“We should not believe we will understand China by using Western concepts.

China is a civilisation state.

It is national and multinational, developed and developing and is playing a very long game”

Martin Jacques

Negotiating with the Chinese

Negotiating with the ChineseTo a Westerner, the word ‘negotiation’ retains its Latin meaning of ‘coming to an agreement’. To a Chinese person, ‘negotiation’ is represented by the two characters of ‘discussion’ and ‘judgement’. As a result, the Chinese often perceive Western negotiators as impersonal, impulsive and overly focused on immediate gains. Westerners, meanwhile view the Chinese as hierarchical, circular and contradictory. Why has the approach to ‘negotiation’ historically been so very different and why do so many negotiations with the Chinese founder on seemingly basic misunderstandings?

The purpose of this booklet is to present the Western and Eastern concepts of negotiation and to suggest a number of ways in which negotiation with the Chinese can be more effective.

It accompanies a CKGSB intervention entitled ‘Negotiating with the Chinese – three ‘Make or Break’ differences’.

Contents5 Two worlds collide

6 Incompatible views

7 Far-reaching consequences

8 Implications today

9 Opening the door

10 The circular approach

11 5 Stages of negotiation

12 Exploring options

13 Getting to yes

14 10 Practical suggestions

Key programsCKGSB-IMD Dual Executive MBA: Designed for senior high-potential executives who are committed to pursuing a career that leads the way between China and the world.

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Cheung Kong Graduate School of BusinessEstablished in Beijing in November 2002 with generous support from the Li Ka Shing Foundation, CKGSB is China’s first faculty-governed, non-profit, independent business school. 

Over the years, CKGSB has developed into a prominent business school with 45 full-time professors, who have earned their PhDs or held tenured faculty positions at leading business schools such as Harvard, Wharton and Stanford. Their research has provided the basis for over 300 case studies of both China-specific and global issues. CKGSB also stands apart for its unmatched alumni network. More than half of the 7,000 CKGSB alumni are at the CEO or Chairman level and, collectively, lead one-fifth of China’s most valuable brands. Together, their companies shape over $1 trillion in annual revenue, demonstrating the school’s impact and influence. 

Negotiating with the Chinese | 32 | Negotiating with the Chinese

“We should not believe we will understand China by using Western concepts.

China is a civilisation state.

It is national and multinational, developed and developing and is playing a very long game” Martin Jacques

Two worlds collideIn September 1791, the Chinese Emperor Qianlong celebrated his eightieth birthday.Fourth emperor of the Qing Dynasty, he ranks amongst the longest reigns in Chinese history. He boasts a long list of great dynastic achievements, having added the new province of Xinjiang to the Chinese Empire and taking it to its greatest extent for two thousand years.

He defeated Turks and Mongols, suppressed insurrections and pacified neighbouring states such as Vietnam, Nepal, Burma and Thailand, forcing them to acknowledge tributary status.

Ruling a civilisation that accounted for a third of the world’s population, industrial output and GDP, he presided over a court that was incomparable in splendour to any in the world at the time.

When the envoy of King George III, Lord Macartney, visited in 1793 to promote greater trade between China and Britain, he was transported by yacht around the fifty pavilions of Qianlong’s palace ‘furnished in the richest manner that our presents must shrink from the comparison’, as Macartney later wrote in his journal.

The British Ambassador brought six hundred packages of presents, but his objective was not a tributary one - as expected by the Chinese. His purpose was to secure more favourable trading conditions for Britain on behalf of the East India Company and in the name of the king.

Shocked by the apparent ignorance of the British Embassy as to the rituals of tributary protocol and confused by Macartney’s requests to have more favourable trade arrangements than other European nations, the Emperor dictated the much quoted words:

“Our Celestial Empire possesses all things in prolific abundance and lacks no product within its borders. There is therefore no need to import the manufactures of outside barbarians in exchange for our own produce”.

