Chapter 14

Qīngmíng Shànghé Tú (section)

14. Doing Business in China

14.1 Starting a business14.2 Ease of doing business

across China14.3 Understanding China’s

business culture14.4 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).

NationsDays in

2010Chinese provinces

Days in 2006

Austria, Palau 28 Guangdong 28Tanzania 29India, Russia 30 Zhejiang 30Bahamas, Benin, Nepal, Nigeria 31 Jiangsu 31Burundi, Poland, Thailand 32Guyana (CR), Israel, Kenya 34 Jilin 33Cameroon, Kuwait, Paraguay 35 Shanghai, Sichuan 35Sudan 36 Hubei 36Djibouti, Guatemala 37 Beijing, Jilin 37China, Sri Lanka, Tajikistan 38 Hainan 38Malawi, Nicaragua, Seychelles, Vanuatu

39 Chongqing 39

Côte d'Ivoire, Lesotho 40 Fujian 40Guinea, Peru 41 Liaoning, Tianjin, Henan 41

Trinidad and Tobago 43Anhui, Heilongjiang, Hebei, Hunan, Shaanxi, Yunnan

42-43

Bangladesh, Belize 44 Xinjiang 44Bhutan, Fiji 46 Jiangxi, Guangxi 46Spain 47 Gansu 47West Bank and Gaza 49 Inner Mongolia 48Bolivia, Vietnam 50 Guizhou 50Papua New Guinea 51 Qinghai 51Philippines 53 Shanxi, Ningxia 55

Sources: World Bank (2011, pp. 145-205) and Annex B.1.

Table 14.1 Time needed for starting a business, selected nations and Chinese provinces

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

Nations Days in 2010

Chinese provinces Days in 2006

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

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

Jiangsu 112Singapore 150 Guangdong 120

Uzbekistan, New Zealand 195-216 Jilin 210Belarus, S. Korea, Azerbaijan 225-37 Shaanxi 235Kyrgyz Republic, Rwanda 260 Liaoning 260Namibia 270 Ningxia 270Lithuania, Guinea 275-6 Hubei 277Hong Kong, Norway, Russia 280-1Armenia, Georgia 285 Henan, Zhejiang, Chongqing 285-6

Heilongjiang, Shanghai 290-2Vietnam 295 Sichuan 295United States 300 Anhui, Shanxi, Tianjin 300Latvia, Mongolia, Luxembourg 309-21 Hainan 310France 331 Inner Mongolia 330Ukraine 345 Beijing, Fujian 340-2Japan, Moldova 360-5 Yunnan, Jiangxi 365Macedonia, Mauritania, Finland 370-5Denmark 380 Hunan 382Albania, Kazakhstan, Germany 390-4 Xinjiang 392Australia, Hungary, Austria, Fiji 395-7 Guizhou, Guangxi, Hebei 397China, Cambodia, Eritrea, UK 399-406Mexico, Iceland, Switzerland Turkey, Peru 415-28Tajikistan, Lao PDR 430-43 Gansu 440

Nigeria 457 Qinghai 458United Arab Emirates 537Brunei, Nicaragua 540 Jillin 540Montenegro, Niger, Portugal 545-7

Sources: World Bank (2011, pp. 145-205) and Annex B.4.

Table 14.3 Time needed for enforcing contracts, selected nations and Chinese

Rank no. Starting a business

Registering property

Getting credit Enforcing contracts

1 Zhejiang Shanghai Fujian Guangdong

2 Jiangsu Guangdong Jiangsu Jiangsu

3 Guangdong Fujian Guangdong Zhejiang

4 Shandong Shandong Shandong Shanghai

5 Shanghai Jiangsu Shanghai Shaanxi

… … … … …

26 Ningxia Shanxi Xinjiang Anhui

27 Anhui Henan Ningxia Hunan

28 Guangxi Guizhou Shaanxi Qinghai

29 Gansu Gansu Gansu Yunnan

30 Guizhou Guangxi Guangxi Gansu

Note: Hong Kong, Macau, Taiwan and Tibet are excluded from the rankings.Source: Annex B.

Table 14.4 Ease of doing business in China – top and bottom five provinces

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

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).

Table 14.5 Eastern versus Western cultures: communication styles

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.

