• Find a champion to introduce you and vouch for you
– this will go a long way to opening doors and minds.
Written references or letters of introduction are also
common. But a whole network of acquaintances and
business contacts around the country is much more
useful than a single sponsor. Finding a champion or a
sponsor can be difficult for businesses entirely new
to China – contact NZTE and KEA for help.
• Paying for your partners in China to visit your operations in
New Zealand is a good way of keeping them informed and
motivated. It’s also an opportunity to train Chinese staff.
Don’t completely fill up the programme with work. About
half should be devoted to rest and relaxation, leaving time
for building the relationship and an affinity for New Zealand
and New Zealand products.
• When hosting Chinese guests, remember the effort they
put into hosting and looking after you in China and
reciprocate this .
• Investigate placing some of your Chinese staff in your
New Zealand operation on a longer term basis. (Help
ensure all visa applications to New Zealand are filed
on time and appropriately).
• Use events like Chinese New Year to send greetings to
important Chinese contacts and friends. Also give your
Chinese-based staff a budget for these events.
• If China is likely to become a significant part of your business,
consider hiring a Mandarin speaking member of staff. Longer
term you can commit to the two or so years it takes to
become a proficient Mandarin speaker yourself.
• Be polite and sensitive to Chinese culture.
• Make an effort with the language – even a little Chinese
can go a long way.
key learnings
• Understand the business and commercial environment
and the importance of relationships within it.
• Personal relationships are a powerful force in Chinese
business life.
• The extent of this power depends on who you are dealing
with and where.
• Building a good relationship will take time and persistence.
• The relationship you develop with an individual also
represents your relationship with their organisation.
• Show that you are in China for the long-haul.
• Meet and build a relationship with key officials, or at least
take steps to understand the environment they operate in.
• Build relationships with the many Kiwis in China.
38
WAIKATO UNIVERSITY CASE STUDY
MY CUSTOMER, MY PARTNER – THE IMPORTANCE
OF RELATIONSHIPS IN CHINA
Good relationships are important for success in any country, but
Waikato University’s Ed Weymes has found that building and
maintaining strong personal relationships is a make or break
issue for the university’s education business in China.
Ed Weymes, an Associate Dean International at Waikato
Management School, manages the university’s joint degree
programmes in China. Under the programmes, Chinese students
do half their degree in China, taught in part by Waikato staff,
then come to New Zealand to complete their study.
Weymes says the importance of personal relationships is
probably the key difference he’s experienced between doing
business in the West and in China. “Historically, China never had
a strong legal system, so business has been conducted on the
basis of relationships,” he says. “In the West a business
agreement is cemented with the contract. In China the contract
is less important and business is conducted first and foremost
between people.”
As a result, he’s had to develop more than just working
relationships with his Chinese counterparts; he’s had to develop
personal relationships with them. In China this concept of
working through personal relationships is called guanxi, which
represents the relationship and obligations between individuals.
While Westerners are unlikely to attain guanxi, a trusting
relationship is critical to any business venture.
Developing these relationships takes many visits and dinners
and is established over time. For example, it took two years
before Weymes’ counterpart in China – who spoke fluent English
– would speak anything other than Chinese during formal
meetings. When the switch finally came it was a sign that a
relationship of trust had finally developed.
Use Chinese nationals to bridge the culture gap
Having a Chinese national as a mentor can be valuable. “When I
first started going to China 25 years ago we had a Chinese
history professor who would come on our visits and explain the
subtleties and nuances of what was being said in meetings. He
advised us on what we should and shouldn’t accept.”
A Chinese national on the staff also helps Weymes navigate
cultural differences. “Your Chinese counterpart may feel more
comfortable raising delicate or difficult issues with a Chinese
national than with a Westerner like you, because this will avoid a
loss of ‘face’ or embarrassment.”
He uses an interpreter rather than a translator to ensure he
understands what is really being said. “China is a country where
yes can mean no and no is never said. You need to understand
what level of yes is being expressed: ‘Yes I understand you’; ‘Yes I
agree with you’; or ‘Yes we are committed to that’.
An interpreter who knows your organisation can explain
the nuances of the responses.”
Build relationships with senior staff
Weymes says you need a relationship with a senior member of
the Chinese organisation, otherwise your project might not get
noticed. “I maintain a relationship with the presidents of the
Chinese universities I am dealing with. I may not meet with
them on a regular basis but I have their cellphone numbers
so if there is a problem and I need to talk to a decision maker,
I can actually reach one.”
When dealing with problems protect the relationship by raising
the issue indirectly. Don’t accuse your partner outright or issue
threats. “Deal with it the Chinese way – quietly and indirectly.
Tell them there is an issue you are concerned about. Don’t insist
on an immediate response, but wait for them to deal with it,”
says Weymes.
Maintain your key relationships
To maintain essential relationships Weymes visits China four
to six times a year. “If an issue arises you can discuss it by email
or fax. But at the end of the day if you want to get it dealt with
quickly you need to jump on a plane.”
Relationships with government officials and State Owned
Enterprises tend to be more formal, while dealings with private
companies – particularly in the developed southern and eastern
regions – are becoming more like those in the West.
Because business is based on personal relationship rather than
contracts, you need a continuity plan for when key staff leave,
Weymes says. “We were about to sign a contract when there was
a change in senior personnel on the Chinese side and we were
asked to put things on hold until the new senior administration
got to know us. It took six months to get back on track.”
Tips
• In China it’s who you know, not what you know, that
sometimes counts.
• Don’t try to form a quick relationship because it won’t work.
• Accept that it will take time – two or three visits just to get
things started.
Negotiations Chinese style
One of the best places to learn about negotiating in China is the
country’s local markets, Weymes says. “If the stallholder asks you
for RMB 700 for a nice shirt you should offer RMB 40 and then
walk away from the store at RMB 80. When you start walking, nine
times out of 10 you will hear the words ‘Come back – okay, okay’.”
The Chinese are tenacious negotiators, so you need to have a
bottom line and you need to stick to it, Weymes advises. “If you
acquiesce to a request then another request will be made. If you
acquiesce to that, a third one will be made. While you keep
acquiescing your partners will keep pushing.”
When you reach your bottom line stick to your guns. “I had a
situation where I was meeting with my Chinese partners at 9am
to spend 45 minutes reviewing all the terms we had negotiated.
