Silk Road International Blog

A couple of really good articles that indirectly have some significance for business in China.

First, of course, if you didn’t know, gas prices in China just went up 18%; but they are still relatively lower than the EU or the US because of remaining government subsidies.  While the domestic consumer market is not expected to revolt, the impact to prices for everything manufactured here is going to go up.  In addition, if you’re working inland and you have to truck in either materials from other provinces or you have to truck product out to a sea port your through-port costs just went up.  By the way, the fact that 18% increase in gas prices is not expected to cause massive revolts nation wide gives you an idea of how “non-Chinese” the big East-coast cities are—meaning you see photos of Beijing, Shanghai, Guangzhou, Shenzhen, and Hong Kong, but these really aren’t the “reality” for most Chinese.

Second, why being polite is more than just an 0lympic trend.  This article explains very clearly the business environment that most Chinese are familiar with—close personal, inter-provincial relationships.  Historically there has been very little movement between provinces (hence the hundreds of regional dialects).  What this had bred in addition to language variations is both a mistrust for other (Chinese people from other provinces) and an real inability to communicate with strangers on personal level.

If you’ve worked in a factory for any length of time at all you probably noticed the province and regional cliques among the workers.  These are not just for convenience in communicating or because they like the same foods.  But there is a tangible mistrust for “others” that these groups guard against.  When things go bad, when bad news is shown on TV, when someone tells of getting ripped off, one of the first things that happens is people are “stereo-typed” by where the perpetrator was from.  “All Funan people are just like so and so,” or “All Hong Kong people are such and such.”  It can get down right nasty and racist (can you be racist within your own ethnic group?).  Certainly this is not unique to China, but since most foreigners don’t speak Chinese and have a hard time telling the difference between the various Asian ethnicities it blurs the degree to which this happens.  This happens all over Asia (and everywhere else too, I know)—every province in China looks down on some other one, none of the other Chinese like people from Shanghai, Taiwanese in the North look down on their Southern “country” cousins, Thai’s look down on the Lao, Cambodian and their own Esean (northeastern) neighbors.

Quick comedic sidebar.  This is the one and only episode of King of the Hill I’ve ever seen.  My brother showed it to me once after I told him about one of my trips to Laos.

Quotes from “Westie Side Story.” Written by Jonathan Aibel & Greg Berger, Directed by Brian Sheesley.

BILL: They look Japanese.
DALE: Nope. I think they’re Chinese.
BILL: How can you tell?
DALE: Japanese guys usually have glasses and a suit and a tie, and stuff like that.

BOOMHAUER: Yeah, man, them Chinese, man, you can’t understand a dang-ol’ word they say, man, just try, dang ol’ whole upside-down and whatnot.

HANK: So, are you Chinese or Japanese?
KAHN: I live in California last twenty years, but first come from Laos.
HANK: Huh?
KAHN: Laos. We Laotian.
BILL: The ocean? What ocean?
KAHN: We are Laotian. From Laos, stupid! It’s a landlocked country in Southeast Asia. It’s between Vietnam and Thailand, okay? Population 4.7 million.

HANK: So, are you Chinese or Japanese?

OK, so what does this little anthropological foray have to do with business? Specifically, it means that if you are working in Jiangsu and you have someone from Jiangsu you’ll get more attention and probably better pricing.  If you are working in Guangzhou and your project manager speaks Cantonese you’ll get much more of what’s going on that if you rely solely on Mandarin.  If you are foreigner working with (any) Chinese the affect is magnified.  So does this mean that you need to hire a person for each province where you are working?  Yea, it probably does.  And why not?  If you are going hundreds of thousands of dollars of business in Guangzhou but your office is a mandarin only office in Shanghai you might want to rethink you positioning.  Ditto for a Shenzhen based Cantonese speaking office doing work in Ningbo and Jiangsu.  If you are moving into China’s second and third tier cities you’d better really study your positioning before you move.

I double-checked this article’s theory with my resident Chinese expert (my Chinese wife) and she agreed and volunteered a few of my Chinese cultural missteps as examples (so helpful).  She says that when we first got married that I said “please” and “thank you” so much to my in-laws that they thought I didn’t like them!!   In Chinese society, the more polite you are to people the larger the relative social distance.  She says they understand now that I’m being police because I do like them, not the opposite.  She also pointed out that I am way too polite to line workers and office employees.  I try to always proceed a request for work with a “please” and end all emails and most conversations with a “thanks.”  Managers/Owners just don’t talk like that to people on lower economic/professional/educational/social levels.  It not only is contextually not appreciated by the thanked parties, it can also be misinterpreted to mean more than was intended.

