Negotiating with Chinese Parties

One of the principal ways to ensure a deal is successful from beginning until its resolution is to achieve a high level of understanding of the counterparty’s negotiation style, and of their expectations for the various steps in the process. Chinese business persons and government employees meticulously study US negotiating styles and mores, but the intricacies and lack of straightforwardness of the Chinese often take US parties aback, usually to their detriment. The commercial success and long-term viability of business operations with Chinese entities hinges on maintaining a friendly but firm relationship from the outset, so it is important to understand the framework they will bring to the negotiation table, and how the US party should adjust its behavior and strategy to accommodate.

It would be correct to say that many of the structural elements outlined below are not exclusively Chinese cultural elements. However, China’s cultural profile is very complex. Its society for hundreds of years had a highly institutionalized scholarly tradition focusing on the study of Confucian and other texts. This focus on rote learning, combined with quasi-Marxist ideals and over a century of wars and famines, had a deep and unique footprint on nearly every aspect of modern Chinese society. The negotiation table does not escape the influence of these factors—on the contrary, it is here that they are at times most visible. This is often both more pronounced and more ubiquitous than when dealing with other cultures.

The Chinese negotiation structure tends to be complex for both intentional and unintentional reasons, but is ultimately similar to structures seen in other cultures’ negotiating styles. As such, engaging with Chinese negotiation structure may require due preparation and care, but not necessarily advanced understanding. Some behaviors arise from the socio-historical conflation between traditional thought and communist ideology. These are more specific, and require extensive familiarity with various dimensions of Chinese society and history in order to fully comprehend all the ways in which they may come up during negotiations. Basic knowledge of some core concepts is usually enough to successfully engage with Chinese counterparties, however.

Chinese negotiators will seek to establish a rapport right away. This will usually be referred to as “friendship” by the Chinese party, but that can be a cultural misnomer since friendship carries with it fixed and tangible obligations in China.[1] Within the context of a negotiation between a US and Chinese party, “friendship” can be more accurately thought of as confirming both parties are acting in good faith and are willing to make concessions to meet the needs of the other party. The goal is not to extract concessions per se, rather to ensure that the foundation is built on trust so that long-term business disagreements can be resolved through peaceful discussion rather than direct confrontation.[2] This tradition likely developed because throughout dynastic history Chinese courts tended to be overburdened, inconvenient, or unlikely to yield a fair and predictable result, so disputes tended to be resolved either by the parties themselves or with help from their extended families or local officials.[3]

One of the obligations of “friendship” will be to agree to certain principles that will guide the negotiation. These are intentionally very general and may be of commercial or political nature.[4] [5] For example, if something akin to equality between the foreign and Chinese party is established as a principle at the outset, it may be used to argue for greater share in profits, ability to appoint managers, or any number of other positions the Chinese side seeks to strengthen. While use of entrenched principles may not always have the desired effect on US negotiators, who likely agreed to them just to move the conversation along, it is often part of a broader strategy of referring to prior statements.

To this end, detailed notes will be kept about everything said by the US side in order to constantly recheck the validity of what has been said before and the reliability of what is being promised.[6] It is not unusual for a negotiation to alternate quickly between a current issue and what was said in past statements. This is an attempt by the Chinese party to probe the credibility and trustworthiness of the American side, so it is important to remain patient and calm.[7] The negotiation should be approached knowing this structure will be used: not only will it be less aggravating and feel less like an interrogation, but the US team will have much greater success by appearing more trustworthy and being less susceptible to manipulation if they know the specific details and the context of all prior statements made officially or unofficially by both parties.[8] This practice, together with the reliance on referring back to general principles decided at the beginning, has the effect of making the negotiation more staggered and less fluid than is customary in most cultures.

The final element that characterizes the structure of negotiations with the Chinese pertains to the actual organizational makeup of most Chinese teams. Generally speaking, Chinese negotiation teams will be larger and more compartmentalized than US ones.[9] Each team member tends to have a specific area of expertise or topic for which they have been granted authority to speak. While this is also a strategy used by American negotiators, it tends to be almost ubiquitous in China, and the compartmentalization occurs not only based on expertise, but also on age, work experience, identity, and power.[10] Because of this, Chinese negotiation teams are often less efficient than their American counterparts, and may appear uncoordinated, uncooperative, and even unsure of their own ability to make suggestions or concessions.[11] What may appear to be an intentional tactic to delay negotiations may be a legitimate inability to make progress without approval from a higher authority not present at the table.[12] [13] That higher authority, of course, may be intentionally leveraging the process inefficiency to their benefit. They may be waiting for the foreign party to feel uncomfortable and try to break the deadlock by giving additional concessions without corresponding ones from the Chinese side.[14] Back channel communications may help avoid impasses of this nature, since the Chinese intermediary may be more freely able to give their opinions.[15]

