Will weaker Chinese growth strengthen your negotiating position?
The Chinese economy has been slowing for the last few quarters, and whether it is a controlled application of bureaucratic brakes or the start of a skid into a recessionary ditch, some international business people see China’s deceleration as an opportunity. International negotiators who believe that a slowing Chinese economy gives foreigners more leverage are, however, over-optimistic at best. There may be isolated cases were individual private Chinese businesses will be motivated to sweeten their offers in the face of a domestic slowdown, but it would be unwise to assume that Chinese counterparties are all feeling desperate. Westerners who calculate that the bureaucracy is going to become more welcoming to foreign businesses need to realize that a couple of years of slower growth will probably make their challenges in Beijing more severe.
Three things western negotiators need to know about Chinese counterparties in a slow growth environment
- There’s a filter bubble. Chinese bureaucrats and SOE bosses don’t see reality the same way American and European MNC managers do. Within China the official party line is that everything is going according to plan. It’s rebalancing and the expected results of a successful anti-corruption campaign. Everything is fine. Don’t assume that your Chinese counterparty is as nervous or anxious as you would be at the start of a sustained recession. He may still feel that time is on his side.
- It’s your fault. Official Chinese media has a stock response to any and all bad news in the Middle Kingdom – blame outside agents. From the protests in HK to border disputes with neighbors to generalized economic trends, it’s a safe bet that foreigners are being pinned with responsibility for anything that goes wrong. Even if your direct counterparty doesn’t blame you personally, he is subjected to persistent official whispers that Westerners are responsible for his problems. Don’t position yourself as a white knight when he’s hearing that you are a black hand.
- Fundamentals haven’t changed that much. Unless you are dealing with a Tier 3 property developer or one of the big state-owned banks, the chances are your counterparty isn’t feeling too much pain yet. That may change in the long run – but it may not. Let’s be honest – the Western business press loves the China bear story. The headlines you are reading sometimes make it seem like the Chinese economy is in a lot worse shape than it is. The dour mainstream view is something along the lines of 4% growth by 2020. That’s not bad by international standards, and most Chinese managers still like their odds in the domestic market. The Beijing bureaucracy is as difficult as it’s ever been. Few people in Chinese business or the Party see global integration as a solution – more often it’s considered part of the problem.
Propaganda is never the whole truth.
There are two opposing themes being pushed, and reality lies somewhere between the extremes. The official Chinese media is saying that everything will be great as long as people trust the center and guard against corruption and foreign influence. The mainstream international business press loves blood in the streets – and if there’s a China spin on the headline, so much the better.
Western negotiators feel bruised and aggrieved by what they consider to be unfair treatment at the hands of Chinese regulators, but some American and European businessmen are being too quick to declare that the tables are turning. If your China business plan makes sense, then push for the best deal you can get and capitalize on the recent slowdown if it works in your situation. Don’t go in assuming that Chinese counterparties are going to be desperate, conciliatory or see you as a solution.
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