North Central China Real Estate Association

North Central China Real Estate Association
Jiefang East Road 161
Changzhi, Shanxi 046000
Membership@NCCREA.com

Context not Contents

Context not Contents

Jeff LoCastro, November 2, 2011

Founder & President, NCCREA

The Chinese are very nationalistic. They are also very insecure.

Historically, those two traits have always made for internationally

explosive bedfellows. Although the NCCREA doesn't exist to draw

politically historical conclusions, it would be the essence of ignorance if

we did not at least acknowledge that a mix of nationalism and insecurity

have typically played out in raucous international behavior. Regardless,

the future will determine how that plays out. But in the present the

nationalism and insecurity simply hold many potential stumbling blocks

for the foreign businessman in China; this national insecurity hosts

pitfalls that manifest themselves in profound ways when it comes to

communication. Understanding this concept and being able to work

past these issues is a competitive advantage for the foreign enterprise.

Certainly in any interpersonal exchange contextual elements must be

taken into account. But these elements in China, like so many things in

China are a testament to extremes. Every conversation, every

communication in China (relative to the foreigner) is filtered through

the scrim of national insecurity. Everything said must be evaluated

within that context and not the content of what is actually being said.

It is not what is being said, but rather the national insecurity

motivations that drives the answer. From the perspective of the

Chinese national, any question you ask will first run through the "how

will my answer make China look in the eyes of the foreigner" filter.

Understanding that, from the perspective of the foreigner, the question

becomes how could the answer that was just presented (by the Chinese

national) be skewed based on national insecurity?

Following are some examples of conversations.

Driving through a 2nd tier city:

Foreigner: It's just amazing. Two days ago I was here and there was a

10-story building right in that location.

National: Yes, they use explosives to bring down the building into one

neat pile, then using heavy equipment haul it away.

Desire: To make even 2nd tier cities appear to the foreigner, not as a

third-world economy with archaic labor intensive building practices, but

rather a completely modern, efficient society top to bottom.

Reality: Certainly at some point somewhere in China explosives where

used to raise a building. Even in a 1st tier cities such as Beijing,

explosives are as rare as being personally struck by lighting. As the

majority of new construction in Beijing was done to coincide with the

2008 Olympics (when the world came to Beijing) virtually all new

structures there (and in China) are replacing Mao-era shanty's or

low-story structures that don't require anything remotely resembling a

single continuous drop. Hydraulic machinery is also used, but labor is so

cheap in China that even a simple construction or deconstruction may

employ hundreds of laborers and the workers literally live on the job site.

Food is brought into them so they never have to leave their working

environment. Construction labor typically consists of poor, illiterate,

homeless, migrants. They work 7-days a week, 24 hours a day in 12 hour

shifts sometimes using hand drills and sledge hammers to topple the

structure. Then they toss the rubble, brick-by-brick into waiting trucks

to be hauled away.

Entering a 1st tier city:

Foreigner: I don't remember that highway and those on/off ramps when

we were here 2 weeks ago. Seems like these things just appear over

night.

National: Yes, China has developed many advanced construction

processes that speed up development of such things.

Desire: To make every city in China appear to the foreigner as a

completely modern, fast-paced, efficient society that utilizes the latest

technology in everything, including the construction of roads.

Reality: See above. Labor is so cheap in China that a simple road

construction may employ hundreds and hundreds of laborers who also

may live on the job site or are housed in government quarters and

bused-in to work their shifts. They work 7-days a week, 24 hours a day

in 12 hour shifts sometimes using pitch-axe, shovel, hand tools and

make-shift quli-carts to haul materials.

Working in your office:

Foreigner: Hello, building manager? My Internet is not working. When

will it be operational again?

National: The fiber optics have maybe broken in half. They should be

repaired in a few hours, maybe.

Desire: To make the foreigner think that everywhere in China is using

high technology fiber optics and that their systems are advanced and

modern . . . just as they are in the US.

Reality: There are no fiber optics in your building. You can see the cable

romex coming through the hole drilled into the window frame. The

building is a 40 year old Chinese bricker, the heat is a radiator and you're

lucky you even have phone service, let alone an Internet signal. Fiber

optics? Please . . .

Looking at property with your Chinese real estate Guanxi.

