Negotiating with China: A toolkit for African nations.

[Part 2 - How Chinese Culture impacts the negotiation process]

Introduction

We must never forget that in negotiating with China, we are negotiating with people. These people are products of the environment in which they reside. Thus, it is important to assess the factors that shape the Chinese negotiator. The following will section will briefly overview of socio-economic factors inside the Republic of China, Confucianism as a deep-rooted philosophical tradition that informs Chinese behavior, and how stratagems are a core element in the Chinese negotiation style.


This section will go on to explain how these factors impact the pre-negotiation, formal negotiation and post-negotiation processes.


1.1. The People’s Republic of China

China is ruled by the Communist Party of China and in line with communist ideologies; politics and business cannot be separated. Businesses are not viewed as independent but rather as "factories" of the government and there is a centralized economic structure with strong government involvement. Resulting in a strong bureaucracy that favors government agenda[1].


China is equipped with the world's largest population. This factor has manifested itself in China having strong bargaining power in business transactions due to their superior production capacity and market size[2]. This is what has allowed the state to become a leading technology developer/producer.


Conversely, the state is plagued with high-income inequality, with many people living below the UN poverty level. There exists high pollution due to carbon emissions and overcapacity in the industrial sector particularly steel and iron[3].


1.2. Confucianism

Confucianism is a 2500-year-old Chinese philosophical tradition that has a core influence on Chinese modes of thinking and ways of behaving. It has 5 core values[4]:

"i. Time orientation– This emphasizes a high quality of life. This value encourages time to be used in pursuit of spiritual enrichment.

ii. Importance of interpersonal relationships – This value encourages the development of guanxi (the Chinese term for relationships, connections, or contacts). This is crucial and it is closely related to rending (favor) and li (etiquette, propriety, and rules of conduct).

iii. Family and group orientation – Family is the most basic and important social unit in china. Danwei (“work unit”) are used at work and operate like a family unit. The trust within this unit is high and the trust is very low outside of it.

iv. Respect for hierarchy and need for harmony –There is also a strong appreciation for the honoring of hierarchies, age is considered wisdom. Individuals are also encouraged to prioritize graciousness and harmony, and never to fuss over petty points.

v. Concept of Chinese Face (mianzi) – Although the concept of maintaining/saving face (status) in the eyes of others is universal, it is particularly important in Chinese culture."

The amalgamation of all of these creates the 'Confucian Gentleman'. This is the ideal strived for by Chinese individuals.


1.3. The 36 Stratagems

The 36 stratagems (Ji) refer to a long-lasting Chinese cultural tradition that shapes the strategic Chinese business behavior. The Stratagems do not have a particular author but have been in existence as early as the 1600s. These stratagems are deeply engrained in Chinese culture and are taught from childhood. They are schemes that exist to deal with various kinds of situations, to gain an advantage over one's opponents using cunning[5].

The stratagems are grouped into six categories depending on one's position[6]:

  • 1-6 - When being superior

  • 7-12 - For confrontation

  • 13-18 - For attack

  • 19-24 - For confusing situations

  • 25-30 - For gaining ground

  • 31-36 - When being inferior

In practice, any of these stratagems can be used flexibly in any situation. More specific examples of these stratagems will be addressed in the next section.

These three factors, namely; the condition of the Chinese state, Confucian philosophy, and the 36 stratagems, all play a vital role in the approach taken during negotiation. The following section will display how the negotiation process is affected by these factors.


2. Impact of Chinese culture on the negotiation process

2.1. Impact on the pre-negotiation phase

The overarching effect on this phase of the negotiation is that it is extended beyond what many counterparts would require. Several factors create this extended pre-negotiation phase:

Chinese only do business with those they trust[7] and thus time is required to build trust. Rapport is built through dinner parties, cultural events, and tours. It is not uncommon to spend several days partaking in these activities and informal discussion, particularly at the start of a business relationship[8].


Furthermore, due to government involvement in commercial activities, there is a significant amount of lobbying. This process will include including visiting government authorities, technical seminars, advertising in professional journals and at dinner parties[9].


Foreign parties should also be prepared to make several presentations. This is a mechanism used to test sincerity. Foreign parties will often have to repeat presentations to multiple parties, often asking the same questions.

This exists not only to make sure all parties are informed of the details of a transaction but also exhaust the counterpart[10] and to examine the transaction from various professional disciplines.


2.2. Impact on the formal negotiation phase

Within the formal negotiation phase, Chinese culture finds ways to shape the priorities and approaches taken. The climate of the state, Confucian philosophy and the 36 stratagems manifest in the following ways:

When negotiating with the Peoples Republic of China, the Chinese counterpart will prioritize management control – particularly of the finance and administrative departments[11].


This is an extension of communist ideologies and will always be a major bone of contention.

China maintains the ability to produce goods at a large scale and a low cost[12].

As a result, it is difficult to argue that production of goods should happen in another country and one would use Chinese manufacturers for goods.


Confucian philosophy prioritizes good relationships and harmony. There is an underlying assumption of good faith between the two parties and thus, discussing disputes or requiring performance guarantees assumes failure to perform. Therefore, the negotiating party should expect to be met with some resistance regarding this topic[13].


