By Sean Upton-McLaughlin 

Anyone in business has likely heard the phrase “it’s not what you know, but who you know” – this phrase takes on a much deeper meaning within China. Many Chinese businessmen rely almost exclusively on their personal relationships when doing business, and protect their networks with a level of devotion rarely seen in the Western countries. Every businessman knows connections and relationships are important, but why exactly are they so important in China?

From a cultural perspective, Confucianism (a 2,000-year-old Chinese philosophy) places a strong emphasis on observing the proper relationships as being the key to social harmony. The key Five Relationships stressed in Confucianism (and also as part of the concept of ‘Filial Piety’) include: 1) Ruler to Ruled, 2) Father to Son, 3) Husband to Wife, 4) Elder Brother to Younger Brother, and 5) Friend to Friend. This early focus on friends and family is likely linked to the fact that almost all  Chinese guanxi networks are composed of friends, personal contacts and extended family. Unlike the West, most Chinese businessmen do not want to create a “business only” relationship, rather they will want to create a relationship first, and do business second.

From geographical perspective, the large size of Imperial China coupled with difficult and hazardous terrain made traveling to other cities and provinces difficult if not completely out of the question for the average farmer or businessman before modern transportation. Chinese culture has also long placed an emphasis on revering and (and to a degree) worshiping one’s ancestors.

Key to this concept was that in order to revere their ancestors, Chinese people were required to stay near the area where they ancestors were buried. This led to generations of a single family largely staying in the same area with little to no migration. The results of these geographical factors are that many personal and business networks were and continue to be strongest at the town, city or provincial level.

Additionally, due to the autocratic nature of Chinese governing systems and methods, there has always been a lack of fair and reliable social and legal institutions within China. Because of this, Chinese people often feel that they are only really able to truly trust and rely on their closest friends and relatives – they have a tendency to rely on them first for business connections, which is itself becoming a business in China. For example, despite the fact that almost every company will sign a contract at the commencement of a business deal, the actual enforce-ability of said contract is many times very low, and China’s ineffective legal system can take years to successfully resolve cases. It is also not unheard of for judges to be told how to rule on a case by a bureaucratic superior. Thus, having a solid and long term relationship with a business partner, as opposed to a formal and tightly worded contract, is still a more effective way to conduct business within China.

For the Western businessman new to China, remember that your Chinese business partner will likely want to get to know you first, so accept that this is merely the Chinese method of minimizing risk and ensuring both parties can and will share a common ground. Also, while creating relationships is relatively easy,  maintaining them is not. For more information on this, please see our posts on Mian Zi(面子), and Li Shang Wang Lai(礼尚往来).

Sean is a China-focused consultant and entrepreneur with over four years’ experience living and working in China. He consults on business strategy, communication and cross-cultural issues.

By Sean Upton-McLaughlin

Many Western businessmen new to China are advised of the importance of gift giving to Chinese culture, business or otherwise. But why is this so important to Chinese people? How does one give a gift? And how is this different from corruption or bribery?

China possesses an ancient culture steeped in Confucianism, which is based largely on respect, relationships and rituals with the intent on maintaining societal and familial harmony. To maintain their relationships with their family, friends and coworkers, Chinese feel the need to demonstrate their care and respect. This can take the form of giving a gift when invited to someone’s house or company, as well as picking up the bill when dining with friends. Additionally, outside of one’s immediate circle of friends and family, this practice is also used as a way of requesting or giving thanks for favors done. For example when a teacher takes on a new student, it is thought of as customary for the student to present a gift to the instructor. The gift in question may be as simple as a pack of cigarettes  or a bottle of liquor, with the student having to make an initial estimate of how expensive a gift is required. Giving a gift also has a strong connection with giving someone face, or Mian Zi(面子). When dining with friends or business contacts, the act of picking picking up the tab allows a person to demonstrate their respect and enthusiasm – this not only creates face, but also acts to strengthen the relationship between the two or more parties.  Note: Giving gifts is simply giving gifts; Li Shang Wang Lai (礼尚往来) is how you give a gift.

At this point it is important to observe a key difference between this type of gift giving, and the traditional bribe. The goal of a regular gift is to demonstrate your respect for an individual and your comittment to creating or maintaining a relationship with them. Giving the gift will not “seal the deal,” however not presenting a gift may make you appear impolite, uncultured, and lacking of “Su Zhi(素质).” In contrast, a bribe in China is often a specific sum of hard currency within a red envelope, known throughout China as a “Hong Bao.” Other common forms of bribery within China take the form of company stock, cuts of profits, and expensive gifts, such as cars, and high-end electronics. In the case of an actual bribe, an individual may demand (directly or indirectly) that something be given in order to ensure a certain outcome. However, the exact difference between a “gift” and a “bribe” can remain unclear within the somewhat murky Chinese business environment, and it is not uncommon for companies to set limits on the value of gifts that can be given or received.

There is also the potential for the concepts of “Li Shang Wang Lai” and gift giving to cause worry and stress for the Chinese, and even hold the potential to damage relationships. Think about it like this:  every Chinese person is running a tab within their mind for every one of their important friends or contacts. When someone is treated to dinner, it is expected that the kindness will be returned at some point in the future. When a Chinese couple receives a gift from a friend for their child, not only will they feel compelled to buy a gift for their friend’s child, but they will also take care to give a gift of at least an equal value to the one received. If a professor or business client feels to have not received an appropriate gift, or of no gift is given, then this has the potential to damage the relationship, or Guan Xi (关系).

