Conflict Resolution vs Conflict Avoidance in Chinese Business Part I: Rock and a Soft Place

I was recently asked to speak about conflict resolution between Chinese and Western counter-parties in China. This is a bit of a challenge, because there really isn’t any such thing as conflict resolution in China in a traditional sense – at least between Chinese and non-Chinese counter-parties.. The Chinese wants Harmony, the American wants Justice. Those two principles may co-10_Common_China_Mistakes_Medium (1)exist BEFORE a business conflict exists – if both sides have structured their deal carefully – but they tend to destroy one another the moment conflict arises. Harmony is soft and fluid – Justice is firm and solid.

We’re going to handle this one in 3 parts. Today we’ll look at why conflict resolution between Chinese and Western business counter-parties seems to be so uncommon. Next time we’ll discuss strategies to minimize damage when you DO find yourself involved in conflict with your Chinese counter-party. Finally, we’ll take a look at ways to structure deals that will help avoid conflict with Chinese partners down the road.

Why conflict resolution doesn’t really work in China – at least with non Chinese counterparties:

1. It’s about Harmony – not Justice.
Chinese don’t use institutions to resolve conflicts with other Chinese. In fact, big parts of Chinese social behavior have evolved with the implicit or explicit purpose of AVOIDING Chinese institutions like police, courts and government structures. 2 members of a group engaged in a conflict will usually opt to submit to a mutually respected 3rd party (old guy) or a proto-jury (loud guys). Once the police or courts get involved, it is straight up LOSE LOSE. Lately this is less true in the downtown sections of big cities, but traditional Chinese wisdom states that smart people keep officialdom as far away as possible.

2. It’s a Guanxi thing – you’ll get yours on the flip side.
Chinese counter-parties don’t return cash or pay restitution even when they acknowledge they are wrong. Disputes are remedied on the next deal. ‘Yes, I see how you did get screwed here a little. I’ll get you back next time. We cool?’ ‘Yeah, we cool’. Cigarettes are lit, and harmony quietly returns. This doesn’t work with foreigners because you are unlikely to remain engaged with a counter-party that has taken advantage of you.

3. Non-economic values.
Chinese counter-parties tend to focus on cash during the negotiation – and non-cash benefits in the post-negotiation. In other words, they bargain about money, but often seek their real value in things like technology, design, contacts etc. That’s one of the reasons Westerners are often surprised at how often Chinese actors seem to be to ‘destroy value’ by screwing up a potential long-term relationship. It may, in fact, be that the Chinese has already met his objectives when he got your business model or new product design. To him, there is no conflict to be resolved. They never planned on following through with the deal in the first place.

4. It’s easy to fool a foreigner.
For many Chinese counter-parties, taking advantage of foreign counter-parties is still part of the deal. This notion of “you can always fool a foreigner” faded briefly in the early part of the decade, but now seems to be back in full force. Anyone who has ever been involved in a Chinese court case can verify that even the winners lose. While you pay expensive international lawyers and shell out for airfare and business hotels, your local counter-party is going to dinner with the bureaucrats in charge and will be back with his family by 10 PM.

5. Another counter-party is always coming down the road. (The ballad of the bull market).
Business conflict resolution is a product of the business environment. As long as Chinese counter-parties feel that there are 2 more potential deals waiting in the lobby, the incentive to resolve conflicts will be uneven. He has had a Plan B since the beginning – and finds it somewhat amusing that you don’t.

For further reading: 10 Warning Signs that Your China Deal is Getting Too Complicated

Next: Part II – So you are in a Chinese business dispute…

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