This Chapter presents an overview of the relevant background to the business environment in which foreigners may expect and be expected to work with the Chinese, whether at home or in China. It is divided under five headings:

• 1.The logical starting point is the philosophical environment of Confucianism – which, albeit out of favour at present, has so permeated Chinese life for the last 2,500 years that its effect is subconsciously all-present, including in business. (See also: Appendices 1.1 and 1.2)
• 2.Next is the political environment that has marginalised Confucianism to dominate China since 1949: communism – which has evolved into ‘socialism with Chinese characteristics’.
• 3.Integral to her political environment is China’s economic environment – where ‘socialism with Chinese characteristics’ translates into a ‘market economy with Chinese characteristics’.
• 4.A key aspect of that economy is China’s ‘open door policy’, which directly impacts on the opportunities for foreign business.
• 5.Last but not least is the legal environment – that legislates how business should operate within the preceding four environments.

Chapter 2 is complementary, dealing with the corresponding social environment.

Both chapters give a sufficient underpinning knowledge to allow a better understanding and, consequently, practical implementation of the ‘how to do what’ more effectively when working with the Chinese.

PHILOSOPHICAL ENVIRONMENT

Although China is officially an atheist country without any scriptures that are formally recognised in the traditional sense, there is no doubt that the Chinese way of life is a legacy of Confucianism.

Confucianism

Confucianism is a form of humanism, based on the teachings of Confucius. Although once elevated to the status of China’s official state ideology, it has never become an established religion. This is due to the primarily secular nature of its philosophy, and Confucius not having sought or claimed divinity.

Since the collapse of the Chinese Empire (1911) in general, and the founding of the People’s Republic of China (PRC) (1949) in particular, Confucianism has fallen from grace and no longer dominates Chinese political life and institutions.

Nevertheless, some Chinese scholars suggest that Confucian virtues and values – handed down from generation to generation as memorable common-sense practical sayings, aphorisms and anecdotes – will remain the bedrock of Chinese ethics.

If so, then such practices will apply equally to business dealings. Therefore a basic understanding of them by non-Chinese can only improve their working relationships with the Chinese.

Rise and fall of Confucianism

Confucius lived from 551 to 479 BC.

His teachings alternated between periods of:

• unrivalled pre-eminence as the state orthodoxy of the Han, Tang and Qing dynasties
• strong competition from Taoism and Buddhism

re-emerging each time stronger than before, until finally ceding in the twentieth century first to Western influences and then (as now) communism.

Origins of Confucianism

Rather than invent Confucianism, Confucius revitalised and passed on the earlier canon of the Age of the Grand Harmony that the way to achieve social cohesion is by ritual observance, not legal constraint, as a communal act to promote mutual understanding.

Generally: he advocated the principles of good conduct, practical wisdom and proper social relationships that, for countless generations of Chinese since, have:

• influenced the attitudes to life
• set the models of behaviour and social values
• set the standards for training government officials
• laid the foundation for political theories and institutions.

Explicitly: he espoused the following key concepts on which such principles were built:

Key concepts of Confucianism
Concept	Meaning
lì	self-benefit (avoidance of)
lî	propriety, ritual, respect for others
rén	benevolence, love for others
shù	reciprocity
xiào	love of children for parents and vice-versa, filial piety
yì	righteousness, uprightness
zhōng	sincerity, faithfulness to oneself and others

Golden Rule of Confucianism

The first concept is a warning; the rest, values at the heart of which is ’rén’ manifested by ‘zhōng’ and ’shù’. Indeed, when asked to summarise his teaching in one word, Confucius replied ’shu’ or ’reciprocity’, expressed as ‘What you do not want done to yourself, do not do to others’ (Analects 15:23).

This is Confucius’ Golden Rule; and, rather than being interpreted purely as a prohibition, should be construed also as a negative command intended to encourage a positive outcome: ‘The man of perfect virtue, wishing to be established himself, seeks also to establish others; wishing to be enlarged himself, he seeks also to enlarge others’ (Analects 6:30).

Filial piety

Another key concept of Confucianism is filial piety (the respect of children for their parents, and vice-versa), expressed as: ‘In serving his parents, a son may remonstrate with them, but gently; when he sees that they do not incline to follow his advice, he shows an increased degree of reverence, but does not abandon his purpose; and should they punish him, he does not allow himself to murmur’ (Analects 4:18).

Motivated by a recognition of and reverence for the source of life – rather than blind obedience to parental authority – xiào should be construed as a unilateral command intended to encourage a bilateral outcome of mutual respect that encourages both parents and children to flourish. For example: if a father fails to behave properly, asks Confucius, how can he expect his son to follow ritual?

It follows that:

• If:
  • such conduct engenders familial harmony, and
  • families are the basic unit of society; or
  • conversely, society is just an extended family
• then:
  • the same conduct should similarly engender nationwide political stability and social order through the tiers of school, local community, province etc; and
  • translate into other relationships such as: ruler-subject, master-servant, husband-wife, teacher-pupil, old-young, friend-friend etc.