Well, 11 o’clock came and we cancelled our first train, 12 o’clock
came and we cancelled that train. When our partners tried to
renegotiate the financial aspects I just drew my line in the sand
and wouldn’t budge. And when they saw that I was just letting
trains depart and that we were intent on staying there we
reached a final agreement.”
To ensure the negotiations don’t collapse in confusion and
frustration, prepare yourself for a completely different approach
to negotiations. “When we negotiate in the West we tend to
work logically through the topics, signing each one off then
moving onto the next. In China things don’t work that way. You
can reach agreement on an issue and then find that a few hours,
days or a month later it will come back to be relitigated. If you
ask why something that’s already been signed off is being
relitigated the response might be: ‘We just wanted to see
whether you have changed your mind’.”
And remember you are never off duty. “Never be flippant.
A casual comment to a Chinese second stringer over a beer in
the evening is likely to get repeated back to you at the formal
meetings the next day.”
3.5 NEGOTIATIONS AND MEETINGS
Managing meetings and negotiations
When entering business meetings and negotiations in China be
aware of a set of protocols and expectations that are different
from what you’d be familiar with in Western markets.
Understanding these differences can be the margin between
success and failure.
Chinese people have traditionally done business on the basis
of mutual trust rather than by written contracts. In this
environment you will need to gain the trust of the key people
you are negotiating with as well as being well covered
contractually. You will also need to develop an accurate
opinion on whether you can trust your counterparts.
This means a successful conclusion to business talks can take
longer than expected. The first meetings are likely to be social
‘get to know you’ events such as dinners rather than pure
business meetings.
The Chinese also have a reputation for being tough negotiators
who will push and push to get what they want. You have to be
prepared to say no.
Negotiations
kiwi lesson – it’s a courtship
“Foreign businesses will fail if they do not understand the Chinese
way of doing things. There is no need to adopt these ways but
merely to adapt to them. For instance your ace New Zealand
negotiator may not be the best person to send to China.
39
 They may be too direct, too forthright and used to drawing a line
in the sand and defending it against all challengers.
A negotiator with a high level of emotional intelligence and
intercultural communication skills is preferable – someone who
is able to read body language and to empathise. Negotiation in
China is a courtship process: you both go out for a while and get
to know each other better, then you move on to the engagement
(prenuptial contract). Things then move quickly and become
more direct – when sufficient trust has been built up both take
the plunge.” – Ed Weymes, Associate Dean International at
Waikato Management School who has more than 25 years
experience in developing partnerships with Chinese enterprises.
Understanding the goals of your Chinese counterparts
‘One bed two dreams’ – This Chinese proverb highlights the
different expectations that parties to a negotiation may have.
Serious misunderstandings occur when one or both sides at
the negotiating table assume that the goals of the negotiations
are shared.
Understanding what the other side really wants is made more
difficult in China because of language and cultural differences.
At a Chinese negotiating table, everything is negotiable. When
you have a contract you should fully expect to have to negotiate
it again as part of an ongoing long-term relationship.
Where to get help
For help understanding Chinese negotiation techniques talk
to New Zealand Trade and Enterprise, and New Zealand or
Australian business people already in China.
‘Understanding China – Building Bridges for Business Success’
by Ed Wymes also introduces New Zealand executives and
managers to the business practices they will encounter in China.
For information on:
• the importance of deeper relationships when doing business
in China see the “Entering the Market – Business
Relationships” section
• the culture and values that underpin doing business in China
see the “Entering the Market – Chinese Culture and Business”
section
• how to use interpreters at meetings and negotiations,
and language tips see the “Navigating China – Language
and Interpreters” section.
kiwi success – define objectives
“I think a vital ingredient is to make sure you clearly define to
your business partners what your objectives are and what you
believe their part of the bargain is. A lot of companies don’t do
this. They do not put penalty clauses into their contracts and
they find in time that things go sadly astray…be very, very sure
of what your objectives are and put penalty clauses in your
contracts for non-performance.” – Keith Stevens, General
Manager, Ovine Garment Leather Division, Richina Pacific Ltd
40
kiwi success – have a bottom line
“Our relationships have been renegotiated over the years. China
is a tough place to negotiate and different from other markets.
Negotiating does not always involve finding a middle ground.
In other markets you can open with your ideal position and end
up with your middle position some while before getting to your
walk away position. In China you usually end up very close to
your walk away position. You have to have very firm ideas on
what your walk away position is otherwise you can end up losing
a lot and ending up with a deal you cannot live with. Make sure
you know what is your absolute bottom line – what you cannot
move on (price, length of relationship, company reputation,
standards etc). Healtheries uses an open book policy and we
reveal our margins throughout the chain.” – Brian Dewar,
General Manager, International Business, Healtheries
Meetings
Understanding meeting protocols
Meetings normally begin with small talk such as your positive
experiences in China and of Chinese people, the weather and
travel. Once people feel comfortable with each other, talk turns
to more formal business matters.
It’s helpful to have prepared some notes on your hometown,
city and company. You should also arm yourself with knowledge
about China and the places you’re visiting. You can share this
knowledge during conversation, perhaps by seeking
confirmation about something you’ve read or heard.
Understanding seating arrangements
Formal meetings in China usually take two forms
– participants either sit in a semi-circle in armchairs,
or around a conference table.
Meetings where participants are seated in armchairs tend to be
less work orientated. The armchairs are arranged in a horseshoe
shape (see diagram below). If the Chinese side is hosting, the
Chinese host will take the seat at the left hand side at the centre
of the horseshoe, while other Chinese participants will be seated
on the left hand side of the semi-circle.
The most senior New Zealand guest will be escorted to the right
hand side of the centre of the horseshoe, and the remaining
New Zealand guests will be seated on the right hand side of
the semi-circle.
Interpreters normally sit behind the host and chief guest
and interpret for their respective side.
If you are the host, consider hiring a formal meeting room
in a hotel. This can be expensive, so make sure the meeting
warrants the expense.
Seating arrangement below is case when China side is host If you are the meeting host, you should arrange to have your
delegation sit on the left hand side of the semi-circle, like this:
Seating arrangement below is case when New Zealand side
is host

