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Doing Business in China

October 29, 2010

A businessman shares his experiences navigating the Chinese business landscape.

HRIC: Your factories in China employ hundreds of Chinese workers in the production of telecommunications equipment. So far it appears that you have been fairly successful. How and when did you first start doing business in China? Can you describe some of the difficulties at the start? Is it easier now than when you first began?

MJ: I started about seven or eight years ago now. The biggest problem was knowing what China actually was, and forgetting about my Western thinking and instead trying to employ a “Chinese strategy” to get things done. When I got started, I happened to meet a gentleman who was running a private law firm in Beijing—and he used to be the legal advisor/secretary of a high official. He was involved with the allocation of funding for the provincial governments from the central government—you can imagine what happened there. Because I spent a little bit of time in Beijing, I used to be in and out of his office all the time. He allocated one of his English-speaking lawyers to educate me on how to do things. He put me in the right direction for the business side of things. The guy actually took a real liking to me.

HRIC: You’re very lucky.

MJ: No, no, no, it’s not luck. This was bad news because after one year of drinking tea and not actually talking about anything real, he said to me, “Is there any way you can open up a bank account for me offshore? I’ve got $30 million I want you to look after.” Of course, I panicked when I heard that and I obviously declined the offer. But what has happened now is that his family doesn’t know where he’s disappeared to, and he is probably involved in hundreds of millions of dollars in corruption. But he taught me the process of doing things in China and reiterated the fact that nothing, not the least guanxi, is free. And that’s the thing I had great moral difficulty getting over for a period of time.

The lawyer’s secretary asked for my phone number and said that if he ever goes to Shenzhen we could have dinner together. And you know what I thought? Chinese style—it’s just him being polite.

Lo and behold, a month later, I was invited to a party for a government official at a five-star hotel in Shenzhen with over 250 guests. I talked to a few people at the party who said, “this party costs half a million yuan plus.” They also tell me the government official is not allowed to pay for anything. In fact, it’s all his friends in Shenzhen; they are all lining up to pay.

HRIC: This is lining up to curry future favors.

MJ: It’s guanxi. These officials, they’re looking to see what they can get out of you. The official said to me, “If you ever want to do any business with the technology side, you bring a lot of ideas—you’re welcome to meet me.” Basically, the underlying current to all that was, how much is that going to cost? Because when I first met him his fee for the lunch was $10,000.

HRIC: What do you mean by “fee for lunch”?

MJ: The fee for him to come, sit at the table, and meet us was $10,000. They justified that by saying: “it’s the expenses—renting the guest house, providing the 20,000 yuan maotai1—all that kind of stuff. HRIC: $10,000!?

MJ: It’s common. I know that’s how he makes his extra money. He said to me, “If you’ve got any people who want to meet me, you can arrange it all—$10,000—and I will take care of you.” He didn’t even bat an eye, and this is perhaps a vice minister in the central government.

HRIC: Do you think that each new business person going into China just has to learn on his or her own and either sink or swim, or does the business community actually help its own?

MJ: Well, there are a lot of good intentions. I’ve been to a lot of chamber of commerce business meetings in Hong Kong, but they never actually tell you the truth. They’re all sitting on their moral platforms saying “blah blah blah.” But what I know about “blah blah blah” is that it costs money and it’s all done like this. That’s the big difference.

But if you’re doing business, the fact is that it’s not only about making money. I think that business and human rights work actually go hand-in-hand.

Doing business in China is like walking on cans of paint. Everything is very comfortable and you’re walking along and then all of a sudden the paint gives way and you fall through and there’s one hell of a mess underneath. Do you know David Copperfield, the illusionist? He makes this wonderful illusion of the Empire State Building disappearing. But he’s got nothing on Hu Jintao; Hu’s got 1.3 billion people seeing his reality. Hu Jintao is the ultimate magician.

HRIC: When we talk to foreign companies about doing business in China and human rights issues—they often argue, “Well, what do you expect us to do? We can’t say ‘no’ to the China market.” They seem to assume that there are only either/or options—that either you enter the Chinese market or you ignore the China market, whereas we don’t think that it’s an either/or dilemma. Instead, it’s a fluid dynamic, and there are ways to think constructively and concretely about how to do business responsibly in China, including taking into account impacts on human rights.

MJ: I definitely agree. For example, if an American corporation sets up a business here in the U.S., there are guidelines and laws that they’ve got to follow. Why can’t they take that practice with them into a foreign location? They can treat workers well, look after them, and make sure they’re taken care of. That’s not unreasonable.

