Over the course of the summer several people have asked me if I have read the book Mr. China, and even though I say I haven't read the book, they invariably assail me with a flurry of questions. Essentially, it seems people want to be assured that what happened to the author of Mr. China, Tim Clissod, will not happen to them. I finally got my hands on a copy of the book (coming across English language books in Shanghai is not as easy one might think), and I can finally answer some of those questions.
What happened to Clissod and his associates is often dismissed as not being possible today because people can avoid joint ventures in China by setting up a wholly foreign owned entity (WFOE). However, people still do joint ventures in China and sometimes it is more advantageous or even necessary to do a joint venture. No one can guarantee that what happened to Clissod will not happen again and, consequently, anyone considering investing in China should read this book.
The book is basically the story of how Clissod and his associates learned that they can't come to China and expect to do business the way they did business in the West. The book has been summarized time and again in various book reviews as the tale of how a big time Wall Street investment banker and a Chinese speaking Englishman lost nearly half a billion dollars investing in China. The author of the book summarized the period of investment in China during the nineties as "the Vietnam war of American business." Fighting in a foreign land against an enemy that can't be identified until he's taken a shot at you is pretty similar to doing business in a foreign land with a thief you can't identify until he's already taken your money. The lesson of the book is in the "foreign land" aspect of the metaphor. The author makes several references to Sun Tzu's book, The Art of War, and two of Sun Tzu's teachings are to avoid conflict on foreign soil and always, always know your enemy. Mr. China is a parable about the consequences of doing business on foreign soil and failing to understand Chinese culture.
About halfway through the book, and after being gutted by a couple of joint venture partners, the author reveals his big epiphany: "I knew that we would have to find a Chinese solution to a Chinese problem." The author then describes how the struggle for power and money between him and his joint venture partners went well beyond "any negative racist trap" or xenophobia. The simple fact is that the Chinese want to catch up with the rest of the world. When a joint venture partner attempts to win the favor of the factory workers by pointing out ethnic differences, he is desperately using every weapon at his disposal and it usually doesn't work even if the media loves the mudslinging. In Mr. China, Clissod said, "Chinese people have a deep sense of 'Chineseness,' which I felt I had to break through. This 'Chineseness' extends well beyond patriotism, nationality, citizenship and loyalty but includes all of those ideas." To find Chinese solutions, he had to delve into his own Chineseness, which required an understanding of himself, of China, and how China had changed him.
Central to the idea of 'Chineseness' is the written Chinese language, which is as old as the civilization itself. "The Chinese seemed caught between a great reverence for the past and the need to move on." The desire to move on can be found in Mao's simplification of the Chinese characters, which was the first time the Chinese characters had been drastically changed in 5,000 years. Unlike the Western alphabet, the sounds of the Chinese language may have evolved but the image representing that sound had not changed.
Even the Chinese get confused by the spoken Chinese language and have to resort to Chinese characters to clarify their meaning. TV shows that are broadcast in Mandarin, the national language, have subtitles running throughout the program to clarify what is being said. When revolutionists were contemplating doing away with Chinese characters altogether, a professor at Beijing University wrote a short story called Gentleman Shi. When a person read the Chinese characters, the story made sense, but when the story was written out phonetically, it made no sense, it was just the same word written over and over again! And that quickly ended the movement to do away with Chinese characters. So, despite the Chinese's desire to move on, their written language is a direct link to their history and tradition, which not only fills them with a sense of pride, reminding them of who they are and where they have come from, but it also permeates every aspect of their thoughts and desires. If you want to find a Chinese solution to a Chinese problem, then you have to first understand their language, how it is taught, learned, and utilizes metaphors and similes.
Another motif throughout the book is Clissod's discussion of Chinese vagueness. Close to the beginning of the book, Clissod describes his time living in a Chinese dormitory while he was studying Mandarin in Beijing. Eventually he ended up in a conflict with the dormitory administrators who said he could not have overnight guests (in this instance, his brother from the States) unless he first got permission. When he asked the administrator to show him where he could find this rule, the administrator said it was part of the "internal rules" and a copy of those rules could not be provided-- he was just expected to know them.
It seems to me many people make a big deal out of the internal rules of China, but they don't seem any different to me than any other custom. People tend to paint the Chinese internal rules as something that is not concrete and is often manifested on the spot in an attempt to outmaneuver the foreign businessperson. This is completely ridiculous. The internal rules are comparable to saying "bless you" after someone sneezes, which is something that is not done in China. If a person from China came to the States and demanded to know where it was written down that they have to say "bless you" after someone sneezes, we would have a difficult time producing that all encompassing rulebook. This metaphor can be extended to other Western practices such as standing when the judge comes into the courtroom or using a shower curtain.
Clissod discusses the vagueness of Chinese officials who have mastered the art of saying nothing and everything all at the same time. The Chinese are notorious for their indirectness, and there are few better at that game than Chinese officials. Clissod also points out that Westerners and Chinese view contracts differently. He says, "For a Westerner, a contract is a contract, but for the Chinese it is a snapshot of a set of arrangements that happened to exist at one time." It's not necessarily true that a contract is never final in China and it's not necessarily true that a contract is finalized in the West when you sign the dotted-line. However, there is no doubt that a sophisticated Chinese businessperson will try to renegotiate a contract. Moreover, if you let the Chinese write the contract, they will write a contract that makes the Western liable for anything that could possibly go wrong with the deal. It sounds obvious but I've met people who are surprised by this fact.
The Chinese are shrewd businesspeople and they have been negotiating and screwing people out of contracts for 5,000 years! What really makes a person think that they can come to China and play within their system of external and internal rules and actually win the game? That is some serious Western bravado! The only real hope Westerners have of competing with the Chinese is to get them to play by different rules.
He also points out that there are two systems for just about everything in China. Surprisingly, there is the public system and the internal system. With the government, there is the official National People's Congress and then there is the Communist Party, which has a hierarchal structure that is not revealed to the public (see TLB's post "Smoke and Mirrors"). What I found most interesting was his depiction of the media in China, which he says wields enormous power like that of any press in most countries. In China there is the public media, which gives the filtered version of the news and concentrates on good news, and then there is the internal reference material, which "is a summary of the unvarnished truth to be read in private by the top leaders of the country." When dealing with Chinese officials, the internal media is an extremely powerful weapon.
Mr. China is an excellent book for glimpsing the trials and tribulations of doing business in China. The Danone/ Wahaha dispute is probably the final chapter of the problems suffered by foreign investors setting up joint ventures in China during the nineties. Even though Clissold had a number of costly disputes with JV-partners and factory directors, it does not mean those problems are still prevalent in China but it also doesn't mean history won't repeat itself. Read this book, remember its lessons, and you'll undoubtedly be further ahead than those who have not read the book. The central lesson of the book is that doing business in China is not the same as doing business anywhere else. A fancy MBA degree from a Western university means absolutely nothing and your best weapon/tool in China is finding an old China hand, a zhongguo tong, and seriously listening to his/her advice.