How to Deal with the Chinese Government

How to Deal with the Chinese Government

Key Takeaways

  • When working with the Chinese government, seek alignment between the strategies of your company and the policies of China’s leaders.
  • Meeting Chinese government officials prior to or in parallel with negotiations with Chinese business executives increases the chances of success.

In the real world of doing business in China, the landscape is shifting. Foreign companies can no longer do business in China today in the same way that they have in the past. China’s development has altered the economic landscape: low-cost manufacturers have more difficulties, whereas high-tech, IT and healthcare firms are more welcome. Moreover, China has money to pay them.

When discussing opportunities, problems and challenges related to their China strategies and operations, CEOs often bring up the pervasive power of China’s leaders and how to deal with the Chinese government and Chinese officials.

How to Deal with the Chinese Government

It’s all about power. The power of China’s leaders comes through their leadership of the Communist Party of China (CPC), which is constitutionally mandated to lead the government in China’s one-party political system. The fulcrum of CPC control is its appointment and promotion of all key government officials—especially party secretaries (the top bosses of provinces and municipalities), governors and mayors—and of all key senior executives of state-owned enterprises. In fact, all officials and state-owned enterprise executives are evaluated based on their achievements of China’s leaders’ policies.

To distinguish government relations from business is to betray naiveté as to how China’s “system” works, where good relationships with Chinese government officials facilitate better relationships with Chinese business executives. (Indeed, government officials can become state-owned enterprise executives and vice versa.)

Thus, country managers of multinational corporations doing business in China should make government relations their personal responsibilities. They can have direct reports who focus on government relations, but this should not diminish their own “ownership” of government relations. Furthermore, when foreign firms take the Chinese market seriously, when China is or will become a global revenue driver, their worldwide CEOs should focus on Chinese government relations.

Sequencing relationships is vital: Top-down optimizes the system. When CEOs meet Chinese officials prior to or in parallel with negotiations with Chinese business executives, the character of the business meetings changes subtly—the Chinese executives become more respectful and the meetings become more productive.

Ideally, the foreign firm’s relationships with Chinese officials should be conducted independently by the foreign firm itself and not only via the foreign firm’s Chinese partner. The Chinese partner will always want to arrange these meetings, but the foreign firm should, at least on occasion, do this on its own. While the Chinese partner may argue that they know the Chinese system far better—which is obviously true—the fact remains that the foreign firm must develop independent relationships with officials or it will forever be held captive by its Chinese partner.

Furthermore, because the Chinese partner is, indeed, part of the system (and, thus, must obey strict reporting hierarchies and protocols), the foreign firm will have greater flexibility in arranging meetings. Many senior Chinese officials enjoy visiting with foreign CEOs in order to gain international understanding, a new criterion by which they are assessed for promotion.

Unfortunately, a strong government, anchored by a one-party political system, exacerbates a human frailty called corruption.

How to Deal with Corruption

Corruption is universal and no political system is immune; but, when economic systems change and vast state resources are privatized, the stakes shoot up—fortunes are made with astonishing speed, such that a combustible mixture of greed, envy and anxiety over eroding power can overwhelm morally weak officials.

Corruption is ubiquitous in China and noxious to the Chinese people. It transfers resources illegally from general society to venal individuals, effectively stealing from everyone. It pervades commerce and government and has proved maddeningly resilient to attack. Corruption is a drag on the economy and a scourge on society. It distorts economic decisions and undermines market efficiencies, and it threatens political stability and de-legitimizes the State. Corruption, rightly, engenders public anger.

Some say that corruption in China is the enduring, corrosive legacy of the “Cultural Revolution” (1966-1976), which so decimated Chinese culture and morality that there remains little immunity to avarice and rapacity. Others, primarily leftists, blame corruption on the market economy, which, they say, promotes wealth and individualism at the expense of socialism and collectivism.

The solution, China’s leaders have concluded, lies in deepening reform, not backtracking from it. Senior leaders do not whitewash the problem: Former President Jiang Zemin, President Hu Jintao and Vice-President Xi Jinping each have fought and railed against corruption. To China’s leaders, corruption impedes China from becoming a great nation.

Though corruption can never be eradicated, it can be controlled with a press/ media that is free to ferret out, scrutinize and expose dishonest officials. Corruption flourishes in dark crevices, shielded by the shadow of authoritarian protectionism. Only the bright light of an investigative free press, working without restriction or fear and the enforcement power of an independent judiciary, operating under a rule of law, can root out corruption. Only the press/media has the motivation, the manpower, and the temperament to reveal corruption comprehensively. As the freedom of the press/ media to report corruption increases, the severity of corruption decreases.

While a totally free press/media is not consistent with a one-party political system, the Chinese government does permit, and even encourages, anti-corruption investigative reporting—but, then, if the reporting becomes too intense or reaches too high, the government pulls back.

Reporting corruption can be a conundrum. If reporting is too timid, corruption will remain concealed and flourish. If reporting is too intense, social confidence may waver and central authority may be undermined. It is a conundrum that is not going away.

Corruption affects foreign firms—especially firms from countries, such as the U.S.—with strict laws of what constitutes corruption and strong punishment for violations. Some CEOs worry that they can be disadvantaged by competitors from certain other countries that may have, shall we say, “more flexible standards.”

What to do? Well, why do officials take bribes? Obviously, they seek financial gain, although illegal and dangerous. So, how can your firm provide “gain” to officials in ways that are non-financial, entirely legal and not dangerous?

Here’s how: Since officials seek promotion, consider how your corporate success could translate into the official’s career success. As noted, Chinese officials are assessed on how well they execute the policies of Chinese leaders. Hence, companies should learn how to align their strategies and businesses with these policies, which will not only benefit the company but also the officials with whom they work.

The China market is huge and growing, and most major companies have a China strategy—whether they know it or not. Appreciating how to work effectively with the Chinese government and how to deal properly with Chinese officials are essential for success.

Dr. Robert Lawrence Kuhn is an international corporate strategist, investment banker and expert on China. Since 1989, he has worked with China’s senior leaders and advised the Chinese government on matters of economic policy, industrial policy, mergers and acquisitions, science and technology, media and culture, Sino-U.S. relations, and a variety of international business matters. Dr. Kuhn advises leading multinational companies, CEOs and C-Suite executives, regarding formulating and implementing China strategies in a variety of sectors, including science and technology, energy and resources, industrial, media and entertainment, healthcare / medical / pharmaceuticals, consumer products, and financial services. He works with major Chinese companies on structuring their capital markets financing and M&A activities.