Doing business with China: How relationship equity could determine your company’s fate in China

NZ China Council executive director Patrick English says guanxi remains an important aspect to doing business in the middle kingdom.

See: NBR Special Feature: Doing business with China

China and its growing market piques the interest of many ambitious outside investors but the country’s cultural practices and modes of doing business remain poorly understood. 

NZ China Council executive director Patrick English says despite China becoming more business friendly in recent years, guanxi – a Chinese concept that loosely translates as “relationships outside of the family” – remains an important aspect to doing business in the middle kingdom.

Relationships in China should be seen as an account where you have to put into it to be able to draw on “relationship equity,” Mr English says.

“Guanxi is as much about responsibility as it is about opportunity. There is a lot of obligation and you must make sure that you stay in positive credit.”

Guanxi could be a double-edged sword for New Zealanders doing business in China because connections may mean advantages like easier establishment of distribution and supplier networks but those connections could count against the business if the relationship with a local partner turned sour, Mr English says.

“If somebody’s got vested interests in an area that enables the business to happen, those vested interests are also able to load the deck if something goes wrong. It’s an equal measure of risk and opportunity.

You want to make sure that you have a degree of neutrality wherever you operate, so there aren’t as many vested interests.”

AJ Park patent attorney partner Anton Blijlevens agrees relationships are important to business success in China. He says New Zealand businesses should be prepared to devote a lot of time to cultivating relationships with Chinese partners.

“Chinese businesspeople want to know you before they want to do business with you. This takes an investment in time that many are not used to. We are used to business negotiations and a contract concluding much sooner than it takes to get a deal across the line with Chinese businesspeople.” 

At a national level, the relationship between New Zealand and China has been quite strong following the NZ China free trade agreement, so New Zealand was able to draw down on its equity, Mr English says.

The Labour Party’s release of material using Chinese names as a proxy for Chinese homeownership, did not raise much concern but the recent Lochinver decision by cabinet ministers overruling the Overseas Investment Office was not seen as a good way to maintain the relationship by Chinese leaders, he says.

 “It’s viewed with a reasonable level of realism but I think the recent decision on Lochniver has had a much greater impact. It’s not so much that the decision went against Pengxin but the process that it went through over such a long period of time and then how it was handled in the end. It didn’t acknowledge the importance of the relationship with China.”

Guanxi, like much of doing business in China, represents opportunity and risk for New Zealand companies and in a country that is changing fast, there is no quick fix.

“People need to do their homework.”

Many businesspeople are excited by the opportunities China offers but fail to put in the necessary planning to be successful, Mr English says.

 “I’ve seen people who have signed contracts in Chinese that they haven’t had translations for. They have just had their Chinese counterpart saying ‘this is what it says’.”

Businesses also underestimate the time and money they needed to get things done.

“It is an incredibly expensive place to do business now. You have got to be well resourced. You are competing against international and local business,” Mr English says.

While all these factors are important, he says there are no hard and fast rules about doing business in China.

Differences also exist within the Chinese business environment, Mr Blijlevens says.

“Beijing is more traditional. Shanghai is fast and much more commercial.”

Mr English says Chinese culture emphasises another factor that shouldn’t be underestimated by New Zealanders.

“There’s a certain element of luck where planning meets opportunity.” 

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