It’s a civilisation, deal with it

Mostly we sell China resources with a dash of education. The reason we don’t sell more advanced products and more food is because the convenient view is that the only way to do business there involves secret payments and liver-killing entertainment. Besides that, economic prosperity will make all 1.4 billion residents of the Central Kingdom become voting, free market-loving, non-communist capitalists who will become more like us, so let’s just wait it out.

China expert, author and Mandarin speaker Tim Clissold writes in China Rules: “A prevailing orthodoxy in the West is that developing countries will eventually cast themselves in the mould of the Western democracies and that free-market economics and the ballot box will answer all their troubles. But the mere fact that there has been such a rebalancing of wealth and power from West to East should give us pause.

“How is it that, after another century of limitless turmoil and crisis, China is emerging almost casually from the catastrophe of war, famine and a decade of self-destruction with many of its basic characteristics intact? A less resilient civilisation wouldn’t have stood a chance. Perhaps that’s the key to understanding China: not to view it as just another country, but as a civilisation.”

Clissold had an expensive lesson in doing business in China. He wrote his best-seller Mr China on how he helped Wall Street trader Jack Perkowski invest, lose and recover more than $US600 million there in the early 1990s. To paraphrase him: “One thing is for sure: if you stick by Western rules, you are finished.” His later book Chinese Rules expounds his belief that the way Chinese businessmen and officials act is understandable if you know the people you are doing business with and the thousands of years of rules that govern their behaviour.

Professor Stan Glaser, who has been teaching, doing business and socialising on the mainland for 30 years, says: “The relationship is everything. They will test you to see if they can trust you, and if they do trust you they will sit down and do business for the long term, even tolerating a loss for a while. The government is opaque and bureaucratic but most serious business people are surprisingly open, generous and risk takers. The deal is a basis for doing business. That’s where it starts – everything is negotiable – where we are legalistic and our long term is two or three months and we rarely follow up.”

Where Australians are legalistic, the Chinese are flexible. As Deng Xiaoping said: “It doesn’t matter if the cat is black or white, so long as it catches mice.” Or as Mao Zedong muttered: “In general, what succeeds is right and what fails is wrong.”

Mr China, Perkowski, agrees: “A more fundamental reason for the breakdown in talks is that the legalistic approach being taken by the US negotiators to resolve disputes under the agreement is precisely the wrong way for America to achieve its objectives.” Perkowski founded ASIMCO Technologies in 1994 and over the next 15 years built it from scratch before selling it to Bain Capital. Today it is a $US900 million sales company with a dozen factories in eight provinces in China and 12,000 employees.

“The US negotiators should learn from what has actually worked in China,” Perkowski says. “By and large, the arbitration tribunals that have been established in the country and that are comprised of Chinese and Western judges have been effective in resolving disputes. Taking a legalistic approach and relying on the Chinese courts for enforcement has never worked in China.”

Clissold writes: “When dealing with foreign governments, competitors or businesses, the most important thing for them is to avoid conflict. The Chinese are on a timeless quest for stability. Almost every action of the government and the individuals within it can be understood and predicted in that light. They do this by obtaining information indirectly about their rivals, convert other people to their side and avoid a war”. As Sun Tzu wrote: “The greatest general avoids war and overcomes his adversary without fighting.”

After years of humiliation the Chinese are now more self-confident, taking a long-term view around the world and filling the aid vacuum left by Western countries like Australia. After 112 years we dramatically cut aid to PNG. That changed when a former PNG prime minister told our leaders about a plan to build a Chinese navy base on Manus Island.

As a country we suffer from the same short-term thinking as many of our companies. The future doesn’t look bright.

This article by John Connolly appeared in the September 2019 issue of The Deal

Julie Connolly