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Through
the Wall
A cross-cultural guide to doing business in China
By David M Lenard
(Jun '06)
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Contemporary business
travelers to mainland China are greeted by a
dazzling superficial modernity, exemplified by the
magnetic levitation train - one of only two in the
world in actual commercial 
use - that connects Shanghai's
airport with its downtown area. The major cities are filled with iconic
international brands such as McDonald's, Sony, Nokia and Starbucks. Many
aspects of Chinese cityscapes are surprisingly similar to US models, ranging
from freeways to hotel rooms, which, unlike those in Japan or South Korea, are
laid out exactly like their US counterparts.
This surface impression is very misleading. China is neither the United States
nor a typical socialist country of the pre-1989 type, though both these models
have had some influence. Rather, China is a 5,000-year-old civilization in the
throes of a transformative modernization without any real precedent in human
history.
To understand China today, imagine if the Roman Empire had never disintegrated,
but remained basically in control of the European continent up to the present
day, with its main traditions observed more or less continuously until
literally the 20th century. Imagine further that a tumultuous period of civil
war and extremist ideology had then turned the continent upside down, followed
finally by a period of successful reform, beginning in the late 1970s, putting
the "empire" on track to become the world's most powerful economy. Such a
scenario is very difficult for Westerners to imagine, and one of the reasons
for this is that such a latter-day Rome would have preserved a cultural and
political continuity in Europe that in actual fact was lost, fragmenting the
continent into dozens of national (really provincial) cultures.
But in China, the ancient ways are still present. Chinese manuscripts from
thousands of years ago are still readable to present-day scholars; the
"emperors" still consider keeping the empire together to be their highest duty;
the philosophy of Confucius - a contemporary of Socrates - is still the most
important influence on daily behavior and conduct; and a thousand art forms
ranging from statuary to paper-cutting are practiced exactly as they were when
a Nazarene carpenter was preaching in Palestine. That is why understanding the
basic themes of Chinese culture, inherited for millennia, is the key to
understanding Chinese behavior today, including in the business sphere, in
spite of the overwhelming changes sweeping the country.
Three words to remember
Some of the most fundamental and practically important aspects of Chinese
culture can be conveyed with three Chinese words: li, mianzi and guanxi.
Li is difficult to translate; "propriety" or "virtue" are reasonable
English equivalents. To Chinese, the term conveys a sense of the individual's
proper behavior and obligations in society. Li is a core concept of
Confucianism - the philosophy associated with
Confucius - which plays a role in Chinese society
that is in many ways analogous to the role played
by religion in the West. Of 
course, Confucianism is not a religion in the strict sense, but
it is akin to one in that it theoretically prescribes the correct action in
almost any situation. One author has described it as "the bedrock beneath the
socialist topsoil".
To understand the requirements of li, we have to describe what
Confucianism recommends. One important aspect is that Confucius believed in a
hierarchical model of society. Family relationships are explicitly defined in a
non-egalitarian manner: husbands outrank wives, parents outrank children, older
siblings outrank younger ones. Even identical twins are subject to the
hierarchical rules: the twin that is born second will forever have to defer to
his just-slightly older brother. The same goes for social groupings and
occupational categories; scholars outrank merchants, who outrank farmers. The
stress on deferring to higher-ups - who are, an amazingly high percentage of
the time, chronologically older - largely accounts for the instinctive
unwillingness of Chinese to confront authority, and the hierarchical
organization that can be found in almost every area of human activity.
Naturally, the effect of li in the business world is profound, and will
be further discussed in Part 2; it includes a tendency for individual workers
to adopt the goals and behavior of their leaders to a much greater extent than
is normally the case in a Western firm. It is worth noting that communism, a
form of radical egalitarianism, was to some extent a rebellion against the
hierarchical tendency; in practice, however, communist rule just reshuffled the
relations among social groupings, eg, "workers" were elevated above "scholars"
for a time. Since the 1980s, of course, the older patterns have begun to
reassert themselves. Interestingly, Confucianism per se has been undergoing a
noticeable revival in China recently, as the authorities seek a value system to
replace largely discredited Marxist dogmas.
Other manifestations of li include a certain formality in social
relations - conservatism in dress, speaking softly, never losing one's temper,
and the like; and nepotism, whose prevalence many scholars have attributed to
the fact that Confucius considered it ethical to conceal the wrongdoing of
family members. It has been argued that Confucianism contributes to corruption
- this might seem a dubious assertion given that overt bribery, say, was highly
frowned upon by the sage. However, he also considered nobles frankly superior
to peasants, and even though the old nobility is gone, their contemporary
equivalents (high-ranking officials and business tycoons) have certainly
inherited the entitled mode of behavior Confucius' endorsement helped to
create.