There have been several case studies of how the Chinese have employed stratagems in the negotiating environment. Persuasion, deliberate impasses, and forced deadlines are all tactics that can be used. The following are more popular stratagems[14]:

  • Beat the grass to startle the snake (Stratagem 13) - Large Chinese negotiation teams made up of individuals from different backgrounds will ask multiple, multi-faceted questions in order to startle the counterparty and make them reveal their true agenda.

  • Clamour in the East but attack on the West (Stratagem 6) - Misleading adversary by creating a distraction in an area that is not important. This can be done with false accusations, misinformation, or prioritizing an issue that is not of importance to distract from something crucial.

  • Toss out a brick to get a jade gem (Stratagem 19) – This involves making demands that are not of actual interest so that once negotiations reach the concession stage, the Chinese negotiator can concede these fake demands to pressure the counterparty to make legitimate concessions

Many of these stratagems are not used in isolation and can be chained together[15]. For example:

"The CEO of a foreign company is requested to fly to Beijing to complete the contract in order the gain ‘home advantage’ (Stratagem 15: Lure the tiger down the mountain). The CEO is picked up from the airport by a beautiful woman to keep his mind pre-occupied and distracted (Stratagem 31: Stratagem of a beautiful woman). The CEO is then invited to a dinner by the negotiating team with a lot of liquor. However, the next morning is the start of hard negotiations with a separate negotiating team (Stratagem 10: hide a dagger behind a smile)."

It is advised to memorize all of them.


2.3. Impact on the post-negotiation phase

Generally, Chinese honor their agreements. However, there have been cases of non-fulfilment and a new round of negotiations was necessary due to disagreements[16].

Additionally, it is worth noting that a Chinese counterpart may agree to a favorable contractual arrangement to create last-minute pressure to renegotiate once the deal is public or enforce harsher terms at a renegotiation several months/years later once their involvement in the project is crucial to the operation (Stratagem 28: Remove the ladder when the enemy has ascended to the roof).


The Chinese attitude toward contracting is; problem-solving based on changing circumstances instead of contracts. Thus if external conditions change, the contract may be modified. Signing a contract is not closing the deal but rather substantiating the established relationship[17].


The negotiation environment with a Chinese counterpart is crucially different from what most negotiation literature will teach, and understanding how the negotiation environment is changed makes all the difference.

With knowing this difference, part 3 of the series addresses how African states can negotiate with this powerful counterparty. There are several strategies and philosophies that must be adopted in order to even the playing field.


PART 3: https://www.linkedin.com/pulse/negotiating-china-toolkit-african-nations-part-3-what-zach-kauraisa/ [Click here]

END.


About the Author

Zach Kauraisa obtained his LLB from the University of Namibia and is currently a 2019/2020 Candidate for an LLM in International Oil and Gas Law and Policy at the Centre for Energy, Petroleum, Mineral Law and Policy. For inquiries, email: kauraisaz@gmail.com


References

[1]Ghauri, P. Fang, T. 2001. Negotiating with the Chinese: a socio-cultural analysis. Journal of world business. Volume 36, issue 3. pg 303 – 325. Pg 308. Available at https://doi.org/10.1016/S1090-9516(01)00057-8 (last accessed 20/03/2020).

[2] Srai, S, J. Shi, Y. 2008. Understanding China’s Manufacturing Value Chain. IFM, University of Cambridge. Pg 10-13. Available at https://www.ifm.eng.cam.ac.uk/uploads/Research/CIM/china09.pdf (last accessed 09/05/2020).

[3]Taplin, N. 2019. Chinese Overcapacity Returns to Haunt Global Industry. Wall Street Journal. Available at https://www.wsj.com/articles/chinese-overcapacity-returns-to-haunt-global-industry-11547118946 (last accessed 09/05/2020).

[4] Wang, J. Wang, G. Wendy, E, A. Rojewski, R. Rojewski, J. 2005. Confucian values and the implications for international HRD. Human Resource Development International, 8:3, 311-326, DOI: 10.1080/13678860500143285. Pg 315 – 318. Available at http://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.477.2614&rep=rep1&type=pdf (last accessed 09/05/2020).

[5] Supra Note 20, at 310.

[6]The 36 Stratagems. CBL International. Available at https://www.cbl-international.com/docs/csu0714/the-36-stratagems.pdf (last accessed 21/04/2020).

[7] Jiachun, Z. Shiji, Z. and Li, L. 2000. International Business Negotiations in the People’s Republic of China. 399 – 411. In Silkenat, J.R., Aresty, J.M. and Klosek, J. The ABA guide to international business negotiations: A comparison of cross-cultural issues and successful approaches. American Bar Association. Pg 400.

[8] Supra Note 20, at 311-314.

[9] Ibid.

[10] Faure, G.O., 1999. The cultural dimensions of negotiation: The Chinese case. Group decision and negotiation, 8(3), pp.187-215. Pg 201. Available at https://link.springer.com/article/10.1023/A:1008682612803 (last accessed 01/05/2020)

[11] Supra Note 20, at 315 - 318.

[12] Supra Note 4.

[13] Supra Note 26, at 402 – 403.

[14] Supra Note 29, at 200-201.

[15] Supra Note 25.

[16] Supra Note 20, at 319.

[17] Supra Note 29, at 205.