Cultural Insights on Doing Business in China

Concepts of "face" and "trust" are just the beginning

1998 Volume 1 Issue 2

You have heard the siren call of business in China. The President’s recent trip, with all the associated stories, raised your awareness of opportunities there. The photographs show modern cities with high-rise buildings, busy airports, golf courses, and beautiful scenery. There are logos of well-known American companies juxtaposed with just enough of the ancient and “different” to lend some sense of the exotic. There are even lists of Chinese companies that have projects for which they are seeking outside partners.

So you begin your homework. You investigate the availability of land and buildings and the possibility of special enterprise zones. Then you check on the necessary infrastructure to support your needs — energy, transportation, and communication. You learn about the tax and accounting laws; determine whether your business is one of those favored by the government with special rates on property use and taxes; decide whether you would be better off doing a joint venture or owning your own business there. You investigate the labor supply, labor laws, even the health care system. You even evaluate the likely impact of the financial crisis in Asia on your project, and figure out how to repatriate your profits.

Everything points to a good investment opportunity. The numbers are positive. The reactions to your initial inquiries are promising. But if you stop your homework there, you may be headed for trouble. For an American investigating a joint venture with a Canadian company, this amount of “due diligence” might be sufficient; but for doing business in China, it may not. The hidden obstacles of tradition, social structure, and thought patterns require extensive, time-consuming experience to overcome.

Understanding the Culture

Culture might be described as the complex pattern of living that humans develop and pass on from one generation to the next. It encompasses the norms and values of a society, including appropriate ways to treat one another. It defines the natural world and human nature. It establishes our assumptions and creates the world “taken for granted.”

The more similar one’s own culture is to another in history, language, religion, and even geography, the less difficult it is to work in that society. Even within a single nation there are regional, class, ethnic, and religious differences that may lead to misunderstandings. But when societies differ on most of these characteristics and have had minimal contact with each other, the potential for misunderstanding grows exponentially. For most Americans doing business in China, this potential is very high. In fact, you can be certain that there will be innumerable, unforeseen challenges, even when there is an honest effort to learn about and understand China and its people.

An American goes to China to arrange a business deal. The scenario is all too common. A Sino-American transaction is contemplated, negotiated, and, seemingly, consummated. Everything seems to be going well. Then suddenly the unanticipated comes “out of the blue.” The Chinese partner negates his promise or fails to do what he said he would do when he said he would do it. Trust, now shattered, is replaced by the downward spiral of a lost opportunity. This disappointment is repeated myriad times every business day. It is usually not expected; it should be. At the conception of each stillborn failure is an American’s ignorance of Chinese culture and the multiplex of paradigms that control and direct all behavior in the land of Confucius and Tian’an men Square.

Ideally, someone contemplating a significant venture in China should spend time there to learn their approach to life and business. Reading about the country, watching films and videos, talking with other Americans who have spent time doing business there, spending time with Chinese nationals who are visiting or have moved to this country, are all helpful activities, but they cannot replicate the benefit that comes from on-site immersion. Explaining a culture to the uninitiated in words alone is very difficult. It is rather like explaining what an avocado tastes like to someone who has never eaten one. You can use analogies and adjectives, but your effort will be fruitless. Similarly, you need to experience a culture to understand it.

By way of example, consider the concept of “saving face.” Most Americans are aware of its importance, but ignorant of its meaning. They assume that it connotes not embarrassing their counterparts in public situations. But this is merely simple courtesy. And unfailing courtesy is appropriate behavior in every social setting; it is not unique to China.

In China, face is a complex reality that incorporates the concept of trust. In the West, trust suggests that “I can rely on what you say.” But in the Chinese culture, if you are someone I can trust, it means that you will protect my feelings with my family and friends whom you will never even meet. You will enhance my pride when I return home. You will not do, say, or be something that would cause embarrassment to me, or indirectly, to them. How can you protect someone’s feelings with people whom you don’t even know? Learning about the culture helps. It is the first step in anticipating the problems and challenges of doing business in China.

