Business In China

Business in China is a very vast and complex aspect of Chinese culture, society, and history. Because of
its sheer size, and population, for the most part of the last two thousand years, China has had one of the largest (not
wealthiest) economies in the world. The silk route, established 2000 years ago, was the first means of conducting
business between the east and the west; this road was used to export silk tea, and spices. From the beginning of the
last millennium, China began to make significant technological advances and discoveries, such as the discovery of
gunpowder, and the invention of the compass, which aided in its economical development. China was also the first
country to introduce paper money, which allowed merchants and businessmen alike to prosper and evolve in a way
that other places in the world had not yet accomplished at the time. However, during the last millennium of its history,
there were also many interruptions that hindered its economic progress, from the Mongolian invasion around 1300AD
and Manchu rebellion around 1600AD (Qing Dynasty) to the Opium wars, Japanese invasion and Chinese civil wars.
However, following the Communist Party of Chinas economic reforms of the late twentieth century, China has since,
undeniably become an economic powerhouse and the factory of the world. These reforms, led by Deng Xiaoping,
opened up the Chinese economy in a lot of different ways, including the privatization of previously state owned
industries, allowing foreign direct investment, encouraging independent entrepreneurship, and the lifting of other
state controls and regulations.

The past 30-40 years of changes in the Chinese economy are seen in my mind, as the gradual
unlocking of a cage, allowing China to gain access to and utilize more of its economic potential than
ever before. And this can be seen everywhere in Shanghai, there is business being conducted at every
glance. From the hundreds of western restaurants and product brands, of which more and more pop up
everyday (foreign-owned businesses), to the street-food vendors, who seem to be a lot more busy and
probably make quite a lot more money than one might expect.
In this essay, I hope to talk about all of the above areas and experiences further.

The differences in approach to business

During my first few months in Shanghai, I remember going for dinner at a little Chinese
restaurant near university. I was waiting for my food and heard what sounded like arguing from the
upstairs floor (which was a balcony looking over the ground floor). As I turned my attention to this
heated discussion, I saw four men in suits, sitting at a table, drinking beer and smoking excessively.
Although these men may not have been part of the elite class of Chinese millionaires, they looked like
businessmen in their 40s or 50s nonetheless. As the discussion got more and more heated, one man
stood up, and began to climb over the balcony. I was genuinely shocked, whilst the waitresses looked
on, smiling with nonchalance. Despite the fact that it was not a huge distance to fall, it was slightly
worrying to me that this was happening in a restaurant, and over what seemed to me like business. Not
even a minute later, the man climbed back over the railing and sat back down, as his three business
associates, and the waitresses all casually began to chuckle to themselves as if it was just a normal
occurrence. Everyone carried on just as they were two minutes earlier.
This short episode first proved to me just how Chinese culture and mindset (whether to do with
business or not), is completely different to that in other countries. If these men were in fact talking about
or conducting business, as they seemed to be, then how would that act be conceived by businessmen
in, say, London? In my opinion, most, if not all, western businessmen would frown upon this kind of act,
which in this case was possibly used as a form of negotiation. In the same way, another important
aspect of Business in China, which is less practiced in western business culture is the idea of Guanxi,
(relations/connections). This plays an almost as important a role in business dealings in China
today than the actual deals themselves. A lot of the business relationships in China, whether a large
corporation appointing a new vice-president, or a small restaurant hiring a new chef, are connection,
friend, or family, orientated. Often, members or friends of families, and/or political ties, will result in some
people being more favoured for jobs or business dealings than others, and will as a result, be much
more likely to be hired or seen a business partner. Favours in future will also be expected in exchange
for these kinds of predilections.
One of the people who I approached about business in China is a good friend I met in
Shanghai, from Uruguay, called Gady. He is the Chief manager in China, of a Uruguayan trading
company that manufactures and exports fashion and clothing goods from China to South America. He
frequently travels around China to visit factories such as in Ningbo and Shaoxing. According to him,
factory owners who he must deal with on a frequent basis, also take into account both Guanxi and
include family in their business. Although the factory owners will have many employees, those with more
authority such as managers, are often members of the family. Nevertheless, in the workplace, they are
said to have very superior to employee relationships rather than family member to family member.
This, in my opinion, is very interesting. I think that, not only is it less common in the west for families to
work together, but it would also be more difficult for a westerner to face this type of situation in the
workplace. This again shows how attitudes differ towards business between people in China and other
countries. It also shows how attitudes towards business can vary between different people in China. In a