Mianzi , known in English as "face" in the sense of "saving face", is
extremely prevalent in Western discussions of Chinese culture, quite possibly
to the point of exaggerating its importance. Nonetheless, it continues to be a
pervasive issue affecting many aspects of Chinese behavior. The essence of it
is that Chinese expect, at all times and in all ways, to be treated
commensurate with their position in whatever hierarchies they personally
occupy, and are extremely sensitive (hypersensitive, by Western standards) to
any behavior they perceive as implicitly diminishing their position.
Inadvertently causing someone
to lose face is all too easy for oblivious
Westerners, and the consequences can be quite
serious.
Mijnd Huijser, James Stueck and Lance Tanaka, in an article on cross-cultural
management education in China, recall an incident in which an American
professor boarded a bus while talking with a relatively low-status participant
in a meeting and walked past the front seat, where his Chinese host, the
company vice president, was holding a seat for him, instead sitting with his
conversation partner. The vice president perceived, through the lens of mianzi,
that the American's behavior indicated he held him in lower esteem than the
low-status participant - a classic loss of face - and the importance of the
episode was amplified by the many Chinese witnesses, who would have drawn the
exact same conclusion. From this point on the vice president became cold,
distant and unhelpful to the US professor.
Such faux pas can occur easily in the business arena; one classic
mistake is for Western businessmen to spend too much time in meetings
interacting with the Chinese participant who speaks the best English, rather
than the highest-ranking person present - thereby causing the high-ranking
person to lose face, and damaging the prospects of the deal under discussion.
Mianzi also contributes to the need to find win-win solutions in
negotiations, which is even more important in China than elsewhere. Forcing the
Chinese side to concede on points even when the foreign side has a superior
negotiating position can be unwise if it causes the Chinese participants to
lose face; this can in effect compel them to dig in and refuse to make what
would be rational compromises, from a Western point of view, in other areas.
Guanxi (not to be confused with Guangxi , an autonomous region
in southern China), strictly speaking, means a connection between two people
where trust exists, such that the partners are willing to accept arrangements
or terms that they would not from a stranger. Jonathan Zamet and Murray
Bovarnick, in a 1986 paper, define it as "a special personal relationship in
which long-term mutual benefit is more important than short-term individual
gain".
This idea has become intermingled, at least in the Western business press, with
the expanded concept of guanxiwang - which means a set of many
interconnected guanxi-type relationships, forming a network that
basically functions as the Chinese equivalent of the old-boy network.
Guanxi takes many forms; family relationships are the most obvious, but
individuals from the same village (who, in China, are often related),
university class, army unit, social club, etc can be said to have guanxi
ties. Triad associations, popularly associated with organized crime, can be
regarded as sources of guanxi for their members.
In everyday practice, guanxi often functions as an exchange of favors,
though said favors can be separated in time by years or even decades. For
example, an individual might help the son of his university classmate to get a
better job; in return, the classmate might, years later, expedite the
processing of an important official permit. Favors can be seen as a kind of
storehouse of goodwill that can be drawn on in times of need.
It is quite possible for Westerners to participate in this system; indeed,
given that many Chinese see having Western friends as a source of status,
Western visitors can find that they have built up significant guanxi simply
by being friendly - though of course, more tangible inputs into the guanxi
"system" can bring correspondingly more substantial rewards.
The importance of guanxi in commerce is easy to understand and often
means it is more important to know "who" than to know "what". Relationships of
all kinds, particularly with officials, are easier to establish and maintain,
and many difficult problems can be solved easily, if one has the appropriate guanxi.
Taoism
Confucius, of course, was not the only Chinese philosopher. Among his
contemporaries was said to be a hermit named Lao Zi, whose actual existence
cannot be confirmed (in fact, it is believed by many scholars that Lao was
invented by the originators of Taoism as a "teacher of Confucius", to give the
impression that the newer philosophy was "senior" to Confucianism and therefore
superior). Lao's purported sayings were compiled centuries after his death into
a work called the Daodejing (or Tao Te Ching in the Wade-Giles
romanization system - roughly, the "Way of Power"), which became the
fundamental text of the ineffable philosophy known as Taoism.
Taoism is a slippery philosophy indeed: in essence, it is the study and pursuit
of "the way", but "the way" is never really defined in the Daodejing -
in fact, it is said to be undefinable.