Thus, as regards:

• politics: Confucius advocated a paternalistic and strictly hierarchical government:
  • with a benevolent, honourable ruler; and respectful, obedient subjects
  • where the former sets an example to the latter by preferring doing good to personal gain or force
  • that provides food, security and education for the people.
• business: the same concepts apply to such working relationships as employer-employee, supplier-customer, joint venture partners, licensor-licensee.

Western parallels

It should not be too difficult for Western business people to understand and emulate the foregoing concepts, as they are mirrored in Judeo-Christian theology and the teachings of St Paul quoted in the following table:

Confucian concept	Judeo-Christian theology	Teachings of St Paul
benevolence and reciprocity	love your neighbour as yourself	charity (2 Cor 13)
filial piety and mutual respect	honour your father and your mother	Christian household (Eph 5:21-6:9)
personal gain	the love of money is the root of all evils	(1 Tim 6:10)

The Superior Man

That Confucius laid great store by correct behaviour is underlined by his devoting the whole of Chapter 10 of the Analects to specific rituals for specific occasions, besides his teachings in other chapters.

Such rituals prescribe how the Superior Man or ‘gentleman’ should behave when dealing with other people (as a means of exercising self-control by directing his emotions in the right direction).

For example {Analects 16:10), the Superior Man

In regard to his …	Is anxious to …
eyes	see clearly
ears	hear distinctly
doubts	question others
In regard to his…	Is anxious to be…
countenance	benign
demeanour	respectful
speech	sincere
business	reverently careful
When he…	Thinks of…
is angry	the difficulties his anger may bring him
sees gain	righteousness

and, immediately before the Golden Rule:

‘The superior man in everything considers righteousness to be essential. He performs it according to the rules of propriety. He brings it forth in humility. He completes it with sincerity.’

When combined with benevolence (rén), such rites acquire human meaning rather than being merely hollow gestures.

From these rites stem the rules governing Chinese accepted standards of behaviour that foreigners will encounter in business etiquette, which are fully described in subsequent chapters.

POLITICAL ENVIRONMENT

China is a multi-party, multi-national state under the leadership of the Communist Party of China (CPC).

To quote the current constitution (of 1982) the PRC is:

‘A socialist state under the people’s democratic dictatorship led by the working class and based on the alliance of workers and peasants.’

This is the ‘socialism with Chinese characteristics’ into which Communism has evolved in China, as described below.

Communism

The origins, aims and development of Communism in general are too well known to recite here.

Suffice it to say that, since the communist revolution and founding of the PRC in 1949 under Mao Tse-Tung, China is one of only a handful of countries where communism has survived as the ideology of a nation state. This is probably due to China’s continually adapting communism to suit her own needs, rather than copying the Soviet ideological model as most other communist countries did.

Maoism

Mao preached a peasant type of Marxist-Leninism, with a principally rural and military outlook that reflected his own background.

Thus, in his desire to adapt communism to suit China’s needs, Mao:

• promoted land reform
• ascribed a greater role to agriculture and the peasantry in the building of socialism.

Unfortunately, the latter led to the ill-fated:

• Great Leap Forward (1958), which included reorganising agriculture into collectives, ultimately causing widespread famine
• Cultural Revolution (1966), intended to:
  • purge Chinese communism – with the support of the People’s Liberation Army (PLA) – of the bourgeois influences of the upper middle class (such as art and academia), many of whose members were conscripted into agricultural labour
  • re-establish Mao’s supremacy, that had been weakened by the failure of the Great Leap Forward.

The predominant manifesto was the Little Red Book of Mao’s thoughts, with the rubric by his then heir-apparent (Lin Piao) to ‘study Chairman Mao’s writings, follow his teachings and act according to his instructions’ (Quotations from Chairman Mao Tse-Tung, Foreign Languages Press, Beijing, 1966).

On a personal note: how many undergraduates in Western Universities at that time, like me, bought a copy merely out of intellectual curiosity without any regard for its practical impact on the Chinese people?

Similarly, in stark contrast to his contemporaries, Mao maintained that, once economic revolution had been achieved, the state should remain the dictatorship of the proletariat rather than become the state of the entire people.

China today

However, such was the ensuing chaos that, after Mao’s death (in 1976), the Cultural Revolution was officially criticised, the leaders sanctioned, and the many innocent victims reinstated – including Deng Xiaoping, who eventually succeeded Mao and in turn nominated Jiang Zemin and Hu Jintao to follow him and in that order (1997 and 2002, respectively).

The main proponent of ‘socialism with Chinese characteristics’, Deng advocated reform in place of revolution, but only of the economy: democracy was not an option.

For example: one of Deng’s early reforms was to introduce the Responsibility System, under which collectives were dismantled and farmers allowed to sell spare produce on the open market.