A proposition believed by a British Ambassador to be of good business sense was rebuffed by a Chinese Emperor.

A Chinese Emperor with thousands of years of legacy reminded Macartney (and his king) that they had no business making requests, but should ‘obey and tremble’ in the hope of his grace and favour.

“My capital is the hub and centre about which all quarters of the globe revolve”Emperor Qianlong

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Far-reaching consequences Macartney returned home to portray China as backward and resistant to modern commerce.For the East India Company, this was a serious problem. British demand for Chinese tea, silk and porcelain was so strong that silver from the exchequer to pay for it was depleting the treasury.

The solution appeared to lie in the sale of opium to China from India, payable in silver. Opium had long been used in China for medicinal purposes. When importation and consumption was banned in China due to increased addiction, British opium traders lobbied the British government for war.

Forty seven ‘Opium War’ ships left India in 1840 to impose British commercial terms resulting in the Treaty of Nanjing with heavily punitive indemnities and the establishment of treaty ports and tariffs.

The humiliation caused by the Opium Wars convulsed China.

It created a series of crippling internal insurgencies such as those of the White Lotus, Eight Trigams and Taiping, in which twenty million people died.

Despite efforts to modernise, the Chinese became vulnerable,

particularly to Japan which had modernised successfully between 1850 and 1894. When Japan provoked war (over the Ryukyu Islands) and secured valuable compromises from China in indemnities, ports and land, the whole of Europe began to scramble for advantageous concessions.

In 1898, a society of martial arts exponents, the Boxers, blamed China’s ills on the presence of barbarian foreigners.

When their killing was supported by the Empress Cixi, the European powers sent troops into China, suppressing the Boxer movement and levying a fine on the Qing Dynasty equal to twice the government’s annual revenues.

Macartney had intimated that only violence could change China, but no-one had expected it to be on such a scale.

By 1900, the two million ruling Manchus lost the ‘mandate of heaven’ and consequently the support of four hundred million Chinese.

Civil strife would cripple China, politically, economically and culturally for the next eighty years.

China’s GDP would decline from over 30% under Qianlong to a meagre two percent of world total.

Incompatible viewsMacartney’s objective in his Embassy to China was to improve Britain’s terms of trade.For such an objective, his strategy of alignment, proposal and bargaining was ill informed.

To prepare for alignment, he employed two translators, one of which was a twelve year old boy. He had no-one capable of explaining and interpreting Imperial Cultural tradition.

He knew little about how European culture was already influencing and unsettling the Chinese court. The Imperial Summer Palace, for instance, was a reproduction of Versailles, filled with many of Europe’s newest inventions. The Chinese aristocracy found the inventions entertaining and ingenious but unnecessary in China’s predominantly agrarian labour abundant economy.

Macartney had four proposals: to ease the trade restrictions imposed on foreigners in Canton; to establish a permanent Embassy in Beijing; to obtain a small island for residence of British traders, storage of goods and outfitting of ships; and finally, to trade British textiles, engineering innovations and commodities for Chinese tea, silk and porcelain.

While, from a European perspective, his proposals may have seemed

rational, he had no idea of the sensitivity they carried in the context of the Qing Dynasty. Trade in Canton was administered by thirteen government appointed merchants to ensure the taxing of trade and careful supervision of European powers. To circumvent the merchants would lead to a breakdown in the systems of taxation and control.

The concept of a permanent Embassy in Beijing was anathema to the Chinese. It would be the equivalent of recognising peer power status.

The Portuguese enclave of Macau, established during the Ming Dynasty, was already an issue of concern to the Qing, who had imposed new regulations in 1749. There was little prospect Qianlong would endorse a similar British claim on Chinese territory.

And finally, as far as trade exchange was concerned, textiles and commodities were in abundance in China. The Qing Dynasty had ample labour and so little need for labour saving engines.

The clocks and globes, by which navigational capability could be improved, were of little use to an agrarian economy that had long since turned its back on the sea.