Interpreter 1 Interpreter 2 Interpreter 2 Interpreter 1

NZ 1 China 1 China 1 NZ 1

NZ 2 China 2 China 2 NZ 2

NZ 3 China 3 China 3 NZ 3

NZ 4 China 4 China 4 NZ 4

NZ 5 China 5 China 5 NZ 5

Where there is formal business to discuss, meetings will often take place around a conference table. Seating will normally be allocated
by name cards. Generally, the delegation leaders face each other at the centre of the table and other participants alternate in order of
seniority toward each other, like this:

China 5 China 3 Interpreter China 1 China 2 China 4 China 6

NZ 6 NZ 4 NZ 2 NZ 1 Interpreter NZ 3 NZ 5

41
Understanding speaking protocols
Discussions are primarily between the two leaders, although
either may elect to include others in the exchange. Select one
person – usually a senior team member – to be your group
spokesperson.
Meetings begin with the introduction of the delegations. The
Chinese side (if hosting) will then launch into a reasonably long
and formal introductory presentation. The discussion normally
begins with general issues, before turning to more specific topics.
The New Zealand delegation is expected to reciprocate, and the
chief guest should prepare key messages for delivery.
Some Chinese people are not used to directly saying “no”. Instead,
they may respond with “I’ll look into it” or “I’ll see what I can do
on this”. Certain phrases such as “It can be inconvenient”, “I am
not sure” and “maybe”, may in fact mean “no”.
Think about your own strategies for saying “no”. You don’t have
to come out with direct answers. Be non-committal or evasive
if the situation calls for it.
The key messages from the Chinese side may be delivered rather
late in the meeting.
How to end a meeting
If the Chinese side is hosting, they will normally signal the end
of a meeting by referencing the busy schedule of your delegation,
or an appreciative remark about how good the discussion has
been. Your interpreter and senior leader should listen carefully
for those comments.
If you’re not the host, then there is generally no need for you to
take the initiative to bring the meeting to an end (unless the
discussion is dragging on unproductively or you have another
commitment to go to).
At the end of a meeting, a simple handshake and goodbye
(‘zaijian’ in Chinese) is enough. If it is the first formal meeting,
gifts may be exchanged at this time or at lunch/dinner if there
is one. Guests are expected to leave before the hosts.
key learnings
• Be thoroughly prepared, patient and observant.
• Do not put your ‘cards on the table’ – New Zealanders can
be too open and honest in negotiations.
• Stay calm and don’t lose your temper.
• It may be possible in some circumstances to involve embassy
officials and trade commissioners – this can open doors.
• Designate the most senior member of your team as
spokesperson.
• Ensure the technical people on both sides have time
for discussions.
• Use Powerpoint presentations if possible.
• Translate handouts.
42
• Expect ambiguity.
• Do not race to the bottom line.
• When dealing with a panel, ensure you know who are the
key decision makers.
• Bargain hard – it’s expected.
• Nothing’s agreed until everything’s agreed, so returning
to a point you thought was covered is not unusual.
• Get experienced professionals to review draft contracts.
• Have a bottom line and don’t cross it. No deal is better
than a bad deal.
3.6 CHINESE CULTURE AND BUSINESS
Dealing with China’s culture and protocols
China’s culture and protocols are often very different from
New Zealand’s and may seem overwhelming and mystifying.
The Confucian traditional belief system, ethics and behaviours,
along with relationships and the concept of ‘guanxi’ (or
functional business connections/ relationships), remain at the
heart of business culture and etiquette in China.
Chinese people generally place great importance on
relationships, ranking and protocols.
China’s larger cities and southern and coastal regions are more
familiar with international business practice and are more likely
to be aware of what is required for international trade.
There are also some younger generation Chinese who, with an
international education, have a more modern approach to
international business. Despite this, they will still largely
conform to Chinese ways of doing things.
Understanding traditional values
Confucian values and concepts were designed to build a clean,
honest and orderly society where responsibilities and obligations
are observed. However, in practice they also have negative effects.
For example, guanxi can be used to bribe and corrupt public
officials or people in more senior positions, or encourage
practices such as insider trading. For information on how to deal
with corruption see the “Navigating China Business – Ethics and
Corporate Responsibility” section.
The key business concepts derived from Confucian values are:
• adherence to a hierarchical system – including respecting
government representatives and the elderly
• collectivism – group or family orientation rather than
individualism
• the concept of ‘mianzi’ or face throughout business
interactions
• the concept of ‘neiren’ vs ‘wairen’ or inner circle vs outsiders
• the importance of guanxi or relationships in business.
When in China, the most important thing is to be prepared,
flexible, patient and be yourself. Enjoy the opportunities of
being a New Zealander doing business in China.
Understanding guanxi or the old boys’ network
Guanxi equates to: ‘It’s not what you know, it’s who you know’,
or ‘the old boys’ network’.
It describes the relationship or network among various parties
who liaise, cooperate and support one another. In the past it has
been a critical part of doing business in China. However, times
have changed.
Deep guanxi is a strong feeling of interpersonal relationship,
loyalty and trust, and moral obligation to maintain the
relationship from both parties.
It can also refer to those people one has a connection with.
In practice, it is an ‘in’ to many aspects of life, from being
introduced to a new business partner, helping smooth the path
of an application through a government office or securing a
business opportunity.
A good relationship with the people around you can lead you to
a new network which in turn will lead you to their networks. In
this way you’re building up a valuable social and business asset.
New Zealanders who have been involved in China agree good
guanxi enables you to get things done more easily. But there
are negative aspects to guanxi that can present some moral
dilemmas.
For example:
• If something goes wrong, your relationship can
be challenged.
• If you tap into your guanxi’s experience, resources and
networks or have received a gift you have incurred a debt of
guanxi. Though nothing may be said, you will be expected to