After his death (in 1997), the CPC declared Deng Xiaoping Theory its guiding ideology.

The reason why Deng succeeded where his predecessor failed lies in the main differences between the ideologies of:

• Mao
  • ‘Better red than expert.’
  • ideology is more important than ability.
• Deng
  • ‘It doesn’t matter if the cat is black or white; what matters is how well it catches mice.’
  • ability is more important than ideology.

Quotations from China Basics – Brief History of China, ChinaTour.com, 2002 Economically, China has been transformed from a planned system into a ‘market economy with Chinese characteristics’ (which the cynics might say is a euphemism for ‘capitalism’), including gradually opening to the outside world.

The pace of political change, however, is another matter: China has learnt from Russia the danger of simultaneously reforming economic and political systems. Nevertheless, the inextricable relationship between a country’s economy and the political system within which it operates means that one cannot mark time for very long while the other continues to move forward.

China tomorrow

According to the China Daily (16th Party Congress,www.chinadaily.com.cn, in his report to the 16th CPC National Congress (in November 2002), as the retiring leader, Jiang Zemin outlined the following objectives for China’s development and reform – to:

• hold high the great banner of Deng Xiaoping Theory
• fully act on the important thoughts of Three Represents – that is, the Party must always represent the:
  • development trend of China’s advanced productive forces
  • orientation of China’s advanced culture
  • fundamental interests of the overwhelming majority of the Chinese people
• carry forward the Party’s cause into the future
• keep pace with the times
• build a well-off society in an all-round way
• speed up socialist modernisation
• work hard to create a new situation in building socialism with Chinese characteristics’
• and ‘adhere to the Four Cardinal Principles:
  • keep to the socialist road
  • uphold the people’s democratic dictatorship
  • uphold leadership by the Communist Party
  • uphold Marxism-Leninism and Mao Tse-Tung thought’.

At the same time, as part of the drive to reform government in general and combat corruption in particular, Jiang urged adherence to the Eight Dos and Don’ts:

• 1.‘Emancipate the mind and seek truth from facts; do not stick to old ways and make no progress.
• 2.Combine theory with practice; do not copy mechanically or take to book worship.
• 3.Keep close ties with the people; do not go in for formalism and bureaucracy.
• 4.Adhere to the principle of democratic centralism; do not act arbitrarily or stay feeble and lax.
• 5.Abide by Party discipline; do not pursue liberalism.
• 6.Be honest and upright; do not abuse power for personal gains.
• 7.Work hard; do not indulge in hedonism.
• 8.Appoint people on their merits; do not resort to malpractice in personnel placement.’

So much for future theory; meanwhile, we will just have to wait to see how things work out in practice. Nevertheless, the current climate for continued economic change, government reform and anti-corruption should bode well for foreign business.

Corruption

Reference is made above to corruption – or rather its eradication – in politics; and again below in the context of China’s economic reforms and future.

According to Timothy Ong, Chairman and Publisher of Asia-Inc (Feb 2003):

If there is any issue…that is guaranteed to enrage Chinese, it’s corruption… Corruption figures… as the major challenge for the fourth generation of party cadres…Party leaders are acutely aware that runaway corruption can galvanise popular support against their regime.

That the leadership is serious about eradicating corruption is best illustrated by the personal probity of Zhu Rongji, who, when Premier:

• ‘once told subordinates to prepare 100 coffins for corrupt officials and one for himself in the event he was shot in the battle against them’ (Ong, ibid)

• at the 2002 National People Congress, harshly censured the lavish lifestyles of those officials who ‘compete with each other to celebrate festivals in the most extraordinary manner’ and ‘use public funds to dine in fine restaurants and for private travel abroad’ (Ong, ibid).

Examples

For example, during February 2003, when I was in Shanghai, the national and local press carried the following reports:

• A ‘former vice-president of xxx University… has been sentenced to 10 years in jail for bribery… From 1996 to 1999 he received… a US$200,000 bribe from a contractor’ (Shanghai Star, 13 Feb 03).
• ‘A former police head in xxx was executed… for bribery and illegal possession of weapons and ammunition. From November 1995 to early 1999, X pocketed more than RMB 1.8m (US$217,000) from a local gambling ring’ (Shanghai Daily, 15 Feb 03).
• ‘During the past five years (1998-2002), procuratorial departments at various levels in the country have cracked down on more than 200,000 cases of abuse of power involving more than 10,000 officials of above county and division levels. It has retrieved pecuniary losses of US$2.4b for the country’ (China Daily, 18 Feb 03).
• ‘Nearly 68% of the corruption cases investigated by local prosecutors over the past five years (1998-2002) involved SOEs, eliminating a threat to the development of the state sector’ (Shanghai Daily, 19 Feb 03).
• ‘Jade articles seized from officials convicted of corruption… were displayed yesterday… The convicted officials included X, former mayor of xxx, who has been sentenced to death pending two years’ probation; and former vice-mayor Y, who has been executed’ (China Daily, 20 Feb 03).