For the Westerner doing business in China, while it is not necessary to observe these practices as strictly as local Chinese may feel the need to, it is recommended to pay more attention to close Chinese friends, important business contacts, and anyone within the government bureaucracy that has the power to make your life or business difficult. Remember, giving a gift it not always a bribe, most of the time it is a method for building and maintaining a strong and mutually beneficial relationship.

Sean is a China-focused consultant and entrepreneur with over four years’ experience living and working in China. He consults on business strategy, communication and cross-cultural issues.

By Sean Upton-McLaughlin

Almost anyone who has done business with China, or is planning to, has heard the term “face.” Western businessmen coming to China for the first time often hear about how important face is to the Chinese, and are advised to avoid offending a Chinese person’s face –  but what does “face” really mean?

Fundamentally “face,” or “Mian Zi”(面子), represents a person’s reputation and feelings of prestige (both real and imagined) within their workplace, society, their family unit and among their friends. The concept of “face” can be more deeply understood  if one recalls that China has traditionally been (and continues to be) a highly hierarchical society. The position a Chinese person occupies relative to others (e.g. a boss to an employee, or a father to a son) is typically thought to command a certain degree of respect and requires certain types of behavior. For example, a director within a local or state-owned Chinese company might expect their subordinates to politely greet them when coming into work in the morning. A father might expect his son to achieve high marks in school, and a mother may expect her daughter to marry a respectable man and quickly give birth to a child. If these expectations are not met, the director, the father and the mother could potentially feel slighted, embarrassed, angry or all of the above. In effect, they would lose “face” in the eyes their coworkers, family or society.

Besides trying to avoid losing face, Chinese people also aspire to “gain face” as well. Many types of actions, including being praised by a superior, having a beautiful girlfriend or handsome boyfriend, or driving an expensive car can all lead to being admired by one’s peers and society in general – gaining face. But what determines the level of respect a certain person deserves? The simplest way is to compare various aspects of your own life and background with the individual in question. What is their age in relation to you? What’s their career level? How much money do they make? What’s their educational background? What’s their family background? Additionally, it may be necessary to gauge the level of respect a Chinese person thinks he or she deserves.

This sounds complicated, and it is… but there’s no need to despair. Non-Chinese are rarely held to the same exacting standards of respect that Chinese expect from their fellows, and the influx of western culture in larger cities and more developed areas has led to a certain culturally relaxed interpretation of “face” among some Chinese. And finally, Chinese culture has both conservative and liberal interpretations. Some Chinese worry and fret about receiving the proper amount of respect every day. Others simply choose not to worry.

Sean is a China-focused consultant and entrepreneur with over four years’ experience living and working in China. He consults on business strategy, communication and cross-cultural issues.

Maternity hotels in China are a booming business in the Middle Kingdom and overseas

By Lisa Sun

According to government statistics, 143 million Chinese people were born between 1981-1990, about half the size of the current U.S. population. Some of these 143 million people are now cranking out their own babies, causing another demographic boom – this time it’s a phenomenon that is ripe with business opportunities.

The little emperors of the 80s are a weird bunch. I would know, I’m one of them. We grew up in an era of China’s peace and prosperity. We max out credit cards and watch Hollywood films. We spend lavishly on weddings. And we expect even more for our kids.

The one-child policy has lead to a unique 4-2-1 family structure: four grandparents, two parents, one baby. While this means an aging population later, right now it means the pooling of family resources onto a single baby. Some families are willing to shell out as much as 200,000 RMB (US$30,000) just to have an extra child outside of the one-child policy. And this is the minimum amount they pay in big cities if they can find the right guanxi and bribe the local family planning agency.

For a child that comes so precious and at such high a cost, affluent Chinese families don’t blink at expensive baby services. A typical middle-upper class family may spend US$10,000 on “maternity hotels”, $2000 on “month aunts,” $1000 on “postpartum fitness” and on average more than $500 every month on buying imported formula and baby clothes.

My acquaintance, Mrs. Wen, has spent over US$30,000 in her baby’s first year. To put that number in perspective, in 2012, the average GDP per capita in Shanghai was around US$12,000. If child-care services are expensive in the U.S., they are astronomical in Shanghai.

Compared to her peers, Mrs. Wen is no Chinese Beyonce. She’s just your average Chinese housewife who would still haggle over 1 yuan for pork. But when it comes to buying things for her baby, the laws of economics, supply and demand, and cost efficiency no longer matter. Nothing but the best.

Maternity hotel in Shanghai

Out of all baby-related businesses, there is no model quite unique as maternity hotels. It is a place that provides postpartum care for mothers and newborn care for babies. They tap into the culture of Yuezi (月子 ), or the month following the traumatic experience of giving birth. Chinese mothers believe that extreme caution in diet and habit during the Yuezi is crucial to healing the strained body. So while U.S. mothers, such as Sheryl Sandberg and Marissa Mayer, choose to lean in, Chinese mothers are leaning out. For their health in the long run, they choose to recuperate in a maternity hotel for up to two months.

During their stay, they are put on a strict diet (月子餐) and served 4-6 meals a day. And with specially prepared cuisine, 24-7 on-call nurses, a stay at a maternity hotel doesn’t come cheap. Customers pay on average of up to US$10,000 a month. When one is willing to spend that kind of money, Chinese mothers have discovered that they don’t necessarily have to limit their options to China.