pay back the debt in the future by providing assistance or
favours either to the individual or their network. There is no
time limit on the debt. It can be decades or generations. But
if you don’t reciprocate when required, your guanxi will be
very hard to maintain. This is the moral dilemma of guanxi.
• You may feel obliged to do something you are uncomfortable
with such as receiving requests for favours.
• In order to preserve the relationship and to save face for both
sides, your Chinese partner may offer to provide assistance
that’s not needed, rather than just saying they can’t help.
• When providing advice, guanxi can be the main determinant
for a referral. For example when asked which part of China is
the best place to do certain business, your business partner
may recommend their home city or province. This may not be
the best or most appropriate place, but it’s where they have
an understanding, a network and guanxi.
• Guanxi can also be used as a negotiating tactic – for example,
you have to deal with this person, or hire that person
because of the debt from your guanxi. This kind of situation
can be a critical turning point in a business relationship and
one you should be aware of.
For advice on how to deal with negative aspects of guanxi see
the “Navigating China – Business Ethics and Corporate
Responsibility” section.
How to establish guanxi
The main way of establishing guanxi is usually by introduction
through a third party. This may be one of your own Chinese
employees, friends, or New Zealand overseas missions. In a
modern China it can also be through a simple meeting or a trade
event. These connections can come from anywhere at any time.
Find some common interests, learn some Chinese history and
culture and speak some Chinese phrases. These are all useful
tools to help build up guanxi in the early stages.
Nurturing and maintaining guanxi
The way to build up guanxi is to either visit or live in a Chinese
environment or to regularly meet with your Chinese business
counterparts face-to-face.
This includes visiting China often or inviting your business
partners to visit New Zealand frequently.
Reciprocating generosity and hospitality is part of maintaining
guanxi. This means you need to consider returning the
hospitality you received when your business partners visit
New Zealand.
Maintaining regular contacts provides opportunities to enhance
old guanxi and establish new guanxi through these contacts.
Developing and nurturing guanxi can be time consuming and
resource intensive. Consider it a worthy investment in
establishing a strong long-term relationship.
Experience from New Zealanders who have been involved in
the China market suggests that if your contacts claim to have
guanxi in China, make sure they do. Although it’s difficult to do,
check with them what kind of guanxi they have, how deep their
relationships go and how relevant they are to your business.
Focus on those people who have contacts with key influencers or
decision makers. More importantly, establish guanxi directly
with those influential senior officials yourself.
How not to offend
In China, “mianzi” represents a person’s image, pride, reputation
and social status. It’s an important part of relationship building.
A person’s face is also their organisation’s face. The relationship
you develop with an individual also represents your relationship
with their organisation.
Chinese people can be extremely sensitive about gaining,
maintaining, giving or taking away face in all aspects of life.
43
Two of the easiest ways to cause a person to lose face are:
• to criticise them in public
• disrespect their seniority or status.
This can cause unnecessary barriers to relationship building.
When dealing with Westerners, mianzi has a more complicated
meaning for Chinese.
On one hand, the Chinese may give non-Chinese special mianzi
and treatment on account of their foreignness.
On the other hand, many Chinese recall the Opium War, foreign
invasions and colonisation of the 19th and 20th centuries.
Those events are considered to be a source of humiliation
or ‘loss of face’ by most Chinese.
Today, Chinese people try to balance the need to attract foreign
investment while remembering aspects of history that caused
loss of mianzi.
What you can do to give face:
• If you are coordinating a meeting or hosting a dinner for a
Chinese delegation, arrange seating according to seniority.
For more information on how to set up a meeting or host
a dinner see the “Entering the Market-Negotiations and
Meetings” section.
• Respect your counterpart’s seniority in front of their subordinates.
• Arrive on time or early for an appointment. Arriving late may
be seen as a lack of respect.
• Provide better gifts for senior managers and/or officials
rather than providing the same gift for everyone.
• If providing gifts to the whole team, it’s also a good idea
to give a gift to the interpreter/s.
• Publicly thank your counterparts for their cooperation.
For example, raise a toast to them at dinner.
• If playing a game – such as golf – Chinese often allow their
opponent (someone in a much senior position) to win,
even if they are the better player.
• Focus on common interests and win-win issues. Though
Chinese tend to point out conflicts and disputes in early
stages of the negotiation, they prefer to leave them for
discussion at a later stage. If there are critical issues that
could undermine the whole deal, it’s a good idea to scope
them out early.
Numbers and colours to avoid
There are traditional taboos around numbers. Some business
people are especially sensitive to numbers in China, especially
in the southern part of China.
Lucky numbers:
• 3 – when pronounced in Chinese, especially Cantonese
(spoken in Guandong province and Hong Kong), sounds
similar to the word for promotion or being promoted.
44
• 6 – when pronounced in Cantonese is similar to the word
for happiness.
• 8 – when pronounced in Chinese, sounds like a similar
word which means prosperity.
• 168 – when pronounced in Chinese, sounds like a similar
phrase which means money flowing in easily.
Unlucky numbers to be avoided:
• 4 – when pronounced in Chinese, sounds like the word for
death (especially in Guangdong province and Hong Kong).
• 250 – when pronounced in Chinese, sounds like the word
for dumb/ stupid.
In some lifts, you’ll find there is no number for the 4th, 13th
or 14th floors.
Red and gold are for happy occasions. Black and white are
for funerals.
How to build trust
In China, there is a strong sense of ‘neiren’ – inner circle and
‘wairen’ – outer circle.
There’s a very high level of trust, confidence and loyalty
associated with anyone considered neiren. People in this circle
have common interests and common languages and can get
things done quickly.
Generally speaking, people from the same extended family,