Big Brother

One of the less pleasant aspects of a dictatorship is the ‘Big Brother’ syndrome as portrayed in George Orwell’s Nineteen-Eighty-Four, where the portrait of the party leader, who never appears in person, dominates every public place. Of what does that remind you: Mao’s portrait overlooking Tiananmen Square, perhaps?

For example, it is said of China that:

• lifts in hotels and public buildings have ears
• security guards in foreign housing compounds are the eyes and ears of the Public Security Bureau (PSB)
• the PSB intercepts all e-mails
• certain subjects are taboo, as discussed in Chapter 3.

Nevertheless, my family felt more at ease in China in the late 1990s than when living in Spain under the Franco regime – as follows:

• 1.Within only a week of arriving in China, my wife traded her Christian beliefs for the first-hand experiences of a student in the Tiananmen Square incident.
• 1.I have enjoyed (apparently) unfettered internet and e-mail access from, to and within China for several years.

To those foreigners who ‘keep their nose clean’, whether Big Brother is or is not watching should be of no concern. Any who behave otherwise, as they have found to their cost, may attract the unwanted attention of the public security agencies, as they well might elsewhere in the world. Thus, to be on the safe side: Vw xiang, sui su’ (‘enter village, follow customs’ – the Chinese equivalent of the Latin proverb ‘when in Rome, do as the Romans do’).

ECONOMIC ENVIRONMENT

For the sake of its currency and relevance, this section is more an overview of the environment in which China’s economy operates, than a review of the economy per se.

Iron Rice Bowl

Just as Confucius advocated that the responsibility of government is to provide food, security and education for the people – so Mao’s government, in its early years, promised workers an iron rice bowl (tie fan wan) of lifetime employment, housing, health care, pensions and education provided by employers.

Naturally, some strings were attached, as follows:

• jobs were allocated, rather than chosen; and not always consistent with employees’ abilities or location. For example:
  • a colleague of mine, on graduating in engineering, was sent by the authorities to a pharmaceutical laboratory
  • my wife’s Chinese tutor abandoned medicine in order to stay with his wife, also a doctor, when they were posted to different cities
  • on completing their degrees, the students with whom I associated were selected by future employees on the basis of their tutors’ recommendations
• unmarrieds were expected to live with parents
• movement of labour was restricted
• serious transgressions could be punished by the withdrawal of employment and hence denial of access to such provisions – for example: parents of illegitimate children or more than one child, and professing Christians.

However, in line with China’s economic reforms (described below), this cradle-to-grave provision by the state is being gradually phased out to be replaced by a greater personal self-sufficiency.

Which raises two questions: in the future, who will (1) provide and (2) pay for unemployment, housing, hospitals, pensions and schools? The strain on these will be exacerbated by people moving from the countryside to the cities as residency restrictions are gradually lifted.

The answer to the second question affords foreign financial services providers a golden opportunity to satisfy a burgeoning market need (assuming the conditions are right).

Economic reforms

In 1998, under the then Premier Zhu Rongji, China embarked on ambitious plans to restructure loss-making State-Owned Enterprises (SOEs) in order to:

• improve productivity and efficiency; and thereby…
• maintain competitiveness in a socialist market economy.

To cure an ailing command economy with modern commercial principles is no ordinary task – but then Zhu was no ordinary Prime Minister, since he was:

• the first economist in the PRC’s history to hold that office
• recognised as the most able manager of the economy
• the leading proponent of a market economy
• a convenient scapegoat for Jiang, if the reform of the SOEs did not go according to plan.

SOEs affected included the:

• state-owned commercial banks and the People’s Bank of China (PBOC), the restructuring of which would lay the foundation of a modern financial system and regulatory framework, respectively, to suit the needs of a socialist market economy at home and abroad. In particular, the PBOC would be split into two to separate the roles of regulating lenders and setting monetary policy
• government: by abolishing ministries managing specific industrial sectors a – relic of a planned economy that would be an anachronism in, and hindrance to, China’s new socialist market economy – and reforming them into regulatory authorities under an enlarged State Economic and Trade Commission (SETC).

At the same time Zhu affirmed that China would:

• maintain her open door policy to foreign business, including extending access inland from the Special Economic Zones (SEZs) and open coastal cities
• improve the investment environment
• eradicate corruption, now re-classified as an ’economic crime’. (It is no exaggeration to say that one method of dealing with the chief executive officers (CEOs) of poorly performing state industries has been to execute them.)

