Chapter 14 Qīngmíng Shànghé Tú (section)

14. Doing Business in China 14.1 Starting a business 14.2 Ease of doing business across China 14.3 Understanding China’s business culture 14.4 Managing cultural differences

Keywords: business, business culture, foreign invested enterprise (FIE), registering property, getting credit, enforcing contracts, Chinese culture, cross-cultural negotiation

14.1 Starting a business 14.1.1 First things first 14.1.2 Selecting a business type 14.1.3 Drafting a business plan 14.1.4 Multiregional difference

Determinants of an ideal location for your business (Lapowsky, 2010): What are your transportation needs? What are your logistical needs? Are you relying on goods that may be imported to China? How can you get the goods from the port to your location? What government inspections and restrictions will you be subject to?

Figure 14.1 How long does it take to start a business in different parts of the world? Source: World Bank (2008, p. 9).

Table 14.1 Time needed for starting a business, selected nations and Chinese provinces Days in 2010 Chinese provinces Days in 2006 Austria, Palau 28 Guangdong Tanzania 29 India, Russia 30 Zhejiang Bahamas, Benin, Nepal, Nigeria 31 Jiangsu Burundi, Poland, Thailand 32 Guyana (CR), Israel, Kenya 34 Jilin 33 Cameroon, Kuwait, Paraguay 35 Shanghai, Sichuan Sudan 36 Hubei Djibouti, Guatemala 37 Beijing, Jilin China, Sri Lanka, Tajikistan 38 Hainan Malawi, Nicaragua, Seychelles, Vanuatu 39 Chongqing Côte d'Ivoire, Lesotho 40 Fujian Guinea, Peru 41 Liaoning, Tianjin, Henan Trinidad and Tobago 43 Anhui, Heilongjiang, Hebei, Hunan, Shaanxi, Yunnan 42-43 Bangladesh, Belize 44 Xinjiang Bhutan, Fiji 46 Jiangxi, Guangxi Spain 47 Gansu West Bank and Gaza 49 Inner Mongolia 48 Bolivia, Vietnam 50 Guizhou Papua New Guinea 51 Qinghai Philippines 53 Shanxi, Ningxia 55 Sources: World Bank (2011, pp. 145-205) and Annex B.1.

14.2 Ease of doing business across China 14.2.1 Registering property 14.2.2 Getting credit 14.2.3 Enforcing contracts 14.2.4 Summary

Sources: World Bank (2011, pp. 145-205) and Annex B.2. Table 14.2 Time needed for registering property, selected nations and Chinese provinces Nations Days in 2010 Chinese provinces Days in 2006 Italy 27 Chongqing 28 China, Luxembourg, Mali 29 Shanghai Bahrain, Chile, El Salvador, Zimbabwe 31 Jiangsu Austria, Panama, Kosovo, Philippines 32-34 Niger, Hong Kong, Iran 35-6 Guangdong 35 Tajikistan 37 Fujian Ireland, St. Vincent and the Grenadines 38 Gabon, Tunisia, Zambia 39 Jilin, Sichuan Djibouti, Germany, Kazakhstan, Ethiopia 40-1 Albania, Brazil, Denmark, Mozambique 42 Tianjin Russia, Chad, India, Swaziland 43-4 Latvia 45 Xinjiang Paraguay 46 Anhui Algeria, Morocco, Venezuela 47 Inner Mongolia Liberia, Pakistan 50 Jiangxi, Shaanxi, Zhejiang Iraq 51 Liaoning Argentina 52 Hunan 53 Congo, Dem. Rep. 54 Jillin 55 Congo (Rep.), Jamaica, Kuwait Heilongjiang Cambodia, Vietnam, Macedonia 56-8 Hebei 58 Burkina Faso 59 Beijing, Ningxia Belize, Dominican Rep., Rwanda 60 Hubei, Henan Côte d'Ivoire, São Tomé and Principe 62 Shanxi Gambia, Uruguay 66 Yunnan, Guangxi Fiji 68 Qinghai 69 Central African Republic 75 Hainan 76 Grenada, Uganda 77 Guizhou Czech Republic, Eritrea, Uzbekistan 78 Gansu Sources: World Bank (2011, pp. 145-205) and Annex B.2.

