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Doing business in China

3 Negotiating Takeaways from the NK Coal Boat Maneuver

Win-Win with Chinese Characteristics

The new US administration seemed to score a big coup in Asia last week, when China blocked a fleet of North Korean cargo ships carrying coal to Chinese markets. On the surface, it seemed a perfect win-win for both Washington and Beijing.

North Korea Coal BoatsIt turned out, however, that the Chinese policy had already been in place since mid February – in response to UN pressure after the earlier round of Pyongyang missile tests.  It’s still a powerful win-win deal, but now with Chinese characteristics: Beijing wins when they agree to the policy, and Beijing wins again when they implement.  

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Three Negotiating Issues to Watch at the Xi Trump Meeting

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.

Every negotiation is a competition between two narratives

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).

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The Future of US-China Commercial Relations: Welcome to the Multiconomy

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.

multiverse 2

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.

US China Relations are like a glass bridgeThis 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.

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The New CEO in Asia

We’ve seen this before. A new CEO with limited China experience introduces himself to the international business community with tough

China policy can leave you between a rock and a hard place
China policy can leave you between a rock and a hard place.

talk and big promises about China and the rest of Asia. Then reality rears its ugly head.

The new US administration is doing what new US senior managers in China do best – sending conflicting messages, missing opportunities, and making sweeping pronouncements that are just about impossible to implement.

What can we expect moving forward?  

Expect to watch the needle swing back and forth between Partner and Competitor pretty sharply for a while yet as the new trade bosses find their footing. Here are the potential flashpoints you should be watching.

  • china businessman stressed outSouth China Seas Dumping Currency North Korea Iran Cyber spying Intellectual property protection Tariffs or “border adjustments” Christianity in China Taiwan

    Yes, the Taiwan card has been played, but you can expect to see it massively overplayed at least once again in the near future. The present administration has probably forgotten the Taiwan call & tweet , and is hoping that the tough talk on North Korea will amount to little more than a photo-op. And that’s your problem(s).

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People’s Daily & XinHua: Required Reading for International Business

China Negotiation Pro Tip: Start Reading the Chinese People’s Daily. The news is fake, but the sentiment is real.

Takeaway: The People’s Daily and other Xinhua-driven official news outlets offer Western decision-makers valuable insights into 1) CCP official policy and 2) Street level sentiment of Chinese public.

As we enter a new period of increasing tension and trade barriers, individual decision-makers

China negotiators should read people's daily and xinhua
The news is fake, but the sentiments are real.

will once again have to scramble for real, actionable news about China. I want to point you in an unexpected direction: the Xinhua News Agency / People’s Daily. By now we have all learned about the dangers of filter bubbles and echo chambers (at least that’s what my Facebook feed tells me), so I’m offering up a cheap & easy means of getting direct access to genuine CCP official views.  Here are the links:

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China and the Unpredictable Negotiator

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.

China and the unpredictable negotiatorChinese 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.

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Lessons from the G20 for “Regular” Negotiators

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.

Barack Obama ‘deliberately snubbed’ by Chinese in chaotic arrival at G20 – The Guardian

The US president was denied the usual red carpet welcome and forced to ‘go out of the ass’ of Air Force One, observers say

China chides media’s hype of G20 spat – Global Times

Overblown reports show arrogance: foreign ministry

Lessons from the G20 “tarmac row”

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.

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3 Signs Your Man in China Might be on the Take – And What You Can Do About it Now. Guest Post by Michael Whelan

China is a unique place with a culture, especially its business culture, that continues to confound western business people no end, and not just in obvious ways. There is nuance too.

Whatever ethical norms you’ve come to expect, they don’t apply in China. Why should they?

10 China Negotiating Mistakes - Buy the eBook on Kindle
Learn from the expensive mistakes of expats who have come before you.

This is a truly different place. The more opportunity there is to profit personally from your operations through fraud, the greater temptation there will be to take advantage of you and your company – and in ways you would never suspect. Think unbridled Wild West.

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Negotiating in a Slowing China

Will weaker Chinese growth strengthen your negotiating position?

10 China Negotiating Mistakes - Buy the eBook on Kindle
Learn from the expensive mistakes of expats who have come before you.

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.

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Is It Still Worth it to do Business in China?  Conclusion

Is it worth the effort and investment for foreign firms to do business in China?   The answer depends on who you are and what you want from the market – and that’s a problem.

I spent a month in China trying to answer the question, “is it still worthwhile for Westerners to try doing business in China?”   The international business press has been focusing on Beijing’s prosecution of the infamous Anti-Monopoly Law  and use of national security claims   to restrict foreign firms’ access to China’s burgeoning middle-class markets.  Overseas readers of the WSJ and Forbes could easily get the impression that foreign brands are being chased out of China on a tide of xenophobic resentment and anti-foreign fervor – but it’s simply not the reality on the ground.

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