Economic future

According to the China Daily, in his report to the 16th CPC National Congress (in November 2002), as the retiring leader, Jiang Zemin outlined the following objectives for China’s economic development and reform during the first two decades of the twenty-first century – to:

• improve the socialist market economy
• promote strategic adjustment of the economic structure
• basically accomplish industrialisation
• energetically apply IT
• accelerate modernisation
• maintain a sustained, rapid and sound development of the national economy
• steadily uplift the people’s living standards.’

To these ends, Jiang proposed the following eight strategies – ‘to:

• 1.Take a new road to industrialisation and implement the strategy of rejuvenating the country through science and education and that of sustainable development.’ As regards sustainable development, he stressed ‘adherence to the basic state policies of family planning and environmental protection.
• 2.Make the rural economy flourish and speed up urbanisation.
• 3.Advance the development of the western region and bring about a coordinated development of regional economies.
• 4.Stick to and improve the basic economic system and deepen the reform of the state property management system.

Future of private and public enterprise

Of special interest to foreign firms looking to invest in China are Jiang’s comments on the future of China’s private and public enterprise:

‘In line with the requirements of releasing and developing the productive forces, China must:

• uphold and improve the basic economic system
• stimulate the development of the non-public sectors while keeping the public sector as the dominant player, incorporating both into the process of the socialist modernisation drive instead of setting them against each other
• improve the government functions of economic regulation and market supervision
• deepen the reform of SOEs and further explore diverse forms for effectively realising public ownership, especially state ownership.’

• 5.Improve the modern market system and tighten and improve macroeconomic control.
• 6.Deepen the reform of the income distribution system and improve the social security system.

Future of China’s social security systems

Of special interest to foreign financial services providers are Jiang’s comments on the future of China’s social security systems:

‘Efforts should be made to improve the basic old-age pension and medical insurance systems for urban workers and the systems of unemployment insurance and subsistence allowances for urban residents.’

• 7.Do a better job in opening up by ‘bringing in’ and ‘going out’.

Future of China’s international trade

Of special interest to foreign firms looking to trade with China are Jiang’s comments on the future of China’s international trade: ‘In response to the new situation of economic globalisation and China’s entry into the WTO, China should:

• take part in international economic and technological cooperation and competition on a broader scale, in more spheres and on a higher level
• make the best use of both international and domestic markets
• accelerate reform and development by opening up
• strive to increase exports by ensuring good quality
• attract more foreign direct investment and use it more effectively
• encourage and help relatively competitive Chinese enterprises with various forms of ownership to invest abroad in order to form a number of strong multinational enterprises.’

• 8.Do everything possible to create more jobs and improve the people’s lives.

Future of China’s workforce

Of special interest to foreign firms looking to trade in China are Jiang’s comments on the future of China’s workforce:

‘China should:

• introduce flexible and diverse forms of employment
• encourage people to find jobs on their own or become selfemployed.

Entrepreneurs and technical personnel employed by non-public scientific and technological enterprises, managerial and technical staff employed by overseas-funded enterprises… private entrepreneurs…free-lance professionals… are all builders of socialism with Chinese characteristics.’

These are not hollow words and any sceptics who think otherwise should first consider that China’s Gross Domestic Product (GDP) in:

• 2002: grew by 8% (according to the National Bureau of Statistics) – making China the sixth largest and the fastest growing large economy in the world (according to the International Monetary Fund) and second only to Japan in Asia
• 2003: should grow by 7.5% to 8% (according to the World Bank and State Information Centre, respectively) – with estimates in between from the State Development Planning Commission (SDPC) and Academy of Social Sciences

whilst the Consumer Price Index (CPI) for 2003 should rise by no more than 1% during 2003 (China Daily, 18 Feb 03).

Bureaucratic restructuring

Further major reforms of the economy’s bureaucracy will follow the change of leadership in March 2003 – including the merger of the SETC and Ministry of Foreign Trade and Economic Co-Operation (MOFTEC) into a new Ministry of Commerce (China Daily,www.chinadaily.com.cn, 06 Mar 03).

Although such reforms should benefit foreign business in the long run, they may cause momentary inconvenience whilst the supervision of Foreign Direct Investment (FDI) beds down in its new home.

Financial systems

A successful economy needs a sound financial system – which China has, despite a high Non Performing Loan (NPL) ratio, according to the former Governor of the PBOC (Dai Xianglong) (in Beijing Review, 16 Jan 03, 37) for the reasons that ‘the:

• Chinese economy has maintained rapid and sustained growth
• value of the Renminbi (RMB) remains stable
• foreign exchange reserves have kept rising at a fast pace
• various indictors of external debt are far below the universally accepted warning limits
• proportion of the extended public sector borrowing to the GDP is below the international warning line
• securities market and insurance industry are developing in a regulated way
• NPL ratio of financial institutions is declining
• public has high confidence in the development of the country’s banking industry and reforms’.

Outlook for foreign business

So much for future theory; meanwhile, we will just have to wait and see how things work out in practice.