Another important consideration US negotiators should be aware of when dealing with Chinese parties is the intense divide between insiders and outsiders in Chinese culture. To clarify, while this insider/outsider dynamic applies to foreigners, it runs deeper than just stark divisions. Even within just groups of Chinese, it is possible to observe that people within a close circle of trust, such as blood relations or close childhood friends, are treated with fierce loyalty and the utmost respect. The same person showing that loyalty and respect toward their inner circle may be equally capable of showing complete apathy and sometimes sociopathy toward a stranger, even in exigent circumstances. Numerous small-scale social experiments have been conducted to demonstrate this, such as by acting out a kidnapping scene in public.[16] In other cultures, this usually draws intense scrutiny toward the adult with the child, but in China, it is rare for people to interrupt, even though the scene appears to be violent and threatening. In non-experimental settings, it is well documented that drivers who accidentally hit a pedestrian will sometimes reverse the car and strike them again, preferring to kill the injured person than instead of paying for costly medical treatment.[17] In less dramatic circumstances, strangers in need are more often associated with feelings of discomfort or with fear that the situation was manufactured to attempt a scam than with attempts to offer aid.[18] This strong aversion to getting into complex situations involving people outside ones’ immediate social circle likely developed during the Great Leap Forward and later the Cultural Revolution. These were feverous phases when the Maoist government relied on people turning each other in. Even trivial accusations were harshly punished, making it very difficult to trust anyone. Even people in younger generations continue to be affected by the traumatic social wounds inflicted by the mistakes of that era. Observations on the differences between how insiders and outsiders are treated is therefore not intended as a criticism, merely a logical outcome based on the trajectory Chinese society has taken.

The most visible way that the insider/outsider dynamic plays out in negotiations is a difference in the conception of good faith. A Chinese party in an arm’s-length transaction with another Chinese party will be aware that if the opportunity presents itself, the other party will take advantage of them. This is what the “friendship” phase of a negotiation seeks to combat: where a US party relies on contract terms to protect against being taken advantage of, the Chinese side seeks to form an insider relationship rather staying outsiders.[19] However, the possibility of being taken advantage of is never truly removed, unless through consistent oversight and monitoring. In transactions between Chinese parties, taking advantage of the other is sometimes a forgivable offense: there is a mutual understanding that in transactions between two outsiders, both sides need to be on guard for bad faith. Negotiations at the highest levels between US and Chinese parties often experience difficulties because of this. Often, it is because the US parties directing the negotiation may not understand how to behave following the negotiation. For example, in 2017, Disney discovered that their International Special Project Director in China had been forming companies, registering trademarks, and signing contracts without authorization for eight years.[20] In the political sphere, Obama’s much-lauded agreement with Xi Jinping that Chinese cyberattacks on US companies had little lasting effect, with incident frequency going back to the pre-negotiation numbers less than three months later.[21] These incidents demonstrate that, barring a very close overlap in interests or the strong mutual trust that comes with an insider relationship, Chinese parties may not always adhere to what is negotiated in good faith unless there is a demonstrable way to consistently correct deviations from what was agreed to.

While the insider/outsider dynamic does not explicitly demarcate foreign parties as an “other,” the high level of nationalism among the populace does. In the nearly 70 years since the Guomindang withdrew to Taiwan, the CCP used its total ideological hegemony in China to enshrine in the minds of its people that China is on a historic rise to become a global power, that foreign forces seek to curtail this rise, and that only the CCP can effectively overcome the odds on behalf of the country. It is important to note that while this sounds like political rhetoric to Westerners, they are axiomatic to the majority of the Chinese population. For the past several decades, the CCP has had the luxury of preemptively educating children in such a manner that primes them to align themselves with the goals of the state. With extremely few exceptions even among those who have been educated abroad, even those who are critical of the CCP support it in its prime directive. Pei Minxin confirms that “the young, urban, and educated Chinese are more nationalistic,”[22] indicating that for at least the next generation, political thought in China will be colored by the beliefs currently disseminated by the Party, even if the form or style of government were to change.

In negotiations with US parties, the Chinese side may be aware of the cultural implications of the deal to a greater extent than the Americans. Where Chinese education emphasizes foreign atrocities during the Qing Dynasty, US students rarely study Chinese history in depth unless they specifically seek it out. If the context allows for it, the Chinese side may attempt to leverage lack of familiarity with colonial history in an attempt to get a better deal.[23] The best way to approach this is to remain civil and calm, and reiterate the benefits that are being offered already.[24] This can be followed up by “[Using] the concepts of ‘equality,’ ‘mutual benefit,’ ‘mutuality’…to make points and obtain concessions from them in the same way as they do from you.”[25] In other words, referring back to the general principles they sought to establish at the beginning of the negotiation and reaffirming intention to maintaining friendly relations can work to disarm situations in which nationality or politics are brought up.

