By Ryan Stenquist

China has rattled the world in a matter of just a few years; the People’s Republic of China has moved from a poverty-stricken nation struggling with an oppressive dictator in 1976 to one of the most powerful and international economies in the world in 2010, only thirty-four years later. According to the World Bank, China’s GDP takes second in the world next to the United States with the annual equivalent of US$11.2 trillion.

The far-eastern nation has not only financially exploded, but it has also opened up to the rest of the world in this same short blink of history. Americans observe this great progress, combined with the newfound discretionary income of hundreds of millions of Chinese millennials, and understandably rush to invest and build. However, to fully engage in these great business opportunities China presents to the West, foreigners must learn the complexities of China’s unique financial and social environment.

In order to understand these business relationships at any level, it is important to understand national perspectives that the United States and China have held for each other for the last several decades. A recent article on Sino-American media relations by the International Communication Gazette offers an interesting perspective gained by text-mining news articles (i.e., by systematically searching for key words relating to American and Chinese trade and finding patterns in the results). Perhaps the most interesting and applicable find in this research is the conclusion that “the state [of China] has over time repositioned itself in response to challenges posed by competitive world powers, especially the United States.” Surely both the United States and China care about their international statuses, but the previously mentioned article shows line-by-line how China has—in the last forty years—taken itself from the perceived position of a poisonous, toy-making industrial wasteland (which was proven to be unfairly exaggerated and largely a misplacement of blame from the perpetrating toy companies) to “a leader in world commerce in which the United States [is] one trading partner among many.” In both Chinese and American media, mentions of the issues in China have steadily declined, while the frequency of stories about the industrial capability of China, reminders of America’s trade deficit, and sharp criticism of US interventionism has spiked. In China, the article notes, this change was strongly promoted and planned by a government eager to promote “traditional communist orthodox views.” Preexisting attitudes, the “soft-power” campaign launched by China, and modern nationalistic feelings create a wide range of opinions about Sino-American business relations—opinions that need to be understood for private enterprise to succeed in business dealings.

From a more subjective standpoint, tensions between US and Chinese businesses can be sharp and heated. Legal differences, dissimilar social behaviors, and strong government intervention often frustrate Americans, who hold western ideals as their standard. To understand some of these more difficult moments, I spoke with a businessman and former US Special Agent with the Department of Justice specializing in international law enforcement in China who wishes to remain anonymous. His experience
in the private sector includes defending United States patent and trademark laws in China, communicating with Chinese CEOs, negotiating international business contracts, and translating documents. As he began answering some of the more serious questions I asked him, he warned me that he would not be holding back his thoughts: “I’m not a panda hugger.” We started with a discussion of his impressions of Chinese mentality he experienced when he worked for the US government. The agent tells the story of a meeting Chinese government officials held for him and several fellow US agents in Beijing. In the meeting, Chinese officials reported what
they were doing to stop illegal use of American brands and technology in the country and ended the meeting with the assertion that China was rigorously enforcing international law.

They further claimed that the results of their efforts were the near-perfect compliance of private businesses. The agent further explained that for the entire meeting, he and his coworkers were irritated at what they considered a clear lie. When the meeting ended, they all exited the building. As the motorcade of government officials left the Chinese government compound, they passed shop after shop selling USA trademarked and branded “knock-offs.” Through the rest of his explanation of his interactions with Chinese businesspeople, he highlighted their respectful attitudes and gracious hosting, but the prevailing message he conveyed was that “trade is absolutely not fair” and “the Chinese take every advantage they can get from you.”

These viewpoints, strong as they are, are shared by many who do business with China. While certainly hardnosed negotiation and some instances of unfairness are a part of Sino-American trade, more exploration into the Chinese perspective can profoundly pacify harsh feelings and help avoid these frustrations altogether. Dr. Alan Heath, a Chinese professor at Brigham Young University, once discussed one of these cultural nuances during a presentation to students. In his experience attending business meetings, a 名片 (mingpian), or name card, is essential to participation. At the beginning of each meeting, each attendant will set his or her name card on the table by his or her seat and then spend time casually talking while circling the room and looking at other cards.