the same town, even the same province, or friends, colleagues
and acquaintances are treated as neiren – inner circle.
When interacting with foreigners, neiren and wairen have
another meaning. People of Chinese nationality are sometimes
treated as neiren while other foreigners are wairen. However,
overseas born Chinese are still expected to conform to the way
things are done in China. If not, they can sometimes also be
treated as ‘foreigners’ or wairen.
This concept is also applied within China and within Chinese
relationships. Someone from another city or another part of
China can be treated as a ‘wai di ren’ – an outsider by Chinese
from another part of China.
Employing Chinese-speaking staff, establishing your networks
and making use of your Chinese business agents can help break
the ice.
Understanding hierarchy and decision making
The concept of hierarchy influences all aspects of Chinese life –
work, school and home.
Simply put, the individual is traditionally subordinate to the
organisation; the minority view is subordinate to the majority;
and the lower ranked official is subordinate to his/her superior.
Although a company director or president may be the ‘boss’, the
real decision maker in the Chinese system can be someone in a
seemingly innocuous position; in the case of government
departments or State Owned Enterprises someone from a
parallel Communist Party Department. While potentially difficult,
at least attempt to identify the real boss or decision maker as
early as possible.
As a result, the decision making process may be confined
to just a few people and may not be readily transparent.
Hierarchy has a huge influence in Chinese business settings.
It determines who enters a meeting room first, how
introductions are made, how seating is arranged in meetings
and at dinner, who speaks, and who makes decisions.
In China the emphasis is on equal seniority of like-counterparts.
For example it is common practice for director to meet director,
manager to meet manager and so on. However, in practice,
this may not always be possible when meeting with your
business partner.
If you can arrange it, a senior person from your business should
visit China. Doing so sends a positive message that you’re
sincere and that you consider your relationship with them
to be important.
These meetings also help your representatives in China to be
more effective, because when their position and activities are
supported by senior management they are taken more seriously
by their Chinese counterparts.
Entertaining
Evening banquets are necessary for hospitality, relationship
building and entertainment. They are also a popular and
essential process for business interaction.
For more information on banquets, dining, and drinking, see the
“Researching the Market – Making the Most of Your Visit” section.
key learnings
• The Chinese generally consider relationships, rankings and
protocols very important.
• They are sensitive about gaining, maintaining, giving or
losing face.
• Hierarchy influences all aspects of Chinese life.
• Be prepared, flexible, patient and be yourself – enjoy the
opportunities.
3.7 DEALING WITH GOVERNMENT AND LOCAL
AUTHORITIES
Dealing with government officials
Regulation is perhaps one of the most opaque subjects in China,
especially when it comes to understanding how laws are
interpreted and implemented by officials. The actual legislation
is often available in both Chinese and English, but by
New Zealand standards tends to be some what ill-defined,
partly to give government agencies and their officials the
flexibility they prefer.
Research is essential; practical ways of dealing with laws
and regulations, and the people who administer them,
can only be found on the ground by the company itself
or by well-qualified advisors
“China can be very confusing with a plethora of civil servants
and no apparent decision makers,” says Howard Wilcox, Director
Sales and Marketing at financial services company KVB Kunlun.
How to deal with officials
Most officials simply require the basic respect of you having
visited them out of courtesy and being honest about your
company’s intentions. The Kiwi straightforward, honest and
low key approach is best.
Stay in regular contact with key officials, pay them visits on
special occasions or in times of success and don’t just turn up
when you need them for something. Many officials are in office
for only three to four years so do not expect any cultivated
influence to last past then.
Chinese government officials have a high social status based
on their place in the hierarchy, so interaction with government
officials tends to be more formal.
Mayors and other local officials in China often have far more
power than we are used to in New Zealand. The majority of local
officials are parochial and where they can, they will use the lack
of clarity of in laws and regulations to further local ends.
The Chinese deference to hierarchy can mean that lower ranked
officials are reluctant to speak up, particularly if they are in the
company of their superiors.
If they do not directly answer a question after repeated attempts,
and it seems they do not know, do not push the point and
potentially embarrass them. Back off and ask for the answer
to come later.
Time estimates for how long something will take can be very
difficult – often they are highly under estimated, though in some
cases approvals can arrive far quicker than anyone expected.
When interacting with government officials, be careful about
what you say. For more information on this see, “Introduction
to Navigating China – An overview” section.
Chinese officials often show respect to guests through special
treatment. This may include queue-jumping, over-riding a long
series of traffic lights, or moving around major cities in
motorcades, headed by a police car with lights and siren.
Be wary of matchmaking activities with local Chinese companies
provided for you by local authorities. Often local authority
sponsored events, such as trade missions, are more about what
is good for the politicians, their region and its businesses than
what is in your company’s best interests.
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Remember there are lots of alternative ways of entering China
other than getting into bed with local authorities. For
information on these options see the “Entering the Market –
Typical Models for Entry” section.
kiwi lesson – help turns to pressure
Early on, when Skellerup wanted to start up in Jiangsu, local
authorities and politicians were very accommodating and
helpful, says company Managing Director and Chief Executive,
Donald Stewart. “But once our roots were down in Jiangsu the
level of support changed and the local authorities became very
demanding. They continually put pressure on Skellerup to invest
