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Path: Sourcing News & Advice
>> Import from
China Advice >> Is it still worth it to do
business in China? Part 3 -- Myths about the new China economy

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Is it still worth it to do business in China? Part 3 --
Myths about the new China economy

Posted: September 10, 2014

by Andrew Hupert

Last
week we talked about China realities. The ultimate conclusion was that
while the Chinese business environment isn’t fair, it’s still the best game in
town in terms of growth and opportunity. As a China negotiator and
decision-maker, you have to decide early – go all in or get completely out for
good. China is a terrible place for half-measures.

Two types of China myths. China bear and
Chinapologists.

Chinapologists are the China experts who support
and spread the orthodox China party line. You can usually spot them because
they tend to preface every statement with, “I’m not supporting the Chinese party
line but…” and then they proceed to do so. When a Chinese person does this it’s
pretty easy to spot them as either 50
Cent Army (paid posters on online chat and BBS sites, who are alleged paid half
a mao – or fifty cents – for each pro-government entry) or direct
beneficiaries of Chinese policy. It has become common for Westerners living in
China for a long time or hoping to curry favor with bureaucrats or officials to
actively defend Chinese policies that many Westerners consider unfair or
discriminatory. Sometimes these Chinapologists feel they are winning points
with decision-makers who will soon repay the favor; sometimes they got to this
position via a slippery slope of defending elements of Chinese business or
society that they genuinely believe in- but ended up completely in the China
camp; and sometimes they are merely mouthing politically correct positions in
public while take a much more realistic stance in private or with paying
customers. However they may have come to act as apologists for the Chinese
bureaucracy, their arguments usually fall into one of three main categories:

The Chinese business environment is a fair game and all private
firms – Chinese as well as Western – face the same set of laws and
policies. “Things have changed in China,” you will hear, “and now there is
rule of law. All firms are subject to the same regulations, and the Western
firms you read about running into trouble are all, in fact, guilty.” While
this isn’t factually wrong, it is extremely unrealistic and misleading. The
key is how the bureaucracy chooses to enforce the existing laws – both in
terms of who gets targeted and how they are prosecuted. Western companies
like Apple, Samsung and Mercedes are portrayed as enemies of the people in the
state media apparatus – complete with prime time news reports, commentary, and
even televised coerced apologies. It has become accepted fact (or at
least a well-publicized concern that enforcement of commercial laws is highly
politicized – with Western firms being cast in the role of “enemy of the
Chinese people”.

China is justified in pursuing high-profile, deep-pocketed
multinationals because it is the only way to level the playing field,
enable Chinese firms to climb the technology ladder, and ensure the future
prosperity of the Chinese people.

Other governments are even worse to A) their own businesses and/or
B) foreign firms in general and/or C) the Chinese in particular. Examples are
cited – the treatment of Huawei in the US market, restrictions on the sale of
dual-use technology, CFIUS enforcements, WTO anti-dumping charges and
allegations of a pervasive anti-Chinese bias in Western society. While these
charges aren’t necessarily all baseless, they are simply irrelevant.
Unfortunately, shifting blame and looking for even bigger faults elsewhere has
become a global phenomenon that is rapidly replacing logic and rational
thought.

The Chinapologist route leads to bad decisions.
You end up trusting the wrong people, falling down the Guanxi rabbit hole, and
giving up real assets now for the vague possibility of repayment latter.
Chinapologist logic makes Western negotiators too conciliatory, appeasing, and
accommodating. You sacrifice too much and get nothing in return.

The China Bears.

The problem with China bear arguments is that
there are elements of truth to the individual parts, but the unified story flies
in the face of reality and common sense. The bears want you to believe that
China is an unsound business decision. They will tell you that China is on the
verge of macro-collapse, that Western companies can’t make money in China, and
that the Chinese people have a deep seated hatred of foreigners. You can find
specific instances to support all of these theories – but taken as a general set
of rules for basing business decisions, they are just ludicrous.

China bears have three basic
arguments.

China Inc. never gives a white guy an even break. The main problem
with this argument – that non-Chinese firms can’t succeed in China – that that
the empirical evidence points to the opposite case. International companies –
Microsoft, Mercedes, and Toyota are getting into trouble because they are
making too much money. One of the big threats facing Western firms in China
is the ALM – Anti Monopoly Law and claims of price-gauging. Chinese markets
tend to be quite accepting of foreign brands – often assuming that the quality
and safety levels are higher than locally-produced competitors.

Chinese business has such a huge structural advantage because of
adverse regulation and enforcement that it’s pointless to even try. While
Chinese firms have come on strong as major competitors in the last two
decades, that probably has more to do with commercial factors than regulatory
causes – at least for now. The international companies have made it big in
China are the ones reinvesting and growing – and that simply wouldn’t be the
case if they felt the structural impediments were insurmountable. Adverse
regulations tends to be a macro-issue that weakens the hand of Western firms
in general, but doesn’t seem to be making individual Chinese firms any more
competitive in the long term. In fact, there are strong reasons to think that
government interference designed to hamstring Western competitors is going to
hamper Chinese firms’ ability to make themselves more competitive.

China is about to collapse anyway, so even if you do well in the
China market, a slack tide lowers all boats. China bears still love this
argument, even though their patron saints like Gordon Chang and Nouriel
Roubini have quietly edged away from past years’ calls for the Chinese economy
to implode. It may happen, but the same logic applies to the US, the EU,
Japan, Brazil, Russia, etc.

The danger of listening to China bears is that,
just like the Chinapologists, they lead you to make terrible business decisions.
The bears are more insidious, however, because their advice is couched in
traditional risk-management language. The bears will convince you to take
half-measures, follow inappropriate Western best practices, and destroy trust
with defensive contracts and bad HR policies. These are the lawyers and the
gloom & doom pundits who will make you so concerned about protecting
yourself against downside risk that you close yourself off from the possibility
of unlocking opportunity

You’ll end up starting – and walking away from –
businesses that more committed competitors will exploit and grow.

Defense –
Listen to the lawyers, but also listen to the marketing department. Weigh the
possible risks against real opportunities. Avoid half steps and limited
investment that only end up with you training your own competition.

Bottom Line – China eats bears, but once you
start kowtowing in China it becomes your established role. As in most other
places, extremist views make for easy sound bites but terrible decisions. Check
your business plan and executive team to make sure you are getting a balanced
view – and making decisions based on long term goals and real-time assessment
about the business environment.

Andrew
Hupert runs ChinaSolved.com, an online
platform that helps the international business community achieve greater success
when doing business in China. He also writes ChineseNegotiation.com.
He can be reached at [email-masked].

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