'Do Business in China' ↓

A special report conducted by Li & Fung Research Centre, and Secretariat of the Expert Committee of China General Chamber of Commerce, highlights the following. Maybe it is helpful to those wanting to do , or doing business in China.

1. An ever-growing retail sector – retail sales rising at the fastest pace in a decade

2. Growing concerns about the food industry among government authorities and consumers

3. Mergers and acquisitions, company restructuring and public listings rapidly transforming the commercial landscape in China

4. Foreign commercial enterprises looking for new growth paths in China

5. Rural commercial infrastructure development achieving impressive progress

6. Development of commercial businesses in residential communities gaining momentum

7. Industry organizations playing a bigger role in the economy

8. Commercial property market facing both opportunities and challenges

9. From sheer scale expansion to building a critical mass – retail businesses striving to increase overall competitiveness

10. The landmark Anti-monopoly Law – paving the way towards a more regulated commercial sector

Here are just a few observations regarding the difficulties of doing business in China. They are not insurmountable, but they are there and you’ve got to prepare for them.

Human Resources
There are talents in China but those with international exposure and with experience are in high demand nowadays and it is difficult to hire or retain them.

Also, in some local companies, people with MBAs and about five-year experience are thrust into positions of senior management. They are generally not experienced enough.

Laws
As new laws come into existence and changes of law take place from time and time, it is very hard to keep abreast of the government regulations and adapt to them. The latest law affecting business in China is the new Labour Contract Law. That means from January 1 2008, employees who have worked for more than 10 consecutive years or served more than two consecutive contract terms with a company will be entitled to ask for an “open-end” contract, effectively making them permanent staff.

And there are so many regulations in China for business, particularly in the area of tax and fire regulations. Someone joked that in China, it is nice to know the mayor of a city, but it is far more important to build relationships with the local fire chief and tax chief.

One major reason why there are so many laws is, besides the national laws, there are many local laws to follow as well.

Regional factors
China is a large country with different regions exhibiting their own demographic characters. So if you plan to do business in China, you’ve got to understand these differences.

Also, coming to logistics, there is no free flow of vehicles yet. Say, if a truck goes from Guangdong province to Guangxi province, it has to have the permit of not only Guangdong province, but Guangxi province as well.

That is why I think it is very hard for a foreigner to do business in China without local partnership, but then to find a right local partner is difficult, unless you have connections there. At the end of the day, doing business in China boils down to one world only: connection, connection and connection.

Because of the recall of made-in-china toys by US toy giant Mattel, a HK businessman, whose factory manufactures bulks of these recalled toys, could not foot the bill and committed suicide in his factory in Foshan, Guangdong province, China. The toys are found to contain toxic lead paint.

According to new reports, the businessman Cheung Shu-hung, 50, was deceived by his good friend in China, who supplied him with the toxic lead paint, a fake plastic pigment. As a result of the recall, he was left with a HK$200,000,000 (US$3M) debt.

The man was greatly missed by his employees, who said he was a kind boss. It is reported that he made sure his employees had their pay-check before killing himself.

I am saddened by the tragedy. Hong Kong businessmen/women are among the first group of people going into China to do business, who contribute in a big way to bridging China to the world. Many of them set up factories as early as 20 years ago in the Pearl River Delta, especially in places like Foshan and Dongguan. But now they are facing an uncertain future and a dim prospect because of the changing environment. The rising labour cost, the unstable electricity supply, the higher environmental standard and miscellaneous charges imposed by the local government, and the culling of the tax benefits, are just some of the factors leading to their predicament.

Adding to this is the human factor - you can be cheated even by your so called good friend, who like so many others in China, can provide you with fake products. Also, to do business in China, you have to take care of things like connection and corruption.

The odds are turning against HK businessmen/women. They have done so much to help China open its door to the world, but now, it seems, the country is turning itself against them.

The death of Cheung tells it all.

A rich city in southern China, Guangzhou bans motorbikes and motorized bikes, effective today, with a view to stemming the spiraling crime wave. Many of the thefts, purse-snatching and muggings are committed by gangs on motorbikes and motorized bikes.

But would the ban be able to stem the crime wave? Obviously not. With motorbikes and motorized bikes banned, the gangs will only resort to other means. The root of the crime problem lies at a widening gap between the rich and the poor. As long as the problem is not addressed, no banning of this or other can lead to a safer city.

On the other hand, the ban would only create difficulties for the citizens in the city. Those not rich, reliant on motorbikes/motorized bikes rather than cars for transport/delivery, would be the victims. So would be the local businesses which produce motorbikes/motorized bikes.