US negotiators would be remiss if they are too quick to jump to the conclusion that the Chinese party is attempting to take advantage of them. The breadth of difference between US and Chinese cultures extends beyond just language: the entire society has a different mode of organization, and even the thought processes of Chinese people is vastly different than in the US.[26] Actions that would be anathema in US negotiations, such as renegotiating an issue that has already been settled, can sometimes arise in China. Another example of the type of conduct that may lead the US party to assume there is foul play could be leveraging relationships with specific negotiators. If the US side is sympathetic to a particular person across the table, they may be informed that this person is involved in an internal power struggle that may detrimentally affect them if the US party continues to hold certain positions.[27] A third oft-used tactic is to compare the deal to what has been done before with other foreign parties, or to claim that particular laws or customs require things to be done in a certain way.[28] All of these issues can be dealt with, so long as the US side remains calm and assumes good faith. The main defense is to comprehensively understand the underlying issues, and know the limits of one’s own position.[29] It may also be helpful to prepare addons or concessions in advance in case of attempts to renegotiate even after the contract has been signed.[30]

After understanding the main components of the Chinese negotiation style, it is possible to discern a typical process that business and other negotiations may follow. Chinese negotiation teams tend to share structural characteristics that may challenge Americans dealing with them. It may seem that the Chinese are specifically organized in such a way to stymie effective communication, but that is normally just the standard Chinese negotiation style. With that said, stymied communication may nevertheless occur, both as a consequence of the structure, and at times intentionally to frustrate the other party.

[1] Rand, p. 2

[2] Campbell, p. 1

[3] Dreyer, kindle location 1212-1270

[4] Blackman, p. XV

[5] Rand, p. 3

[6] Torbert, pp. 1-2

[7] Torbert, p. 2

[8] Rand, p. 11

[9] Campbell, p. 1

[10] Ibid.

[11] Blackman, xvii

[12] Torbert, p. 2

[13] Campbell, p. 2

[14] Rand, p. 13

[15] Torbert, pp. 2-3

[16] Dailystar, “Kidnap social experiment”

[17] Business Insider, “The insane reason why Chinese drivers intentionally kill the pedestrians they hit”

[18] Quartz, “Chinese people have lots of faith in China, but not so much in their fellow Chinese”

[19] Blackman, xvi

[20] Dresden, “Who’s Minding the Store in China”

[21] REF

[22] Bajoria, “Nationalism in China”

[23] Rand, p. 11

[24] Blackman, xvi

[25] Torbert, p. 2

[26] Ibid, p. 1

[27] Rand, p. 10

[28] Blackman, xvi

[29] Rand, p. 14

[30] Blackman, p. xviii

References

Bajoria, Jayshree. “Nationalism in China.” Council on Foreign Relations, 2008.

Blackman, Carolyn. Negotiating China. Allen & Unwin, 1997.

Sant, Geoffrey. “Chinese Drivers Kill Pedestrians Intentionally.” Business Insider, 2015.

Campbell, Raymond. “Cross Cultural Negotiation from a Chinese Perspective.” Peking University School of Transnational Law.

Cohen, Jerome A. “Settling Business Disputes with China.” Cornell International Law Journal, vol. 47.

Dresden, Matthew. “Who’s Minding the Store in China?” China Law Blog, 2017. https://www.chinalawblog.com/2017/04/whos-minding-the-store-in-china.html

Dreyer, June T. China’s Political System: Modernization and Tradition. 10th ed. Taylor & Francis, 2018.

Havis, Michael. “Man kidnaps boy in sinister social experiment – and everyone reacts terribly.” Daily Star, 2016. https://www.dailystar.co.uk/news/latest-news/506044/Kidnap-social-experiment-video-reaction-YouTube-China-DaPeng-Prank

Horwitz, Josh. “Chinese people have lots of faith in China, but not so much in their fellow Chinese.” Quartz, 2017. https://qz.com/1047584/chinese-people-have-lots-of-faith-in-china-but-not-so-much-in-their-fellow-chinese/

Radchenko, Sergey. “How to Stand Up to China? Mongolia’s Got a Playbook.” Foreign Policy, 2016. https://foreignpolicy.com/2016/12/05/how-to-stand-up-to-china-mongolias-got-a-playbook/

Solomon, Richard H. “Chinese Political Negotiating Behavior: A Briefing Analysis.” RAND Corporation. https://www.rand.org/content/dam/rand/pubs/reports/2008/R3295.pdf

Torbert, Preston M. “Memorandum Re: Negotiating with the Chinese: Ten Suggestions.” Baker & McKenzie LLP, July 2011.


Author Nicholas Andonie

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