Annex

Indicators for the ease of doing business in China

Province Procedures (number)

Time (days) Cost (% of provincial GDP per capita)

Rank

Anhui 14 42 19.4 27Beijing 14 37 3.2 10Chongqing 14 39 9.5 17Fujian 12 40 6.7 7Gansu 14 47 14.1 29Guangdong 13 28 6.3 3Guangxi 14 46 16.5 28Guizhou 14 50 26.6 30Hainan 13 38 12.1 13Heibei 14 42 9.8 16Heilongjiang 14 42 11.9 18Henan 13 41 11.6 12Hubei 13 36 13.6 15Hunan 14 42 14.6 10Inner Mongolia 14 45 7.9 11Jiangsu 12 31 5.8 2Jiangxi 14 46 14.6 21Jilin 14 37 9.5 8Liaoning 14 41 6 9Ningxia 14 55 12 26Qinghai 14 51 12 23Shaanxi 14 43 15.2 25Shandong 13 33 6 4Shanghai 14 35 3.1 5Shanxi 14 55 9.3 20Sichuan 13 35 19.1 11Tianjin 14 41 3.7 8Xinjiang 13 44 9 14Yunnan 14 42 13.9 23Zhejiang 12 30 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).

B.1 Starting a business

Province Procedures (number)

Time (days) Cost (% of property value)

Rank

Anhui 10 46 5.6 17Beijing 10 59 3.1 12Chongqing 7 28 7 9Fujian 7 37 4.1 3Gansu 10 78 7.8 29Guangdong 8 35 3.7 2Guangxi 12 68 6.8 30Guizhou 9 77 12.6 28Hainan 16 76 4.8 23Heibei 10 58 3.2 21Heilongjiang 8 55 6.1 14Henan 11 60 5.1 27Hubei 9 60 6.2 25Hunan 10 53 6.9 24Inner Mongolia 11 47 4.6 18Jiangsu 7 31 4.6 5Jiangxi 10 50 6.1 20Jilin 8 55 4.2 8Liaoning 12 51 3.1 14Ningxia 10 59 4.4 16Qinghai 8 60 5.3 19Shaanxi 8 50 5.1 10Shandong 8 39 4.1 4Shanghai 4 29 3.6 1Shanxi 10 62 5.4 26Sichuan 11 39 3.9 11Tianjin 5 42 4.4 6Xinjiang 11 45 4.2 13Yunnan 9 66 5.4 22Zhejiang 8 50 3.7 7

B.2 Registering property

Note: Each province is represented by its capital city. Hong Kong, Macau, Taiwan and Tibet are excluded.Source: World Bank (2008, p. 38).

Province Time (days) Cost (% of loan value) RankAnhui 20 2.8 14Beijing 15 2.7 7Chongqing 15 5 19Fujian 7 2.3 1Gansu 20 8 29Guangdong 11 2.4 3Guangxi 47 3.9 30Guizhou 17 6.9 25Hainan 14 5.1 18Heibei 15 2.8 9Heilongjiang 13 3.1 10Henan 16 3.3 17Hubei 13 3.3 12Hunan 20 3.7 20Inner Mongolia 15 3.3 16Jiangsu 10 2.1 2Jiangxi 17 5.9 24Jilin 22 3.3 21Liaoning 20 2.8 15Ningxia 25 3.6 27Qinghai 20 3.8 22Shaanxi 21 4 28Shandong 10 2.9 4Shanghai 8 2.9 4Shanxi 16 2.9 12Sichuan 12 3.2 11Tianjin 14 2.7 6Xinjiang 24 3.4 26Yunnan 18 4 23Zhejiang 11 3 8

B.3 Getting credit – creating and registering collateral

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.

Suggested readingMagni, Max, and Yuval Atsmon (2010). “A Better Approach to China's

Markets,” Harvard Business Review, Mar 1.

Potter, Pitman B. (2007). “China and the International Legal System: Challenges of Participation,” The China Quarterly, Volume 191, pp. 699 – 715.

Qin, Julia Ya (2007). “Trade, Investment and Beyond: The Impact of WTO Accession on China's Legal System,” The China Quarterly, Volume 191, pp. 720 – 741.

Scot, Murray Tanner and Eric Green (2007). “Principals and Secret Agents: Central versus Local Control Over Policing and Obstacles to ‘Rule of Law’ in China,” The China Quarterly, Volume 191, pp. 644 - 670.

Tse, Edward (2010). “Is It Too Late to Enter China?” Harvard Business Review, Apr 01.

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