Birth tourism – to Hong Kong, Canada and the U.S. – has been booming. Take this website ,www.jiiaa.com. It has 20 sales representative ready to chat with prospective mothers. They advertise maternity hotels based in Los Angeles around Rowland Heights, Arcadia and Chino Hills areas. The sales rep claim from as low as US$10,000 to as high as 50,000, a Chinese mother can have a baby with a U.S. passport.

On its website, they have a picture of their “founder” with Bill Clinton. Their sales force claims strong networks and influence with local politicians. One package even includes a picture of your baby with a local California government official (it doesn’t say who). To a simple Chinese person, with no understanding of U.S. culture or the ability to research in English, this service looks entirely legitimate. And compared to Chinese maternity hotels, these American ones promise not just a clean and safe environment but also instant U.S. citizenship for the child.

In an investment environment tainted with green card scams, unwitting Chinese people find birth citizenship a cheaper and more secure method for U.S. immigration. Most choose this path to avoid China’s one-child policy. It’s either a US$30,000 bribe to the local planning agency or giving birth in America. Would the bribe add any value to the child’s future? Even Yao Ming, the famous athlete, chose to have his baby in America.

Some U.S. media have reported China’s birth tourism as “anchor babies.” They claim these mothers plan to use their U.S. citizen-status babies to move the entire family abroad. In most instances, this is not the case. Most well-to-do Chinese business people have communist ties. They may avoid U.S. citizenship due to tax consequences or political ones. However, they do intend for their kids to be educated in the U.S. and escape the horrible Chinese entrance examinations (高考).

Some mothers, in fact, are materialistic mistresses of rich businessmen or government officials. They even made a movie about this called Beijing Meets Seattle(北京遇上西雅图）, starring Tang Wei of Lust,Caution fame. Tang Wei plays the part of pregnant mother trying to have her baby in Seattle. She buys a ton of luxury products and finds Mr. Right, a Chinese driver/ former cardiologist. But she has her American baby, courtesy of Mr. Wrong anyway.

Of course not everyone is happy with these maternity hotels. Seeing pregnant women walking around with their Hermes bags, Rolexes and loud mandarin has touched a sensitive nerve in foreclosure-ridden neighborhoods. Some local residents in LA are upset. A group called “Not in Chino Hills” have protested on streets and successfully shut down a couple of maternity hotels within their neighborhood.

I emailed Andrew Veis, Assistant Press Deputy to Supervisor Don Knabe of Los Angeles County. Veis says that

Chinese maternity hotel in L.A.

they are creating a multi-agency task force (including regional planning, public health, fire department, sheriff etc.) to investigate suspected maternity hotels. Together, they have inspected 42 properties (condos, single-family homes etc.) that received resident complaints. They have identified 12 maternity hotels in those properties, while another 15 denied them entry. While there is no law against operating these hotels, Supervisor Knabe has called for defining what is a “maternity hotel” and drafting an ordinance to regulate them.

The conflict perhaps lays in the demand of maternity hotel services from Chinese tourists and the lack of business regulations. Of course, due to recent reports of crackdown in the states, some more educated moms have chose to do it legally by renting U.S. condos or rooms in suburbs. In essence, they get a more American postpartum experience where they cook for themselves and have shorter resting times, although most mothers are not sophisticated enough to navigate life in America, find their own doctors/hospitals and go against the deeply ingrained Yuezi culture.

There are risks for would-be maternity tourists – Chinese mothers seeking to have their baby abroad face hostility on dual fronts. According to Chinese laws, if both parents are Chinese citizens, their children born abroad can apply for citizenship back home, but must relinquish foreign citizenship. However, a covert dual citizenship is still possible due to the lack of rule of law in China. There are always hidden connections, backdoors for the privileged if you have enough money or the right connections. Plus, parents cannot decide behalf of their children to relinquish U.S. citizenship. In fact, some of these dual-status babies are born out of wedlock to communist officials. To acknowledge the existence of a mistress or a “bastard child” is political suicide in communist China (despite the extreme prevalence of mistresses in official circles). These officials tuck away their young mistresses in the U.S. while supporting them financially. A considerable percentage of officials, following the examples set by the top leadership, are rich beyond imagination. With their overreaching power and authority, it is not too difficult for them to get their children a new legal identities.

So before the U.S. closes its door on these cash-flush tourists and before China becomes a better place to live, expecting moms will continue their journey to the West.

Lisa is a TV director with the China Business Network and a recipient of the China News Award. She has lived in Shanghai for 13 years.

CNN has a good piece on this fast-emerging story, scary stuff. We’ll refresh as more details become available!

By Justin Shuttleworth

Beijing’s record-breaking pollution levels over the past winter and spring have made headlines worldwide, casting new-found scrutiny on China’s long-standing air quality issues.  If you are currently living in China or travel there frequently for business, then this phenomenon can shift from being from an abstract news item to a very personal health concern in a short time, particularly if you suffer from asthma or another respiratory condition.  With all of the recent media focus on China’s so-called “toxic smog,” I thought I would pass on a few things I learned over the years I lived there and possibly dispel some myths.

#1  It’s as bad as you’ve heard:

The World Bank’s report on the most polluted cities in the world listed China has having 16 of the top 20 most polluted cities in the world in regards to air particles. Air pollution and smog are so bad in Beijing, Tianjin, and Shanghai that airports must sometimes shutdown due to lack of visibility. The World Health Organization has estimated that many northern Chinese cities (including Beijing) have almost 20 times the safe and acceptable levels of suspended airborne particles. Furthermore, the WHO also estimates that nearly 700,000 people die prematurely every year, due to poor air quality.

