China - a Great Cultural Divide, Yet Business Thrives
I made my first trip to China in late September 2006 to attend the PKF International Symposium in Beijing. PKF is an association of about 100 accounting firms from around the world that primarily serves entrepreneurs. Meeting with my PKF colleagues allowed me to foster relationships and forge new connections - all to the ultimate benefit of our clients doing business in China or planning to do so.
My international associates focus their efforts on working with entrepreneurs who must meet the challenges of a global economy. A PKF associate from Nairobi, Kenya, told me about tremendous incentives available in Kenya to construct low-income housing. An associate from Hong Kong mentioned several ripe business opportunities in his country. This first-hand information helps pave the way for smoother business dealings in other countries - whether a client wants to set up a foreign business entity or develop another avenue of trade.
I also met with Julia Qi, from Zhong He Zeng Xin Certified Public Accountants, a PKF member firm in Beijing, which is opening a second office in Shanghai. Julia has assisted many of our clients with operational issues in China. During this visit, she helped obtain the services of a German-speaking lawyer in Shanghai for one of our clients. By making referrals and introductions to key professionals - bankers, lawyers, and financial advisers - in China, our clients have an easier time getting their business up and running. We can also put clients in touch with government officials through our PKF network.
If your company plans to set up a business or trade in China, Clayton and McKervey can advise you on the type of entity to set up, how to transfer people to China, and the tax consequences of doing business there. Our allied accounting firm in China can prepare your tax returns in China and assist with tax issues.
When talking to PKF associates and other professionals who are new to doing business in China, I found that many of their observations parallel my own. This multitude of impressions has been distilled down to the following key points about the Chinese business climate and its people:
- Dig deeper
- Teaming and teeming with people
- Multi-cultural business mix
- Boundaries abound
Dig Deeper
The due diligence required in China is far more extensive than is normally needed for a deal done in the U.S. It is not uncommon for the Chinese to exaggerate their resources, capabilities, and authority. Details must be checked out before a business deal can proceed. One must verify the credentials of the business people and the parameters of the business deal through alternative sources. For instance, even when a general manager of a production facility assured a customer that an order would be produced, it was necessary to have discussions with the engineering, production, and quality control departments to ensure the order would be completed to specifications.
As in the U.S., the Chinese must develop trust with their business partners. It's a dance of sorts to gauge interests and integrity. This requires spending time learning about one's business partners or customers and investigating each other's backgrounds. As such, Chinese business people often will wine and dine foreign businessmen or women for days, and wait until the final day or even hours before their guests' departures before they focus on the business deal itself. This can be frustrating, yet comparable to America's habits of sealing a deal on the golf course or pressuring people to buy a car on the last day of the month to meet quotas.
Teeming with People
Prior to visiting China, I was told by many people that I would be amazed. At the time I wasn't sure what they meant exactly - now I know.
Upon our arrival in China, my wife Patty and I spent four days in Shanghai. This city is quickly becoming the financial center of China and growing by leaps and bounds. Buildings are going up in all reaches of the city. This new growth has attracted people - more people than I could ever imagine. People walking. Riding bikes. Driving cars. Providing services. Planting flowers throughout the city. Manning the city's massive taxicab industry. Flocking to the shopping areas. Clerking at the stores, and standing on the streets hawking knock-off watches and other goods.
Hearing about the huge labor force in China is one thing, but the full scope can only be realized during a visit to Mainland China. This high influx of people has caused choking congestion, which slows travel times to a crawl. One of our speakers in Beijing mentioned that it took him more than 1.5 hours to travel 8 km (4.97 miles) to our hotel for his talk. And I'm told that these travel times will only get worse. If you go to China, allow plenty of extra time just to get around in major cities.
Teaming with people: Multi-cultural visitors and business people
When I visited Shanghai and Beijing, the large number of people who were not of Chinese descent surprised me. Everyone from around the world seemed to be in China: Brits, Germans, Canadians, Aussies, and other foreigners. Many foreign business people have been in China for more than 10 years and are well versed in doing business there.
During my visit, I began the negotiations and legwork needed to form a wholly owned foreign entity (W.O.F.E.) for one of our clients, which has a German parent company. I worked with one of their company lawyers, as well as the aforementioned PKF-referred lawyer in Shanghai. Subsequent trips will be made on behalf of this business deal.
Boundaries Abound
Aside from physical boundaries, there are boundaries to the speed of traffic, the speed of business, and even airport check-in - all are slow moving at best. China is a highly regulated business environment. Foreigners are essentially guests in China, but still must comply with the Chinese rules and regulations. One's lack of understanding is not an excuse for non-compliance. The best advice is to engage the services of a good interpreter, research the rules, and make sure you know the playing field before locking in a deal. Don't assume that because someone says they own property, they do. All property is government owned and special certificates must be produced before any foreign-owned or operated building can be erected, expanded, or leased. Many foreign businesses that tried to move too quickly without researching Chinese rules and regulations have gone out of business.
At the airport, be prepared for a grueling, marathon-like journey. Travel time alone is 20 hours. Allowing for your internal body clock to adjust to the 12-hour advance time difference can take days to stabilize on both ends of the trip. You'll also be required to go through Immigration before boarding the plane in China, so allow plenty of time at the airport.
The next gold rush?
Without the influx of trade from China, Wal-Mart wouldn't be the success that it is. Americans wouldn't be enjoying the high standard of living that we have today. And, many of the jobs that we don't want to do in the U.S. have been outsourced to China, creating a new era of prosperity there. Many American manufacturers with foreign operations are making sizeable profits in China, helping to offset their losses in the U.S.
The world's business community has discovered that China is the new place to "prospect for gold," and the Chinese people are gracious hosts, eager to do business. If China can be compared to an onion, I feel like I've got a small part of the outer layer peeled. I'm anxious to uncover the rest of the onion to reveal the treasures, opportunities, and experiences that lie within.
If you think China may be part of your future in the next three to five years, I encourage you to make a few trips to China now to learn about the area and get acclimated to this dynamic business community. If you need contacts or more background information, our office is as close as your phone or e-mail.