There was little prospect from the outset that the negotiation would be successful.

“The foreigners have been aggressive towards us, infringed on our territorial integrity, trampled our people under their feet” Empress Dowager Cixi

“How can our dynasty alter its whole system of procedure and etiquette established for centuries in order to meet your individual views?”Emperor Qianlong

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Implications todayIt is well known that economic liberalisation has transformed China since the 1980s.In 2013, the country boasted 15% of global GDP. In the last thirty years, China has become the manufacturing hub to the world and is the globe’s most attractive consumer market for Western brands and technologies.

Western businesses eye China as a light of potential growth in a darkening world economy.

But while Westerners are generally focused on future opportunity, the Chinese retain a keen sense of history. The Chinese prioritise the quality of relationships in all affairs – for which the past is an essential indicator.

The foreign imperialism that led to a series of foreign invasions is still evoked in China as a collective source

of humiliation and valid reason to be particularly wary of foreign intentions.

It is therefore important, as a Westerner, to be aware of historical, philosophical and cultural perspectives that continue to influence the Chinese at the negotiating table.

The five fundamental contrasting West/East perspectives include:

• Individualism and collectivism

• High and low power distance

• Low and high uncertainty avoidance

• Direct and indirect style of engagement

• Short and long-term temporal perspective

Chinese often perceive Westerners as uncomfortably individualistic, direct, impetuous, impatient and

short-term. Westerners, meanwhile often perceive Chinese as inscrutable, opaque and slow to make decisions – which when agreed, may be subsequently changed.

Western culture, with its origins in Christianity, rational thought and constitutionalism, favours the individual of bold action. Westerners habitually raise statues in towns and cities to evidence of such individualistic character.

By contrast, Eastern culture, with its origins in Legalism, Confucianism and Daoism, favours the harmony of the group at the expense of the individual. The Chinese raise big character posters in their towns and cities that extol communal values such as loyalty, commitment and harmony.

Only by awareness of these contrasting perspectives can negotiations begin.

“Let equilibrium and harmony exist in perfection, and a happy order will prevail” Confucius Analects

Opening the doorFor the Chinese, with their prioritisation of harmonious relationships, successful negotiation begins when two independent parties meld to share a preliminary understanding of common values. The primary goal of a Chinese negotiator is consequently to establish whether there is mutual suitability of character to enable the relationship on which the negotiation will be based.

The exploration of suitability is often begun by the formal exchange of big picture intentional statements during protracted social engagements.

To a Western negotiator, preferring to exchange information directly at the negotiating table to compare positions and indicate interests, such seemingly oblique activity can seem unnecessarily time-consuming. Westerners are used to exchanging introductory niceties and then proceeding directly to business. Time, in a Western context, is always money.

Time spent in exploring the suitability of the relationship through social activities such as banqueting and gift-giving in advance of the negotiation is an essential part of the Chinese negotiation process.

It constitutes an element of Confucian ritual that has been the bedrock of Chinese civilisation for thousands of years.

Equally powerful in Confucian philosophy is the maintenance of ‘high power’ distance.

Social harmony is best assured when each person acknowledges and accepts their place in the social hierarchy.

Due to this, Chinese negotiators enter the room as a highly structured group with defined roles.

As in Emperor Qianlong’s court, power is expressed by title, is expected to be recognised on receipt and acknowledgement of the business card - and is expected to be mirrored by Western negotiators of similar status and authority to ensure that ‘face’ is preserved.

The most senior Chinese negotiator will therefore expect to ‘set the scene’ through broad ranging statements and for similar expressions of intent to be reciprocated by his or her equivalent in seniority, positioned directly opposite.

Once context is established and ‘face’ confirmed, the following stages of negotiation may then be embarked upon by the next in the hierarchy.