way, it can be said that Chinese people are more relaxed and open, sharing jokes, and attending
business meetings at nice restaurants and Karaoke bars, whilst also drinking alcohol or smoking, and
enjoying themselves. On the other hand, many Chinese people also take their business very seriously,
as is demonstrated when families are together in the workplace.
Gady also told me about, what he thought, were the good and bad points about doing business
in China. Of course, the main benefit of his work in China is that labour and materials are cheaper than
elsewhere, and as a result he can produce the same goods for a much lower cost. Furthermore, the
Chinese have developed the technology to do advanced printing and other such textile related
techniques, which are not available in other countries where textiles are also cheap. On the contrary, I
was also told that it is very difficult to come to China and do business at first, because of the different
business customs, attitudes and culture. The fact that he is not Chinese also means that he is seen as
someone who will pay factories more than his Chinese counterparts, and therefore he must do a lot
more bargaining in order to conclude deals. Sometimes, the Chinese people who he must do business
with are irresponsible, (maybe because he is not Chinese), delaying orders or producing inferior quality
goods than originally agreed, later using unrealistic excuses, including using the language barrier as an
excuse.
The attitude of the Chinese government towards some types of illegal business is very relaxed.
I noticed this most in two specific areas. Firstly, when I realized that a massive amount of foreign
students in Shanghai, all of which with student-visas, are working as teachers, bartenders, models
among other things. Secondly, I noticed the relaxed attitude towards illegal business when seeing the
many different fake markets and products in Shanghai. Both of these things are technically illegal, but
the government does not seem to do anything about it. These are likely more relaxed, because both
these issues do more good to Chinas economy and business than harm, in particular the production
and sale of imitation and fake products. This is excluding the international pressure put on China from
victim countries and brands from around the world. Chinas GDP growth between 1978 (the reforms)
and 2005, has been estimated at 9.5% per year. Furthermore, in 2010, 85% of counterfeit goods seized
in Europe came from China. If this is the case, and measures of economic performance only measure
legal economic activity, how much of its income does China rely on from fakes? And to take it further,
how many jobs would be lost as a result of a complete crackdown on this copyright-infringing industry?
In the fake markets of Shanghai foreigners can sometimes be seen walking around with suitcases with
which to fill with presents and re-sellable imitations. Not forgetting that these are just the tourists, and
account for just a small part of the foreigners buying counterfeit goods from China, including cigarettes,
electronics, media, programs, clothing, toys and much more.

A look at foreign-owned businesses

Western companies and brands are becoming increasingly popular in China; despite the
difficulties they may encounter in entering the Chinese market.

Having lived in Shanghai this past year, I feel privileged to have been able to witness and
experience this ongoing change first-hand, as new building sites appear one day, and seem to
disappear the next.
The increasingly western shopping habits of the middle to high-class residents are of course
more visible and occurrent in the larger and wealthier cities in China. From what I have seen, a
surprisingly large proportion of citizens in Shanghai use iPhones, and shop at high-end, luxury, western
stores such as Louis Vuitton and Chanel. It seems like another one of these stores opens every day in
Shanghai. The fact that a lot more of the residents can afford these kinds of products than ever before,
is testament to the growing success of business in China. So what difficulties or barriers to entry might
foreign enterprises meet trying to break into the Chinese market? Well one problem that foreign
companies must face is that it must appeal to many different types of people. China is a huge country
with a huge population that has different cultures, shopping habits and priorities. Therefore, it would be
difficult for a foreign company to enter the Chinese market as a whole and immediately appeal to
everybody. For example, a comparatively expensive Starbucks would not do as well in a poorer city like
Guiyang as it does in Shanghai. Chinese consumers are also said to be much less loyal to branding
than those in other countries, and will more often tend only to purchase that which is popular and
known at the time. Coupled with Chinese rules and regulations, language barriers, start-up costs and
more, it is not as easy as one might think for any business to just waltz in and make it big in China.
However if a foreign-owned business makes the right moves and manages to crack the market, it has
the chance to make unprecedented profits.
On the other hand, I am well aware that these observations of affluence and riches-to-be-made
are slightly subjective, because of having lived in a very wealthy and westernized district of the largest
city in China. Unfortunately, I did not manage to find enough time to travel to less known parts of China
during my time at Jiao Tong and as a result do not have the knowledge to make informed opinions of
less privileged areas, where there are sure to be much lower incomes. I hope to understand more about