#2: The Chinese know it’s bad:

In January of this year the Chinese state-controlled media published very frank and critical articles describing the sickening pollution that had enveloped Beijing and other parts of Northern China. Unprecedented media coverage of the real and present danger of the air quality is a clear signal that the Chinese government’s official policy toward environmental concerns is changing rapidly. Zhong Nanshan, a respiratory expert at the Chinese Academy for for Engineering, was quoted as saying, “that without intervention, air pollution would replace smoking as #1 cause of lung cancer in China.”  As recently as the 18^th party congress (held last November) out going President Hu Jintao directly addressed the national problem of air quality.

#3:  It’s bad because of growth:

Particularly since the economic reforms of the last three decades resulted in tremendous advances in consumption and living standards, the enormous Chinese population of 1.3 billion has put staggering demands upon infrastructure and energy resources.  Although China’s population growth now sits at .47% (156^th in the world) this was not the case over most of the last two centuries. Between 1952 and present day, China’s population has more than doubled. From 1952 (China’s first modern census) until the early 1980′s when the one child policy was introduced, China had an unprecedented population growth rate of 20% per decade.

How does China supply this vast population with energy?  Over 80% of Chinese electricity is produced by coal burning. Much of the coal is the nefarious soft coal, a cheap, abundant, unrefined coal with high sulfur content. Deutsche Bank analysts have recently released a report that coal consumption is likely to go up as the economy continues to grow and car ownership increases.

#4: It’s not the worst comparatively (even now):

Because of China’s place in the world their pollution problems often get more media coverage than other highly polluted locations in other countries. But, the reality is there are many highly polluted locales throughout the world. Environmental disasters at Chernobyl and more recently Fukushima have had extremely grave consequences on the local populace. The 2005 WHO air quality guide has cities like Karachi, New Deli, and Cairo well over Beijing’s annual concentration of PM 10 particulates. Cities in developing countries often have higher concentrations of Sulfur dioxide as well. Harare, Kitwe, and Mexico City are among cities with higher annual sulfur dioxide levels. England’s coal-based industry of the Victorian era through post World War II was notorious for dumping large amounts of pollutants into the environment. The pollution was so bad in England that, an event dubbed the “London Fog” in early 1952, led directly to the premature deaths of 12,000 people.

#5: The Chinese government is trying to do something about it:

China has taken significant steps in the last decade to curb air pollution and reduce harmful emissions. Perhaps the most symbolic yet still important step is the growing public and official recognition of the problem within China itself. Perhaps because of the tremendous amount of pollution or just the media coverage surrounding it, China finds itself in the curious position of  seizing a leadership position in the global fight against climate change.  China’s landmark decision to put carbon caps on heavy carbon producing facilities would have been unheard of a few years ago. In a political climate that constantly pushes for economic growth of 8% or higher, China also finds itself the world leader in clean energy subsidies by investing over US$51 billion in clean energy initiatives.

China is also among the world’s leaders in wind and solar energy. A staggering 70 GW of new wind power will be installed in China over the next five years.  Even with all these efforts China still faces a monumental task of cleaning up their air. The aforementioned Deutsche Bank report cautioned that even with a reduced rate of 5% economic growth and aggressive carbon and emission standards, China is unlikely to meet its goal of 35mg of particulate matter per cubic meter by 2030.  In fact, pollution by then could be much worse barring drastic changes.

Justin lived and worked in the Middle Kingdom from 2006 to 2010 as a sales manager for a high-end Western brand, doing business in some of the largest cities including Beijing, Shanghai, Guangzhou, and Shenzhen.

Recently LearnChineseBusiness.com sat down for an interview with Brian Hager, an American entrepreneur based in Shanghai. Hager, who has many years of experience in sourcing and international trade, talked with us about how his new enterprise, TradeSparq, his new service that allows its users to integrate their own social networks into the supplier search verification process. Hager hopes to revolutionize how American buyers interact and do business with Chinese suppliers and factories.

Interview by Sean Upton-McLaughlin

So Brian, what is TradeSparq?

Basically, TradeSparq is a social network for global trade, with the product architecture and products of B2B marketplaces, like Alibaba, merged with the features of social networks. This merging allows buyers and suppliers to more efficiently find and match themselves to potential trade partners, making supplier verification all the more reliable. For example, if you go on Alibaba.com and you search for kitchen sinks, you might get 60,000 different search results for kitchen sinks and 2,000 potential suppliers to choose from. What the social network function of TradeSparq does is to allow you to do that same search while incorporating your existing social network into the process. So you can filter the search so that the results displayed first are those that you are connected to directly, or indirectly through someone else in your network. And TradeSparq is basically just on one single platform. We now have about 100,000 suppliers and over 1,000,000 products, and we did 3.4 million inquiries last year from overseas buyers to predominantly China-based suppliers.