HRIC: Can you give some examples of good practices that you see in your business sector or other sectors? For example, what kind of standards do you have in your factories?

MJ: We have a forty-hour working week, days off for our workers, and the food as well as accommodation are adequate. We’ve installed a culture, which has taken some time, for people to actually talk about things they are dissatisfied with.

HRIC: How do the workers do that?

MJ: Through a suggestion system. It’s anonymous, and our managers look at the suggestions.

HRIC: So, what kind of problems do the workers raise?

MJ: Well, what they say is, basically, “We’re having to work too hard”; “We’re not getting long enough breaks”; and “The manager is not trustworthy; he’s not telling you the truth.” All of these little things come out.

HRIC: And then you look at all the suggestions?

MJ: The managers do, and then on serious issues they will report to the board of directors.

HRIC: And the manager will convey that to you?

MJ: Not the local factory managers, but our people in the offices basically make sure things are done properly. But if you’re doing business, the fact is that it’s not only about making money. I think that business and human rights work actually go hand-in-hand.

HRIC: We agree. It seems that businesses should conduct an adequate risk assessment that includes human rights risks and impact prior to entering a market or expanding its business in a particular market. What advice would you give a company seeking to do business in China?

MJ: Basically, do your homework. On your first two or three trips to China, do not believe what potential business partners are telling you is real—even the factory they say could be yours might not actually be theirs. I’ve been to several places where they said, “we’ve got a facility here; you’re welcome to come.” So, we fly there and hop in the car with the local government official. Then, when he’s driving down the road, he says, “By the way, we haven’t quite started [building the factory] yet, but we’re hoping that you will invest and we’ll have it finished next year.” And this is after you’re flown two hours to see them.

HRIC: What about when people say that foreign companies doing business in China have to comply with Chinese law? What do you say?

MJ: Get the correct legal advice. If you want to have a long-term, successful business you must comply with local law. But you must get several interpretations of what the actual law is for that particular sector. You can’t trust one opinion.

HRIC: Any foreign company or businessperson doing business in China is really subject to several bodies of laws—the laws of the home country where a company is registered, the laws of the host country, and international law. We think Chinese law has to be viewed in the context of whether it conflicts with the laws of the home country or with international human rights law. The other problem is that there are also contradictions within Chinese law itself, in addition to the issue of different interpretations of the same law. What do you think about this approach?

MJ: Well, if you’re taking legal advice from Chinese lawyers, you’re probably dealing with lawyers who only know the domestic situation but have no idea what’s going on outside. When you’re dealing with foreign lawyers, some of them may not know how to interpret Chinese legislation. So, what we’ve done with the factories is we made sure we comply with all local laws and regulations. For example, people are paid X number of dollars, social security is paid, and everything else is done correctly. This way, when you’re audited by the tax department, everything is in order. I’m not saying that you can’t get around these regulations—it’s the Chinese way—but my preference is that I don’t like to go down that track, because you’re dealing with people in provincial-level government who are not pleasant to deal with. They’re all enticing you, but the moment you’ve handed over the money, that’s when the trouble starts.

HRIC: But if you don’t hand the money over, are there other problems?

MJ: Well, when the money is in their pocket, it’s much harder to get it back. But when it’s in your pocket, they are a bit more accommodating to try to get that money.

HRIC: Two last questions. If you had to name the three biggest challenges in China, what are they? And what are the three challenges for business?

MJ: I think the top three challenges in the business world are to first, understand what China actually is. Second, understand how to use that knowledge and employ it in your work place. Third, make sure that you take good care of the people you have working for you. They’ve got enough worry and enough stress with being five hundred miles away from home and only seeing their parents once or twice a year. Trying to minimize that stress for them is important.

As for the bigger issues with China, I think the main issue at the moment is the way in which the government is confiscating land from the people. The second one is the way the Internet is being used as a propaganda tool. And lastly, I think the lack of freedom of religious belief or expression is a noteworthy issue. In China, if you run your life quietly, calmly, and you don’t ruffle the feathers of the government or the police, you’re ok. But if you stand on the street and say, “this is a problem,” then you’ve got trouble. It is true for the churches, dissidents, human rights activists, anyone! The moment you start taking it outside, and particularly if you’re communicating with America, you’re facing time in jail. It’s the government’s fault—the totalitarian regime. It’s a dreadful situation.

Endnote

1. Maotai (茅台酒) is a Chinese liquor made from sorghum in Maotai, Renhuai, Guizhou Province. Originating in the Qing Dynasty, maotai is recognized internationally as a premier liquor and is often served at official banquets. ^

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