Taoists believe in the existence of two fundamental forces or tendencies - the
famous yin and yang, which, depending on
the  situation, can
represent active vs passive; male vs female; etc, and that the state of things
at any given time is determined by the interplay between these forces. Many
ideas that are deeply woven into the fabric of Asian civilization - harmony,
duality, comfort with contradictions, contemplation and meditation - can be
traced to Taoism. To some extent as well, Taoism, with its emphasis on
non-committedness and remaining in touch with natural forces, has been a
counterbalance to the rigidities of Confucianism.
The practical implications of Taoist influence are numerous; one is an aversion
to the absolute statements or value judgments that are commonplace in the West.
A business manifestation might be the difficulty of "pinning down" Chinese to a
specific position in negotiations, or an often-infuriating lack of specific job
descriptions in favor of vague, diffuse responsibilities.
Collectivism
In the West, individual persons tend to be defined by their achievements - the
US can be seen as an extreme outlier of this general Western tendency. In
China, however, as in most other East Asian societies, individuals tend to be
defined by their group membership. (Of course Westerners are often defined by
their group, and Chinese can be defined by achievements in many situations; we
are speaking about tendencies, not ironclad rules.)
The group-definition process begins with childhood (family, clan, town, school
class, and so on) and continues through adulthood (company or official bureau,
section, political party, etc). In all these groups, there is a reciprocal
obligation between the group and the individual; to wit, the group is expected
to support the individual when in difficulty, but in return, the group expects
unquestioned loyalty.
In Chinese culture, manifestations of the group orientation can be seen in
politics (where dissent is routinely equated with treason) and in many aspects
of business. For example, individuals will sometimes make requests of employers
for family assistance, loans, etc which would not be considered appropriate in
a Western context. Another example is the clannishness of many companies -
within private Chinese firms, especially smaller ones, employees tend to be
from the same regional/linguistic and often even family background as the
company founder.
Bureaucracy
China has had officials for all of its recorded history, and bureaucratic
dysfunction, in all its multifarious glories, is equally deep-rooted.
The Chinese bureaucracy is both extremely large (the country vies with India
for the dubious distinction of having the world's biggest bureaucratic
establishment) and extremely complex, with multiple, overlapping layers that
can be remarkably resistant to periodic, valiant restructuring efforts.
The post-1949 period has seen
a sparkling patina of Soviet-style customer
disservice laid down on top of the pre-existing
palanquin 
mentality, with the
predictable result that dealing with official obnoxiousness has long been the
biggest daily problem faced by ordinary citizens and businessmen alike. (To
give just one personal example, when the author lived in the southern province
of Guangdong, he literally used to go to Hong Kong to mail packages, despite
the higher cost and inconvenience of lugging them through two border posts,
solely to avoid the rude, slothful postal clerks on the mainland.)
On the other hand, things are changing. Rapid economic growth is a
national priority, and this requires foreign investment; the fact that both
these goals can be smothered in their cribs by official red tape has made a
real difference in cutting away many of the barriers since 1978, when China's
economic reforms began. At present, the official situation is in enormous flux;
this is both a good thing - since it ultimately promises a leaner, more
responsive government apparatus - and a bad thing, since it means that official
dealings will remain unpredictable for some time.
The overall tendency is a gradual shift toward developed-country norms, but the
process still has a long way to go. Reform will also have strong local
variations; an often brazen lack of compliance with central government
directives by local agencies is another chronic problem of millennia-long
standing - one illustrated by the Chinese saying, "The mountains are high and
the emperor is far away."
It is important to remember that this phenomenon can cut both ways; in many
cases, local bodies are actually more permissive than Beijing is, but this can
create another kind of problem, to wit, ventures can go under if the regional
or central government decides that an approval by a local agency was
illegitimate. Foreign investors have sometimes found their friendly local
official swept up in periodic corruption crackdowns, which are often more
accurately regarded as disguised forms of official infighting, even when
corruption actually did occur.
On a practical level, a tremendous amount of time needs to be built into
projects to obtain the many permits, stamps, etc that will be required. It is
generally best not to try to rush this process; instead, strive to build and
maintain productive relations with local officials rather than viewing them as
obstacles. If officials are treated well and with appropriate deference, many
problems will tend to go away. (Conversely, offending the wrong person can
create a Kafkaesque nightmare with remarkable rapidity.)
Also, because the official situation is constantly changing, it is vital for
companies to anticipate and respond flexibly to unexpected shifts in rules and
procedures. Stability is coming, but is probably 20-30 years away or
more, even assuming there are no political upheavals in the meantime; in the
medium term, some legal and official instability will continue due to the need
to maintain the momentum of reforms.