Back to the example that I gave with the kitchen sinks, with 60,000 potential products and 2,000 suppliers. There is no way that a buyer in the USA can visit 2,000 factories in China. It’s not possible. So the buyer needs to find some way to narrow down that list to a smaller number of suppliers that he thinks can deliver the product that he wants. On a general directory site (similar to the yellow pages), that’s very difficult to do. But through TradeSparq’s integration of social networks, the buyer can more easily filter that list of suppliers. In addition to smoother information gathering, the buyer also has the opportunity to do some supplier verification – they can ask people in their network (who are connected to a particular supplier), “what’s this person’s quality like?” This type of supplier verification is not possible anywhere else on the Internet except for TradeSparq. Being able to reduce your risk by verifying a particular supplier through your network puts you ahead of the game in terms of trading securely and safely.

In regards to supplier verification, we have recently launched a new supplier ratings function. Now in a traditional Web 1.0 format with Yelp-style ratings, once a supplier or vendor is rated, everyone on the Internet can see that. But the problem that we previously had with that was that a lot of our buyers viewed the ratings they gave as proprietary information. Many buyers put a lot of time and effort into identifying and vetting reliable and high quality suppliers and don’t want to make that type of competitive advantage easily available to other companies. So although our users they did not want every other buyer on the Internet to be able to view suppliers that they have previously verified, at the same time they wanted to be able to share their ratings across their organizations and networks. So as a social network, we’ve developed a way for TradeSparq members to be able to share their ratings with just the people they want to share them with. Think of the circles function on Google+; you can parcel off a group of friends and share specific things with those friends. So this is what a social network is great at, and that’s what we allow our members (buyers and suppliers) to do. And this helps with the verification process as well.

What made you decide to found Tradesparq?

I previously worked as a senior executive at a B2B marketplace and media company called Global Sources. One of the things that struck me during my time with Global Sources, which involved visiting a lot of suppliers and buyers, was that there were still inefficiencies in how the buyers and suppliers could match up and form relationships. With the traditional Web 1.0 approach to this problem, which is basically a directory of names, the problem is that the buyers and suppliers aren’t able to get anything more than basic information from their potential trade partners – just basic information on the product and the company. Some of the most important information, such as the product quality, or the service quality, is very difficult to get, because that’s not listed in a traditional directory-type format and it can be hard to verify independently. And of course every single supplier or service provider is going to say that their quality and service are both excellent.

But trade revolves on trust, and a social network allows trust to form, or at the very least allow things to become more transparent. So while I was at Global Sources, my partner Michael and I began to see the rise of the social network, and we saw social networks could be very valuable in trade. So in 2010 we founded TradeSparq. We’ve found that there’s been a lot of interest in the differentiated and disruptive nature of our model from a variety of companies from Fortune 500’s to small trading companies.

Does Tradesparq help create relationships, Guanxi, with Chinese suppliers?

That’s a good question. I would say there are two levels or meanings of Guanxi. The first is when you know someone, or can obtain an introduction to a particular supplier, businessman or official. There is no doubt that for this type of Guanxi, TradeSparq is able to digitize it, show how you are connected to a particular person, make that connection visible, and makes it possible for you to take the next step toward getting introduced to that particular person or supplier.

A deeper and more powerful version of Guanxi, such as when you have strong connections to government officials and industry power players – that’s built over months and years of interfacing and talking with a particular individual. So while TradeSparq can provide the “who” that you should be talking to, the actual relationship with a company or individual needs to be personally developed.

Does being introduced through TradeSparq reduce the risk of being cheated?

First and foremost, I think that if you are buying from a factory that is fraudulent in their practices, and there are a million ways to get connected with that factory, then you haven’t done the proper due diligence. Now the way that Tradesparq reduces the risk behind that, is that you have already vetted a particular trade partner through someone you know, and preferably through someone you know well, who has maybe worked with the supplier in question in the past. Simply, TradeSparq’s supplier discovery and verification functions are both much more robust than other systems (e.g. Alibaba, Globalsources.com, Made-in-China.com) that are available to buyers.

Another function we are adding to Tradesparq is the ability to review customs data for specific buyers or suppliers. Now it will be possible for users to see the feedback received from their network along with data on the buyer and supplier activities with regard to imports and exports. So viewing the actual number of shipments received or sold by a company and how that tracks over time, will serve as an additional point of verification for our users.

I would also like to mention that there are actually a lot of Chinese companies that have been cheated by “so called” overseas buyers as well. For example, a Chinese factory might receive an order from an overseas buyer who pays maybe 30% or 50% on a product up front and refuses to pay the remaining amount after the product has been shipped. It’s well known within the industry that there are a lot of criminals that pose as overseas buyers to try and cheat manufacturers. And I think a lot of this actually goes under-reported in the western media. My personal impression of Chinese suppliers is that that the vast majority of them are honest, out to build their businesses and of course to make money. And so from that standpoint TradeSparq also functions as a way for Chinese suppliers to verify overseas buyers.

How easy was it to start your own business in China?

So obviously starting a business in China isn’t as easy as it would be in the United States. Things tend to be a lot slower and more expensive in China. We first had to set up a parent company in Hong Kong, which turned out to be very easy. Later on we needed to set up a wholly owned foreign enterprise (WOFE), and that’s usually about a four or five-month process. Some of the accounting can be a little bit problematic, but actually its quite easy to find a partner to help you with all of the accounting and reporting issues, and those are relatively inexpensive, say a couple thousand RMB per month, which is simple. And for any entrepreneur, if you view the actual starting of the business, the paperwork, and the hoops that you have to go through to start the business as a major obstacle, then you probably aren’t ready to start the business.

There were also issues with how the workforce and labor markets work differently, but through our previous experiences in China we were already prepared or that.

