China Business ABC - The China Market Survival Kit

146 Pages·2003·6.36 MB·English

by  Krott

Martin Krott Kent Williamsson
CHINA
BUSINESS ABC
The China Market Survival Kit
yinyang sign (taiji symbol)
0 Copenhagen Business School Press, 2003
Cover: Martin Krott
Typeset and print by BookPartnerMedia A/S
Printed in Denmark
English editor: Marilyn Hedges
ISBN 87-630-0116-0
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Credits for title calligraphy:
Li Shuhong
Pronounciation help for Chinese words:
J like j in jingle
Ch like ch in China
Zh like g in George
Q like ch in child
X like sh in shingle
A like a in ant
E like e in the
I like i in if
0 like u in full and o in ou like o in oh
U like u in full and u in qu like u in Turk
t oreword
China Business ABC makes rewarding and entertaining reading
for both the newcomer to the Chinese market and for the "old
China hands". It is clear from every word that the authors have
lived and worked for many years in China. Their candid obser-
vations are seasoned with humour. From my own 25 years ex-
perience of dealing with top Chinese decision makers I can
confirm that personal relationships based on mutual under-
standing are the key to success in this vast and complex mar-
ket. China Business ABC is a useful tool to deepen the under-
standing of the market. It can also be consulted for discussion
topics on Chinese culture and life in general. When preparing
to meet a Chinese business partner such information is invalu-
able.
Kurt Hellstrom, Ex. CEO of Ericsson
7
The Chinese Market -
An In troducti on
I Orient and Occident can no longer be separated.
JohannW olfgang von Goethe
The Chinese market has a mythical reputation and magical at-
traction. Roman merchants were attracted by Chinese silks.
Marco Polo was ridiculed because of his fantastic accounts of
his journeys in the lands of the Khan. Columbus discovered
America because he was looking for a shortcut to the Chinese
treasure vault. The opium war in the 19th century prompted a
trail of adventurers and business people from the West to search
for riches along the China coast from Hong Kong to Shanghai.
The Chinese market and its potential have today become a
steady mantra during press conferences where company re-
sults are presented. It has become daily practice for many com-
panies.
And still, the Chinese market is not quite the same routine as
any European or North American market. There seem to be
surprises lurking around every corner. Who would have ex-
pected a virus to virtually shut down the Chinese capital Beijing
with its 14 million inhabitants for weeks during 2003?Andn ot
a computer virus but a nasty little bacterium.
One can only understand the Chinese tendency to go from
one extreme to the other - relentless indulgence in raw snake
gall and grilled scorpions one day and face masks and quaran-
tine for tens of thousands the next - if one looks at Chinese
history and the very roots of Chinese philosophy. Taiji is the
most universally known symbol of China. It is at least 5000
years old and emerged in the cradle of Chinese civilisation
along the Yellow River. The Taiji symbol is comprised of the
dark Yin with the light Yang in a circle and signifies the indef-
inite transformation of opposites. The original meaning of Yin
8
was the shadowy north slope on the south bank of the river,
while Yang was the sunny south slope on the river’s north bank.
In the Taiji symbol, Yin and Yang look like two intertwined
stylized fish enclosed in a circle. They are a summary of Chi-
nese thinking and world perception. Everythingc onsists of con-
tradictions. The head of the black fish contains a white circle
like a big eye, while the head of the white fish is decorated with
a black circle. The light encompasses darkness and in darkness
one can find the origin of light. One can find common ground
in these contradictions and combine them to a new whole.
This way of thinking recognises neither the past nor the future
but is directed exclusively towards recognition of the present
balance of power. It fulfils very well its purpose of orientation
in the world. If at any given moment I adapt my behaviour
to the prevailing circumstances, the chances are that also in
the next and subsequent moment(s) I shall still be in harmony
with my environment. A random look at Chinese history and
even everyday life confirms the general validity of the Taiji for-
mula.
“One country- two systems” is the political concept behind
the reunification of the former British crown colony Hong Kong
and mainland China. The contradictions that have been com-
bined here could not be greater: the huge mainland with more
than one billion people, the majority of whom live on the brink
of subsistence, ruled by corruption and force with a newly
started free market economy. On the other hand, one of the
richest cities in the world with six million inhabitants, whose
standard of living is one of the highest in Asia, well organised
and with excellent legal and political conditions for compa-
nies. It was possible to successfully combine these contradic-
tions because the Chinese government accepted the capitalist
enclave in their realm (the white circle in the black fish) and the
Hong Kong tycoons agreed to control by the party secretaries
(the black circle in the white fish) in the interests of the long
term benefits.