Information is power
One of the most striking differences between East Asians and Westerners is the
way the two groups treat information in their possession. East Asians,
including Chinese, tend to regard information as a potential source of
advantage or power and only release it after the maximum advantage has been
extracted. Westerners tend to be socialized to release information more freely.
Perhaps the easiest illustration of this contrast is how the two groups respond
to a query from a stranger. Westerners, by and large, will answer a stranger's
question accurately and readily unless there is an obvious reason not to do so.
Asians, on the other hand, will very frequently answer inaccurately, or with
great reluctance, unless there is a compelling reason for accuracy.
To some extent, this has to do with the collectivist tendency already mentioned
- a stranger has no particular status to a Chinese person, so there is no
reason to give them any particular consideration. This type of behavior might
appear obnoxious, but it must be remembered that an identical query from an
in-group individual - a colleague, say - would meet with a drastically
different, more helpful response.
The phenomenon also relates to the hierarchical organization of society. One
common situation where information is used as a source of power is in dealings
between officials and ordinary citizens; in this case, the behavior is
amplified by the fact that, at least in the bureaucrat's eyes, there is a
status difference between himself and the citizen. The same cadre who might
suddenly develop an overwhelming need to take a lunch break when faced with a
difficult citizen query would react very differently to the same question from
a visiting member of the Poliburo.
Regardless of the reason, the practical effect of this tendency is that it can
be very difficult in China to find out things, even things that would be very
simple in the West, such as bus schedules. In business, besides
official dealings, Western firms will encounter the same behavior when
researching Chinese companies - learning even the most basic financial
information about a company can be quite difficult, and, importantly, even the
information that one can find is often of dubious accuracy. Creative means may
often be necessary to verify essential due-diligence information, such as a
Chinese company's financial performance, ownership, track record, and key
personnel.
It is worth mentioning here that, to some extent, the presence of Western
auditing firms has made reliable financial information more widely available,
and even introduced the revolutionary idea that transparency can be a source of
strategic advantage (for example, by improving access to investment capital).
But changing an ancient mindset will take much longer than examining a
company's account books.
No 'no', and no confrontation
East Asians are famous for the rhetorical gymnastics they are willing to
perform to avoid saying "no" to a direct request, and Chinese are no exception,
though this behavior may be less noticeable compared with, say, Japanese or
Thais. The astute reader might already be able to guess some of the reasons:
avoiding "no" helps the other person save face, and preserves harmony within
the group.
Still, the unwillingness to say no can easily create communication problems,
particularly with cultures at the opposite end of the bluntness-tact scale,
such as Americans and Germans. To function effectively in Chinese culture, it
is necessary to become attuned to some of the most common verbal and non-verbal
substitutes for "no", such as a pledge that one will "seriously
consider" something, negative body language, or changing the subject.
A related issue is the need to avoid a confrontational approach that brings
conflicts into the open. Raising one's voice, losing one's temper, or making
physical gestures such as slamming doors, pounding one's fist on the
table, etc is almost always a bad idea in the Far East - the typical result is
that one both alienates the other person and loses face. In China, the best
advice is generally (quoting an antiperspirant slogan) "never to let 'em
see you sweat". Whatever the problem, patience, firmness and cultural
sensitivity will almost always work better than open confrontation.
However, there are exceptions to this rule - the trick is knowing when to make
an exception. If a company finds itself in a totally intolerable situation in
China, it actually can work to complain to a high official, threaten to tell
the press, etc. In a well-known case from the 1980s, a series of problems at
Beijing Jeep, one of the earliest auto investments in China, finally
exasperated American Motors officials so much that they complained to
then-premier Zhao Ziyang. Zhao responded by sending in a can-do aide named Zhu
Rongji. The results? Some incompetent officials were sacked; the project was
saved; and Zhu ultimately became premier.
Another example involved McDonald's, which came close to being kicked out of
its flagship Tiananmen Square outlet (one of the busiest McDonald's in the
world) when city officials pledged the location to a better-connected Hong Kong
real-estate firm. Instead of meekly vacating the premises, McDonald's
complained loudly to officials and to the press. The ensuing official
investigation led directly to a swath of high officials being removed.
It is no accident that both these cases involved large, high-profile firms. Big
companies can often get away with tactics that smaller ones cannot, because
they are important to China's economic development and their pulling out of the
country would create problems for the government.
However, with hundreds of multinational corporations now operating in
China, it is debatable whether any single company is important enough to make
withdrawal a credible threat; any company smaller than Wal-Mart or General
Motors is probably not important enough to get special consideration from
Beijing. Smaller firms may get better results by working through their
country's chamber of commerce in China, or working with their own government to
get diplomatic pressure applied.