these places however, after changing my summer holiday plans of going to Thailand to travel around
China instead. This frequently overlooked poverty can be found in Shanghai, as well as all over China.
As expected, it is not difficult to see the differences in the poverty gap. Obviously the lower classes
cannot afford to buy the same luxury and superior goods as those greatly benefiting from the economic
boom in China. These people, unfortunately, must strive to make ends meet as China gets richer and
inflation rises. Of course, everyone has benefited from this rags-to-riches story, as living standards and
general wealth has increased. However, the rate at which these have increased is much slower for the
less fortunate, who must deal with the inflation (increases in price), whilst labour costs are purposely
kept as low as possible.

A look at a privately owned business

I have personally witnessed this inflation in China and the rapid rate at which prices are
increasing is shocking. One prime example of this inflation in a privately owned Chinese business, is
one of my favourite little Chinese restaurants, which we discovered at the beginning of the year and
named Red menu. This little eatery was very cheap when we first arrived, charging only 12 for a
delicious bowl of noodles with spicy meat. Since then, the red menu place has changed its menu to
purple, and then to yellow over the past year because of increases in prices. The same bowl of noodles
is now 16 . Although at first it seemed crazy to me that this restaurant could make enough money to
survive in a reasonably expensive part of Shanghai, over this past year I have understood how it does
so. With low labour costs (two chefs and two waitresses) and very little land, the restaurant attracts
customers through its cheaply priced food (even after the price-hike), which is both delicious and quickly
and conveniently served. At lunchtime on a weekday, the queue stretches around the corner, for both
sitting in and taking away. After seeing this, it hit me that Chinese people with lower incomes will always
know the best places to eat at with regards to price. As the demand for both cheap and good food rises,
the best and most price-competitive restaurants will always have a lot of customers. As a result, these
kinds of restaurants, which are both efficient and appealing to their customers, will always be able to
survive. Those that produce not-as-tasty food for the same price or more will inevitably be shut down
and replaced. This shows that cheaper, smaller and/or family run eating alternatives will always survive
as an alternative to big western food chains in Shanghai, as long as there are people with lower
incomes residing in the city. This demonstrates universal and fundamental workings of the demand and
supply aspect of business. Two weeks ago, I walked past the restaurant where episode of the suicidal
businessman occurred, which had closed down for refurbishment. Although the food was reasonable,
the price was considerably higher for the quality received (15-20 ), and the portions were smaller. A
day after it had closed down, a big Dominos Pizza sign appeared, the first of which I have seen in
China. At first, it seemed like a big shame to me that a lot of smaller and/or family run businesses in
Shanghai have closed down as a result of foreign competition, even despite the protection of Chinese
businesses by the government. However, after making my observations about the Red menu
restaurant, I realised first-hand that without this very competition, businesses would have no incentive to
improve services or products.

One of the ways in which I have been able to witness the inner workings of a privately owned
Chinese business first hand is through the taking up of a part time job. At first, I was working for a
Chinese tutoring agency that provided western tutors to Chinese people looking to learn English, French
or other languages. This business proved to me how profitable teaching a foreign language is in China.
Many Chinese people do not know any foreigners and as a result must use agencies in order to get in
touch with a foreign teacher. I believe that the Chinese people are slightly mislead to think that
westerners demand extremely high salaries and as a result are willing to pay the ridiculous prices
charged by the agencies. I, as a tutor with no qualifications was paid 150 (15) per hour to tutor
English. What the agency didnt tell me, which I subsequently found out, through a friend who asked
their students, is that they were paying the agency over 300 per hour for our services. This, although
very profitable, which is the aim of any business, seemed deceitful and sly on behalf of the agency in my
opinion. This is because when I first applied, despite asking for a slightly higher salary the manager
bargained diligently to keep my salary as low as possible. Furthermore, the Chinese people who worked
at the agency (not as tutors) were not very polite. The job was somewhat inconvenient because of the
fact that every student lived in a different area and wanted to be taught at a different time or day of the
week, which made it difficult for me focus on studies whilst not having a set weekly or daily routine.
As a result, I began looking around for schools where children were taught English and I could
apply as a teacher for classes rather than individuals. Luckily, one day I was walking past a school I had
never seen before, in a less known area of Shanghai, and was offered the job on the spot. This paid the
same salary as the teaching agency, but had more fixed schedules, Tuesday-Friday between 5-8pm
and every weekend day from 10:30am to 6pm. Although I didn't teach all of these shifts, the times of

