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China is a key driver of the global economy. The Asian giant is now comfortably the second-largest consumer market in the world and its rapid economic growth rate (6.7% for 2016) and large population are well known. It’s the demographics behind these figures that are creating trading opportunities.
The most populous country on Earth
By 2022, 76% of China’s urban population will be considered middle class (households earning US$9k – US$34k a year) who’ll have little debt and a lot of cash to spend. This is the market where opportunity lies.
Opportunity knocks, but brands would do well to understand the landscape and culture first. Cultural misunderstandings are amongst the biggest hurdles faced by any foreign SMEs looking to enter the market or strike up new relationships. An increasing number of Chinese business people are highly proficient in English, but the nuance and subtleties of business-speak are easily lost between the cracks in trying negotiations.
A superstitious bunch, beware of not paying attention to these. Colors have very specific meanings. For instance, red is associated with good fortune. White, on the other hand, is the color most associated with death. Great significance is also placed on numbers, what they look like and the way they sound. The number one sounds like the word for easy, ‘yi’ whereas four sounds similar to the word for death ‘siwang’. The Gregorian calendar is used, but specific dates on the Chinese Lunar calendar hold great importance and are considered to be auspicious.
Governmental agencies have their hands in everything. Though often it’s local bureaucrats who are more prominent than the central Chinese authority. It’s vital to study the political landscape of the area you’ll be operating in and learn how to navigate the unique mix of centralization and decentralization that is present.
Unlike in the West, the creation of personal friendship is a prerequisite of doing business and this can take time. This process of cultivating relationships is referred to as ‘guanxi’. It involves getting to know your potential business partners properly at social events like dinner, drinks or tea sessions. Business will rarely be talked about, if at all, but ‘guanxi’ is vital if you hope to succeed.
If you’re to be negotiating, you’ll need to learn to drink intelligently and drink without getting drunk. Some negotiation dinners will feature no negotiating, just drinking. To counter this, your negotiation team should always include a woman (as they are not expected to get drunk), or delegate the heavy drinking to specific team members. Seasoned negotiators have been known to subtly dispose of their alcohol into their water glasses.
Chinese negotiators occasionally push beyond what their Western counterparts consider appropriate bounds. For example, mention of political connections as a means to secure preferential terms.
Company decisions are reached in a top-down manner. Only the very top level is involved in decision-making. Mistrust puts limits on delegation, and supervisory control at each level is high. Mid-level managers typically have little power to make decisions, and their main role is to pass on orders from the top and ensure execution.
Knowledge is power. Just as important as knowing your counterpart is understanding the numbers behind them. Our downloadable PDF contains in-depth insight and analysis to help you make the most of cross border trading with the world’s second largest economy.
Want to know how to do business in China? Read our fact sheet now!