Reciprocity as a Rule in China

A foundation concept in the Chinese mindset can be gleaned from the following exchange:
Disciple: “Is there one word that may serve as a rule of practice for all one’s life?”
Confucius: “Is not reciprocity such a word?”

Whilst the master was espousing the Golden Rule (do not impose on others what you do not wish for yourself) which is the philosophical basis of maintaining “face”, and was explained in my previous blog, face is inseparable from the web of personal relationships which informs the way institutions or affiliations work in China. This is Guanxi, invariably one of the first cultural code words you would learn in China.

The literal English translation of Guanxi is “connections”, which does little justice to the cultural importance and implications of the word in Chinese society. In their context, Guanxi consists of a series of trust-based and tradable connections defined by reciprocity, mutual obligations, and often overlayed with hierarchical considerations – this gives rise to a personalized network of relationships based on mutual dependence and influence. The Chinese spend their lives and make an art form of building such a latticework of connections.

Friendships bring implications of continual and ongoing exchanges of favours. These repeated favour-exchanges ensure some type of trust among members of a Guanxi network, and membership cultivates a sense of collectivism which engenders a sense of belonging, an affinity or attachment, to the group. In dealing with individuals in China, it is not far-fetched to assume you are dealing with a larger collective, and prudent to be aware that an us versus them perspective may exist across the negotiating table.

At its most basic, Guanxi describes a personal connection between two people in which one is able to prevail upon another to perform a favour or service, or be prevailed upon. The two need not to be of equal social status. Favour or service granted need not receive immediate reciprocity, but there will be an expectation for the future (social credits). Beyond this, Guanxi can also be used to describe a network of contacts, which an individual can call upon when something needs to be done, and through which he or she can exert influence on behalf of another.

The West describes this as “it’s not what you know, but who you know”. However, The Chinese go further as Guanxi can describe a state of general understanding between two people: “he is aware of my wants/needs and will take them into account when deciding his actions which concern or could concern me without any specific discussion or request”.

When dealing with the Chinese, the foreigner who attempts to get by without making or nurturing Guanxi is almost always doomed to failure. An organization needs a comprehensive plan (and budget) to map out a Guanxi building blueprint (“getting membership”), inclusive of key individuals to target and assessing the plan against accumulated social credits. You need to also beware of favours granted or received beyond levels of acceptability and probity. Once the plan is successful, the question is then how to cleverly use Guanxi to further business or political objectives.

Tim is the founder and managing director of DaLu Venture Solutions and works with clients to optimize value in their Chinese Foreign partnerships across the lifecycle phases of Joint Venture (JV) development and management.

Are We Equipped to Deal with Chinese Inscrutabilities?

A previous post addressed the key success factor of building personal relationships when dealing with the Chinese. Of course, a necessary pre-condition is to understand them in the first place, and raises the question of whether those who are not, or have not been, immersed or raised in China, can ever really achieve full understanding.

I am reminded of a story told to me in my first month in China at the turn of this century, a story that had a profound effect on my approach to observing and understanding the Chinese. It was about a social science research question which asked respondents if they would prefer (A) they received one million yuan (a significant amount of money today, let alone over twelve years ago); or (B) they received 2 million yuan, but at the same time a close friend (not a family relative) received 5 million yuan.

To my disbelief, more than 90% of respondents apparently chose (A)!

My response at the time was perfunctory with glib references to Chinese inscrutabilities and how unusual it was for a communist state (back then more than today) to be so concerned by social status comparisons.

However, the anecdote has become more poignant over years of continual experiencing the manifestations of such thinking from trivial day-to-day occurrences such as non-conformance to queues in public places; or observing unsavory competitive behavior in business dealings.

More importantly, it has given rise to an understanding of Confucian Chinese society, based on the concept of shame, which monitors its own actions and positions from the stand point of others; and is opposed to Western society which focuses on individualism and the actions people take to further their own advancement quite separate to the collective. It is as a result of this concept of shame that gives rise to different behaviors, and introduces the very Eastern reference to “Face” – described as a strategy that protects self respect and social status.

The Chinese are sensitive as to how they, or by extension their family/organization/country, are regarded by others. “Face” is a complex and highly refined method through which social interactions within Chinese society is given a much deeper meaning. Being aware of this, and truly understanding other Chinese inscrutabilities, will enhance your dealings in China.

Tim is the founder and managing director of DaLu Venture Solutions and works with clients to optimize value in their Chinese Foreign partnerships across the lifecycle phases of Joint Venture (JV) development and management.

Contacts Override Contracts in Doing Business in China?

An oft quoted truism of deal-making in China is the real negotiation starts when the contract is signed.

The problem for deal-makers or project managers is then how to reconcile this lack of attachment to the rule of law, or the avoidance of legal basis to resolve potential conflict? This is made worse if circumstances change, and the innately pragmatic Chinese are predisposed to ignore the provisions of a contract that is no longer practical.

Such behavior is founded on over two millennia of history and human conditioning via Confucian emphasis on Harmony, and the focus on maintaining harmonious relationships as the foundation of a unified society. The contrast is thence stark – whilst western companies approach contract negotiations to optimize a deal and rely on legalese to dictate the partnership, Chinese counterparts view it as the beginning of a long term relationship.

To effectively seal and sustain deals, the establishment of real and personal relationships is vital. The Chinese feel that since commercial cooperation is give-and-take, the enterprise can only resolve differences and ultimately succeed if there is trust and confidence between the parties – feelings engendered only with frequent and meaningful contact.