Foreigner: I'm looking for a piece of dirt to locate my business.

National: Do you want to buy the land or lease it?

Foreigner: I'd rather buy. You can own land in China?

National: Yes, of course.

Desire: To make the foreigner think that Chinese have private property

rights (just as they do in the US) and give the impression that ownership

is a reality in the "new China" and it is just as modern and evolved as any

developed country.

Reality: There are no private property rights in China, new or old.

Everything is rented on a long term lease with the Chinese Government

as the landlord. You may rent from the Chinese Government directly or

rent from a current property "owner", i.e., he who has already leased

the property from the government.

The danger to the businessman is when you buy-into the articulated

answer without understanding the contextual filter that was applied,

you will run head-on into the no-mans land of Chinese paradox. And

that is a very bad, frustrating place. For example, when you show-up at

your job-site expecting to see modern grading equipment able to scrape

level pads within 1/2" variances and all made true using the latest

Johnson laser levels and satellite image templates, but rather you find

500 shovel-bearing laborers lined up as if in a chain gang moving dirt

with their shovels made from cut-up oil drums and 2x4's. Although the

job seems to get done (there are still significant quality issues to be

addressed of course), your visual inspection didn't quite match-up with

what you had likely been told. Ultimately anger and frustration ensue

and you find yourself (and your enterprise) in a very bad place. You

can't quite figure out why nothing is ever as it seems (or supposed

to be).

So while other operations wallow in the perils of paradox, fail to

ascertain context from content and spend years trying to figure out

what's the heck is going on, here are 6 simple rules to keep you out of

trouble:

1. Be direct, but not insulting. If you are American, the Chinese

understand that Americans are direct; they expect it. You'll not

surprising anyone by being who you are, culturally speaking. In terms of

insulting anyone this is where the nonsense contained in CNC

"handbooks" gets too much attention. The Chinese are not children.

They are sophisticated business professionals. They know who you are

and from where you came. They will not be insulted by the incorrect

placement of your chopsticks or using your index finger in a hand

gesture or other such absurdities. So in terms of insults, use my

formula: If you wouldn't say or do it to your mother-in-law, don't say or

do it in China.

2. Expect (demand) direct answers and ask lots of clarifying questions

until you get direct answers to your direct questions. Yes, it is true that

the Chinese do not like direct answers. They avoid them like a

conversation about the cultural revolution. As a matter of fact, the most

often used English word is: Maybe. Asked once why they use the word

so often, they will always reply, "because so many things can change."

True. So many things do change in China . . . constantly. But that is not

the concern of the foreign businessman. You are not Chinese. Let the

Chinese accept "maybe." The answer to "what time will your men be

here" is not "we have many things to do today" or the answer to "do you

personally have a business relationship with the head of the Land

Bureau" is not a broad smile and vigorous nod.

The expectation of direct answers will cause friction most of the time

and will be an exhausting endeavor all of the time. But it must be done.

They will try to dazzle you with a continuous whirlwind of extraneous

fluff and unrelated information. Not because they are bad people, on

the contrary. But because it is simply a part of their culture.

Of course it is a good idea even in the west to expect/demand direct

answers. But the point is in the west it is not a cultural phenomenon

to avoid them at all costs (this is where many of you bellow, "well you

have never met my GC!"). But in China, it is the culture to be vague and

non-committal constantly. It is a part of who they are.

3. Hold them to their answers and establish penalties for

non-compliance. This one is the most difficult of the rules because not

every situation allows one to do so directly. But a penalty can be more

than monetary, it can be simply the exclusion from a bidding process,

loss of opportunity, etc. If you let broken promises, assurances,

agreements, and deadlines go without consequence as soon as

infractions occur, you will have just declared open season for your

business to spiral into the world of "maybe."

Because vaguery and lack of commitment are so deeply embedded as an

accepted way of doing business, you must also be direct and clear in

your cause and effect response. "You have shown yourself to be

unreliable, therefore we have decided to find a more reliable

relationship." Then let them find a chance at redemption. "When you

have repaired your business practices, feel free to contact me and we'll

evaluate the changes you have made." Period.

4. Ask more than one person. Because different people may have

slightly different filters, you quite often get slightly different answers.