The Chinese style of communication is an example from ev-
9
eryday life. It is not common and is even considered hostile to
discuss things in a dialogue based on thesis and antithesis in
order to consider a matter from different angles. Those involved
in the discussion will prefer to put forward arguments that com-
plement each other and develop a topic as if they were follow-
ing the growing shape of the fish in the Taiji diagram from the
tail and incorporating in the talk a preview of the contradictory
argument, which will also be expanded (the second Taiji-fish)
until the circle is closed and both sides feel they have exhausted
the topic. This way of talking also explains the desire for inten-
sive communication that is secured through numerous repeti-
tions.
There are many more examples: the continued searching for
hidden hints, the real meaning behind the words, as if one has
to conclude from talking about the black circle in the white fish
that the black fish is what is really meant. There is the contra-
diction between absolute power and total control at the top -
the party chairmen never had any difficulty in following the
example of the emperors in this respect - and anarchistic fa-
talism at the grassroots level according to the saying: “The
higher the mountains, the further away the emperor.” This led
to the emergence of a network of intertwined giving and taking
of favours that spans generations.
The traftic, which at first sight seems chaotic but upon closer
inspection reveals certain regularities (alas not those required
by traffic regulations), is another striking example of the undi-
minished influence of Taiji thinking. All road users, those on
two legs, two wheels, four wheels or more, move all the time in
the direction of the nearest open space in front of them. When
two streams cross each other, for example cars and pedestrians
at a pedestrian crossing, the weaker stream, normally the pe-
destrians (except after a football match or shortly after the shops
close), has to stop until it has built up enough momentum to
force its way into a gap in the flow of cars rushing by, which are
now kept back by the pedestrians streaming across the street
until the balance of power is reversed again. In this way both
10
sides reach their goal reasonably safely by sticking to their own
set. All this takes place without any eye contact between the
participants in the traffic. Everybody seems to follow his own
natural zigzag course. Anyone trying to make it alone is
doomed, like the young antelope cut off from its herd by hye-
nas.
The emergence of the Chinese market as it is today can also
be traced to applied Taiji philosophy: “No matter whether the
cat is black or white, the one that catches mice is a good cat.”
That was in 1975 the unorthodox thesis of Deng Xiaoping, fa-
ther of the Chinese economic miracle. The purpose of eco-
nomic construction justifies the means of market economy, for-
eign capital and social inequality. In the area controlled by the
state - the white fish - capitalist elements constitute a limited
stimulus-the black circle. The free capitalist market-the black
fish - is a legitimate substitute because it also contains the great
common goal of economic development - the white circle.
Thus, plan and market fit together as a new whole - “a socialist
market economy with Chinese characteristics”.
The market played an important role in social development
earlier in Chinese history. At the very beginning of Chinese
civilisation, it was an agrarian society that emerged around the
supply of water for the fields. An irrigation system requires col-
lective efforts and organised division of labour. A market for
the exchange of agricultural produce and a labour market for
specialists and agricultural workers are the consequence. Plan-
ning, building and maintaining the irrigation system requires
some form of organised administration, which was where Chi-
nese officialdom originated. The requirements of the agricul-
tural market were the starting point of the typical hierarchical,
centralized Chinese civilisation that passes knowledge on. A
striking example of such an antique irrigation system used to
this very day can be seen in Dujiangyan near Chengdu, capital
of Sichuan province.
The first Chinese merchants were salt traders in the lower
reaches of the Yangtze river, who sold salt from the interior in
11
rich eastern China using the Yangtze and the imperial canal for
distribution. The zenith of Chinese poetry and painting during
the Tang and Song dynasties Otht o 13 ‘h centuries)w as financed
by the salt merchants and other business people whose money
was dispersed as donations, taxes and bribes into the coffers of
buddhist monasteries, noblemen and officials, who promoted
the arts in praise of their power and social position. When
former president Jiang Zemin included “spiritual civilisation”
in the mission of the party, he revealed his roots in a family of
officials and scholars from Yangzhou, the center of the salt trade
in eastern China.
The opium market in the lgth century had grave conse-
quences. After the British East India Company had failed to
conquer the Chinese market with woollen cloth from Manches-
ter, tools from Sheffield or leather goods from London, it came
up with the disastrous business idea of introducing opium onto
the Chinese market in order to secure a positive balance of
trade. The addiction had reached China in the 17 th century and
the wars fought over the brown opium bricks proved to be the
death knell for the five thousand year old empire.
