Doing business in China

Each month we offer our clients, learners and friends in the industry, free briefings and expert advice for living and working in different cultures.  We'll email each monthly cultural newsletter directly to you, all you have to do is subscribe.

China, officially the People's Republic of China (PRC), is located in East Asia, with the capital city in Beijing. It is the world's most populous country, with a population of over 1.40 billion. It exercises jurisdiction over 22 provinces, five autonomous regions, four direct-controlled municipalities (Beijing, Tianjin, Shanghai, and Chongqing) and two mostly self-governing special administrative regions (Hong Kong and Macau). President Xi Jinping came to power in 2012-3 as the hand-picked heir of predecessor Hu Jintao. China is one of the world's top exporters and is attracting record amounts of foreign investment. In turn, it is investing billions of dollars abroad.

Business culture in China

Business leaders in China are well known for controlling companies from the top. What is less well known is how much they will decentralise, which helps them quickly react to moves in their market. In China the need for adaptation is constant, and it involves keeping pace not just with the market but also with differences in the development of each province and the power of local officials.

Some scholars have linked companies’ management systems to the economies in which they grow. Stable, complex markets require structured organisations, and managers capable of tackling several dimensions simultaneously, such as functions and customer types. Rapidly changing markets favour loosely structured management systems, which can process new information quickly, and managers who can act independently. Chinese companies (barring state-owned enterprises) tend to fall into the second camp. They are high in energy, and nimble.

China’s business leaders manage people very differently. In the West, the ideal boss is a ‘resourceful democrat’. They set the vision and strategy for the business but empower subordinates to implement it. They encourage two-way communication with their employees and allow bottom-up input in decision-making. In China, the ideal boss shows moral, benevolent and authoritarian leadership. He is like a parent who supervises his children on everything that needs to be done. He believes in discipline, attention to detail and manages his people at a micro level. He also spends lots of time caring for the personal welfare of his employees and regards it as part of his job. For example, loyal employees can be rewarded with generous incentives, trips outside China, housing, and education for their children.

There are benefits and disadvantages to this style. The Chinese style can be very efficient and get quick results. The direction is set at the top, and the role of an employee is to carry out instructions. This saves time in negotiating and brain-storming. However, the Chinese generally discourage two-way communication and ownership at the lower level. Coupled with their preferred group-orientation, accountability can get blurred. The parental style can also put a lot of stress on western employees who are not used to being ‘micro-managed’ and who may feel that they are not fully trusted to manage their own work.

In Chinese enterprises, humanism has been identified as an important value of a good-natured manager. Under the teachings of Confucius, humanism refers to courtesy, magnanimity, good faith, diligence and kindness. In the workplace, the downplaying of self and upgrading of relationships are highly valued. Collective human relationship in the Chinese enterprise, with a high sense of cohesiveness within the hierarchy, is commonly observed. Subordinates’ public expression of alternatives or overt self-interest should be kept to the lowest levels. It is said that Chinese management is more relationship or people-oriented as opposed to performance-oriented. Seniority and good conduct of behaviour such as reliability and trustworthiness, instead of good performance, play a more important role in promotion.

The most sought-after employees in China are those with entrepreneurial flair, who are adaptable to changing markets. Turnover is fairly high for employers and something that affects business productivity. Over the last 30 years China has had a good macro economy, attracting many multinational corporations and other investors. This has in turn resulted in high demand for talent in the job market and it’s been more obvious in the tier-one cities (the large densely populated cities with economic, cultural and political influence). But it is now starting to have an impact on tier-two and -three cities (the provincial capitals and sub-provincial cities).

The talent shortage of globally experienced managers, combined with leaders looking for better career opportunities, leads companies to poach ready-now talent from other organisations. Moreover, most companies have invested relatively little in talent retention and are weak when it comes to coaching, feedback, and training.

Owing to China’s long period of political isolation and its history of foreign intrusions, there used to be a general bias against foreigners among the Chinese, but this is gradually disappearing. Nevertheless, it remains crucial to demonstrate respect for China’s history and its role in the world if you want to do business there.

In traditional Chinese business culture, respect depends on age, rank and one’s achievements. Leaders in senior roles are commonly of advanced age, and it is important to treat elderly people with the greatest respect. Admired personal traits include patience, humility and manners.

Relationships in China are based on familiarity, respect and personal trust. Business relationships exist between individuals or groups of people, not between companies. Even when you have won your local business partners’ friendship and trust, they will not necessarily trust others from your company, so keep your company interfaces unchanged.

Because the concept of saving face is so important in this culture, communication is generally indirect. When responding to a direct question, the Chinese might answer yes only to signal that they heard what you said, not that they agree with it.

Given the strong emphasis on hierarchy in the country’s business culture, a senior executive should lead major business interactions for your company. When in country, in accordance with business protocol, people should enter the meeting room in hierarchical order. The Chinese likely assume that the first foreigner to enter the room is the head of your delegation. The same is true on their side, allowing you to identify the most senior person. You can get other clues by observing who receives the highest amount of deference within a group of Chinese. That way, you might be able to identify the hierarchical structure across the whole group.

Present your business card with two hands and ensure that the Chinese side is facing the recipient. Similarly accept others’ cards using both hands if possible. Smile and make eye contact while doing so, then examine the card carefully. Not reading someone’s card can be an insult. Next, place the card on the table in front of you or into your card case. Never stuff someone’s card in to your back pocket or otherwise treat it disrespectfully, and never write on a person’s business card.

Business meals and evening events are very important as they help advance the vital process of building strong relationships. Never attempt to pay for or ‘go Dutch’ on a meal to which you have been invited. Even hinting at that as a possibility could mean an insult to your host. Instead reciprocate with an invitation of your own at the next opportunity.

Finally, wealth is a prime source of power, as well as self-esteem and status for Chinese leaders. Business executives are therefore willing to work long hours. This willingness could also be attributed to their personal values of patience and endurance with a long-term perspective. Additionally, the Chinese place strong emphasis on family welfare. Striving to expand the family’s wealth and glorify their ancestors make Chinese leaders work diligently and live frugally for the family.