About China

How China is Different

Doing Business in China is totally different.

• As indicated in the Home Page, the idea that “Business is for Mutual benefit” is central to the Chinese manner of thinking.
   
• Relationships and trust are at the heart of what the Chinese call Guanxi.
   
• Contacts: Much, if not most of industry, including banking and financial services is state controlled and, by definition, bureaucratic. Contacts, which are based on personal relationships are, therefore, not just considerably more important than the “Old Boy Network” in Europe, but are crucial, and are the key to success. Being introduced to the Principal Players by someone they know either personally, or by repute, is the sure way to success. However, in the same way as Westerners would say that Rights and Obligations are two sides of the same coin, so too is the obligation to behave honourably when introduced personally in China.
   
• Building personal relationships comes first and the commercial side will follow.
   
• Time. The Chinese concept of time is utterly different to that in the West. Short term (national) planning could be 25 years or more. Business deadlines are easier to set in the West, if only because Chief Executives have the power, indeed the obligation, to set them… gain business, increase market share, increase profits and pay dividends. Things are done differently in China. There is much consultation. The Chinese are more Group Oriented than individualistic. Opinions are rarely given without being asked for. “Face” is at stake. Business discussions, therefore, usually take more time than in other areas of the world.
   

• Contracts: A Western/Foreign business man is often under pressure not to return home without a signed contract. The Chinese side understands this and might offer to, or even sign a contract. However, they will have seen the meetings as a Get To Know You opportunity, and the contract signed at this stage is, to them, a signal of intent…… and not necessarily a fait accompli.

  Historically, contracts were, and often still are, largely a matter of honour between parties, and not viewed as a legal matter. Historically relationships and the loss of “Face” were more important than a written contract. It remains so.

  While times are changing, it is better to understand the historical, and deeply ingrained pattern of business, based on relationships.

  A contract, especially what Westerners/Foreigners would produce automatically, i.e. a Non Disclosure Agreement (NDA), is often seen as irrelevant, and could be construed as indicating a lack of faith, or trust in the Chinese partner. It also implies that the party asking for a signature on an NDA is somehow superior to the Chinese counterpart, again causing a loss of “Face”. NDAs are rarely signed in China, and only in exceptional cases are they signed in advance of seeing what is on offer.
   

• Intermediaries: Chinese language, and especially the written word are often mysteries to the Western/Foreign mind. So too are the cultural complexities. They are rarely mastered by outsiders.

  It is crucial, therefore, to have a Chinese presence… an ally, a friend in court, so to speak. YPIC, through it’s network of consultants under the control of Mr Sun Jianmin can fill this role admirably.
   

• Common Mistake: Western companies often include a person of Chinese extraction (Foreign Chinese) on the team to meet potential partners. This is usually because they speak Chinese. However, a Foreign National is accorded more importance and status than even a high ranking Foreign Chinese. This is because they are not considered truly Chinese and are therefore not to be trusted. For a company to allow such a non native Chinese to have a leading role in discussions, or even to make presentations, is a serious mistake of protocol.

Overseas visitors: The fact that companies make the effort to travel to China is seen as indicating serious intent on the part of these companies.

The ideal scenario is to use a local ally to deal with all local issues, while the visiting team should have decision makers on it, and not have to refer everything back to head Office for approval.

Formal meetings, in general, have people of equal status attending from both sides.

Pressure: Be aware that the Chinese party knows their strengths. They realize the value of their purchasing power, and they know that you don’t want to go away empty handed. They will apply pressure in their negotiations, especially because they know that for most companies a trip to China is expensive; it is a long way away; it is not easy to organize etc.

Once you understand this, you can be prepared, mentally, to walk away and return again as necessary.

Pricing: In most instances, and there are exceptions, the cost of goods in China is not as high as those which can be obtained elsewhere. This is because of the low manufacturing cost base in China.

As the Chinese currency, the yuan, or Renminbi, is tied to a basket of currencies, but is predominantly linked to the US dollar, exporting to China is currently difficult, while importing from there is relatively cheaper.

Disposable income in China is lower, so retail prices must be lower.

Depending on the product, this might be an incentive to enter a Joint Venture to manufacture locally for the domestic Chinese market, or to licence a local manufacturer.

The Up Side is that the increase in volume of sales will help to lower your manufactured cost, which will increase your margin in other markets. While you get a smaller margin on sales in China, it is on a much higher volume.

Summary:

• There is business to be obtained in China.
• Be aware of local differences in terms of culture; sense of time; sense of national importance; understanding of personal relationships and most especially in terms of the person who is introducing you.
• Be prepared for several/many visits depending on product/service.
• Be prepared for hard bargaining.
• Be prepared to give long and detailed presentations and to answer very blunt questions.
• Be prepared to have unique experiences of friendship, culture, magnificent dining opportunities, and of course, tourist activities.
• Be prepared to enter long term, mutually beneficial business and personal relationships.
• Interested? Go to the YPIC Enquiry form and contact us now. It could be the best decision you make today.

China's Priority Requirements

The phenomenal success of the Chinese economy over the past decade has created some infrastructural problems which need to be, and are being addressed urgently.

Among these needs is an almost insatiable demand for energy, much of which is imported. This demand is contributing, for example, to the current high price of oil.

Electricity demand for 2005 is expected to be 12% above that of 2004, which in turn was 14.8% above 2003.

Mr Chai Songyue, President of China Power Regulatory Commission is reported in the Irish Times of 28th March 2005 as saying that demand for electricity would be as high as 2.422 Trillion kilowatt-hours in 2005. To meet this demand China is commissioning the equivalent of a 2,500 megawatt power station every two weeks.

Opportunities exist, as a matter of national priority, for:-

• Energy saving technology, specifically as it applies to high energy users such as steel mills; cement factories; aluminium smelters etc.

• Technology for renewable energy, i.e. for wind farms or wave generation of electricity.

• Technology for Water conservation and especially recycling.

YPIC have identified a specific and urgent niche for technology to recycle and clean waste water from steel mills and would especially welcome enquiries from companies capable of providing this technology.