appear crass and undesirable to Chinese through the centuries. [Source: Simon Rabinovitch, Reuters, Washington Post, July 28, 2008]

“For about 2000 years, people used to look down on business people and that's very deep-rooted,” Jia Lin Xie, a professor at the University of Toronto's Rotman School of Management, told Reuters. Xie said. “So you want people to know that you're a Confucian-style businessman,” Xie said. “That's not the same as an ordinary businessman, because you're a businessman with culture.”

Like a lion opening its bloody mouth is Chinese proverb for voracious greed. The distaste for money talk also filters into business relations between Chinese and foreigners, a potentially uncomfortable point for Westerners who are used to talking through deals in detail. Gervais Lavoie, a Canadian businessman who has run companies in China for more than two decades, told Reuters meeting face-to-face with his Chinese counterparts is essential but that they are more likely to debate philosophical issues than negotiate contracts. “We barely talk business. It's like, why do you want to lose your time talking about business?”

Informal Lending in China

Elaine Kurtenbach of Associated Press wrote: “The true scale of informal lending nationwide, much of it derived from bank loans originally intended for other purposes, is unknown. But such lending has ballooned because the reluctance of China's state-run banks to lend to small and medium-sized businesses has been compounded by government curbs on credit to cool inflation. Interest charged by private lenders can be as high as 90 percent, inviting comparisons with dodgy investment schemes. [Source: Elaine Kurtenbach, Associated Press, October 18, 2011]

UBS economist Tao Wang puts informal lending at between 2 trillion yuan to 4 trillion yuan ($314 billion-$628 billion), or up to 10 percent of China's GDP. There is little immediate impact on China's massive state-run banks from some of these loans turning bad. A bigger risk is Wenzhou's credit squeeze spreading to other parts of the world's No. 2 economy.

Image Sources: University of Washington, Cushman Wake

Text Sources: New York Times, Washington Post, Los Angeles Times, Times of London, National Geographic, The New Yorker, Time, Newsweek, Reuters, AP, Lonely Planet Guides, Compton’s Encyclopedia and various books and other publications.

Last updated March 2012