these classes were perfect for my situation, where I would have university during the day, and could
teach afterwards. It was also a reasonably easy 30-minute commute by metro. Each time I went I would
teach for at least 3 hours, which meant at least 450 for every commute, rather than the 150 for
each varying commute. As a result, I saw significant improvements in my income, my routine and
schedule, and general organization. The lessons were also very enjoyable, and I seemed to be teaching
the children of the newly wealthy Chinese classes. The older classes between the ages of 5 and 10
were usually surprisingly good at English. A lot of the 8 and 9 year olds were even better than a 14 yearold French boy I had been tutoring whilst at the agency. Although I do not know how much each
individual child paid per lesson, I still knew that the business was very profitable. I realised this in
several ways. Firstly, my boss gave me the salary I first quoted without hesitation, a huge contrast to the
attitudes of the agency. Secondly, each childs family would pay the school an individual fee for each
lesson. Furthermore, the school also would have 2-3 teaching assistants/receptionists each day who
were working full time. After making good friends with one of my teaching-assistants, she told me that I
was making a lot of money compared to the Chinese people working at the school. To my surprise, she
was being paid about 500 per week after two years, as opposed to me, who was earning anywhere
between 1800 and 3300 per week part time. This means that she was getting paid about 50 per hour
as opposed to my 150 . Therefore, each lesson cost the school about 200 . Each student would only
have to pay more than about 30 per lesson for the school to make a profit. I received the impression
that the students families were paying much more. The wage difference was very shocking to me, and
seemingly unfair, as I worked just as hard for the company as she did. If anything, the job was easier for
me than it was for her, as she had to have better English than my Chinese, and she worked longer
hours than me. This is when I realised that one of the most important things in this type of teaching
business is the fact that the teachers are native speakers, and can convince the parents that their
money is well spent. After making these observations I felt a bit like a poster-boy, especially as the
Chinese teaching assistants English was better than my Chinese was, and they knew nearly all of the
words and grammar that was being taught. It was interesting to me, that the older children were already
expected by their parents to be working hard at English, in order to get a head start over other children
in China who were not fortunate enough to receive those lessons. At some points, it even felt like the
parents were competing to see whos child was the best at English, and therefore more likely to succeed
in the future. Although the Chinese have always taken their business seriously, I think that these
relatively new increases in demand for English teachers for children and adults alike, reflects the
growing desires of Chinese people to be able to take advantage of the economic boom going on around
them.

In conclusion, the increase in business in China due to its economic performance since the
reforms of Deng Xiaoping has not only been visible during my year abroad in Shanghai, but also a point
of interest. Business in China is a very large topic and could only begin to be explained in a book,
however, this year abroad has greatly helped me further my understanding of this subject. The way in
which business works in China, as well as its success or failure, depends on many things. These
variables consist of not only the people conducting it (foreign or Chinese), or their attitudes and customs,
or even only on the type of business in question, (foreign, private, state, or co-operatively owned
businesses), but rather a collection of all of three of these factors and more.

http://www.brandchannel.com/brand_speak.asp?bs_id=128
http://www.google.com/hostednews/afp/article/ALeqM5hwIV2LMPLt6tHvbdADl7ihQq_bw?docId=CNG.dfe97e07f144a2d29eb615412e0c12be.7c1
http://abcnews.go.com/WNT/story?id=130381&page=1#.T80EPJkthRE