Building trust in China: Woe to the unprepared

Some years ago, as Vancouver businessman David Fung left the vice mayor’s office in a southern Chinese city, several people were waiting outside to tell him about their “special relationship” with the vice-mayor and how they could be a consultant for him and help him achieve his goals.

David Fung, vice chairman of the
Canada China Business Council

“For one thing, they didn’t know what I wanted, and secondly, if I was even interested in that particular city. But they all lined up to say that they would be a good consultant for me,” Fung says. “Maybe it’s the tradition for that area, but my first reaction is to walk away and say that’s not how I want to do business.”

Building a successful business relationship can be difficult enough for parties who are from the same part of the world. What about those who are reaching across borders? “This is where time and commitment come into play,” says Fung, who is also vice chairman of the Canada China Business Council. “You have to spend social time—over dinner, over karaoke—to establish trust and an alignment of interest. Then one can establish what the other party’s intentions are very quickly.”

One of the biggest challenges for Canadian small- and medium-sized enterprises is simply making a commitment to spend the time and resources necessary to build trust, Fung says. When choosing a partner, it’s critical to get to know and understand each other through social activities.

“People who think they can fly to China a few times and sign a big contract will mostly be disappointed,” he says. “It’s easy to find lots of competent partners in China who may end up stealing your soul. It’s also easy to find some trustworthy but completely incompetent partners. So getting the two elements together is the criterion for success in a partner in China.”

The Chinese also want to have more personal relationships than Canadians are used to having in business. “They’ll ask more personal questions, and this is where the cultural adaptation comes into play,”  Fung says. “In North America, if I start asking you questions about your family, you wonder why I’m intruding into your privacy. But in China, where you can’t rely on the court system, it’s much more important for the Chinese business people to be able to establish trust.”

Much of business in China is done socially, often over lavish banquets with as many as 16 courses. “Keep in mind that the dinner is a form of relationship building,” says Sarah Kutulakos, executive director of the Canada China Business Council. “You may have been together all day inspecting your factory or sitting and doing negotiations, but this is a chance to relax a little bit—except it’s really not relaxing. It’s a way of developing other facets of your relationship that are important to doing business with the Chinese.”

While Kutulakos says dinner conversation is generally much lighter than at the negotiating table, sometimes the meal offers a way to address a particularly thorny issue from a different perspective. “Sometimes you’ll be able to have a side conversation that can gain you progress the next day,” Kutulakos says.

“It’s also the time to ask about family and what they like to do in their spare time. Often your Chinese counterparts, who may usually be in very regimented roles, have artistic hobbies, such as poetry or calligraphy,” she says. “Exploring an interest in music and so on allows you to deepen the relationship and gives you ideas on how to host them later. Maybe they’re big Rachmaninoff fans so when they visit you, you can take them to the symphony.”

It’s essential to learn about the regions you’ll be visiting and to have staff with the right language skills—and right dialect—to help bridge those inevitable communication gaps. Chinese words often have rather vague meanings until the context is established.

Carla Kearns, managing director of TLI-The Mandarin School, a Toronto-based consultancy specializing in language training and Chinese business culture, suggests hiring your own Chinese translator rather than using one from the Chinese company you’re negotiating with (and who might put them at an advantage). Make sure to work with your translator on any presentations or speeches in advance so that you are understood and properly represented.

“Sometimes when people complain about a lack of transparency, it’s really simply about miscommunication,” Fung says. The Chinese also rarely say “no” directly, he says. “There are all kinds of euphemisms for no, and if the Canadian party doesn’t understand that, then they’ll be chasing down a part [of the negotiation] where the Chinese thought they had already said no.”

Visitors must also understand the cultural differences between the south, middle and north of China. When it comes to signing contracts, Fung explains the differences this way: “The southern business culture is influenced by their speed of development. The southern Chinese will sign a contract once they’ve found that it’s in their interest. This is quite different than, say, the middle coastal area like Shanghai where they are much more meticulous. In Shanghai, they’ll also want to make sure that their Canadian counterpart would not be making too much money. The southern Chinese are not that jealous of how much money the Canadian partner might make once they figure out how they can make their money, but in Shanghai, they’ll spend an extra six months to a year just to make sure they are not giving too much away.

“As you go up north, to Shandong and Manchuria, it’s very easy to get a contract signed. But the problem is they expect that their interest will match their expectations without it necessarily being in the contract. So we have seen sad stories of Canadians moving into Shenyang and Harbin and eventually losing all their investment because they thought they had signed a good contract. But if the Chinese counterpart found that, in the execution of the contract, it wasn’t meeting their expectations, then they’ll find ways to wriggle out of the contractual terms or find preconditions to actually force the Canadian partners out.

“So it is much more challenging to do business in the northeast because you need to understand the Chinese partner’s expectations and make sure that those expectations can be met under the contractual terms.” Fung also warns that much of the advice on China given out by experts, including in the media, is out of date.

“We have too many people who were experts five or 10 years ago, including some former ambassadors, but China is changing so fast that the China they’re talking about no longer exists,” Fung says. “It’s extremely risky to use outdated experience for an evolving China. Legislatively, a lot has developed over the past 10 years that has caught up significantly with the western world, so things such as intellectual property protection are now very comprehensive. However, the problem lies in enforcement.”

If there is a breach of trust with your Chinese partner, Fung advises having strategic options in place. “Without alternatives, you are meat on the chopping block,” Fung says. “When it comes to loss of trust, I’ll just walk away. But hopefully, I’d detect it early on and not have a lot invested.”