Business in China: My Painkillers Aren't Working Anymore

This just in – a Happy New Year note from a friend I’ll call “Hank”, who has lived and worked in Beijing, on and off, since 1983. It said, “Things are hard. The Chinese are (expletive deleted) with American companies here in ways beyond anything I have ever seen.’

That is saying something, because 30 years of working in US-China business has taken Hank into some fairly ugly situations. There was a time when the business landscape in China was nothing but regulatory gray area, and when business plans went well into execution phase before it became clear that they were based on massive misunderstandings. Someone had to figure out what went wrong;  ask the questions no one asked before.  Fire people, carefully, who were holding hostage the operations; renegotiate deals that took two years to negotiate the first time; track down the holders of fraudulent paper.  Headquarters never wanted to know the details. I had to do some of those things.  Hank did it more – chasing down bad joint venture partners, bad deals, bad loans.  I got death threats once in a while, but I’m pretty sure Hank had bodyguards on speed dial.

People like us, in China, dealt with the difficulties and mess that America insisted didn’t really exist, or reasoned were not that hard to fix. Because if a similar scenario had arisen in America, it wouldn’t be hard to fix. Therefore China shouldn’t be hard to fix. Therefore, please make it go away.

But hey, Happy 2013! It’s been three decades since people like Hank and I first arrived in China. Hasn’t it all become so much more civilized? Rising disposable incomes, full citizenship in global trade regimes, a growing Chinese middle class, more interaction with the west….freely available coffee, wine, sandwiches, cheese. Bigger houses.  A stock market.  All these things were supposed to make China’s business environment friendlier: more win-win, more give-and-take, less volatile, less hostile. Everyone thought that modeling the structure of western capitalism would cause commercial behavior in China to evolve. We expected that Chinese would focus economic growth around the logic of The Firm, rather than the logic of The Nation.

Hank thinks that the current unpleasantness – that where the giant household name multinational he works for, which has invested billions into China over decades, which employs many thousands of Chinese in many many Chinese cities, pays lot of Chinese taxes and etc. is getting worked over by Chinese regulators and partners – is “payback for America’s handling of ZTE and Huawei.”  In other words, Chinese enterprises felt they were treated poorly in America, and turnabout is fair play. There was a lot of coverage around thie mid-October – Failed US Deals Stir Tensions With China – if you have access to WSJ.

Two obvious questions:

1. If operating as a foreign firm in China is getting harder, why are we still there? Simply put, China’s importance to American business is growing. It’s a top line revenue source and an integral piece of global supply chains. The 2012 US-China Business Council Member Surveyhttps://www.uschina.org/info/members-survey/ says the China operations of 89% of its member companies are profitable. Moreover, China has replaced the USA as the world’s top trading partner, meaning it is an important supplier and customer everywhere in the world. http://rt.com/usa/news/china-us-trade-partner-169/

2.  Is any of this pain avoidable? Exactly who might do exactly what differently, given that China is not going away, that its impact is increasing, and that it is getting more difficult to deal with?

I’m afraid that America – from the head office of XYZ Inc. in St.Louis, to the Park Avenue Board of Directors of an operating entity based in Qingdao, to the US Congress and The American Public – has convinced itself that the problem is China Does Not Follow The Rules, and If They Did Everything Would Be Better.  The reason America is losing time, money, and global influence is that China Hands like me and Hank are overly sympathetic with the Chinese, who don’t play fair, and we are helping the Chinese to rob us blind. In other words, “China Hands” like me and Hank aren’t Team Players.  China negotiations expert Andrew Hupert is among those giving voice to this school of thought. (www.chinasolved.com)

Of course the China Hands, the Over Sympathetic saps such as me, see it differently. We’re stating the fact that, while the board is identical visually, the Chinese are playing chess and we are playing checkers. We need to accept that competition is not between firms (American firms and Chinese firms), but between our firms and China’s government.  If the objective is winning, we should teach more of our people the game as it really is being played. Don’t blame the people who do the dirty work for not being team players. The real issue is that head office doesn’t have a team. They have pain killers, denial, and the habit of indulging in the wishful thinking that the Chinese will start acting like us soon, or else…? We’ll get stronger pain kllers, right?

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