I would say that there are definitely drawbacks to starting a business in China, but there are also a lot of important elements to what’s happening in China right now which makes growing a business so much easier and simpler. Currently income levels are rising for most people in China at an amazing clip, and growing a business in that environment, as opposed to an environment where there might be 1% or half a percent of GDP growth in a year, it’s two totally different things. Some of the potential difficulties depend on industry as well, but in general there are a lot of reasons to start a business in China that have nothing to do with bureaucracy or filing paperwork, but actually have to do with the market, and those elements can’t be replicated anywhere else.

One interesting thing we faced was the attitude of Chinese people of: “Why are you starting a business in China? You’re a foreigner. You don’t know the Chinese market.” And this actually kind of bothers me a little bit. I think it’s true obviously that as a whole Chinese people are able to understand the market more than foreigners. But to say that foreign companies are not able to succeed in China is absolutely ridiculous.

So I might be sitting in a foreign restaurant with a potential business partner, with German, Japanese and American cars driving by outside, and stores for international brands everywhere. And initially it was a bit shocking to see potential Chinese partners or investors look at us and say “you’re a foreigner, you can’t succeed in this country, because you don’t understand the market.” And all while this guy is sipping on a Starbucks coffee or whatever.

Are foreigners always going to be viewed as outsiders by the Chinese, or can this be overcome?

So what you are talking about is basically: are the Chinese xenophobic? Well to first offer a comparison, from my previous experience in Japan, I know that in that country you’re always a foreigner. I think the Chinese are much more practical, much more welcoming, and I think they are less racist than other countries might be. I have personally heard of many success stories of foreigners who have started their careers or businesses in China and gone very far. The ability to speak the language can also serve as a great advantage because it allows you to understand things at a much deeper level, in terms of the culture, the country and in your relationships. The disadvantages a foreigner might face can become less and less the more fluent you become in the language and the culture. Maybe even then you might still have a small disadvantage, but I think it’s marginal. I think that as long as you are smart in your business, smart in your industry, you know what you’re doing, you’re good at what you do, then you’re going to prosper in China, just like you would anywhere.

Do you have any tips for foreigners on doing business in China?

1) Communicate clear expectations
Over-communicate to the point that everyone is very clear on everything. You shouldn’t walk into any situation, in China or anywhere else, and be disorganized, not know what your product specs are, and not know the industry. Because it doesn’t matter where you are sourcing from, if you are disorganized you’re just asking for issues later on down the road. When working with a Chinese vendor, you need to clearly state your requirements for the project or product. The Chinese are very good at driving product and services based on clear requirements. It’s part of the education and culture. But you have to be specific and make sure you communicate and repeat that information. And if those requirements aren’t met, then you need to pull the plug on the project.

2) Do your homework
When working with Chinese suppliers, do you homework, and don’t leave anything to chance. Get reports on the financial health of the company or supplier. Check as much data as you can. If you can, especially for large orders, visit the factory and watch what they are doing in the factory. When you are doing your test production, make sure that you have an inspection engineer on site that’s testing the product, and make sure that the product is ready, based on that report, for you to make the purchase.

3) Allow your suppliers/partners to profit
I think that the Chinese are very clever business people. And while you need to use your information to get the best deals, profit-wise you also need to leave something on the table for your suppliers. If the supplier isn’t profitable, later on they may decide that they don’t want to do business with you, which means you have to go back and find another supplier from scratch. An unprofitable supplier is also likely to cut corners, and you don’t want them to cut corners on your product. Now how do you know what the right balance is between the supplier being profitable and you meeting your goals? Well the price of the product in the marketplace is what it is, but if they are coming back to you and saying they cant make any money, and that’s legitimate, then you know you’ve cut it too thin. But the other side of that is that they are clever, suppliers are clever and they always want to make more money. So you need to get as many quotes as possible and as much data as possible to find out where the sweet spot is between quality and price, that will allow both your suppliers and you to profit.

4) Respect your employees
Most of the expats that come to Shanghai don’t speak Chinese, and if you are bilingual you can listen to the conversations on both sides, between the western managers and the Chinese workers, and you will often find that there are feelings of frustration on both sides. It’s very difficult for a regular Chinese worker to explain the inner workings of a problem in English at the foreign manager’s level so that he or she can understand. And I think there is a lot of resentment by the Chinese employees – “Why is this guy getting paid so much? Why does he have a car and a driver? Is my contribution to the company 1/20 of what his is? I’m the one battling in the trenches.” At the end of the day if you develop your team correctly in china, then the guys under you will be able to do a lot of your job, if you’re a foreigner. You may be good at setting strategy and what not, but you want those people to be able to do part of your job, because that makes the company more efficient, and it allows you to be able to move on to other things. I guess my point is that in China you have to be really careful with salary related issues, because there is a premium that companies tend to pay for foreigners, and a lot of times that premium may not be completely justified.

Check out TradeSparq online, and visit Brian Hager’s LinkedIn page.

The price of Shanghai license plates is skyrocketing, but can it go on forever? Photo by brad choi

By Lisa Sun

A family friend is selling his old car, an outdated Jinbei minivan with a rotting exterior. It’s a tough sell but for one alluring detail: It comes with a free Hu A (沪A) Shanghai license plate, and this tiny piece of metal has never been more valuable. In the current market, it’s worth more than the van. In fact, it’s worth around $12,000 dollars.

