This post is part of our ongoing series on Doing Business in China. You can find the introduction to this series here.
For those who have lived in China for extended periods, one of the oddities of returning home is the incredibly frequent question we get asked back in the US, “How was China?”. Um…. How do you sum up an entire country in a single sentence? It has always struck us as an absurd question. Over small talk at brunch, there are some easy answers (Big, Busy, Changing…), but it strikes at a bigger problem. People in the US tend to think of China as some coherent monolith, a single entity. This is, of course, not true. It is a huge country with a billion-plus people.
The media coverage of China echoes this, lately with an emphasis on stories about the government’s emerging use of technology to watch everyone all the time. The underlying message in all these stories is that the Chinese government is trying to build a panopticon, Big Brother State that is watching everyone all the time. And the unspoken implication of these stories is that the government there somehow controls everyone.
This is wildly off the mark. Not only is it wrong to think of China as some monolithic whole, it is wrong to think of the even the Chinese government as a single entity. The Chinese government’s organizational and decision-making processes are poorly understood by anyone outside the government, but all too often people in the US mistake this opacity as masking a well-oiled, coordinated machine. The government there is riven with competing interests, just as every government everywhere is. We outsiders just know very little about it.
Let’s bring this back to the business world. Starting a business in China, for foreigners or locals, requires navigating an array of regulatory and bureaucratic requirements. This is true of any country, but in China these tend to be much more rigorous than in the US, and crucially, often seem highly unpredictable. We have worked with many companies entering China that seem to encounter an endless series of licensing and permitting agencies, many of which were unforeseen at the outset.
In our view this is reflective of that disunity we discussed above. The various levels of government in China (national, provincial, municipal) tend to be far more competitive than outsiders expect. All these entities have their own set of priorities and seek to promote their interests in each interaction. Despite China appearing monolithic, the reality is that the Central Government has a perennial problem enforcing its will at the local level. This has been a function of government in China for a very long time, and it is not simply a central versus local problem. Local governments have been known to impose internal trade restrictions to the benefit of local businesses at the expense not only of foreigners but of companies from other regions. In the US, we take the Federal Commerce Clause (Article 1, Section 8 of the Constitution) for granted, but it is an almost miraculous idea that there should be no internal trade barriers.
Taking this a step further, we see conflict among agencies even within regions in China.
An example to illustrate this. Many years ago, we were hosting at an outdoor event in Shanghai for a company. They had contracted with the local police department to ensure crowd control and compliance with various permits. At one point, a police officer from the traffic bureau asked us to move our employee bicycles because they were blocking a sidewalk. As we moved them, another police officer from the crowd control bureau told us that we could not use the designated area. The first officer came over to check on our delay and began speaking with the second officer. The ensuing argument between the two of them was one of the tensest moments we have encountered in over 30 years in China. Two burly, sunglassed officers staring at each nose to nose, shouting. Only the realization that a foreigner (i.e. us) was observing them prevented them from coming to blows.
Things have changed considerably since then in China. And certainly the security forces there are much better organized, but we detail this incident to highlight that competition within Chinese government agencies is real and tangible.
For businesses, there are no easy solutions to this problem. There is no single person who a foreign company can hire to resolve or streamline the process. That is the whole point of this post. Do not think of China as some puzzle to solve. Every company has to navigate its own path through these, with compromise and sober negotiation a reality.
This is not meant to scare people away. Our goal is to encourage recognition that pre-conceived notions of entering China is not some mysterious process guided by a secret conspiracy. There is no monolithic will opposing foreign companies in China. Instead, there are a series of conflicting interests, and foreign companies need to budget time and legal support to comply as best as possible with them. Local partners can help, but never entirely mitigate these. Patience and realism will be the best guides. At the end of the day, companies will have to make a choice between acceding to the best deal they can negotiate with all the compromises that entails, or not entering at all. We believe that abandoning China is a mistake for companies with global ambitions, which leaves the only option of working through the whole process. This is not a Herculean task, it is just a process that is very different from those in place in the US or Europe.