In 2015, the World Bank ranked China as seventy-eighth in the world for overall "ease of doing business".
I believe this poor ranking is due to three regulatory obstacles in China: bureaucratic red tape, the inconsistent interpretation and enforcement of rules and regulations— which appear to be completely discretionary—and the fickle lawmaking environment.
Before a Singaporean company ventures into China, it needs to understand the challenges it will face there, some of which I've listed below:
- The Language Barrier as Well as Chinese Customs and Protocols
The language barrier and the lack of understanding of Chinese customs and protocols present formidable barriers to Singaporean companies doing business in China.
- Restrictions Placed on Foreign Companies
The Chinese government intentionally stacks the deck against foreign companies by placing restrictions on how these companies can operate in China. This important point needs to be factored in when setting up shop there.
- Changes in Governmental Rules, Regulations and Policies
Changes in governmental rules, regulations and policies are rarely communicated to foreign companies in a timely manner, putting companies at risk of unknowingly breaking Chinese laws.
- The Ubiquitous Presence of Guanxi
Guanxi is an important cultural and social element in China. It refers to the concept of drawing on an intricate network of connections to secure favours in personal and organisational relationships. Planting your feet in China without these needed connections puts you and your company at a marked disadvantage.
- Political Protection
Chinese companies often enjoy greater political protection than foreign companies, including from local courts.
- Rampant Corruption
Although the Chinese government appears to be tackling corruption in China, foreign businesses still need to be wary in all of their business dealings.
- Economic Slowdown
China's economy has been experiencing slower growth, so this has to be factored into the equation when entering Chinese markets.
- Commercial Disputes
Partnerships between foreign and Chinese enterprises are steadily increasing, as well as the number of commercial disputes. Therefore, it is always best to find an attorney who is well versed in both the laws of Singapore and China.
- Contractual Agreements
Contracts need to be drafted very carefully, including dispute-resolution clauses and governing-law clauses. You always need to spell out exactly how, where, and under what law any future disputes will be resolved.
- Discretionary Compliance
Chinese competitors are subject to the same laws and regulations as foreign companies; however, the enforcement of those regulations may differ for local Chinese competitors. This means that Chinese companies are often provided legal loopholes, while foreign companies are held to the letter of the law.
- Forced Joint Ventures
Some large foreign companies are required to form local joint ventures with Chinese partners, and to cooperate with them. These partners are usually selected by Chinese governmental authorities. However, lucrative government orders are almost always awarded to local Chinese competitors.
- Joint Venture Disputes
Chinese law considers joint ventures operating in China as "domestic Chinese entities", thus disputes arising from these joint ventures will, in most cases, be dealt with in China, under Chinese law.
- Commercial Contract Restrictions
The Chinese government places numerous restrictions on commercial contracts, with regard to the choice of law and the types of legal remedies that can be used or applied in China.
No matter how business savvy you think you are, when it comes to doing business in China, expect to lose a lot more often than you win. (shutterstock.com)
The following is a recent experience that my business partner and I had in China. It highlights the fact that many businesses there have little or no regard for truth, integrity, honesty or trust.
The incident taught us to never assume that a Chinese businessman is telling you the truth, or that he has your best interests at heart. More to the point, he probably doesn't care one iota about you or your company.
In February 2017, I contacted a Chinese company to learn how to grow a rare fruit that other countries find hard to grow.
I was initially told it would cost 3,000 yuan (about S$610) for them to teach my partner and me. However, as the negotiations proceeded (using a hired, highly trained Chinese-English translator), the price suddenly shot up to 5,000 yuan (S$1,017)!
No explanation was given to us as to why this price increase had occurred, or what extra value they were going to add to the training course to justify the price increase.
They simply said, "We're teaching you a technology that no one has." To make matters worse, one hour later, they changed the price to 11,000 yuan (S$2,236), then 15,000 yuan (S$3,050)!
When we asked them why they had arbitrarily changed the agreed upon price, they told us, "If you pay us this much, we will teach you everything."
However, when we first spoke to them, they said they would "teach us everything" we needed to know so that when we left the class, we'd be able to grow this fruit on our own.
Then, they told us if we paid them 15,000 yuan instead of 3,000 yuan, they would teach us for three or four days, depending on how quickly we had grasped the subject matter.
After going back and forth on the phone, they finally agreed to keep to the original price of 3,000 yuan. Two days later, we hopped on a plane and met with them in China.
It was only after three days of endless rounds of tea and plates of food, that the company manager finally decided to teach us how to grow this fruit.
The manager sat down in his chair, leaned back, and declared, "Oh, it's simple to grow this fruit. I can teach you within a few hours! You're free to ask me any questions that you want." We were astounded.
Think about it: how can we come up with any questions about how to grow a rare fruit that we've never attempted to grow?
In addition, the manager and his compatriots were always half drunk during the entire time we were there, so they didn't take teaching us very seriously.
Finally, after much coaxing, the manager shared some details with us about how to grow this fruit.
Whatever he taught us amounted to a total of two hours. No classroom instruction (we just pulled up a chair near his desk), no informational handouts, no three to four days of classroom instruction, as we were originally told. Just two hours!
"If you really want to know how to grow this fruit, you'll need to pay us 500,000 yuan (S$101,658), and even if you do, we still won't teach you everything,” he later told us.
So, what's the key thing we’ve learned from this fiasco?
No matter how business savvy you think you are, when it comes to doing business in China, expect to lose a lot more often than you win.
If you take this approach, at least you won't be surprised and disappointed when you're routinely lied to, deceived, or taken advantage of, like we were.