Chinese Business Negotiation: Getting Paid for Services

When expats talk about doing business in China, they usually mean sourcing or manufacturing. New China Hands have other challenges.

The standard China Playbook for Westerners is based on buying cheap products or processing. For the traditional “old China Hand”, business meant sourcing or manufacturing. You bought stuff, or your bought labor – you put up cash and you hoped to get raw materials or finished goods in exchange.

For the New China Hand, that’s not the way business is going to work. China is about markets and services. The old rules of QC and compliance just aren’t going to work going forward – not that they worked all that well in the past. From now on, however, the key for Western negotiators is figuring out a way to make the Chinese side of the table want to see us succeed. It’s a big challenge, and we’re going to look at it from a few different angles.
Challenge #1: Getting Paid for Services in China
The first discussion in this series: How to get paid for services in China? Let’s look at a few options

1) Don’t. Provide services to the Chinese side, but get paid by in the US or Europe. Structure your deal are on the other side of the trade. Deal with the Chinese dealmaker – but get paid on the Western side. Example: Sell NY real estate to Chinese, but get paid on the US side. (This is close to the Old China Hand model.)

2) Get paid by someone other than the recipient. The people you provide services to are different from the client who pays you. You are a subcontractor, paid by an agency, school, hotel, institution or group that have the relationship with the person receiving the service. You are getting paid for producing a package or showing up. Example: English teachers in China.

3) Turn your service into a physical thing. A certification, a banquet, a party, a trip, a tour, a piece of property, a listing. The more tangible, the better. Western consultants have learned to make the most of embossed leather binders, an iPad proposal, or an expensive pen. It sounds silly, but if the Chinese side has something they can hold in their hand or see on the wall, it feels more valuable.  Schools and universities know not to even think about offering a course in China that doesn’t end with a certificate ceremony – even for in-house training.

4) A series of triggered payments – but there are two catches. 1) You have to get paid at each, or the next thing doesn’t happen. Make them discreet steps. Example: 20% for a proposal, 20% for the arrangement, 20% for partner selection, 20% for the completed negotiation, 20% for the final contract. If he stiffs you at one step, you have to say “thanks anyway but goodbye” and your business is finished. 2 ) He won’t pay for the last payment (See Dan Harris at ChinaLawBlog on this topic.)  Example:  architects, management consultants.

5) Get paid up front. Better if you are British and have a British or European institution behind you. Branded institutions (i.e.: Universities) can pull this off, but individual service providers have trouble.  Example:  Western universities.

Don’t give away too much up front, and don’t show too much information in your proposal, and don’t make your transaction overly complex. If they owe you money for services already provided, you may have a very, very long wait.
Any other ideas?


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