Table 14.3 Time needed for enforcing contracts, selected nations and Chinese Days in 2010 Chinese provinces Days in 2006 Jiangsu 112 Singapore 150 Guangdong 120 Uzbekistan, New Zealand 195-216 Jilin 210 Belarus, S. Korea, Azerbaijan 225-37 Shaanxi 235 Kyrgyz Republic, Rwanda 260 Liaoning Namibia 270 Ningxia Lithuania, Guinea 275-6 Hubei 277 Hong Kong, Norway, Russia 280-1 Armenia, Georgia 285 Henan, Zhejiang, Chongqing 285-6 Heilongjiang, Shanghai 290-2 Vietnam 295 Sichuan United States 300 Anhui, Shanxi, Tianjin Latvia, Mongolia, Luxembourg 309-21 Hainan 310 France 331 Inner Mongolia 330 Ukraine 345 Beijing, Fujian 340-2 Japan, Moldova 360-5 Yunnan, Jiangxi 365 Macedonia, Mauritania, Finland 370-5 Denmark 380 Hunan 382 Albania, Kazakhstan, Germany 390-4 Xinjiang 392 Australia, Hungary, Austria, Fiji 395-7 Guizhou, Guangxi, Hebei 397 China, Cambodia, Eritrea, UK 399-406 Mexico, Iceland, Switzerland Turkey, Peru 415-28 Tajikistan, Lao PDR 430-43 Gansu 440 Nigeria 457 Qinghai 458 United Arab Emirates 537 Brunei, Nicaragua 540 Jillin Montenegro, Niger, Portugal 545-7 Sources: World Bank (2011, pp. 145-205) and Annex B.4.

Table 14.4 Ease of doing business in China – top and bottom five provinces Rank no. Starting a business Registering property Getting credit Enforcing contracts 1 Zhejiang Shanghai Fujian Guangdong 2 Jiangsu 3 4 Shandong 5 Shaanxi … 26 Ningxia Shanxi Xinjiang Anhui 27 Henan Hunan 28 Guangxi Guizhou Qinghai 29 Gansu Yunnan 30 Note: Hong Kong, Macau, Taiwan and Tibet are excluded from the rankings. Source: Annex B.

14.3 Understanding China’s business culture 14.3.1 Collectivism versus individualism 14.3.2 What can(not) be done in China

Remember that: 4 is regarded as unlucky, as “four” it sounds similar to the word for death. 8 is regarded as very lucky, as “eight” sounds similar to the words for prosperity and wealth. 3 is also lucky, as it sounds similar to the word for “life” in Cantonese. 9 is also positive as it sounds like the word for “eternity” or “long term”, while 6 sounds similar to “good progress.” Red and yellow/gold are regarded as lucky, but avoid white, which is associated with mourning. Use images of auspicious animals: dragon, phoenix, unicorn, tortoise (the Buddhist symbol of learning), crane and fish. Images of the Great Wall indicate stability and reliability. Also avoid black borders around names or photos of people, since this is also associated with death.

14.4 Managing cultural differences 14.4.1 Obstacles to cross-cultural exchanges 14.4.2 Tips in cross-cultural negotiations

Table 14.5 Eastern versus Western cultures: communication styles Western styles Eastern styles Direct Indirect Blunt Diplomatic Polite Very courteous Talkative Reserved Extrovert Introvert Persuasive Recommendations Medium-strong eye contact Weak eye contact Unambiguous Ambiguous Decisive Cautious Problem solving Accepting of the situation Interrupt Does not interrupt Half listens Listens carefully Quick to deal Courtship dance Concentrates on power Concentrates on agreed agenda Source: Lewis (2003).

Remember that: Senior managers enter into the meeting room first, followed by junior staff; In formal occasions, only senior members on both sides are expected to talk, unless junior members are invited to do so; expect a long lunch breaks; “face” is important; the power of the negotiator may be limited, and sometimes assistants and secretaries to top managers are even more useful.

Indicators for the ease of doing business in China Annex Indicators for the ease of doing business in China

Cost (% of provincial GDP per capita) B.1 Starting a business Province Procedures (number) Time (days) Cost (% of provincial GDP per capita) Rank Anhui 14 42 19.4 27 Beijing 37 3.2 10 Chongqing 39 9.5 17 Fujian 12 40 6.7 7 Gansu 47 14.1 29 Guangdong 13 28 6.3 3 Guangxi 46 16.5 Guizhou 50 26.6 30 Hainan 38 12.1 Heibei 9.8 16 Heilongjiang 11.9 18 Henan 41 11.6 Hubei 36 13.6 15 Hunan 14.6 Inner Mongolia 45 7.9 11 Jiangsu 31 5.8 2 Jiangxi 21 Jilin 8 Liaoning 6 9 Ningxia 55 26 Qinghai 51 23 Shaanxi 43 15.2 25 Shandong 33 4 Shanghai 35 3.1 5 Shanxi 9.3 20 Sichuan 19.1 Tianjin 3.7 Xinjiang 44 Yunnan 13.9 Zhejiang 5.7 1 Note: Each province is represented by its capital city. Hong Kong, Macau, Taiwan and Tibet are excluded. Source: World Bank (2008, p. 38).