Finally, I was sent a map of Chinese development that I really liked.  I don’t agree with all the analysis and there are some cities that are now expanding the edge of the “west coast” of the Isle of China (reclaimed land?), but it’s a very visual way to express the relative development of China.

Tags: Business, China, Culture by david
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More events today and some more on yesterday’s hullabaloo.

The landlords were all agitated about the upcoming destruction of the fishpond scheduled for today. We planned to stand arm in arm, old people in front, women second and men in the back (seriously). They called as many papers as they had numbers for. We waited, some police showed up and then left for lunch. It rained and everyone went home. A few hours later, totally unnoticed, the fishpond was torn out. Not a policeman or complaining landlord in sight. Yea, pretty anticlimactic to be sure.

Now more from yesterday (the action!).

Before the police showed up at the front gate they showed up at the complex’s security office. They turned off all the cameras, all the external power and removed all the (privately employed) security guards from the offices. According to the guards they pushed, dragged and otherwise bullied the guards out of the offices by force. The previously not-so-helpful security guards have been great for the last 24 hours–even giving us video of the police that they took from security stations on the roofs and gardens of the complex.

After the police left about 12 noon all was quite. But the landlords here had a series of meetings to determine what to do next. They came up with a couple of options. One, flood the media with the news–problem is, no reporters in SZ really wants to touch it and foreign papers aren’t interested until there is blood in the water. So…I’ll keep posting here. Option two is to petition the government each and every day with the maximum allowed “group” of 5 people. (That’s right. Groups of more than 5 people are illegal–so watch out next time you have a NBA Finals/World Cup/Super Bowl party in your living room.) Since these two strategies have help us so much so far, I’m not holding my breath.

I have to admit that the government knows how to kow people into submission–this is has been practiced into a fine art. Incremental encroachment and unpublicized events are a great way to keep most people out of the loop. Having major events in the middle of the work week and surrounded by (massive) police presence insures that the fewest possible people will be around and those that are will not dare to do much if anything.

They were very systematic in advancing (edited verb here) on the complex too. They blocked roads that were only internal to external access, they dug up roads in specific locations to make sure that no one from the outside could get in, they fenced off more area then they previously said they needed and made sure to pad-lock gates, they parked all the trucks in the only remaining access road, and posted scores of police at each of the four gates.

The show of force yesterday did exactly what it was supposed to do–get people out of the way for the real dirty work today (and in the days to come). But seeing it logically doesn’t make it any easier to deal with. I’m still a bit tee’d off that they would send that many police and surround the complex–apparently they had dogs too. There is a nursery school and hundreds of families (with kids and grandparents) living here. Did they really need to be that intimidating to people who have very few if any options for retaliation?

The good news is that the guys who where arrested yesterday AM were released with out a charge against them yesterday afternoon. No surprise and it confirms what I thought about yesterday–arresting a foreigner (for nothing) would probably do more (PR) harm then good.

Calls to two well-known and experienced law firms again proved fruitless as each of them basically said: if the local lawyers and reporters won’t touch this, you’re probably SOL. One went so far as to say that SZ is not nearly as, um, law-abiding as Shanghai or Beijing and we should probably be careful about making too much noise.

Now some joe-on-the-street analysis.

1. The police that showed up today were much less interested in arresting people and even offered to help make a small gate in the wall. Not compensation by any means but clearly new directions from above. For the demolition of the fishpond (scheduled for today) they only sent 5-10 policemen too. They even brought an engineer who coordinated the (cosmetic) adjustment of some fences to make it easier for people to walk to the market. The benevolent dictator–once the peons are in their place gifts from above excuse the prior cruelty.

2. Chinese know the rules for group engagement with the police. It’s a coordinated dance, much like negotiations between countries and even companies, with give and take and specific lines and roles that are to be respected and followed. For example, yelling at police is fine, as long as you also do what they ask. The police pushing people out of the way is what happens, but abusing people is going too far. Taking photos of groups is one thing, but singling out individuals is specifically forbidden (anonymity in China comes in being part of a group).

The more I think about this the more I realize that this is learned group behavior that you don’t get in reading books about China. In the few confrontations that I’ve been in in China I’ve realized after each one that there were rules and that I usually had crossed the (invisible) line at some point without noticing it. Some times people have pointed it out to me later. Other times, like yesterday, I realize that I’m the only one standing in the middle of the street.

