Learn how to play in China from 20 years of experience
“The thing I hear all the time is “you’ve seen a lot of change in China”. But what’s most important to take away from my 20 years in China is that not that much has changed, fundamentally.”
Peter Alexander, Managing Director, Z-Ben Advisors, opened this session at FundForum on his two decades in China with this rather surprising statement. Since moving to Shanghai in 1996, Peter said he had learned a lot about the country. Despite everything, he said, things had not changed too much in terms of the way things are done there. “The Chinese have this great saying, “5,000 years of history”. It’s been the same day, every day, for 5,000 years. It’s not good or bad. It’s just how the Chinese operate.”
Peter then talked about another Chinese concept people often placed great emphasis on, ‘Guanxi’, roughly translated as connections or relationships. “It’s nonsense. First of all, London, New York, Paris, Frankfurt – it’s all the same. You know people, you went to school with people. China is no different. Guanxi is just something that people like to throw around. What’s critical to know is it’s only going to get you a meeting, it’s not going to get you business.”
Instead, he said, success in China is now far more determined by the quality traits of your organisation. “You need to come in with a value proposition. Whether its price or quality or service, whatever the case may be.”
Peter went on to outline three key lessons he had learned. First, he quoted Anthony Bolton who famously said “The Chinese are great liars” explaining that this was not a derogatory statement but one based on experience. “The Chinese do not operate in the same Judeo-Christian ethos. They’re not liars. It’s a negotiating tactic. It’s understood that there is a dance that goes on. This is one element of it. Consider the Chinese point of view, not just your own.”
The second lesson was reciprocity at all times: understanding how the Chinese operate and playing the same game. “In China they’re going to make you drink more baijiu than any human can possibly drink, on purpose. It’s a negotiating tactic,” Peter said. “So when they travel to see you in London or New York or wherever, take them out to the most typical place for local food. And if you’re in Frankfurt let them drink beer and then more beer. Play the Chinese by the Chinese rulebook.”
The third lesson, Peter explained, was humility at all costs. “If you can be humble, it’ll be worthwhile. This is the truest statement I can make about attaining success here over the last 20 years.”
After three lessons, Peter said he had three pieces of advice for people to take away with them if they were considering doing business in China:
- Understand that you are battling confirmation basis on a daily basis. It is never ending. Whatever you think of China there is evidence to support it. “If you think China is bad you will find information and analysis to support that. If you think China’s good, you’ll find the same thing. Forget about the noise,” said Peter.
- Legal advice is not enough. What is ‘maybe’? Regulatory arbitrage requires multiple points of input. “A lot of firms have stumbled because they have only taken legal advice that has resulted in ‘maybe’,” he said. “You need as much information and business opinion as possible.”
- Institutions move at a glacial pace. China does not. Don’t hurry, but to succeed you do need to be quick. “If you look at the opportunities presented over the last 5 years, they’re closed,” said Peter. You’re going to have to get your organisation to take action and they’re going to have to do with incomplete information.”
To conclude, Peter said those thinking about doing business in China should ask themselves a question. “How comfortable are you being uncomfortable? Post the financial crisis many people say they have zero tolerance for discomfort but you’re not going to do much in China is that’s your choice.”
Finally, he said, remember that China often turns out to be the opposite of what people expect. “The rule book on China is thin. It’s is the easiest place on earth to do business.”