A Guangzhou businesswoman is taking the case to court, hoping the government can reverse its order and hence her business can be saved from bankruptcy. But most likely the China court, still lacking its independence, will not bring justice to the woman.

You probably realize now what it means to do business in China - it is a venture full of risks. For you never know what the government regulations will be – it can ban or support certain activities at a whim, and in a short notice. I am glad that I have retracted from this dangerous game. 

I just got a chance to watch this video about conducting business negotiations in China. The speaker has years of international business and negotiations under his belt and his tallk about business negotiations in China reminds me a lot about my encounters in China.

[googlevideo]4634363396909200237&q[/googlevideo]

Testified by my own encounters, what the speaker says about business negotiations in China is fairly true, especially in the following aspects:

1. The Chinese like to tell you they look for a win win deal in business. But in reality, they look for a deal that they win only.

2. Contracts mean nothing in China. They can be changed, modified and ignored any time any place.

3. The Chinese are very patient in the negotiation process. They wait to wear you out and then get the upper hand when you are most tired.

4. The Chinese take time to find out more about you and your business and they never strike a deal with you right away.  So if you’re imbued with western culture, and aim to get the deal sealed as soon as possible, do remember this cultural difference.

5. The Chinese will tell you that you cannot do this and do that because the regulations forbid it. Don’t trust them. Go and find out the truth yourself and in most of the cases you will find that your Chinese negotiation counterparts did not tell the truth.

And of course, “mianzi”, the face, is very important to the Chinese and if you can give them some face in the negotiation, they will be happy and may in the end reciprocate. 

I am a Chinese but I am very discomfortable with the Chinese culture exhibited in business negotiations. What does this tell?

If you know a little bit about China, you know the importance of guanxi, or connections, in doing or conducting business in the country.

Say, there is an opening ceremony of your business in somewhere of China. You may know that you will have to invite the officials of various authorities to the ceremony. But you may not know that you will have to do it in person, not just sending your assistant to deliver the invitation. Otherwise the consequence would be grave.

Read this news from South China Morning Post dated 5 August, 2006. It is appalling that how abusive and corruptive many of the Chinese officials are, and how women are being taken advantage of in the still male-dominant business world.

The management of a new five-star hotel has found out the hard way that guanxi, or connections, still play an important role in doing business on the mainland - and that it is not a good idea to ruffle the feathers of local officials.

The Yintian Hotel, located in Liuyang in Hunan province , was suddenly plunged into darkness at 8.40pm on Monday, its opening day, after local electricity bureau officials retaliated for what they felt was a slight by the hotel’s management.

The order to cut off the electricity supply to the 150 million yuan hotel was given by two senior officials of the city’s electricity bureau, Zhou Jiaoyao and Li Licai , Xinhua reported. The pair were apparently miffed because the hotel director failed to deliver personally an invitation to the hotel’s opening party. The invitation was delivered by an assistant, Xinhua said.

As the entire hotel - and nearby residents - sat in darkness, and as hotel operations came to a standstill, a female manager of the hotel and an assistant raced to another hotel, where the two angry officials were drinking with colleagues.

Mr Zhou and Mr Li insisted the power would remain off for the whole night - but promised to reduce the duration by one hour for each bottle of baijiu, or grain alcohol, the two female hotel employees consumed.

After the women downed seven bottles of the strong alcohol - and rebuffed unwanted romantic advances - the order was given for the electricity to be turned back on.

The hotel said the incident had caused financial losses, as customers in the hotel, restaurants, health club and other entertainment venues demanded refunds and compensation.

The face, in its figurative speech, is very important to Chinese. I was once told by my local partner to teach my foreign friend about this particular Chinese culture: “you are a Chinese and you should know “face” is an important part of Chinese culture. He was making me lose face.” He shouted.

Understandably, there was conflict between my this foreign friend and my this local partner, and my local partner was trying to defend his weak position by resorting to the “face” Chinese culture.

I have no respect for this face thing in Chinese culture, and sadly this face culture can be easily detected in the nowaday China. Just see how the rich spend their money and deliberately make others know that they are rich and hence they have power and status.  

They splash a stack of cash on the table in order to pay the bill in the restaurant; they easily find faults with those serving in the restaurants or clubs, and shout and blame; they drive recklessly in posh cars and never stop in front of the zebra crossing to let the big crowd of pedetrians pass.

I admire those going to great strengths for the dignity of life, but not those wanting to save their faces.

Rising to be an economic powerhouse, will China one day return to its once glorious culture and civilization?