3. Chinese groups still respect seniority over good ideas.

4. It was very interesting to hear people talk about the distinction between the government and the ‘bad’ individuals that were causing the problems. The group singled out most often was the police–but it was as if the Chinese were more disappointed than angry that they, as protectors of the people, would condescend to being used as thugs for ‘corrupt officials.’ I was more than a little surprised by this selective attitude–and it certainly was not held by all in the meetings. Indeed more than a few of the people in attendance were not nearly so willing to give the “government” a free ride.

5. As a foreigner, I was given an inordinate amount of respect. This is something that was unexpected. Sure Chinese are usually very polite, but in a situation like this would a “foreigner” in the EU or US be treated “special?” No way. Mostly because you can’t tell who’s foreign like you can here–I was the ONLY non-Chinese in a group of 4-500 people. I stood out a bit.

6. I don’t know how to protest in China and really don’t want to lose my ability to do business here. I hope that there isn’t an update on this topic sometime later this year.

7. Police coming and going all day–more than a bit unnerving. Have you ever been surrounded by hundreds of police? Have you ever walked back to your house and seen, around the corner another 50-100 policemen hiding in the bushes? The fact that people are more powerful that laws here makes the presence of police even more scary. The power play worked, it rattled a lot of people.

8. People are angry about two things. First that what was done was not “fair” or legal. This is in my mind the legitimate reason for complaining-illegal, that is. Not unfair. There is a legal clause in the Chinese constitution that gives private people the right to own property. There is also a clause for eminent domain, but there is legal precedent and other laws that give people rights here in China.

The second thing is that there isn’t much that anyone can do. The helplessness is indeed maddening. Getting sucker punched is physically painful, but knowing that it could happen again at any time without warning and without just cause is emotionally disturbing.

Finally, in talking with other Chinese about this I find it odd that they are genuinely embarrassed by it. It’s not “them” or anyone that they elected. But the fact that it’s China and they are Chinese and this is happening to foreigners (or that foreigners are seeing it happen to other Chinese) is taken more personally, I think, than I would take things done by the LA City government/police, for example. The identification as part of China is personal to many–for both good and ill.

Tags: China, Culture, Politics, Thailand by david
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Yup. Woke up this morning to the SZ police force outside the gates of our apartment complex, Zhonghai Huating. They brought 6 riot vans and two busses full of police to make sure that the housewives, maids and others at home wouldn’t disrupt their appropriation of land for the SZ metro company. (I was asked by other landlords to edit this paragraph–this is not the original version).

I’ve talked about the “process” we’ve been involved in with the SZ govt and the Metro before. It’s process in name only–I mean, how much respect can you give a system where, in a meeting in the offices of the local government, the head of the SZ Metro delegation says: “you can die for all I care! And if you protest we’ll arrest you just like we arrested the others.”

Guess he’s made good on his threat.

A couple of landlords were indeed hauled away this AM. I came out later and starting taking photos and was immediately pushed and ask/told to leave. Of course being a bull-headed American, I didn’t. We argued about the fact that I’m not only a landlord but there are no signs prohibiting me from taking photos of my own property (that the police were standing on). After 20 or so minutes, a call came and the police said that I could take photos. So I immediately started snapping pics of the guy who tried to stop me in the first place. Round two of “no pictures” started immediately. “You can take pictures” means, I guess, I can take photos of everything but the guy who told me no–you can see him with his hand up in the photos–more photos went to a couple of newspapers already.

Now, I understand eminent domain. But there are both limits and requirements on what can be taken. First we were not offered any compensation for our land. Second, we were not told of the timing of the construction. And third, we weren’t given any health studies on the construction of the exhaust fans that are going to be put in our fishpond/garden.

Further, 300+ police with water cannons and riot gear (in the trucks) for a construction project in the middle of a Wednesday AM at a private residence? Me thinks they over reacted just a bit.

Some interesting reactions from the mornings events. First, Chinese neighbors cheered when I showed up and started taking pictures. They chanted and told me they supported me. I wasn’t looking for anything but some good shots as I’ve pretty much resigned myself the the fact that the government doesn’t care (the “you can die” comment sealed the deal for me weeks ago). They cheered when I made a smart (ass) comment and screamed in the face of the policemen that were trying to stop me. They knew that being foreign means being different–sometimes thats a good thing.

Second, the police were not as willing to arrest a foreigner as they were the locals earlier. They threatened to arrest me and I put my hands behind my back and offered myself up and they backed off and just told me to leave. Indeed, they wanted me out of the way as quickly as possible. Again being foreign kept me out of jail when others were tied up and hauled off.