And more often than you would expect you'll get completely different

answers. It's a very strange phenomenon and one that is quite prevalent

in China. For questions that seemingly have only one possible

answer, e.g., 2 x 2 = 4, in China you may find a whole host of possibilities

. . . depending on the density of the national insecurity filter being

used. You'll always need to ask more than one person. For important

questions (or important answers) you'll need to ask many people.

5. Only do business with those with whom you can be direct (this of

course does not include government officials, *koolaid drinkers, and

your customers or tenants). Cultural over-sensitivity has major

repercussions in these direct business relationships. Just like doing

business in the west, you need partners, suppliers, vendors and close

professional relationships in which you can speak frankly, openly and

honestly. If you have to constantly tap dance around issues and find

yourself avoiding drilling into direct answers because you seem to be

insulting those with whom it is their job to provide answers . . . move

on.

6. Let them know that you know that you are doing business together

because you offer something that China does not. Get it on the table.

End the dance early on in the relationship. Recently I had a meeting

with the largest real estate development group in China. Their projects

are a who's who of apartment luxury from Xi'an to Shanghai, from Beijing

to Guangzhou. Early in the meeting, they played the "we are also talking

a Chinese company" card. My response was direct and immediate.

"You can certainly do that, but we all know that they can not offer the

quality, the service, the efficiency, and the technology that we can.

We're here because you know we can do that; we are here because you

know we are better." The subject was never brought up again.

All of these can certainly be applicable to business relationships in the

west. However, they become of particular importance when in China as

so many businessmen who come here make the critical error of cultural

over compensation. That is, buying into the myths that: 1) I'm in China

and I must do business like a Chinese national, 2) Therefore, I must be

and act Chinese.

First, let's shatter Myth #1: They are doing business with you because

you offer something unique and they already understand that the

business practice, timing, and processes are different in the west and

more often than not that's why they are doing business with you.

Regarding Myth #2: Pssst (he says with a whisper) they know you are

not Chinese. You don't need to act like one and you will never be

one . . . no matter how hard you try. And frankly, they don't want you

to be. When an American businessman tries to act Chinese it is

perceived as pandering. When an American company tries to act

Chinese it is doomed to fail. If the Chinese wanted the foreign company

to be Chinese, they would just do business with a Chinese company.

For example, Kentucky Fried Chicken is successful fundamentally

because it is not Chinese. Today, America's KFC is one of the most

popular and successful businesses in China. It is an authentic 'how-to'

success story on what to do in China. But it didn't start out that way.

It is also a story on 'how-not-to-do'. When KFC entered the market in

1987 they were the first foreign food operation here. When they

stormed the proverbial consumer beaches of China, they came prepared

to wage a fast food battle based on perception, innuendo, and cultural

over-sensitivity. Their leaders where armed with the latest advice from

various CNC's on how to bow, how to shake hands, how to smile, how

to ask questionsand reams of other baseless and useless factoids from

people who have never actually done business in China. As a result,

KFC spent ten-years bumping around in the dark trying to find their

American voice. When they scrapped the bad advice, bad management,

stopped trying to be Chinese and began to operate like an American

company things started popping. The ten-years of learning were not

completely wasted as it did provide a framework for 'how-not-

to-do', however it could have been significantly more productive.

Doing business in China is a testament to extremes. The successful

businessman, developer, or company must understand the difference

between context and content or they will find themselves trapped in a

frustrating maze of constant paradox. If they can understand the

difference, follow 6 simple rules, stay true to the knowledge that what

they offer the Chinese economy is unique and avoid cultural

over-sensitivity, this competitive advantage will clear a path to not only

survive but to thrive.

Contact the author at: Jeff@NCCREA.com or Jeff@CaliforniaSecured.com

*KoolAid drinkers are those with whom I refer to as the

foreigners who have been in China so long that they have

began to think they are actually Chinese. KoolAid

drinkers have lost all perspective and believe that

everything is "cultural" and must be accepted and used as

the only framework for operating in China. Although

sometimes you'll require the services of KoolAid

drinkers, they do not make the best partners.

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North Central China Real Estate Association
Jiefang East Road 161
Changzhi, Shanxi 046000
Membership@NCCREA.com