Five Insights

Having absorbed the meaning and importance of “face” and “trust,” it will help you understand the complexity of Chinese behavior if you consider that their decisions are guided by five concurrent, seemingly contradictory, realities. Keep them ever in your mind. The Chinese do.

  1. First, China is a Confucian society. Dating back to 500 BC, this pragmatic set of social rules permeates their every behavior. It seems, at times, that it must surely be genetic. Filial loyalty, courtesy, and diligence are values not dissimilar to Western culture. Indeed, the “Golden Rule” was first proposed by Confucius as the concept of “Li.” Similarly, the value placed on education, on hard work, integrity, modesty, patience, and perseverance are similar to what Max Weber described as the Protestant Ethic, values which resonate in American culture today.

    It is very easy, therefore, for Americans to infer from this commonality of values that the two cultures share a worldview. Not so. The fact that some values and norms are shared does not mean that they are based on the same rationale, or that they will dominate behavior in every case.

    Indeed, some Confucian teachings are at odds with western values. Confucius taught that stability in society is based on unequal relations between people, while Americans hold equality to be a virtue. Where Americans stress individualism, the Confucian teachings stress the importance of the family as prototypical of how society should be organized, a family in which children are taught to restrain their individuality so as to maintain harmony in the family, at least on the surface.

  2. Second, China is also a Stalinist-Leninist-Maoist society. It is a unique brand of socialism. While they have a history of entrepreneurial activity and may speak of market principles, it should not be assumed that their view of the market is the same as that of western capitalism.

    This Chinese socialist philosophy is completely alien to Confucianism, and yet the Chinese people live with this dumbfounding contradiction. In fact, not only do they hold these two major philosophies in tension, about 80 percent also claim to be Buddhist and 75 percent would additionally consider themselves Taoists. Given their ability to synthesize, or at least concurrently hold, such incompatible philosophies, the Chinese find it difficult to understand how ideological differences can be so divisive in other societies. It makes no sense to them, for instance, that Protestants and Catholics should feud when both practice the same religion.

  3. Chinese foreign policy is driven by real politik. Asia, and especially Southeast Asia, is their sphere of influence. It is a view similar to the 19th century U.S. commitment to Manifest Destiny in the American West. It is their destiny to dominate this area, and they do not take kindly, or lightly, to outsiders telling them how to behave within their sphere of influence. To them, human rights of their citizens, the plight of Tibetans, and the use of prison labor, are, simply, none of our business.
  4. China is a developing economy that requires enormous change. The Chinese society is in the process of a dramatic and painful metamorphous. They have the daunting task of feeding over a billion people every day, and this must be the first priority. Given this short-run reality, the long-run and simultaneous need to grow the economy and visibly increase the standard of living is an overwhelming challenge by any standard. They cannot afford the luxury of failed economic experiments. Their focus must be at once on survival and growth. It requires a mindset fundamentally different than ours.
  5. To confuse the untutored mind even more, is the often — and officially — ignored fact that China is not a single linguistic or cultural society. The People’s Republic represents more than 15 language and cultural groups that have somehow, often by force, learned to live with each other far more cohesively than the similarly diverse cultures of Europe. While most of the language groups can read written Chinese, they cannot necessarily understand each other’s spoken languages. Because the written language is ideographic rather than phonetic, non-Mandarin Chinese can understand a character’s meaning without having a clue as to how it may be spoken 100 miles away. These are not dialects of the same language, although each of the different languages may have dialects within it. They are different languages that are as remote from each other as French and German. Since culture is primarily linguistically based and transmitted, each language group has a somewhat different cultural bias, adding further to the confusion. An American planning to do business in China should take note of these differences, giving special attention to the area where he or she plans to operate.

In summary, remember that a trustworthy, personal relationship must precede any successful Sino-American transaction. Focus on protecting your counterpart’s feelings with the family and friends that you will never meet. Read. Speak with at least three Americans who have done business in China. Ask what mistakes they have made and how they resolved them.

By the way, before you visit China, investigate what your Chinese associates would consider appropriate gifts and keep an inventory of them to continually express your appreciation. Then, “be square.” (It’s an attitude.) Finally, there is no alternative to unfailing courtesy.

About the Author(s)

L. Wayne Gertmenian, PhD