more capital in the venture.”
Skellerup believes these demands are made so officials can meet
their own KPIs. This constant pressure for more capitalisation
has been difficult for Skellerup. Although the demands are
delivered in a non-combative way, they have been persistent.
Stewart says Skellerup’s response has been that the company
is looking at continuing to expand over the next five years if
all goes well. “The Chinese authorities have appeared only to
have heard ‘expand’ and not the caveat ‘if all goes well’ and
the pressure continues.”
kiwi success – “managed escalation”
When Air New Zealand was laying the ground for the
establishment of its direct Auckland–Shanghai air service,
its central strategy in dealing with government officials was
‘managed escalation’. Air New Zealand and its allies made every
effort to resolve potential issues at low levels of the bureaucracy
rather than going straight to the top. This built up credibility and
support among stakeholders.
How to find and meet decision makers in government
Finding the actual decision maker in a government agency can
be difficult for an outsider.
There are consultants who can play matchmaker between you
and officials in your region or industry. Be wary that some people
may talk up their networks and level of influence. Every local has
a friend, relative or classmate in a high place.
One way to meet government officials is to network. Be on the
look out for New Zealand Government, New Zealand Trade and
Enterprise and Embassy events where Chinese officials will be
attending. Also consider participating in events organised by
other countries such as Australia, Britain and the US, especially
the American Chamber of Commerce.
kiwi success – use an agency
International financial services company KVB Kunlun eased the
way for the establishment of a branch in Hong Kong by hiring a
professional agency to introduce the company to the Securities
and Futures Commission which is responsible for regulating the
securities and futures markets in Hong Kong. The company says
the agency “helped us with the minimum amount of fuss” by
facilitating licensing and other legal and regulatory requirements.
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Dealing with government-owned businesses
It can be easy to forget, but China is a communist country and
the government plays a direct hand in all key parts of the
economy and in strategic enterprises. There are still over 1,400
‘listed’ State Owned Enterprises and the Chinese Communist
Party is involved at all levels in their corporate governance.
The more sensitive the industry, the more important the
government’s role. Most heavy and infrastructural industries
are still government/state-owned enterprise dominated (for
example, energy, telecoms, transport). This can mean unwieldy
but well resourced competitors and much interference. In
contrast, consumer goods tend to be left much more to the
open market.
There are also regional variations in the degree of government
involvement or interest you will have to deal with. In general,
on the east coast your interactions with government officials
will be at a lower level than you can expect in central and
western areas.
kiwi success – we regard officials as friends
“Our relationships with government officials are exceedingly
important, particularly in Guangxi (province where BioVittoria
has a facility). Without their support we would have great
difficulty. We regard them as friends, they’re not foes. They
haven’t interfered with what we are trying to do – in fact they’ve
been hugely supportive. So we’re very grateful for that. And it’s
from the highest level to the lowest level that we’ve got the
support and that’s worked exceedingly well for us.”
– Garth Smith, Managing Director, BioVittoria
Finding out if there is a government connection with prospective
partners is an important part of doing due diligence. Such a
connection is not necessarily a bad thing, but it pays to
understand a company’s ownership structure and choose
localities with care. For information on how to do due diligence
see the “Entering the Market – Doing Due Diligence” section.
Party officials still frequently retain a majority of the seats
on strategic company boards of directors.
Its military enterprises have also established wide trade
connections and technical cooperation agreements with
thousands of companies and manufacturers.
However, direct government influence in businesses themselves
is being rolled back. The military has sold off its assets,
however it still has some influence without having direct
ownership or control.
key learnings
• Network to find out who the key government officials are.
• Visit key officials out of courtesy and be honest about
your company’s plans.
• A good relationship with officials can help you stay
up to date on law changes and official thinking.
• Interaction with government officials tends to be formal as
officials have a very high social status based on their place in
the hierarchy.
• Be wary of local authority matchmaking activities with local
Chinese companies.
3.8 USING AND MANAGING CONSULTANTS
Using and managing Chinese consultants
There’s no shortage of advisors (or advice) on entering and
setting up a business in China. The question is ‘who are the
best advisors for you?’
Cultural and language differences make it more difficult
to find good advisors and determine if you’re getting good
advice for your particular situation.
A simple place to start is to use China-based advisors. China’s
markets and rules and regulations are changing so quickly
it is virtually impossible for consultants and advisors to
keep up unless they are locally based.
Forget about trying to do it yourself.
At some stage you are likely to need the advice of lawyers,
accountants, interpreters and translators, business entry
consultants, human resource advisors and real estate agents.
How to get the best advice
Keep it simple, says Scott Brown of Shanghai-based RedFern
Consulting. “With all the current focus and mythology
surrounding China as a market, investors often over think the
issues and lose sight of the simple things that got them to that
point or that they would normally have at the top of their list
for any other market.”
You can burn up a lot money and mental energy trying to get
the correct answers to the wrong questions. In China the gap
in knowledge covered by ‘you don’t know what you don’t know’
is huge.
Advice may also appear contradictory, but needs to be put into
context. This is why local advice is essential. Chinese markets are
so complex, diverse and fast moving, being out of the country
for even a couple of months will leave you out of date.
If you are looking to use New Zealand-based advisors on the
basis of their connections and associations with China, make