Nevertheless, the current climate for continued economic change, government reform and anti-corruption should bode well for foreign businesses that might otherwise have been deterred by the uneven playing-field between them and domestic companies caused by the:

• lack of effective, transparent and consistent market regulations
• regulators also trading as competitors
• burden of government bureaucracy
• over-protection of domestic industries
• non-competitiveness of the market
• fear of corruption.

There will also be a need for foreign experts from many walks of life to help manage the change.

Private enterprise

Privately Owned Enterprise (POE) and wealth are booming in China, as evidenced by:

• Also in 1998: the founding by the All China Federation of Industry and Commerce of China’s first private bank, the Minsheng, as a further boost to private enterprise which, by the end of that year, accounted for 26% of China’s Gross Domestic Product (GDP) (according to figures published by the Research and Development Centre of the State Council).
• At least one Chinese businessman figuring amongst the richest 500 people in the world (according to one poll published in the West).
• The admittance, for the first time, of senior POE managers as representatives to the 16th CPC Congress (in November 2002) – thereby giving political recognition to the status and functions of the non-State and private sector and, hopefully, removing major obstacles to its development.

• The prediction, following the same Congress, that POEs could account for 50% of China’s GDP by the end of 2003.

One child policy

As the world’s most populated country, China is faced with the problem of feeding about 20% of the world’s population living on approximately 5% of the earth’s cultivatable land surface.

One solution, since the late 1970s, has been to restrict married couples to having only one child, with severe penalties for additional or illegitimate children.

The negative social consequences, well-documented in the West, range from inconvenient to inhumane, such as:

• a generation of only sons, nicknamed ‘little emperors’, who, as conscripts, cannot make beds or tie shoe-laces (according to the China Daily and London’s Daily Mail, respectively)
• one in seven of these may never marry, due to too few prospective wives as a result of the alleged abortion of female foetuses and abandonment of baby girls.

The negative economic consequences include the same increasingly ageing population that the rest of the world is also facing due to longer life expectancies. Currently (according to the 2000 census), 7% of China’s population is aged over 65, and the average life expectancy is 71 years. By 2040, however, the United Nations (UN) expects that proportion to exceed 20% (Asia-Inc, Feb 03, 21).

In China, however, this situation is exacerbated by the ‘triple-whammy’ of the:

• 1.preceding ‘baby-boom’ (encouraged by Mao)
• 2.withdrawal of the ‘iron rice-bowl’
• 3.emergence of China’s ‘Dinky’ (double-income no kids yet) or ‘Chuppy’ (Chinese young urban professional) generation, who are delaying parenthood.

Consequently, the country is threatened by the spectre of a growing number of elderly people with little or no means of support having to rely on a dwindling pool of progeny – the so-called ‘pivot generation’. They in turn need to support themselves and their dependent children in the face of increasing unemployment following the reform of the SOEs.

The situation is particularly critical in Shanghai, where the birth-rate (according to the Shanghai Population and Family Planning Commission) has:

• been consistently below the national average since the introduction of the ‘one child policy’
• dropped sharply by one-third between 1990 and 1996
• bottomed out to approximately half the national average at the end of 2002.

The reasons given by the Commission include:

• career plans, with many women having already earned crucial, highly paid positions with their employers
• a higher female employment rate than in other parts of China
• the cost of raising children in Shanghai which is more expensive than in other regions of the country
• keen social competition that prevents women taking maternity leave, and/or bosses who break or bend the law to pressure them not to do so – despite their having the right to nine months’ leave, without losing their job or being transferred to a less important position.

According to a survey by Fudan University in 2002, one in eight married Shanghainese couples under 40 years of age had chosen to have no children (Shanghai Daily, 15 Feb 03):

This trend is a reflection of the changes in the value system of the Chinese, especially young people. Children are no longer viewed as a link to maintain the family and a family without children is not considered an unhappy or at least incomplete family. Young people are starting to value their career development and life quality more, instead of the so-called social responsibility.

Until recently, such a viewpoint was an anathema in China, where the sense of the extended family has been so strong (the legacy of Confucian ‘filial piety’) that it would have been inconceivable for grown-up children to negate their duty – affection does not enter into the equation – towards helpless parents for younger dependents.

Indeed, as recently as the late 1990s, a survey by an American insurer, again in Shanghai, revealed the following:

Priorities of professional men in their mid-30s
Order	Whom?	What?
1.	parents	long-term care
2.	children	education
	children and themselves	health care
		housing
3.	themselves	pension

Who is going to build the schools, hospitals and houses, provide school fees and health insurances, mortgages, mortgage protection, and pension plans? Not to mention maternity and child care, funerals, unemployment and holidays? Surely, here is an opportunity for foreign business!

Meanwhile, as recently as November 2002, the 16th CPC National Congress reiterated adherence to the basic state policy of family planning.

Nevertheless, in early 2003, new legislation was introduced allowing parents who are both only children to have two offspring. Viewed logically in purely mathematical terms, the population might otherwise suffer significant reversal, if each generation were to reproduce no more than half itself.