Third, the police were very very intimidating to the locals. The local screamed and yelled but except for the couple that got hauled off, they did exactly what they were told to do–stand back, leave the work alone and go home or go to jail. Surprisingly vitriolic but at the same time passive.

Fourth, the words used to talk to me came in two very distinct styles. First, was from an assumed power position. I was told/asked things like: “Do you know who I am?” “Do you want me to arrest you?” “Leave now!” “You can’t take photos here–you have no right!” “I’ll give you some face, you just leave now.” The second position came later as the people were more riled up and after I had offered to be arrested. “Please leave.” “Please support our work here.” And of course “OK, you can take pictures now.”

The problem is, I don’t support the work. I’m very much against the land appropriation by the SZ government for a company (the SZ metro) when we were given nothing but threats as compensation.

If you think that I’m just down on China or that this is really a new, modern China and I just don’t get it, think again. Much in China is recent, clean and different to be sure. But much of the current problems are the same horror stories you read about 10 years ago. There are great opportunities and scary problems here side by side. Illegal land appropriation by local governments is not unique to our housing complex–it’s happening thousands of times a year all over China–famous stories include the old lady in Chongqing, the Beijing Hutongs and the riots/arrests in multiple cities in Guangdong province late last year.

I’m here for the opportunities…but at what price?

Tags: China, Culture, Politics, Uncategorized by david
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For whatever reason(s), we just went back to my wife’s family’s village for the first time this past week. We drove from SZ to Jingdezhen in Jiangxi, about a 12 hour trip each way. Along the way up and back I gained a new appreciation for driving in China. We drove up the off ramps since the truckers completely blocked the on ramp of every service station. We waited in gas lines (truckers waited for hours!), we saw fights in gas lines (and almost got in our ourselves). We saw at least 6 MAJOR accidents on the way and a couple of dead (or at least really bloody) bodies. The fact that freight ever even gets to port in this country is a miracle!

My wife had always told me her village was small, but I didn’t realize that “small” meant it was less than 100 people and no roads. It was the only village for about 10-15km’s in any direction; surround by mountains and tea fields. There was running water, electricity and satellite TV though.

They killed the fatted pig (literally), we passed out tins of cookies, smokes, drinks and red envelopes and took tons (500+) pictures over the two days. We hiked through the freshly planted rice paddies to the tombs of ancestors. We drove from the family village to the next valley where the village had a street and a restaurant. We fed 45 relatives from 4 generations a huge lunch. The little cousins got into a fight over a toy in the (open) kitchen of the neighbor next door to the restaurant and most of the other people on the street stood outside the door and watched the meal.

Over the course of two days my brother in law had to call a friend in the municipal government to get the police to let him go for driving our car (foreign plates, local driver), we had friends call the mayor of the largest area town and request permission for me and another brother in law (HK citizen) to go into some Chinese-only national park-like tourist areas. We had family call officials to get us lower prices for museums and other attractions and had a huge dinner courtesy of a local judge (friend of the family). Quite a weekend.

Now let me put that this little family adventure into context for you.

My wife not only built part of her village home with her parents when she was ten years old, but she has since lived in Shenzhen and worked for multiple MNC’s for almost 20 years now. She is not alone in this life changing move from village to high-rise living. Most middle class urban immigrants come from similar backgrounds.

The point is this: your average urban Chinese person older than 25 has probably had a similar life experience. These “average” urban Chinese are the middle and upper level managers of most to all of the companies that you’ll be working with in China. This generation has a deeply ingrained set of beliefs and ties. Here’s some of the concepts held by the people we met that were either told to me directly or presented themselves clearly in the course of the week’s events.

1. No one will take care of them but themselves. Working 24/7 for twenty years is not just justifiable but necessary.
2. Every opportunity is a one time shot that needs to be taken advantage of fully before it gets away (or is taken by someone else). This precludes creation of new long term guanxi (with foreign clients) which is supposed to be the hallmark of Chinese business culture.
3. Strong, binding relationships with family and a few close friends are the only lasting “valuables” that you can count on maintaining throughout your life.
4. Uncategorically, property and cash are the most important things you can have for your own future and for your children. EVERYTHING in business is done within this mental framework of stockpiling these assets for the future.
5. The economy was better a few years ago than it is today—more evidence in support of banking on items 1, 2 and 3.
6. Despite all the recent nationalist rhetoric, a “faith,” in or commitment to the current government is not nearly as strong as the desire to “just make life better” economically—an almost palpable practical-ism that precludes ideology in China.
7. The further you get out of the big cities the more personal connections matter in getting things done.