For car owners in Shanghai, the first step to getting legally on the road is deciding what kind of license plate to get. If you get a Hu A, you’re allowed on the highways during rush hour. If you get a Wai Pai (外牌), or a license plate from a different province, you can save a considerable amount of money in the short run, but lose the ability to drive on the highways for four hours each day – two hours before and after work. On these roads, it can certainly cost you your productivity and sanity. A few daring Wai Pai cars do defy the restriction, but if caught, they find themselves with a 200 yuan ticket (about US $32).

So why has the Shanghai license plate become “as precious as gold?” That’s a question best answered by some fun history on local government regulation and Econ 101.

In 1994, the Shanghai government wanted to begin limiting the number of cars on roads to ease congestion. To do this, they introduced an auction system wherein car owners bid for the Shanghai license plates – the auctions are now held on the third Saturday of every month.  You can make three bids at 100 yuan per shot, and the highest bidders get the plates distributed by the local Shanghai government. The business is not insignificant: In 2010, it is estimated that revenue from the auctions amount to 4 billion yuan, or in excess of US $634 million. And despite a lawsuit from a seasoned lawyer, the rambunctious auctions have frenzied on with nobody having a clue where the money goes.

An Investment Opportunity, or a Bubble?

Since the auction’s establishment in the 1990s, average prices of Shanghai license plates have fluctuated from 35,000 (US $5,600) yuan before 2004 to 75,000 yuan (US $12,060) in the past few months. Unlike the Shanghai stock market, which has seen depressed returns, a Shanghai license plate has been considered a smart investment. Some go as far as buying the plate before the car.

Take for example my friend, a Mrs. Chang: She bought a Shanghai license plate when her family moved to Shanghai from northern China. Now three years later, the value of her plate has doubled, according to her. With that success, she has encouraged her coworkers to bid on current auctions, one of whom bid 75,000 yuan in a recent auction and regretted that he bid too low.

The key issue is that while the supply of Shanghai license plates has been determined by the local government’s concern for Shanghai’s environment, the demand from Chinese consumers seeking car ownership have skyrocketed. Many view car ownership as an issue of mianzi (面子) or face, a must-have for coming of age  similar to home ownership. And these budding car owners have mighty purchasing power backed by the thrift of their parents and grandparents who have an entire lifetime of savings to draw upon.

But one should question the exuberance over the astronomically priced Shanghai license plates. For one, if license plate prices get so high, and with more Hu A on the streets every month, the benefit of each additional plate can be expected to diminish. After all, the amount of space on highways is finite, and more often than not the highway is just as congested as the roads below during rush hour. Moreover, existing Shanghai license plate owners have no control over how many plates the government issues, or whether Wai Pai car owners risk breaking the rush hour restriction. And if you add in the speculators who hope to profit from the appreciation of the plates, the actual value of the plate in the long run is quite uncertain – i.e., a bubble.

Would you buy a license plate worth more than gold?

Lisa is a TV director with the China Business Network and a recipient of the China News Award. She has lived in Shanghai for 13 years. 

By Justin Shuttleworth

“Time eases all things.” -Sophocles

Sunrise in Shenzhen – Image courtesy of omiala

I spent four years as a sales manager in mainland China, doing business in some of the largest cities including Beijing, Shanghai, Guangzhou, and Shenzhen. Those four years seemed to sail by very quickly. My company’s primary product was a world-class air purifier and business was good, as anyone who reads today’s China air pollution headlines can imagine. Although time seemed to move quickly when I was over there, in retrospect, quite the opposite was true when I was trying to close an important sale! This phenomenon was most apparent when I was making deals with local Chinese companies. Put simply, the Chinese business community had a different way of valuing time than did their Western counterparts.

“We live in deeds, not years; in thoughts, not breaths; In feelings, not in figures on a dial.” -Phillip James Bailey

Before I elaborate, let’s fast forward to my present life.

Last week I was invited to attend a performance of a local community orchestra. I am not normally fond of amateur ensembles. However, a friend of mine was playing. This friend knew I was partial to classical music. I found it difficult to decline my friend’s earnest invitation so I accepted, despite my hectic schedule. Frankly I was not looking forward to the experience. It had been a busy week and my mind was inundated with tasks left yet unfinished.  I felt I didn’t have time to relax and enjoy.

After I took my seat and exchanged pleasantries with a few people, I immediately reached for my smartphone. I unlocked the phone, peered down at the screen, and saw the dreaded “No Signal” icon. Having few alternatives, I settled in to listen to the concert. For several minutes I shifted uncomfortably on the worn plastic bench. Nevertheless, I made an effort to listen attentively even as my eyes wandered through the junior high school auditorium that had been transformed into a makeshift concert hall.

Perhaps opening the night’s program with a march, the first movement of the English Folk Song Suite by Ralph Vaughn Williams, just added to my sense of anxiousness and agitation, but as the intermezzo My Bonny Boy began, I found myself relaxing. Sometime later, the orchestra attempted the Opening to Beethoven’s VII. No one would claim the orchestra’s performance was particularly sharp. A person could however, observe that the orchestra was putting a lot of effort into their performance. The strain on each musicians face was clear as they were struggled to master the incredibly difficult piece. I found myself caught up in their efforts. By the time the evening’s program was winding down the orchestra’s expressions had changed from strained to merry. The program closed with a piece the group knew very well. Because I had been able to relax and lose myself in the moment, I could hardly remember what my mind was preoccupied with prior to the engagement.