Unemployment

Unemployment has already been alluded to above. To put it into context, unemployment among the registered urban workforce reached 4% at the end of 2002 (China Daily, 19 Feb 03). This figure is likely to rise – for example (according to the China Daily, 17 Feb 03): in Shanghai during 2002:

• job applicants grew at an approximately 40% faster rate than job vacancies (about 50% and 35%, respectively)
• university enrolments (i.e. future graduate job-seekers) rose by just over 30%.

Thankfully, unemployment insurance is catching up slowly, especially in the non-State sector – as illustrated by the fact that (according to the Ministry of Labour and Social Security) at the end of 2002 the number of policyholders was:

• c.35% higher than in 1989
• split virtually 50:50 between SOEs and POEs.

One instance of the West’s contribution to developing such insurance further is the three-year Sino-British Unemployment Insurance Project, launched in February 2003.

OPEN DOOR POLICY

In 2001, China successfully negotiated to:

• join the World Trade Organisation (WTO)
• host the 2008 Olympics

both of which not only represent positive steps forward in her international relations; but also confirm and advance China’s ‘open door policy’ (dui wai kaifang) to foreign businesses and investors, due to the:

• free-trade ethos of the former
• infrastructure requirements of the latter.

World Trade Organisation

Provided she abides by its agreements and her promises – which I have no cause to doubt – China’s membership of the WTO should make it easier for foreigners to do business with the Chinese, by:

• further opening and de-restricting her economic environment (described above)
• creating a more predictable environment for foreign investors.

Indeed, at the end the first year of membership (2002), China passed the WTO’s annual review, including the fulfillment of her WTO commitments.

Inter alia, China agreed to:

• reduce tariffs (in 2002: achieving cuts on over 3,000 items and reducing average rates from about 15% to 12%, with a further 1% reduction expected in 2003 – according to the Ministry of Finance); and remove non-tariff barriers
• extend equal treatment and status to Chinese and non-Chinese companies; and not discriminate between them
• desist from dual-pricing goods for domestic sale and export; and from using price controls to protect domestic industry
• end export subsidies for agriculture; and lift subsidies for agricultural production
• open up services to foreign competition (e.g. telecoms, banking, insurance)
• revise existing and promulgate new laws to comply with her agreements.

Foreign investment

Since being admitted to the WTO, a spokesperson for the China Council for the Promotion of International Trade (CCPIT) prophesied – in July 2002 – that the:

• amount of FDI should grow steadily and reach US$50 billion during 2002 – more than the rest of Asia combined – which it did, reputedly making China the number one global destination for FDI and the world’s second biggest pot of foreign reserves after Japan
• focus of FDI should shift, in particular towards developing the services and new and high-tech sectors; and reforming the SOEs
• number of foreign-invested companies should increase

which sentiments Jiang Zemin, as the retiring leader, echoed in his report to the 16th CPC National Congress (in November 2002), detailed above.

It may come as no surprise, therefore, to learn, for example, that:

• ‘Foreign mergers and acquisitions (M/As)…are becoming’ such ‘a new force driving forward reform in SOEs’ that ‘2002 was regarded as a year of foreign M/As in China’ (Beijing Review, 23 Jan 03, 22).
• ‘China is now Volkswagen’s second biggest market, having overtaken the US in 2002, and the company plans to…double annual sales to 1 million in 2007’ (Shanghai Daily, 18 Feb 03).

Travel and tourism

The open door swings both ways – out as well as in – witness the fact that the Chinese are now the fastest growing group of international travellers, following the government’s easing of restrictions on obtaining a passport – previously the main obstacle to their leaving China.

Curiously the increase in out- and in-bound travel during 2002 was approximately similar at c. 25% and 23%, respectively (according to the Ministry of Public Security).

Of the outbound travellers: apart from diplomats, businesspeople and tourists, a growing number of Chinese are choosing to work abroad on short-term assignments as a means of making money, setting up future projects or broadening their perspectives before returning home to enjoy a better quality of life long-term in China.

Apparently, in a country where it is not uncommon for family members to have been split by their job allocations (Shanghai Daily, 18 Feb 03):

It makes no difference that a husband and wife live in different cities within China or in other parts of the world’ since ‘in the internet age, the visual telephone and other modern telecom facilities enable husbands and wives to communicate, narrowing the distance between them.

In this respect at least, the Chinese are no different from Westerners working in the Far or Middle East!

Foreign exchange

At the time of writing, one fly in the ointment that still plagues overseas business in general, and tourism in particular, is the non-convertibility of the Chinese currency, the RMB.

World Expo 2010

Looking beyond the 2008 Olympics, China will further open wide her doors in 2010 to host the world’s leading trade exhibition – the prestigious World Expo 2010, in Shanghai.