sure they have strong and well-placed connections relevant to
your business. There are also cost implications as they will add
a margin onto whatever services are provided from China.
As well as the big-name professional advisory companies, there
are smaller consultancies (in some cases staffed by Kiwi expats)
that may be suited to the smaller size of New Zealand
companies.
New Zealand Trade and Enterprise has a list of consultancies
that may be suitable for NZ companies.
You should be wary of advisors who claim they can cover all
bases for you. In China it is highly unlikely anyone can do
this effectively.
You should also be cautious around people saying ‘they will
take care of everything’. You need to control processes such
as registering local trademarks and getting customs recordal
and not cede them completely to advisors or consultants.
It is advisable to do some form of due diligence on potential
advisors to gauge their trustworthiness, competence and
experience. This is also important for protecting intellectual
property. For more information on this see the “Entering the
Market – Doing Due Diligence” section.
kiwi lesson – also form partnerships
“I guess what makes [finding the right person] difficult in China
is that with various boundaries such as culture and language it
makes it a lot harder to work out whether that advice is the right
advice for you and how beneficial that is to your outcome. So I
would suggest definitely local advice, but to me it’s more than
advice. You’ve got to form partnerships here and that can be in
the form of your own staff that you employ or it could be again
tapping into local consultant companies or the sort of
companies in your industry.” – Jade Grey, Beijing-based Kiwi
entrepreneur and owner of Lush Bar and Pyro Pizza
key learnings
• Don’t do anything without local Chinese advice.
• Be wary of advisors who claim they can cover all bases
for you.
• Do due diligence on potential advisors.
• Be careful regarding how much control of business
processes you give advisors.
• While making use of advisors, make sure you have access
to other sources of information.
3.9 DOING DUE DILIGENCE AND
AVOIDING SCAMS
How do I make sure I don’t get deceived?
Performing due diligence in China can be a lot more difficult
than in other countries, but it is an absolutely necessary part
of every China entry strategy.
As with many developing countries, corruption and scams are
not uncommon. And while the situation is improving, anyone
operating in China needs to be aware.
On top of difficulties such as distance and culture and language
differences, companies looking to research Chinese business
people and companies have to deal with a shortage of accurate
and up to date information. There’s no national company
registration system and Chinese companies are also notoriously
non-transparent.
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Despite these difficulties it is essential to research any Chinese
companies or individuals you are considering doing business with
to ensure that they are legitimate, credit worthy, reliable and can
do what they say they can do. This includes independently
verifying all important information that they provide you.
A wrong move in China can later prove to be very costly in terms
of time and money.
Use local experts
Kiwi Scott Brown of China-based RedFern Consulting says
simple checks can be made in China through companies such
as RedFern that are capable of verifying the credentials of
Chinese businesses and business people.
He also suggests:
• where possible get public information from government
agencies and other authorised bodies such as law firms
• do a legal background check to ensure that ownership,
structure and registrations are clear
• consider contingent liabilities. Who really owns the shares or
the parent company? Who really owns the land and what
kind of rights do they have to it? What may seem reputable
may often not be
• meet company managers and judge their willingness to
open their books, answer questions and provide legal
documents. If a company is nationally reputable, or exports
to large foreign clients, it will likely have been through
this before
• if the company has international clients, ask for the list
and double check it
• for quality assurance issues, you can use independent
third parties to do an audit.
Do not trust financial data unless you have had this physically
audited by experienced professionals. It is very common in China
for local firms to carry multiple sets of accounts for tax or
‘management’ purposes.
China-based consultancy Dezan Shira & Associates suggests
getting a Capital Verification Report to check how much of
a company’s registered capital has actually been paid up.
In China registered capital, one measure of financial size,
isn’t automatically paid up just because a business licence
has been issued.
New Zealand Trade and Enterprise (NZTE) can provide a list
of agencies capable of doing due diligence or seek
recommendations from China veterans.
kiwi lesson – take a holistic view
Jude Hooson, Director of The Providence Group, says due
diligence is not just about numbers. It’s also about
understanding the Chinese culture.
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kiwi lesson – minimise risk
• “Allow time to validate and verify what is being sought.” –
Doug Ducker, Managing Director, Pan Pac Forest Products
• “Choose partners carefully and have an unhitching strategy
in case things go wrong.” – Bruce Heesterman, General
Manager International, Airways Corporation
kiwi lesson – make sure you get the right partner
“The advice I have for New Zealand businesses seeking to enter
China, above all else, is to emphasise patience and due diligence.
Talk to a lot of people, do plenty of reference checks up stream
and down stream, get credit reports on those shortlisted
companies before making your decision.
I think one of the frustrating things for exporters to China is that
the number of genuinely capable companies who operate with
integrity and that can reach the broad market is very limited.
If you can’t find a partner to work with that fulfills the criteria
that you are seeking then don’t be frightened to hold off.
Sometimes it’s better to wait than to enter too soon to work
with the wrong partner and have a set of problems to recover
from and repair that could potentially take you several years to
get over.” – Brendan O’Toole, Managing Partner, Summergate
International
For background on Chinese business culture and ethics see
the “Entering the Market – Chinese Culture and Business”
and “Navigating China – Business Ethics and Corporate
Responsibility” sections.
Getting credit checks done
The four big credit rating agencies – Standard & Poor’s; Moody’s;
Dun & Bradstreet; and Fitch Ratings – are all present in China