When the meeting starts, everyone in attendance already knows whom to give deference. One of the key members unique to every important Chinese business meeting is a government representative who always deserves an elevated level of respect because of his or her sway on the political relationships of the company with the Communist Party. These traditions, Dr. Heath explains, clearly stem from ancient Confucian ideals of honoring those in higher rank or authority. The relationships “ruler to subject, father to son, husband to wife, elder to younger, and friend to friend” thus receive the analogous addition of “manager to employee” or “CEO to CFO” in a business setting. To an outsider, this sort of ceremony and placement of respect might seem overly time-consuming, unexplainable, and frustrating. However, to the Chinese, this is a sign of respect to all in attendance and a way to prepare for the business ahead.

These Confucian ideals create another cultural phenomenon often misunderstood by foreigners. To a traditional Westerner with the belief that all people should be treated or esteemed equally, it poses no problem for a worker to appropriately and tactfully disagree with or contradict his or her supervisor. In fact, these types of employees are often lauded as brave and innovative by coworkers as well as by the higherups they confront. However, to a twenty-first century Chinese company still heavily influenced by Confucian ideals, suggesting something different from what a manager puts forward is often considered disrespectful, inappropriate, or brazen. As the D.O.J. agent puts it, “the CEO of a company may be saying something totally off-base, but his supporters in the meeting are embarrassed to say anything in front of him. But later on, they kind of say hey . . . you were kind of wrong, etc., etc. Or, a lot of times they will say some things in front of him they know aren’t right and aren’t true, but that’s what he wants to hear, and I see that every day. They think we’re arrogant punks because we stand up and say ‘wait’ in a group, or school, or public forum or dare question a politician. . . .They would never do that. Never. And it carries over to business where the boss is always right, whether he’s wrong or not.” On this point, the rebellious, independent workforce of the West must simply swallow this difference in ideals to make ground for more important areas of bargaining. In order to cooperate at all with Chinese business, Westerners must learn to do what frustrated employees in China have learned to do: preserve the boss’s reputation in public and tactfully make suggestions and corrections in private.

Furthermore, foreigners intending to interact with China must learn to overcome dealing with a much stronger and involved bureaucracy. Because China’s financial system is a command economy (an economy where government commands and directs economic activity), top officials of the Communist Party of China are intimately concerned with how foreigners interact with their markets and how products, information, and intellectual property are exchanged. Whereas the Western world’s companies interact as independent entities with only minimal, generalized government intervention, Chinese companies interact with the world under a single banner of communist China, with government unashamedly interfering in regular business to ensure benefits for the country as a whole. This leaves American businesspeople left to negotiate not only with fellow businesspeople, but also with looming international government officials and bureaucracies. Thus, American businesspeople not only need to prove that every exchange they make will satisfy the foreign company, but also satisfy the Chinese economy.

Another difference in business operations that often frustrates foreigners is the government requirement of joint venture—creating an “equal” partnership with a local Chinese individual or company. Through native Chinese support and networking, American businesspeople find it much easier to navigate the Chinese business world and effectively culturally adapt the company. This is, at least, the point that is made in China’s Investment Catalogue, a guide distributed by the People’s Republic of China to foreign investors. The catalogue also places industries into certain groupings and based on those groupings establishes various levels of foreigner tolerance. Some rare and prized areas such as construction of hydrogen refueling stations, development and manufacturing of key components for 3D printing devices and establishment and operation of city parking facilities are placed in the “encouraged” category, with tax breaks and other benefits attached. Other areas, such as aerial photography mapping, editing and publishing of books, newspapers, and periodicals, and research institutes of humanities and social sciences, are on the prohibited list. Nonetheless, it is possible to bypass a restriction on the negative list by making a plea to the ministry of commerce.

孔锐悠 (Kong Ruiyou), or Ron Kramer, an employee of China Life Insurance and a former undergraduate and master’s student of accounting at 人民大学 (Renmin University of China) in Beijing, shares a native Chinese perspective of these ideas and policies. His company is 70 percent government-owned and is China’s largest health insurance provider. To him, the largest difference between Chinese and American business ideology is that “to communicate with the Chinese, in most cases you have to focus on the network. But, when dealing with Westerners, not necessarily foreigners, but Westerners, especially people from Europe or the USA, we can mostly focus on the business itself.” He goes on to explain that this network is not just about making the business more profitable, but rather about even allowing business to be done at all in the nation and then specific provinces and localities. From his perspective, “the law enforcement in China is not very good. . . . Law enforcement, whether it is strict or loose, depends. It is determined by the officials case by case. There is not a consistent standard for them to tell you what kind of behaviors are strictly forbidden and what are allowed. This makes foreigners feel unsafe. They don’t know what ‘the bottom line’ is. . . . You not only have to be familiar with the laws and regulations, but also with the specific officials you are dealing with.”