Skyscrapers in Pudong – Image courtesy of omiala

“It has been my observation that most people get ahead during the time that others waste.” -Henry Ford

In the West we treat time as currency.  How many times have you heard, “time is money,” or something similar? Entrepreneurs and leaders of the past such as Henry Ford and Benjamin Franklin have instilled a sense of urgency in our sense of time management, echoing the assembly line of the Industrial Revolution. Every moment we are not pro-actively working on a particular project or task is often viewed as wasted. Multitasking and efficiency are the name of the game and the end is success. This is not to say the Chinese don’t multitask or lack efficiency in any way.  Anyone who has watched the skylines of Beijing or Shanghai mushroom in the last couple decades as a result of the skyrocketing Chinese economy can attest to the real speed at which the Chinese business community can operate once the decision to proceed is made.

“Let every man be master of his time.” -William Shakespeare

It is not how we use time that differentiates Western and Chinese culture and business practices. It is how we value time that often can lead to misunderstandings. In mainland China’s “socialist market economy” or “mixed economy,” personal savings rates often exceed 30% of household income, while in the United States, after years of negative balance sheets, personal savings rates have recently risen to around 3.5%. This fundamental difference in savings and spending habits is carried over into time management practice as well.  In China and other East Asian countries, time is used to cultivate and build relationships like a seed planted for harvest. In the West, on the other hand. we view time as a liquid asset that must flow in order to thrive and grow. Understanding this difference is key to creating a mutually beneficial business arrangement.

The reasons for the methodical and often time-consuming decision process within many state-owned and privately-owned Chinese firms are as diverse as the 56 distinct minority groups and 1.4 billion people who inhabit the People’s Republic of China.  For millennia, Confucian, Taoist, and Buddhist traditions have all taught the virtues of patience and considerate thought. More recent history also has an influence: after the devastation of years of protracted instability and civil conflict culminating in World War II, mainland China would struggle for the next thirty years just to feed and clothe its people. Therefore, any hasty decision made with family or business finances not only risked capital but could have had much more grim implications. These lessons are never far from the minds of the older generation in mainland China, and it is these same men and women who are typically in charge of making decisions.

Apple Store in China – Image courtesy of omiala

“Time is a river which sweeps me along, but I am the river; it is a tiger which destroys me, but I am the tiger; it is a fire which consumes me, but I am the fire.” –Jorge Luis Borges

Therefore, my advice to any Westerner seeking to close a deal in mainland China is as follows: Doing business with the Chinese business community is far more akin to a marathon than a dash. The race can often seem as long and slow as the Yangtze River, but this is what separates the professionals from the amateurs: true champions know how to pace themselves in order to achieve their goals.

Justin lived and worked in the Middle Kingdom from 2006 to 2010 as a sales manager for a high-end Western brand, doing business in some of the largest cities including Beijing, Shanghai, Guangzhou, and Shenzhen.

Learn the basics of Chinese characters en route on your next long-distance flight

By Aaron Posehn

If you’re someone who’s been to China on a business trip or tour, or even if you’re someone who has been to your local Chinatown, you surely have had your senses bombarded with signs and papers and menus all written in Chinese characters.

It can get confusing, not to mention tiring (at least that’s how I used to feel). You feel like you’re in a strange new world that needs navigation, and there’s is no way for it to be done. Sure, you could get a guide or a friend to help you out (as you probably did), but this still doesn’t leave you with any feeling of control. You’re left at the mercy of those around you, and while they likely aren’t out to do you wrong, wouldn’t it be nice if you even sort of knew what you were seeing?

I recently wrote an eBook to help people remedy just this problem – the problem of being in a new place and not knowing which way is up! “chinEASE” shows the reader how to navigate through Chinese characters, starting you with the most simple and taking you right on through reading menus and business cards.

These last two activities are especially important for those doing business in China. The number of dinners, big or small, that you have already been to in China is probably startling. Perhaps they had a set menu, but you’ll surely also find yourself in smaller restaurants around town in between. Most wait staff don’t speak English, and while you could point at the pictures, wouldn’t it be nice to actually know what those pictures are made up of before you take a bite?

Or perhaps you’re going to larger banquets, which can also happen often depending on who is courting you. The exchange of business cards is inevitable, and you’ll likely receive a small book’s worth of them by the time your trip is over.

Knowing how to understand what’s written on a client’s business card would be an invaluable skill. What’s their family name? What’s the company they work for? What’s their position in said company? How seriously should you take them for a useful contact? (i.e., what can they actually do for you?)

Case in point: A few months ago, my boss took a five-week trip to China. She had no knowledge of Chinese, so I thought that I would give her this 141-page eBook on how to understand Chinese characters.

Upon returning, she said she had read it on the plane over there and was extraordinarily grateful she didn’t have to spend weeks and weeks being escorted everywhere like a small child. She said her trip was much easier as she could now get some sense of what she was seeing around her.

It’s this type of increased communication and understanding that I’ve tried to present in this book. Chinese characters are not a thing to learn in one day, but this book shows you how to get a solid grasp on them in little more than an afternoon. And for someone with a busy schedule like most of you out there, it’s sure to provide you with a leg up the next time you travel to China.

Get your copy of “chinEASE” today!

Aaron Posehn graduated of the University of British Columbia majoring in Asian Area Studies
and specializing in China, Taiwan, and India. He is currently finishing work on “chinEASE,” an eBook that teaches beginners how to easily learn Chinese characters.