UKTI: Doing business in China – Dealing with Government Part 2

ROLF CREMER: China is not a democracy, it is a one party state. The government holds
the ultimate power. The future stability of China is one of the main assets of this country
in continuing to attract foreign direct investment. FRASER WHITE: It is not quite an even relationship. When we enforce our contract,
you have to remember we are guests here in this exciting economy. RORY McGOWAN: Some companies come in, do a project, and leave and do not have
to deal with the consequences. Whereas we have got a 20 year track record now. We are seen in the market here as someone who is here for the long haul so we are respected
by the Government Departments, The Ministry of Construction, the various City Authorities:
they know our name. MARK LADHAM: These people are fundamental to the fabric of their cities. They are their cities: and therefore we do business in their cities with their support. It will be wrong of us to say we understand you want to do it this way, but this is our standard. ED RADCLIFF: A clear metric: that they have to attract foreign investment, but it is certainly something that they will aspire to as partly an element of status. KEITH LINCH: If I took YuBei district government as an example: they knew that we
have set up a joint venture company, which which is why we originally went to talk to them
in Chongqing. They actually made a point of saying that they did not want to work with
a joint venture company, but they wanted to work with a foreign side of the joint venture
company. ED RADCLIFF: The Chinese local governments like to attract foreign investment. Why? Because it
brings the standards of technology up, it absorbs labor and it is good for the community. FRASER WHITE: It is much better now if you can set it out with a wholly formed entity which you still need to have partnership relationships with Chinese government, Chinese businesses,
the Chinese consumers but those relationships are often better placed at arms length contractual
relationships rather than having them within rather than having them within a joint venture, within your board. MARK LADHAM: A good solid contract is a starting place. But one cannot go
without the other. Relationships in China are very, very important. That is the same
whether it be a government relationship or a vendor relationship. We need to be seen
to be open. We need to seen to be able to take advice, take criticism. Some of these people in cities or even our vendors have a lot of experience: it would be wrong
of us to say we are big, we are international, stand back. KEITH LINCH: Everybody wants a contract generally nobody keeps the contract once
it has been signed. That is the difference. In our business we are paid according to a schedule in the contract so that is quite
important. The contracts schedule for payment is more important than sending invoices. ALLAN HEPBURN: You know a lot of what I read in the west is spin and hype there is a legal framework for doing business here. You need lawyers, you negotiate a contract,
its binding. if people break it, you can take
them to court, and sue them, and get your
money. So that system exists. Again my experience in Shanghai not throughout China so I can’t
vouch to how it works elsewhere. How you get to the point of contract? that may be a different process I would urge anybody who is thinking about setting up business here: understand the process. “Guanxi: a central concept in Chinese society, describing the basic dynamic in personalised networks of influence” KEVIN DONNELLY: The government provided all the assistance we needed, together with some of the network that we built up in Chengdu so those are the people in the city who we
called upon for advice and guidance. ED RADCLIFF: I never advise companies to rely on any one guanxi, you need a network
of guanxi. If you are looking at any given issue or given industry or something and you
want to know something about it, you wouldn’t rely on necessarily one person You can by all means lobby at the highest levels of the political system, but if you have not won
over the people at the working level, the bureaucracy can come back and bite you. FRASER WHITE: It is not just Guangxi. I have a friend with a minister, therefore
I can do business. You have got to have all the proper bases for your business and make
the proper commercial decisions you make elsewhere. On top of that because so much of your business
decisions and your future approvals tie in with the government, it is important to maintain
good relations with those people who are going to give you those approvals. It is just they
seemed to be more, because the State is more present. You seem to have more of those relations
than you would in other countries. ED RADCLIFF: But I always think even in a joint venture situation for example, if
the relationship is not good, you are not going to be able to sense what the sort of
major concerns of your partner are. And eventually what you might end up doing is ending up with
a situation where there is a vote of the board meeting and you have already got a confrontational
situation then. And so you want to try and avoid any direct confrontation. KEITH LINCH: We have lots of different departments that we have to deal with. KEVIN DONNELLY: And in each government department there is an awful lot of people.
So managing those relationships is quite a challenge. KEITH LINCH: For instance, our accountant, if she is obtaining a tax certificate, so
we can transfer all our money back to the U.K.: She can end up going to 9 different tax
departments, and government departments in Chengdu to actually obtain one certificate.
So, that tells you that the bureaucracy is quite high, and there is a lot of government
departments that are interrelated but do not seem to talk to each other. STEVE GILMAN:But if you find that in any country in the
world. The issue for retailers and for anybody doing business really is to understand what
the issues are and then to understand the way that you can work with the government
or work in the legal framework of the country, to overcome those obstacles. ED RADCLIFF: You probably have to understand when you are lobbying against a given regulation,
that you understand where the opposing side is coming from. And then find organizations,
that have influence over them. And involves knowledge of the Chinese government system,
the party system. And by doing that you can often ensure yourself or protect yourself
against such occurrences happening. PATRIC DOUGAN: There are very few hostile takeovers in China. It is simply not really
the done thing. . The State both central level and local level still plays a very big part
in the business life here. And if there is an understanding that a business is supported
by a local government then that does have business benefits too. BILL THOMPSON: The Chinese partner have been very useful in many occasions for example
in providing funds locally in China. That is something maybe a lot of people do not realize
but a lot of these big state-owned companies have got easy access to funds. And if you are a
small joint venture of wholly owned company, getting you know local borrowing can be very
difficult, It certainly not impossible because I have done it. We borrowed like 16 million renminbi
and it was basically an unsecured loan. KEITH LINCH: China is very good at getting money into China, but they have got this idea
that money should not leave China once its here, which makes it very difficult for foreign
investors. ED RADCLIFF: I would also always look at what is happening on the regulatory side
of the economy. It depends probably how regulated each sector is, but what I would do is just
take a snap shots and say well, are the new policies and regulations likely to support
growth in that sector or hinder growth and that one informed, and that is one overlooked
actually, surprised me in market research. BILL THOMPSON: And also the Chinese government themselves still have guidelines as to what
sectors you can do business in, FRASER WHITE: When you think where China has come from they have had to develop a robust
company, criminal, civil, legal system to support this incredible growing economy. And
they have had to do it in an incredibly short period ED RADCLIFF: The regulatory framework does change quite regularly but often it is
to the foreigners advantage and if you think of what the bigger picture is, China is trying
to comply with the WTO obligations. But there are often small rules and regulations that
catch out the small manufacturer and that you need to often do with your local government. KEITH LINCH: Projects generally, particularly government projects generally move forward
because of personality rather than policy. Policy can be got round in China. It will
be thrown up at every given opportunity. It depends who you are dealing within the government
as to whether that personality is strong enough – whether they are high enough up in
ladder to change that policy. You do get into a position in China where you get used to doing things
quickly and then you come up against some policy that is not changed. ROLF CREMER: This country is reforming at breakneck speed. Or say, just below breakneck
speed. It cannot go faster than that. KEITH LINCH: We were having problems after we signed our joint venture agreement, in
actually obtaining in all our business licenses and taxation licenses and so on. And it got
to a point where I asked the British consulate in Chongqing to intervene and talk to the
high level officials in the government here rather than me talking to them, which the
consulate did in Chongqing, and because it is a foreign government talking to the Chinese
government within three days everything was sorted out.

Maurice Vega

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