One of those specific officials is 史静翰 (Shi Jinghan), or Jim Allen, a financial authority (金融办) near Pingtan, China. His work and educational experience includes earning a master’s degree in accounting followed by ten years of accounting work for a major technology firm in California. After his work in the United States, he moved to China to help manage and develop the finances associated with infrastructure in Pingtan. He not only regulates financial systems and bureaucracies, but also fundraises for government projects. His university emphasis was international joint ventures, and he has an interesting perspective with a strong Communist Party lean. According to Mr. Allen, joint ventures as an absolute requirement for foreign investment in China is a thing of the past. After opening up to the world, China now is completely welcoming of foreign investment and does not interfere with ventures foreigners would like to pursue in the country. When asked about the industries which are in fact legally required to create joint ventures, such as large technology and car industries, Mr. Allen admitted that the government required a majority Chinese presence. To the question “Why?” his response reflected his personal optimism and positive perspective towards the government he represented. He innocently responded, “In those areas, we simply want to work with you.” He continued to list all the benefits of working with Chinese individuals for joint venture: funding for your company that would otherwise be hard to obtain, ability to work with the local and national governments, and ability to connect with the Chinese better.

While these benefits certainly make joint ventures appealing, from the perspective of foreigners they can also be a dangerous and complex game to play. Harris & Bricken is an international firm with offices in San Francisco, Los Angeles, Barcelona, and Beijing, among other places. Its blog, Chinalawblog.com, gives interesting legal perspective into how Chinese culture has affected national joint venture law. “Our China lawyers have far too often seen foreign investors make a mistake that effectively leaves them without control—a mistake so fundamental that it accounts for most of the failed equity joint ventures in China. The mistake is assuming that Chinese joint ventures are managed according to a Western model, under which the board of directors has controlling power over the company.” They explain that the three things necessary to maintain control in these joint ventures are (1) the power to appoint and remove the China joint venture’s legal representative, (2) the power to appoint and remove the general manager of the China joint venture company, and (3) control over the company seal, or “chop.” Even if the Western company controls 51 percent or more of a company’s stock, the above three conditions will overrule their ability to keep control of the company. Chinese businesspeople are well aware of these rules, and unfortunately often use their more detailed knowledge of them to take advantage of foreign investors. Story upon story is told of companies losing rights to management after the necessary skills and technology of a company are gained by local Chinese forces. Again, according to Harris & Bricken, “The Chinese side to a joint venture will typically refuse to give the foreign party . . . measures of control. It will argue that it should control the joint venture for reasons of both efficiency and expertise. In many cases, it also will claim that it cannot bring its political connections, or 关系 (guanxi), into play unless its own people fill the legal representative and general manager slots. This argument is usually just a smoke screen for the Chinese side trying to secure the true levers of joint venture control.”

These complexities are made even more difficult when considering the way bosses, superiors, and authorities are treated in Chinese culture. Mr. Kramer reiterated what Mr. Kevins had stated in a previous interview with his own interpretation of Chinese relationships in a company. When asked if he would prefer working for a Chinese boss or an American boss, he responded quickly, “An American.” He discussed his current relationship with his Chinese boss this way: “In most cases, I will follow his orders, even if it is absolutely incorrect or even ridiculous. And I’m pretty sure that 99 percent of Chinese workers will have the same choice as mine. It’s a sad story, but that’s true. Especially for traditional industries. But this is not the case for AI or the computer industry. Because in these industries, the lower level of employees, if they don’t like the boss, they say, ‘Okay, I can quit. I can find a boss who is better and where the pay is better, too.’”