E-commerce

In stark contrast to the situation in the late 1990s – during my time there – when the internet was regarded as a potential threat to her integrity against which a new Great Wall should be built, one consequence of China’s accession to the WTO has been the lifting of restrictions on the use of the internet domain ‘.cn’ (in December 2002).

Consequently, according to a report issued at the same time by NeuStar (The Next Frontier of Global E-Business, 4-5, see Bibliography):

‘The data clearly shows that success in China can propel the market share of a vendor. Further, China’s recent entry into the WTO may introduce more vendors into the market and increase competition. With such a dramatic commercial metamorphosis taking place right now in China, the country is poised to become one of the most dominant e-commerce players in the Asia/Pacific region – and the world.’

Obstacles to e-commerce in China

However, when it comes to paying for goods on-line, there are currently the following obstacles:

• 1.Unsophisticated banking systems (despite initial incursions into internet banking by such as the Hong Kong and Shanghai Banking Corporation (HSBC)).
• 2.Limited use of credit-cards.
• 3.Preference for paying cash.

Long-term commitment

Despite the foregoing, we should not expect China suddenly to fling wide her gates and welcome all and sundry. Were that to happen, there is the real danger – that China fears – of out-moded domestic ventures being destabilised by the superiority of modern foreign adventurers, especially in the financial services sectors.

The Chinese way is to hasten slowly: the lengthy WTO negotiations proved that! Foreigners intent on doing business must be patient, and prepared for their own Long March – which, as Mao said, begins with the first step.

Foreign businesses that grow tired of waiting, and pull out of China thinking they can always return are sadly mistaken. At worst they may be turned away; at best, sent to the back of the queue. Similarly, ‘hit-and-run’ entrepreneurs who want to make a fast buck. What the Chinese are looking for, individually and corporately, is commitment to China, which they will test by deliberately playing waiting games.

What might constitute such commitment, how to demonstrate it, and what first steps to take will be considered in Chapter 9.

Meanwhile, suffice it to say that: the longer you are prepared to wait, the sooner you are likely to arrive.

LEGAL ENVIRONMENT

For the sake of its currency and relevance, this section is a brief overview of the environment in which China’s law operates, not a review of the legislation per se.

Law is made for man

As in Christian theology ‘the sabbath was made for man, not man for the sabbath’ (Mk 2:27), so in Chinese thinking (for which read: Confucian Anti-Legalism): ‘the law is made for man, not man for the law’ (‘ren zhi bu shi fa zhi’).

Whilst this approach should theoretically favour the legislated, rather than the legislators, it does have some practical disadvantages – a major one being that until new legislation is published, it is hard to know its content and import.

When you ask, more often than not the likely reply will be a Confucian and face-saving, ‘we are still thinking about it’ (rather than, ‘we do not know’).

The argument seems to go something like this:

• ‘If we (the legislators), based on our current experience, not only firmly make up our minds but also firmly commit our decisions to paper, then in the future we are bound to follow our own rules and cannot change them so easily when they do not suit a new situation that confronts us which, had we known about it at the time, might have led us to make a different decision originally.’

It is possible, therefore, that no two answers to the same question may be the same; which could consequently lead to inconsistent practices.

As a member of the WTO, China now needs to develop a code of commercial law in line with international trade practice, in order to create a more predictable environment for foreign investors – as intimated above – for which she will require help from foreign experts.

It is an encouraging sign, therefore, that – after several abortive attempts over nearly 50 years – a draft Civil Code was submitted to the 31st Session of the Standing Committee of the 9th National People’s Congress in December 2002.

Law and ‘guanxi’

As detailed in Chapter 3, life in China functions on the basis of favours exchanged between individuals and institutions, known as guanxi.

However, such exchanges increasingly operate within a framework of law and regularised procedures.

According to Apco China (www.apcoworldwide.com:

‘Having good “guanxi” is essential, but a common mistake is to rely on “guanxi” to cut a “special” deal that would not otherwise get done due to conflicts with law or policy. This simply exposes you to a high degree of political risk due to changes in personnel, policies or attitudes. “Guanxi” can never compensate for deficiencies in the legal, regulatory or commercial logic of a transaction or investment’.

Copyright

See Chapter 3: Intellectual Property Rights.

APPLICATION

The following topics are specifically referred to again in subsequent chapters, as follows:

Topic	See chapter
Big brother	2,3
Corruption	3,4
Eight Dos and Don’ts	3, 10
Filial piety	2, 3, 10
Golden rule of Confucianism: Reciprocity	3, 4, 6, 7
Iron rice bowl	2, 3, 10
Key concepts of Confucianism	3
Key concepts of Confucianism: Generosity	4,7
Law and ‘guanxi’	3
Legal environment	5, 9, 10
Long-term commitment	5,9
Maoism	3
One child policy	3
Open door policy	5
Political environment	3
The superior man	2,3, 5
Unemployment	2