and/or Hong Kong. There are also some local rating firms such as
Xinhua Far East China Rating; Chongqing Business Credit
Investigating and Consultation Centre; and Huaxia International
Credit Group.
NZTE can provide referrals to companies that can be
commissioned directly. The work is out-sourced to local credit
companies. The cost can range from a few hundred to a few
thousand dollars depending on what is requested, the speed the
report is required, the location of the company being checked
and how much information is provided on the Chinese company.
How to do due diligence on potential manufacturers
While many Chinese factories are modern and automated, some
are not. New Zealand fire detection equipment manufacturer
Pertronic Industries warns that some of China’s manufacturers
can appear very impressive on the surface, but the quality
control is abysmal and products are shoddy.
Alibaba.com recommends the following steps to ensure you
are talking to the right manufacturer:
• examine their financial health, production capacity, quality of
goods, client references, export history, intellectual property
performance and level of experience with Western
companies
• compile as broad a list of potential factories as possible
• get product samples – shoddy quality or unreliable delivery
should immediately eliminate candidates
• narrow down the field to three to five suppliers that look
good on paper and produce good-quality products at a
satisfactory price
• order a detailed factory audit in China.
The last step is for your company to make a detailed, second-
level assessment that integrates buyer requirements into the
evaluation. This process usually rates the candidate as a whole,
including all business practices, with a specific grading scale for
each set of criteria. Your company can then either choose one
candidate or start a bidding process between the potential
suppliers on your shortlist.
Ask questions such as:
• Does the Chinese vendor run its own compliance checks
on quality control and have sufficient oversight?
• Is the Chinese supplier likely to outsource the order? Second-
degree outsourcing makes it more difficult for companies to
monitor supplier quality and ensure that there are no
environmental, health, safety or child labour violations
in the manufacture of its goods.
(BPMC. (2004). Sourcing from China, Part 3: Assessing the costs.
Hong Kong: Alibaba Group.)
Always visit the candidate factories before making a final
decision.
For more information on sourcing a manufacturer see the
“Manufacturing in China – Finding a Manufacturer” section.
How to avoid scams
As with many developing countries, corruption and scams in
China are not uncommon. And while the situation is improving,
anyone operating in China needs to be on their guard. In
Transparency International’s 2007 Corruption Perceptions Index,
China scored 3.5 out of 10 (a mark of zero represents highly
corrupt) and ranked 72nd out of the 163 countries surveyed.
As well as putting your integrity on the line by getting involved
in scams or corruption, you are exposing yourself to severe
penalties because the Chinese Government is cracking down
on corruption.
How to deal with unsolicited enquiries
Only a small percentage of Chinese trade enquiries are of a
dubious nature. Most are genuine enquiries that do not make
unrealistic demands. NZTE is able to provide information on
commissioning a report on the Chinese company if New Zealand
exporters believe the trade opportunity is genuine and want to
follow up independently.
It’s common for first time exporters to be convinced that they
have found the right partner through an email contact or an
internet trading portal. There are innumerable cases of
businesses transferring ‘spotter-fee’ funds to China and finding
that nine times out of 10 the receiver of these funds has given
a false address and pursuing them would be futile and
very expensive.
The important point is not so much that all cold contacts are
scams but that due diligence, checking on bona fides and credit
worthiness, is vital before entering any transaction in China.
Relying on an online site or an email contact to provide this
is very unwise.
Points to consider when you get an enquiry include:
• Does the enquiry fit your company strategy in terms of
market and the sector within the market?
• Is the suggested market entry strategy one that has been
used by you in other markets?
• How much does the enquirer appear to know about the
China market, and about the details of entry and of the
various legal requirements?
• How much do you know about exporting and specifically
about exporting to China?
• Is your brand protected in China?
Some simple checks can be done to attempt to determine the
credibility of the enquirer. If the enquiry comes from China:
• look at the email address – the address of an ISP or a portal
(eg gmail, hotmail, yahoo, sina, sohu, 123.com etc) often
indicates a new or small company or an individual calling
themselves a company, or an individual using a legal
company’s name
• check the company name on Google – even if the site is all
in Chinese that is a start
• insist on the Chinese company providing a copy of their
business licence as well as full contact details
• ask for details on the company’s trading history, including
products and markets
• ask for their experience
• ask for references from other companies they have dealt
with in New Zealand and internationally
• do not be afraid to ask the hard commercial questions
(eg how will you remit the funds to me).
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Who can help?
NZTE has three offices in mainland China – Beijing, Shanghai
and Guangzhou. Through its network in the region, NZTE stays
up to date on scams and other market intelligence.

key learnings
Due diligence
• Do not use the term due diligence in front of Chinese
business people – in Mandarin it translates as ‘investigation’
which is likely to give offence. Better to use words like
‘research’ or ‘information gathering’.
• Be ready for Chinese partners to discourage an ‘investigation’
– stick to your guns, but be polite.
• Do due diligence on prospective consultants and specialists
you are considering hiring to do due diligence.
• To keep due diligence manageable, confine it to your
potential partner’s intentions, abilities and judgment.
• Don’t neglect hard questions for the sake of getting or
maintaining a relationship.
• If the relationship is at risk, transfer blame for the need to
do this research to a third party, eg banks, the board etc.

Avoiding scams
• Be extra careful with unsolicited approaches.
• Bear in mind the old adage – ‘If it looks too good
to be true, it probably is’.

CHINA

CHINA CUSTOMS TERRITORY

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