Do these beliefs affect negotiations and business? The real question should be how do they not. They affect everything.

First, when negotiating in China, the prevailing concept is probably “scarcity” rather than “abundance.” This means that when you negotiate, your Chinese partner is almost certainly NOT looking for win win. Don’t misread that as “your Chinese partner is looking to have you lose,” he’s just not equally concerned with your profit margin as he is his. Even in this age of factories being busier than they can handle, most don’t believe that this will continue forever—and the slowdown this last year confirms that. (The move by many factories to inland provinces and other SEA countries further confirms it.)

So to make the deal more palatable, it needs to be structured to benefit them in the short term and you later on, if at all possible. You can see this style of negotiation in lots of deals in Asia—the Olympics and North Korea being the biggest examples I can think of.

Secondly, you have to realize that if there are problems (and my experience says there ALWAYS will be) the “customer first” theory will NOT be practiced. You are not going to get anything banking on it’s “the right thing to do” or because it’s “good in the long run.” Again, don’t misread this as “you’ll get screwed by your supplier” as many people claim. It’s more a matter of immediate self-preservation in a very insecure system—and by nature, you look after yourself as your supplier looks after himself.

Third, never pay bribes, never take kickbacks and fire anyone who works for you that does. Draw a very clear line in the sand and make firings for this offense as public as possible. At the same time, never be afraid to pay more than you agreed to just to get what you want. The difference is the legality of the payments. Cash is king and if you have the cash you can run the show. For example, incentives (publicly and legally) paid to key engineers, managers and other individuals can make a big difference in the level of attention to detail that you’ll experience. Buying drinks for line workers in a factory without AC is another way to win point and get better results too.

Fourth, be very very careful about what you say about politics. Just because some Chinese (very rarely) criticize their own country in public doesn’t mean you can—even in personal, private company. Misplaced comments spoken in what you think is agreeable company can reinforce taught stereotypes and make partners less willing to cooperate and more intransigent on sensitive issues or requests for help. In the current environment, it’s just not smart to talk about politics or the 0lympics (unless you’re positively thrilled about each). The rule I was given by my first Chinese employer, a university in Chongqing, was: say nothing about Religion, T!bet, T!ananmen or Ta!wan. Some things have certainly changed, but it’s always better to be safe than sorry.

On a related note—it never hurts to know the right people. This isn’t an endorsement for pulling personal strings to get access to opportunities that otherwise would not be available to you. But it is an absolute acquiescence to the reality of the power of well placed political individuals in a relatively weak legal system.

Finally, let me say that I’m not trying to insinuate that Chinese are all about money and themselves. But I am trying to convey the notion that background experiences color the perceptions and positions of the Chinese partners that you work with. Understanding and emphasizing with that background will always be an asset in negotiation and working with your Chinese partners.

Tags: Business, China, Culture by david
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One visa for all countries in ASEAN—great idea! The fact that you’ve got Thailand,Malaysia and Vietnam all fighting over the same pool of potential business clients and ton of tourists going to both Cambodia and Thailand (and to a lesser degree Vietnam) this is a great deal for Thailand—as the largest regional city/airport Bangkok becomes more and more the de-facto hub for all SEA travel. With the new road connections from China, this would boost travel and investment into Lao too, no doubt. Now if ASEAN could just do something about Burma…

A very interesting perspective on Thai culture and the lack of any real political progress in the last decades. Even more interesting now that there are signs of yet another coup in the works this week (more here). If you could clean up the sex trade and straighten out the government processes in Thailand, it might just be heaven on earth. Dare to dream…

Wow!! Let me get this right…thousands of factories close in China in the previous two financial quarters and Thailand, as the regional investment hub for SEA, has 5.7-6% per quarter growth! Well, fancy that. If you’ve ever done business in Thailand you know a couple of things. First, it’s a great place to go on vacation. Second, Mandarin and Cantonese are just as useful as Thai when talking with most factory management. And third, investment, ownership and raw materials are, in large part, all coming from China.

2008 Global Competitiveness Rankings. China and the rest of SEA are just eating up the European countries and Singapore may just knock the US out of it’s 15-year top spot next time around. Brief article here. Methodology and details here. The world it is a changin’.

And finally a not-directly-related-to-SEA piece of news; more on the impacts of the quake to Chinese and global finance here.

Tags: Business, Culture, Thailand by david
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