Whilst the nuts and bolts of contract law is still necessary, even in China, to govern commercial relationships, personal relationships are often the only guarantees we have in pursuing business objectives, and these relationships must be continuously nurtured. This can be done in a variety of ways, depending on the partnership structure, individual personalities, leverage, resources, etc, and reviewed in context of the size and aspiration of the deal. It is also best to consult experienced China deal-makers on how best to execute.

By all means, and it’s certainly in one’s interest, to focus on getting the contract detail right – and by extension, you can certainly argue this complies to Confucian emphasis on correct ritual in maintaining order and stability – however, businesses must also plan to spend time and effort on deepening the affiliations if a long term partnership is desired.

Hard wiring this soft issue of relationships into your project or business plan goes a long way to mitigating future risks and excessive value leakage.

Tim Lai is the founder and managing director of DaLu Venture Solutions and works with clients to optimize value in their Chinese Foreign partnerships across the lifecycle phases of Joint Venture (JV) development and management.

The Chinese Essence of Interacting with Foreigners

The requirement and ability to interact with China can be described as THE imperative of the early 21st Century, whether in the political or commercial arena.

Inescapable in this analysis is the mental framework the Chinese will approach such interactions, and is inextricably linked to both its ancient and more recent history – an understanding essential for today’s modern statesperson or business executive if the goal is successful Sino-Foreign co-operation.

For its essence, we cannot under-estimate the influence and universality of Confucius’ teachings two millennia ago, which were shaped by the master’s (and his subsequent disciples and proponents) experience of turbulence and instability in a divided society of the time before dynastic unification.

In this backdrop, it is unsurprising Confucianism places overriding priority on unity, stability and harmony; and weaves these aspired themes into two interrelated areas: Social Teachings, which deal with proper behavior of the individual in society and to his fellow men, and Political Teachings, which deal with the art of governance and the proper relationship of the Ruler/leader to the ruled/subordinate. The role of RITUAL, or the adherence to it in both social (individual, family, societal) and political (government, bureaucracy) contexts, is the centerpiece to the ultimate goal of harmonious relationships, and is the foundation to a stable and unified state. Today’s manifestation is how, despite Mao Zedong’s attempts to suppress it in the 20th Century, the Chinese psyche and mores are still informed by Confucian values and discipline – a deferential respect for authority is but one example.

If Confucian thought is considered the essence of Chinese culture and behavior, more recent history has infused this with a sense of entitlement borne of unfair treatment in the past two hundred years by foreign powers, which comprise the major western nations and Japan. In fact, all countries in the G7 (excepting Canada) plus Russia had at least one unequal treaty imposed by military threat or force over China since the 1840s, in exchange for a disproportionate economic or trading benefit, and the humiliated Chinese feel strongly about restoring its rightful place in the world order.

So the ominous setting for Sino-Foreign dealings is a start-point of distrust and suspicion, and for the uninitiated foreigner, having to interpret values and behavior unique only to eastern Confucian societies. However, if the foreign party has leverage or indeed something of value, the pragmatic Chinese know their own advancement needs to materialize in a harmonious and stable environment, and they need to subscribe to accepted rules, or rituals, to govern the relationship. Understanding this setting, and leveraging your own strengths within it, is critical to successful political or commercial interactions in China.

Tim Lai is the founder and managing director of DaLu Venture Solutions and works with clients to optimize value in their Chinese Foreign partnerships across the lifecycle phases of Joint Venture (JV) development and management.

Why Do We Need to Know about China?

Asian Century driven by China’s rise, and what it means for us

The Australian government’s white paper on the Asian Century (Oct 2012) plans for the inevitable shift in the global balance of power – economically, politically and socially. Supported by media and literature, it is hard to argue against a diminishing influence of the West, and more significantly, a re-writing of the rules of global transactions and engagements.

Unsurprisingly, China is at the vanguard and will dominate the 21st Century landscape. A staggering illustration is the doubling of an already vast Chinese economy every 7-8 years in the last 25 years, and a similar doubling every 9-10 years in the next 25.  So whether you have current dealings or not, and Australia’s geo-socio-economic position suggests a high likelihood, this must surely provoke change in how we view and deal with Chinese entities.

White paper rhetoric spruiks a workforce “literate” and “capable” of dealing with the region.

The Chinese language is already the most spoken language of the world, outnumbering English speakers 2 to 1. As Chinese spheres of influence expands, it is conceivable Chinese will at least join English as an interlocutor language of the region, especially with the rate of Chinese language education in East Asia.

Literacy aside, an effective China-capable workforce holds more profound implications as it should start from a change in perspective and attitudes, before a behavioral change in culture, the latter being the more common starting point.

No longer should Australia, hitherto aligned with western thinking, feel it holds a stranglehold on values, belief systems, or economic, capitalist or corporate idealism – the events of 2007-8 reinforces this. Instead, and before learning to deal with the Chinese, we need to exercise introspection with a desire to learn about, and learn from China, without underlying superiority or the belief it knows best. This approach, I’d suggest, not only improves the ability to effectively transact, but enhances the enjoyment of engagements with the Middle Kingdom.

Tim Lai

Tim is the founder and managing director of DaLu Venture Solutions and works with clients to optimize value in their Chinese Foreign partnerships across the lifecycle phases of Joint Venture (JV) development and management.