If you’re contemplating doing business in China, there are a few things you’ll want to be aware of before making any official decisions. The more cognizant you are of how China differs from the U.S., the more significant of an advantage you’ll have. Having a deep understanding of Chinese culture, government and business practices can also help you avoid making mistakes.
In this article, we’ll take a look at:
● Dealing with the Chinese government
● Chinese business practices
● Cultural expectations
Here is our list of important things to know before doing business in China:
In the United States, the government and private enterprises are kept pretty separate from each other (and that’s the way that people like it). Obviously, there are still regulatory bodies (the Internal Revenue Service, the Securities and Exchange Commission and the Federal Trade Commission to name a few) as well as different licenses or permits you’ll need to acquire as a business owner.
In this sense, businesses operate independently from the government but still need to play by the rules that the government sets.
On the other hand, in China, the government and the private business sector are essentially one and the same. There is quite a bit of overlap between the two and the government has a lot more power over what private businesses can or can’t do. This means that if you plan on doing business in China, you can expect to be doing business with the government as well.
Here are a few manners in which the government encroaches on private enterprise in China, a situation that is remarkably different compared to the United States:
➢ Putting government officials on the board at companies – This initiative was recently announced and was “sold” as an effort to transform the country’s economy to catch up to rivals in high-value industries such as robotics and aerospace. Government officials will be placed on the boards of Alibaba, Greely Holdings and Wahaha but a full list was not disclosed. Although the primary claim was that this move was purely for economic innovation, it does raise security concerns. That’s because Chinese companies are required by law to hand over data that the government requests
➢ Accessing proprietary files – The Chinese government is legally allowed to request data from companies (and companies are obligated to provide it). This is one of the main reasons why there is such a backlash against microchip company Huawei and the 5G network. Other countries are concerned that if Huawei gets access to a global 5G network, it will hand over personal data of other countries’ citizens to the Chinese government
➢ Requesting that private companies do favors for the government – Although you are starting to see more of this in the United States (with Donald Trump’s attacks at Twitter and Facebook), it is much more commonplace in China. Companies in China are required by law to follow government orders. The same expectations exist for American companies doing business in China and it’s one of the reasons why so few companies have entered the market (especially in the technology industry). For example, a company such as Netflix would be in a bind if the Chinese government suddenly demanded that they hand over information on their viewers, because their customers in the United States wouldn’t like this very much
The main takeaway from this is that if you’re planning on doing business in China, expect the government to be holding your hand along every step. If you were to refuse to comply with a governmental order, it would have widespread consequences and wouldn’t be easily resolved in a court setting.
This is especially true if you’re a businessperson from the United States.
Common Business Practices
For the most part, every different country is going to have slightly different business practices. Even different states within the United States have slightly different business practices and expectations. That being mentioned, you’ll want to make sure that you have a good idea of what the expectations will be from you before walking into a meeting with Chinese businessmen. Let’s take a look at what some of the most common business practices are in China:
➢ Business mentality – When you show up for a meeting, the Chinese will expect you to be fully prepared. When it’s time for business, it’s time for business. This means having an adequate number of copies of your report ready to hand out. It’s generally safer to have the report in black and white, as opposed to color. On the other hand, when meetings are broken and you’re at dinner, it’s considered rude to keep discussing business. Another thing to note is that China places a big emphasis on hierarchical order. This means that the first person of a group to enter a room is considered the most important. They will expect that the same is true of your group
➢ Relationships – Relationships play a critical part in Chinese business and are a major part of building trust (more on that in a moment). The Chinese prefer to do business with people whom they have a favorable relationship with and more often than not, this can represent the difference between winning business or falling short. Because of the need to build a strong relationship, deals and negotiations can take longer to materialize and close
➢ Trust – Trust is one of the building blocks of a successful business relationship. Trust is acquired in many ways. Doing the proper research beforehand, always being polite, and showing that you’ve made an effort to adapt to their culture are all ways to earn trust. Surprisingly, another good way to earn trust is to engage with drinks over dinner (while also avoiding talking business). Drinking is a big part of Chinese culture and it’s considered rude to deny a drink
➢ Indifference towards deadlines – When doing business with the Chinese, expect deadlines to come and go with little fanfare. In the United States, there is a strict emphasis on deadlines and people scramble to get projects or deals closed by a predetermined time. This attitude is not reflected by the Chinese. In fact, it can be considered pushy and rude to force deadlines in China. This is mainly due to the need to build a trusting relationship before putting pen to paper. Don’t put too much weight on specific deadlines and factor this into your own personal plans
➢ Business attire – When in doubt, it’s better to dress conservatively. Wearing neutral colors and a traditional suit is always a safer option over something flashy. Wearing flashy attire can be seen as an attempt to belittle or brag
These are just a few of the more common business practices in China. If you’re interested in reading a more complete list, click here. Don’t worry about memorizing every little detail, sometimes just making an effort is all that matters. You just want to make sure you’re not insulting the other party without realizing it.
Now let’s take a look at what some of the cultural expectations are in China as a whole:
Cultural expectations are a little bit different from common business practices. For example, knowing to show up prepared to business meetings so as to not waste time is a business practice. Knowing that small talk is an important part of doing business is a cultural expectation.
Having a firm grasp on the cultural expectations of doing business in China will not only help make you a successful businessperson, but it will also help make you popular in China in general! It’s important to be aware that what is acceptable and commonplace in the United States might be considered rude in China.
Let’s a take a look at some of the more pressing cultural expectations:
➢ Small talk – Small talk is considered an important part of the relationship-building process (see section #2). Launching right into a business conversation can be considered hasty and rude. It would also be a good idea to learn a few Chinese phrases for the small talk (this type of gesture is always appreciated)
➢ Handshakes – Handshakes are common in China but it’s always smart to let the other party initiate the shake
➢ Negative answers – A firm, negative answer (even a simple “no”) can be considered rude. It’s always better to try and frame answers as positively as possible, even when the answer is a simple no. For example, instead of “no” you might say “I’ll think about it”, “maybe”, or “we’ll see”
➢ Body language – It’s always best to appear calm and professional. Using too much emotion during the meeting can negatively impact your business relationship
➢ Do not bring gifts – Although this seems like a polite and innocent gesture in general when doing business, it can seem as though you’re trying to offer them a bribe (which is illegal). Offering a gift can make them uncomfortable and question your morals
Again, these are just a few of the cultural expectations that should be expected when doing business in China. Depending on the scope of your business, we’d recommend doing a little more research before the meeting. Additionally, just like most things, practice will make perfect. The more meetings you take part in, the easier it will be for you to remember certain things.
We hope that you’ve found this article valuable when it comes to understanding what to know before doing business in China. If you’re interested in reading more, please visit our New Here section and for more personalized tips, our team of consultants is at your disposal.