Cost (% of property value) B.2 Registering property Province Procedures (number) Time (days) Cost (% of property value) Rank Anhui 10 46 5.6 17 Beijing 59 3.1 12 Chongqing 7 28 9 Fujian 37 4.1 3 Gansu 78 7.8 29 Guangdong 8 35 3.7 2 Guangxi 68 6.8 30 Guizhou 77 12.6 Hainan 16 76 4.8 23 Heibei 58 3.2 21 Heilongjiang 55 6.1 14 Henan 11 60 5.1 27 Hubei 6.2 25 Hunan 53 6.9 24 Inner Mongolia 47 4.6 18 Jiangsu 31 5 Jiangxi 50 20 Jilin 4.2 Liaoning 51 Ningxia 4.4 Qinghai 5.3 19 Shaanxi Shandong 39 4 Shanghai 3.6 1 Shanxi 62 5.4 26 Sichuan 3.9 Tianjin 42 6 Xinjiang 45 13 Yunnan 66 22 Zhejiang Note: Each province is represented by its capital city. Hong Kong, Macau, Taiwan and Tibet are excluded. Source: World Bank (2008, p. 38).

B.3 Getting credit – creating and registering collateral Province Time (days) Cost (% of loan value) Rank Anhui 20 2.8 14 Beijing 15 2.7 7 Chongqing 5 19 Fujian 2.3 1 Gansu 8 29 Guangdong 11 2.4 3 Guangxi 47 3.9 30 Guizhou 17 6.9 25 Hainan 5.1 18 Heibei 9 Heilongjiang 13 3.1 10 Henan 16 3.3 Hubei 12 Hunan 3.7 Inner Mongolia Jiangsu 2.1 2 Jiangxi 5.9 24 Jilin 22 21 Liaoning Ningxia 3.6 27 Qinghai 3.8 Shaanxi 4 28 Shandong 2.9 Shanghai Shanxi Sichuan 3.2 Tianjin 6 Xinjiang 3.4 26 Yunnan 23 Zhejiang Note: Each province is represented by its capital city. Hong Kong, Macau, Taiwan and Tibet are excluded. Source: World Bank (2008, p. 39).

Chapter conclusion: Although the laws and regulations are fundamentally the same throughout the country, provincial and local officials have a large degree of discretion in terms of the enforcement of national legislation. This resulted in the fact that investment climate varies widely across provinces. In this chapter, in addition to demonstrating the fundamentals of doing business in China, we will compare, internationally and interprovincially, four key indicators (starting a business, registering property, getting credit, and enforcing contracts). While these indicators are not a full reflection of the local investment climate, they do suggest that coastal areas scored highest overall on the ease of doing business. At last, this chapter gives some details about China’s business culture.

Suggested reading Clarke, Donald C. (2007). “Legislating for a Market Economy in China,” The China Quarterly, Volume 191, 567 - 585. Du, Julan, Yi Lu, Zhigang Tao (2008). “Economic institutions and FDI location choice: Evidence from US multinationals in China,” Journal of Comparative Economics, Volume 36, Issue 3, pp. 412-429. Graham, John L., N. Mark Lam (2003). “Chinese Negotiation”, Harvard Business Review, Oct 1. Greeven, Mark and Frieder Munk (2010). “Remade in China: Foreign Investors and Institutional Change in China,” Regional Studies, Volume 44, Issue 8, October, pp. 1100-1101. Greif, Avner and Guido Tabellini (2010). “Cultural and Institutional Bifurcation: China and Europe Compared,” American Economic Review, Volume 100, Issue 2. Hornstein, Abigail S. (2011). “Where a contract is signed determines its value: Chinese provincial variation in utilized vs. contracted FDI flows,” Journal of Comparative Economics, Volume 39, Issue 1, pp. 92-107. Javidan Mansour, and Nandani Lynt (2005). “Changing Face of Chinese Executives,” Harvard Business Review, Dec 1. Liebman, Benjamin L. (2007). “China's Courts: Restricted Reform,” The China Quarterly, Volume 191, pp. 620 - 638.

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