Shanghai: The New Bridge To China’s Economy

by Keith D. Foote

 

Shanghai: A New Bridge To China

Hong Kong has been the traditional bridge to trade with China, but times and laws change. Shanghai has recently been set up with a free trade zone, covering an area of 11 square miles. The free trade zone began officially on September 29, 2013. It is described as promising easy conversion of China’s currency and a freer flow of capital. China is hoping to to create a large, highly efficient marketplace. Shanghai has invested large amounts of money to build a reliable infrastructure.

It’s an ideal situation for creating new contacts, and finding trading partners who are hungry for profits. And because of its novelty, it is also quite a chaotic situation. While a Free Trade Zone in Shanghai offers many opportunities, it also comes with risk, confusion, frustration, and the possibility of being scammed. China’s leaders have a vision of international trade, but not a lot of experience. Shanghai’s free trade zone is an experiment, and anyone doing business in Shanghai runs the risk of broken expectations and financial loss. This is true of any business endeavor, and by itself, should not deter you from doing business in Shanghai.

Finding honest business partners is key to having successful trade agreements, as is having a written agreement.

Visiting and researching the Shanghai American Chamber of Commerce website is a good early step in investigating Shanghai as an entry point for trade with China. They are an information resource, and are quite willing to answer any questions you might have. If your goal is to set up an office for managing local production of goods intended for export, or if you simply want to test the Chinese market, you will need to set up a rep office in Shanghai.

This is the most efficient way to start a business in China. Understand, however, this will not allow you to sell goods and services on the local economy. It “can” act as marketing office, for products to be imported to China, and act as a branch office for a larger parent company.

Another type of business option is the Joint Venture. In this situation, a your company negotiates a partnership with a Chinese company to enter and sell in the Chinese market. There are Equity JV and Co-operative JV issues, and there are significant legal and financial issues involved. Limits of liability and distribution of shares are two of many issues which will have to be resolved.

There is a third option, called the “Wholly Owned Foreign Enterprise,” or by its acronym WOFE. In this situation, your company makes a significant capital investment, and then owns all of the business’s assets. The Chinese government requires a foriegn business demonstrate it will be of benefit to the Chinese people, and their economy. This may include export quotas, use of technology, and engagement in actual manufacturing in China. This option is perhaps the riskiest in terms of losing your investment.

Doing Business In Shanghai

First Impressions: As a foreigner, you can win brownie points for your efforts to use the language, or to demonstrate you have researched their customs. Efforts on your part will help to build trust and goodwill. Make sure to dress cleanly and neatly in conservative business clothing. Avoid staring directly at people, and avoid pointing at anyone. Conservative behavior, or avoiding loud, emotional public displays, is important in China. The Shanghainese are normally very courteous. Avoid losing your temper, and keep your complaints and criticisms polite and discreet. While public behavior in Shanghai’s streets may seem aggressively rude, a meeting in a business environment will be both courteous and polite.

To bow or shake hands: Young Chinese don’t bow very much anymore, and generally, this formality is fading away in today’s China. A nod and a “gentle” handshake are appropriate greetings. Use of a weak handshake and a slight bow is an acceptable greeting in most business situations.

Business Cards: If you don’t have business cards, get some. Having a business card marks you as a professional. Without one, it’s not quite so obvious. During introductions, you are likely to receive business cards from your Chinese contacts. When receiving someone’s business card, accept it with both hands and a slight bow of your head. You want to treat the offered business card with respect. Read it immediately, and be obvious about putting it away safely, while in the person’s presence. Don’t bend their business card, or write on it.

Bargaining: If you you enjoy haggling, feel free to indulge your bargaining skills, especially in outdoor and indoor markets. Vendors may feign outrage, but they know how to play the game. Start with 25 percent off the asking price, and go up from there.

Be prepared to negotiate at a business meeting, but understand, verbal agreements do not have the strength of a written contract. The concept of harmony is very important in Asian cultures, and can be used as a manipulative tool to minimize your profits. Don’t allow yourself to be put in an unreasonable position for the sake of harmonious behavior. Politely, get commitments in writing.

Introductions: It is entirely possible you will get a round of applause as your official greeting. Applause is common as a form of welcome. The appropriate response is to thank your hosts, and return the applause if you think it’s appropriate.

Respect the concept of seniority during the introduction process. Try avoid to confusion about given names and family names. If your Chinese colleague has a traditional Chinese name like Yang Tsu, you should address him as Mr. Yang. However, he may have taken a Western name such as Kevin Yang to make life easier for his Western business associates. Yang is still the surname, but the names now follows Western traditions. Be cautious and ask about name usage. Many Chinese people do not like the assumption of friendship, and the use of given names, during a first meeting.

Drinking: This can be a difficult situation if you are not a drinker, or a one-glass-of-wine kind of person. The Chinese can be heavy drinkers, and take offense if you don’t join them. You have two polite options. Go out drinking with them, or claim poor health keeps you from drinking. While this might be considered a white lie, it may also have a ring of truth. Do you really want to deal with a hangover? But understand, not drinking will damage your working relationship slightly. Drinking together is a form of bonding. If you’re really creative, you might invite your colleague to an alternative form of bonding.

Handling Chopsticks: Assuming you know how to use chopsticks, between bites, keep your chopsticks together and place them on your plate, or across the top of your bowl, horizontally. Never stand your chopsticks upright in the rice bowl, as this is considered morbid. Any stick-like objects pointed upward symbolizes the incense sticks used as offerings for the deceased.

Business Meetings Rules:

  • Don’t interrupt anybody while they are still talking.
  • Don’t talk over silences, either, even if they start feeling uncomfortable to you.
  • Stay on topic.
  • Avoid small talk during the official part of the meeting and politics during small talk.      Your Chinese hosts may be very interested in your family and personal life at home,        though. Don’t mistake their curiosity for impolite intrusiveness.
  • Don’t ask for direct opinions and get used to reading between the lines. For example,      “we’ll study the matter” or “it’s not very convenient” very often means that your              Chinese associates are not interested in pursuing the matter any further. Don’t wait        for an outspoken “no”.
  • Business invitations, toast-giving, and gift-giving are other essential aspects of                  business culture in Shanghai and other Chinese cities. They, too, are characterized by    many intricacies. You may want to take a class in intercultural skills for China                  before you leave, or read up on such customs in books like “Culture Shock! China” or      “Doing Business in China for Dummies.

For other business information in English, you can visit Shanghai Amcham or chinabiz.org.

Photo by Andrew Och