Mr. Kramer is not the only one who has recognized that the times may “be a-changing” for business in China. As one example, Tesla is expected to be capable of negotiating unprecedented deals for foreign automobile companies in China because of its electric vehicles.
Bloomberg states, “A relaxation of the joint venture rule would give companies like Tesla Inc. the opportunity to set up fully owned manufacturing operations in China, the world’s biggest market for electric vehicles.” This would be in line with goals created by party officials to reduce carbon emissions. Business Insider reports: “From China’s point of view, easing the JV rules could spur considerable production of electric vehicles and related infrastructure, as powerhouse western carmakers position themselves to grab new market share. For Tesla, not having to go through the JV process could rapidly accelerate its move into China. But Tesla’s much larger and more China-experienced competitors might not like it. A carve-out for Tesla, even if they also benefit, could lead to charges that Musk and his company gained preferential treatment by avoiding the JV policy.” At a Tesla store in Hangzhou, China, a native Chinese employee shared his own confidence that the company will continue to spread throughout China and be a strong part of China’s goal to go electric.

Other major changes to Chinese business are seen on the social level with the rise of Chinese millennials. According to a study by Haworth, a global furniture manufacturer that observed employees in Airbnb, IBM, Honeywell, LinkedIn, Shell, and other companies in China, Chinese millennials are set to make changes to the workplace. “They are one of the most unique generations in history, and nowhere is this more pronounced than in China; rarely has so much change occurred in just one generation. Four major factors have influenced the experiences and expectations of the Chinese millennial—Economic Reform, One Child Policy, Technology Boom, and Traditional Systems.” According to the study, the Chinese workplace is set to shift from “standardized to personalized,” from “hierarchy to communal,” and from “escape to embrace” as millennials take charge. Foreign entities can only hope that these changes will help make Sino-American ties more open, understandable, and efficient.

Relationships between American and Chinese companies have never been more important or profitable as they are now. With linguistic, moral, governmental, and legal systems developed entirely independent of each other for thousands of years, these relationships also prove the most difficult and complex to navigate.
These associations typically culminate in joint ventures where both parties fight for dominance and control of the company and where Chinese government influence is often used as leverage against the economic strength of American industry. From the car industry’s careful planning described by Jim Allen to international copyright battles fought by a U.S. Department of Justice agent, it is clear that guanxi, hard negotiation, and clear understanding of law and local officials is vital to enterprise between USA and Chinese businesses.

Notes

“China Joint Ventures: A Warning.” China Law Blog, 28 Aug. 2014, www.chinalawblog.
com/2014/08/china-joint-ventures-a-warning.html.
“China’s 2017 Foreign Investment Catalogue Opens Access to New Industries.” China Briefing News, 3 Aug. 2017, www.china-briefing.com/news/2017/07/11/china-releases-2017-foreigninvestmentcatalogue-opening-access-new-industries.html.
DeBord, Matthew. “Tesla May Be about to Get a Big Win in China.” Business Insider, Business Insider, 19 Sept. 2017, www.businessinsider.com/tesla-benefits-from-china-ending-jointventuresautomakers-2017-9.
Gilbert, Victoria, and Sarah Wilson. “A Shifting Landscape: Chinese Millenials in the Workplace.” Haworth, media.haworth.com/asset/82857/%20a-shifting-landscape_chinesemillennialsin-the-workplace.pdf.
Government of Canada, Foreign Affairs Trade and Development Canada, Deputy Minister of International Trade, International Business Development, Investment and Innovation.
“Establishing a Joint Venture in China.” Government of Canada, Foreign Affairs Trade and Development Canada, Deputy Minister of International Trade, International Business Development, Investment and Innovation, 8 Aug. 2017, tradecommissioner.gc.ca/chinachine/ market-facts-faits-sur-le-marche/132234.aspx?lang=eng.
Undisclosed China Life Business Manager, and Ryan Stenquist. “International Accounting and Finance.” Telephone interview. 2017.
Heath, Alan. “BYU Chinese Culture Discussion.” BYU Chinese Culture Discussion, 1 Oct. 2016, Provo, Utah.
Undisclosed DOJ Agent, and Ryan Stenquist. “International Relations.” Telephone interview.
27 Sept. 2017.
Mr. 秦 (Qín) . “Thoughts from a Small Business Owner in China.” In-person interview. 4 Oct.
2017.
Murphy, Priscilla, and Marilena Olguta Vilceanu. Official Chinese Media Representations of US Business, 1979–2011: A Text Mining Approach. International Communication Gazette. N.p., n.d.
Web.
Undisclosed Government Offical and Stenquist, Ryan. “A Government Official’s Perspective.” 20 Nov. 2017.