Zhongnanhai - Headquarters of the Chinese Government

This is an ongoing discussion on the 10 guiding principles of starting a new business in China (or re-starting your business if the case may be).  Here we explore the first principle:

Develop a comprehensive government relations program for both the Chinese and U.S. governments.

The People’s Republic of China (PRC) may have embraced capitalism and open markets, but make no mistake … the Chinese government has a hand in nearly all of its markets and industries.  From state-owned enterprises to watch-dog regulatory agencies, the government has its fingers in every aspect of its economy.

It is even more entwined at the provincial level, where bureaucrats, party leaders and business owners blend their financial and commercial interests and activities to such a point it is often unclear who is in charge.

Ever since Richard Nixon’s inaugural trip to China in the early 1970s, the U.S. government has been actively involved in both a political and economic dance that has both benefited and hurt U.S. business interests in China. Just look at a very recent, in-depth report in Business Week titled “Dangerous Fakes – How counterfeit, defective computer components from China are getting into U.S. warplanes and ships.”  The government is wary of a growing and more powerful China, and technology companies often get caught in the middle of a tug-of-war, whether that war is cold or lukewarm.

So any company, no matter how big or small, must invest and build a comprehensive government relations program designed to promote the company’s China objectives.  I spent three years in China orchestrating joint ventures, creating semi-governmental organizations, and working with multiple ministries to promote Intel’s China business and goals.  Some of the more prominent ministries I’ve worked with at the central and provincial level include the Ministry of Information Industry (MII, which covers the entire technology and communications industry), Ministry of Education (MOE), and Ministry of Culture (MOC, which is responsible for oversight of all content that is delivered not only over the Internet, but also in performing arts, music, films, literature, and television).

Here are some suggestions for building a government relations program in China:

  • Locate your team in Beijing (you certainly would expect your U.S. lobbyists to be in Washington D.C.).  But be sure the team has a provincial plan as well, as discussed below.
  • Do not assume that agreements at the central government level translate into action in the provinces.  Many businesses are surprised by the autonomy, and sometimes ineffectiveness, of the central government to execute policy in some provinces (this differs by province).
  • Hire experts, whether they be consultants or full-time hires.  They could be ex-government officials, lawyers with expertise in Chinese law, or people with government relations experience with other large companies.  The Chinese government is a complex web of ministries and committees with overlapping layers of responsibility.  This complexity is mind-boggling.  Note the slide I developed below to show the government groups we had to influence for new energy savings policy.
  • Ensure the people you hire have your interests at heart.  As I will discuss in principle 3 (trust no one), the Chinese are intensely individualistic with self-interest ruling their actions.  Ensure transparency by staying very involved and requiring frequent communication.  Building trust, credibility, and buy-in to common goals takes time.
  • Hire your own translator…do not depend on the government’s liaison to translate accurately for you.
  • Drive government relations and business planning in parallel.  As with most bureaucracies, things move very slowly.  Create a sense of urgency by planning a launch event to showcase an “agreement.”  Once speakers and the press are lined up, it forces action to avoid losing face for delaying this type of event.
  • Get officials from the highest levels of their respective ministries involved and supportive of your plans. This can often clear the way in case of logjams at lower levels.
  • Increase your physical exercise habits…be prepared for lengthy discussions at meals (breakfast, lunch or dinner) with government officials.
  • Look at creative business opportunities with government agencies that can support your business.  For example, we paid a government computer testing lab to do benchmark testing on how much average power our PCs really utilized in Internet Cafes.  We were then allowed to publish the “government certified” results on a sticker we placed on the retail product’s box.

As I’ve mentioned before, I’m a fan of James McGregor’s book One Billion Customers and will be citing his insights throughout this series.  Here are a few I thought were especially good:

  • Avoid joint ventures unless you have no choice. The Chinese want your technology/know-how.
  • Include international organizations and trade associations in your plan.
  • Don’t cede government relationships to a partner. He will have his own agenda.
  • Frame your arguments on how your business is good for government.
  • Legal contracts will easily die when politics go against them.

With regards to the incorporating a U.S. component to your government relations program, I will not elaborate more on this as it is a well-covered subject for those doing business in the United States.  The point I want to make is that it is just as important to build relationships with the appropriate U.S. government agencies, because they can help you pursue your agenda in China through various US/PRC negotiations, and can help if you should get caught mired in the middle of an inter-governmental dispute.

I put government relations first for a reason. A proactive program to engage the Chinese central and local governments can enhance your business success and help you minimize potential pitfalls and challenges, which I guarantee you will encounter on your path to success.

Coming up next…a deep dive into the second principle: Become an expert on how the Chinese business person thinks and works.