The upcoming Xi – Trump meeting is the first face-to-face sit down between the two leaders. The US side has been clear about what it wants from China, but it’s not quite as clear what it plans on offering. Don’t get distracted by the background noise like Tillerson’s visit or uninformed “princeling” gossip. This is all about the relationship between 2 leaders.
The Trump story is entitled “Make America Great Again” – but the plot is a muddle of victimhood (China is bullying America) and bravado (unilateral action on North Korea). Xi Jinping’s narrative is “The Chinese Dream” which juxtaposes a need for global respect with insistence on non-confrontation – all wrapped around one of the largest projections of power since the early Ming (OBOR, 9 Dash Line).
Takeaway – Established Western brands will continue to defend their global leadership positions for a while yet, but Chinese corporates are taking control of growing niches and new categories. Look for Chinese entities to disrupt industries through enforced localization and substitution – not head-to-head competition.
Welcome to the Multiconomy
Phase 1: Frenemies on a Glass Bridge
The status quo of US – China commerce can best be described as frenemies who need each other more than they like each other. Up until now, both Chinese and Western commercial systems have been multi-faceted and opportunistic. National policies have been one of many inputs in business decision-making.
This situation can be characterized as brittle, but not necessarily fragile. Think of our existing system as a strong glass bridge. It’s very stable – right up until the moment it starts to crack. Then it can no longer support its own weight, but is very difficult to repair.
US Secretary of State Rex Tillerson made his first official visit to China last weekend, and the White House probably sees it as one of the bright spots in a rocky transition. His Beijing hosts, however, will view the meet as a major step towards their goal of regional hegemony and global respect. Like many western execs before him, Sec. Tillerson doesn’t seem to understand what the Chinese believe he’s agreed to.
This was how the new Sec of State described the US China relationship in January:
Some westerners are pushing back against the idea that we are facing the risk of rising trade barriers or a breakdown in orderly trade regimes. Their logic is that, “The US has a lot of levers, and we can assert our rights without necessarily sparking a trade war that the Trump Administration doesn’t want.” Not wrong, but it makes the dangerous assumption that trade relations are going to be something Washington stays in control of.
Trade frictions almost always take on a life of their own due to a single inconvenient point: Both sides in a dispute get an opinion. If you don’t know the other guy’s point of view (POV) then you have absolutely no control over the final result.
Chinese negotiators tend to shift from guanxi-seeking partner to cut-throat competitor mode when confronted with an unpredictable counter-party.
Chinese negotiations usually follow one of two paths – towards long-term partnership or one-off competition. What’s the difference? You are. If a Chinese counter-party feels that he can do better as a long-term partner, that’s what he’ll go after. If he feels that you won’t honor the terms and obligations of a durable & profitable relationship, he’ll go for your throat.
Chinese institutions are known for their long memories, and well after members of the new administration have forgotten their twitter tirades and decided to “move on and get on with business,” American firms will still face increased scrutiny, hostility, and non-economic barriers.
China’s treatment of the U.S. delegation as President Obama arrived at the G20 conference sparked controversy and a firestorm of international criticism. There are some great lessons here for front-line negotiators involved in cross-border deals.
The conflict may or may not have been serious – but it was real. It says a lot about both the US and Chinese cultures. The Chinese infuriated the world with their hostile behavior. (Don’t be politically correct and insist on saying “perceived hostility”. Many people were angered by the way national security adviser Susan Rice was treated on that airport tarmac, and you may have been one of them. Own it.) We infuriate the Chinese by talking about it publicly.
In Chinese negotiation, don’t confuse polite rhetoric with concerted strategy.
American and European negotiators treat their Chinese counterparties’ “general principles” discussion like the “terms and conditions” screen – we just check the box and look for the real content. Big mistake.
General Principles Discussion can come back to haunt careless negotiators
Westerners in China often make important concessions without even knowing it. It’s common for Chinese negotiators to frame their position with a discussion of “general principles”. Westerners tend to shrug them off with vague agreement – particularly since these conversations tend to be phrased in vague, wooden rhetoric like “harmony and shared responsibility”. It all sounds like meaningless propaganda to us, and it mixes easily with the toasts, proverbs, unfamiliar historic references and folksy anecdotes that characterize a boozy banquet night in Shanghai or Beijing. Western negotiators tend to focus on transactions, and aggressive negotiators will make every effort to control the negotiating agenda and nail down concrete deal points – but the Chinese side never gives up on their deal points or general goals, regardless of the appearance of compromise or concession.
Relationship Building Not a One-Off Activity in China
In ChinaSolved’s latest book, “10 Common China Negotiating Mistakes”, 3 on the least wanted is “coasting on good starts and early successes”. While this is one of the biggest dangers that deep-pocketed MNCs (and their representatives” face in a long-term China business, it can be very hard to anticipate. Fortunately for us (but unfortunately for them), Microsoft provides a telling case study of how the best efforts don’t always yield successful outcomes.