The second world war, that had already started in China in
1937 when the Japanese crossed the Marco Polo bridge into
Beijing, was also based on economic reasons. Japan went for
expansion in order to secure raw materials, labour and markets
in a new East Asian market under its rule. The adventure did not
end as the Japanese had planned, but in the fireballs of the
American nuclear bombs on Hiroshima and Nagasaki. It is less
well known that the Japanese occupation of a considerable
part of China contributed greatly to the communist takeover of
the country in 1949 under Mao Zedong. Without Japanese in-
tervention, the Chinese republic under Chiang Kai-shek might
have managed to suppress the communist revolt with Ameri-
can help.
When Mao Zedong took power, his ”supremacy of policy”
reduced the role of the market to zero. From 1949 to 1976
economic prudence was not part of the decision process, but a
12
bourgeois trait that would bring trouble to its advocate. Nev-
ertheless - and that is another proof of the general validity of
the Taiji model, - it was Mao’s ”Cultural Revolution” that
aimed at removing all obstacles on the road to an ideal com-
munist state and that injected into Chinese society the ferment
of the successful economic reforms under Deng Xiaoping. This
“white circle” in the black fish was the youth rebellion against
the “New Class” of party cadres. It was this unconventional
way of thinking and even some of the “Red Guards” from 1966
themselves who created in the eighties and nineties the suc-
cessful “Red Chip” corporations and millions of new collective
enterprises.
Mao’s ideology-driven blunders had sharpened Deng Xiaop-
ing’s sense of reality. The “Great Leap Forward” in 1958 led the
farmers to melt down all their metal tools so that China would
overtake the UK in steel production. The setting up of “people’s
communes” in 1958 was supposed to complete the collectiv-
ization of agriculture but instead led straight to famine. The
break with the Soviet Union in 1962 cut off the Chinese heavy
industry from its most important source of know-how and in-
vestment. The “Cultural Revolution” in 1966 threw the cities
into chaos and threatened even the unity of the army. Deng
Xiaoping had endured and survived all these campaigns on the
front line. He drew his conclusions and demanded that the
political leadership should “search for the truth in the facts”.
This maxim is also an expression of Taiji philosophy by com-
bining the contradictions of the current situation (the facts- the
black fish) and the timeless leading principle (truth -the white
circle). “Search for the truth in the facts” means in other words
that there is no absolute truth but only a relative one depending
on the circumstances. The answer to the often raised question:
“Are the Chinese honest?” is that each statement must be
looked at in context, whether it has been made in a flattering,
a matter-of-fact or a hostile way. The degree of truth has to be
judged from this.
In 1978 a turning point was reached when the authorities
13
were asked to deal actively with real problems instead of cov-
ering them up with ideological smooth-talk. After 30 years of
ideological coming and going and the economic malaise of a
planned economy, the country was in deep stagnation. The
infrastructure of traffic, energy supply and telecommunication
was hopelessly outdated and the productivity of a demotivated
labour force was at a very low level. The party cadres were
deeply demoralized after the death of Mao Zedong and the soft
coup of Deng Xiaoping to erase the "leftist" elements around
Mao's widow Jiang Qing from the party leadership. Deng
Xiaoping never shied away from a confrontation. He saw
clearly the critical moment and historical opportunity to leave
the broad head of the black fish and lead China into new ter-
ritory of economic reform, even when its outlines were not
more than the narrow tail of the white fish in the Taiji symbol.
A narrow beam of light attracted my curiosity during an
evening stroll in May 1979 in Xian, the 5000 year old imperial
capital and today the capital of poor loess province Shaanxi.
During those years in the evenings it was pretty dark in Chinese
cities. Crossroads were marked by little red lamps hanging over
the centre, swaying in the slight breeze. Traffic lights were
switched off in the evening. The street lights barely illuminated
the ground. On the pavement one could see at regular intervals
flickering lights of candles in tins to protect them against the
wind and kerosene lamps. Behind the lights one could recog-
nize the dark outlines of bulky figures. Moving closer one could
see elderly ladies sitting on wooden chairs and small stools,
with weighing scales on the ground in front of them and some
of them with yardsticks to measure a person's height. What was
the purpose of this assembly during the evening hours? It was
nothing more and nothing less than the birth of private business
in Xian. The entrepreneurial old ladies rented the scales to pass-
ers by who were curious to know how heavy their children or
they themselves were. I do not know if the scales came from the
local kindergartens, schools or hospitals or from the warehouse
of a local scale factory. What I do know is that these measuring