Appearances over reality
Chinese culture places a great emphasis on appearances, in both the literal and
metaphorical sense - things are always supposed to look good on the surface.
The struggle, of course, is to ensure that they actually are good.
For example, first-time visitors are often startled by the numerous buildings
in Chinese cities that have an ultramodern appearance from a distance but, up
close, turn out to be poorly finished and badly maintained. This is a pervasive
problem that extends far beyond architecture, and includes government agencies
that don't actually do what they're supposed to do, professional credentials
that turn out to be fake, and the "tofu construction projects" attacked in a
famous Zhu Rongji speech.
Without a doubt, the rampant counterfeiting problem is the most baleful aspect
of this phenomenon for foreign companies; we will discuss this further in Part
2.
The compartmentalized society
Another of China's tendencies in both the literal and metaphorical sense is a
habit of building walls between groups of people. This is reflected in the
architecture of palaces such as the Forbidden City in Beijing, which
was built as a series of nested compartments; the more important a person was,
the further within he could penetrate, with only the emperor, his family and
servants allowed in the innermost sanctum.
The downtown area of modern Beijing still has a set of various fences and
barriers that can make it remarkably difficult to get from point A to point B,
even when the two points are quite close together. Again, it is not just
buildings that display this: foreigners are often struck by the fact that two
Chinese who work for different departments in the same office will not know
each other at all - they have no reason to.
This issue has implications for corporate governance - the deficiencies of
enterprises organized along the lines of functional differentiation, well known
to management theorists, may be even more pronounced in China than in the West,
making it more important to seek innovative means (such aswork teams) of
encouraging members of different groups to work together.
Feng shui
Of the many aspects of Chinese culture that affect business, feng shui (geomancy,
or literally "wind and water"), an interrelated set of superstitions that can
affect everything from the orientation of buildings to the placement of office
furniture, is probably one of the best known. This is not the place for an
exposition on the "theory" behind feng shui, such as it is, but it
basically flows from the idea that locations in the physical world are
inhabited by spirits and mythological creatures, and one should be careful with
the placement of new structures, lest the same become offended.
It goes without saying that few Westerners believe in feng shui - many,
perhaps most, educated Chinese do not believe in it either - but it is
important to understand that just because one does not believe in the
superstition does not mean one should ignore it. Whether the spirits are real
or not, the belief in them is real, and Western managers who openly disdain
these beliefs can simultaneously demoralize and offend their Chinese staff. For
example, it can become difficult to recruit new employees to a company if the
headquarters building violates the rules of feng shui.
The most reasonable recommendation is to accommodate feng shui when
possible, particularly when operating in southern China, where the beliefs tend
to be stronger - ironically, this is because of the influence of Hong Kong,
which, though a British colony until 1997, never went through the "anti-old"
campaigns on the mainland that weakened the influence of classical Chinese
culture.
At the same time, companies do not have to go overboard and consult a feng shui
master before scheduling important meetings, etc; the Chinese public expects
foreign companies to bring in a more sophisticated and modern approach, and a
minimal observance of geomantic strictures is consistent with this.
Which China?
Despite Beijing's energetic, self-serving promotion of the idea that "there is
only one China", from a cultural point of view, there are at least four Chinas
- mainland China, Taiwan, Hong Kong and Macau - and this does not include
Singapore, which is basically a Chinese society, or the various overseas
Chinese communities, which all have their own distinctive characteristics and
have been immensely important economically.
All these different "Chinas" display, to some extent, the qualities we have
described here. But it is vital to point out that they vary significantly, not
only in how much they display those qualities - for example, beliefs in feng
shui being stronger in Hong Kong than on the mainland - but in what
specific way they display them.
For instance, it is not surprising that many aspects of the traditional culture
would be less evident in mainland China: after all, the communist government
has historically endorsed rational, "scientific" progress over classical
Chinese culture - purportedly at least - and even literally tried to destroy
the traditional culture during certain periods, eg the Cultural Revolution. But
what might be surprising is that other aspects of "old China" - such
as males having long fingernails - have persisted more in the mainland
than in Hong Kong or Taiwan.
Overall, the many Chinas present a complicated cultural picture, reflecting
their very different recent histories. In some cases, the differences within
"Greater China" can even be greater than the differences between China and
nearby countries with Chinese-influenced cultures, such as Korea and
Japan.
Part
2: Business-specific issues
Part
3: Practicalities
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