“The Yangtze River behind drives the waters ahead” Chinese proverb

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The circular approachIn China, it is expected, for three reasons, that the next stages of negotiation will be circular.The first reason relates to a greater desire for uncertainty avoidance, the second to the fact that those more elevated in the hierarchy, often not be present, will “see more of the game than the players” and the third to the unique Chinese concept of time.

Risk-aversion is embedded in Chinese proverbial wisdom.

“One mis-step could cause a 1,000 year disaster” reflects an inculcated Chinese sense that bold individual action outside the approval of the group can be fatal to career and the community.

This is in strong contrast to the European sense that risk is an essential part of the process of wealth-creation.

The Chinese will always prefer stability, consistency and caution and be wary of Western negotiators who make on-the-spot decisions before referring back to principals.

In order to minimise risk, they will expect to make frequent protracted adjournments during which they will refer to their superiors and seek advice.

A much quoted Daoist tale in Chinese business runs as follows:

“A farmer had only one horse which one day ran away. The neighbours came to console him. “Why do you think this is bad?” he said. A month later, the horse returned accompanied by two beautiful wild horses. The neighbours congratulated him. “What makes you think this is good?” he said. The farmer’s son was thrown from one of the wild horses and broke his leg. The neighbours were distressed. “What makes you think this is bad?” said the farmer. When war came only the farmer’s son was exempted. “You see”, the farmer said to his neighbours, “you can never know good or bad until you see further than the moment”.

As the negotiators at the table may not be aware of deeper implications, the opinion of superiors is regularly sought.

And the more protracted the negotiation, the more opportunity for time to validate an additional Chinese proverb: “As distance tests a horse’s strength, so does time reveal a person’s true character”.

Chinese negotiations feature protracted discussion and judgement to test both relationship and quality of mutual understanding.

The collective, indirect, circular, polychronic approach is best anticipated by Western negotiating teams.

“One should always act only after due consideration. A hasty action may involve an improper consideration of important aspects” Chinese proverb

5 Stages of negotiationChinese and Western stages of negotiation can be divided into five stages:1 Preparation

2 Differentiation

3 Exploration

4 Exchange

5 Agreement

The Western approach to ‘preparation’ is generally characterised by data driven ‘Due Diligence’. Under the guidance of a team leader, a Western negotiating group will develop a ‘war’ plan consisting of BATNA – ‘Best Alternative to a Negotiated Agreement’; ZOPA – ‘Zone of Potential Agreement’; Reserve and Potential Value Trades.

The Eastern approach to ‘preparation’ is characterised by ‘Who Diligence’. The Chinese will be focused around understanding more about the people with whom they will be dealing.

They will ask questions such as “What is the market reputation of our potential partner through word-of-mouth?” “Who is likely to represent the company and what do seniority and the constitution of the group reflect about the importance of the deal?”

The second stage of the negotiation – the ‘differentiation’ process - can be broadly characterised by a Western preference for argument that contrasts with an Eastern predilection for discussion.

In the West, history and context is generally outlined only to explain the present situation. Western negotiators will outline interests and priorities and seek reciprocal information, using rational arguments to explain linkages, goals and priorities.

The Chinese, however, are uncomfortable with negotiation as a ‘game’ – with every racquet stroke requiring a return from the other player.

At differentiation stage, the Chinese will prefer to present a range of open, long-term possibilities, expecting the other party to infer which are most important from the authority of the speaker and the weight of discussion.

This stage of ‘differentiation’ resembles the Chinese game of ‘Go’ with its multiplicity and interchangeability of open-ended strategic and tactical positions more than Western racquet sport with its equivalence of expected reciprocity.

To the Chinese negotiator, both ‘preparation’ and ‘differentiation’ stages continue to be rich opportunities in which the counterparty can be evaluated and assessed before proceeding to exploration.

“The board of ‘Go’ represents the laws of earth. The black and white stones are divided like yin and yang. By arranging them we create a model of the heavens”Ban Gu (32 – 92 AD)

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Exploring optionsThe Western approach to ‘exploration’ is characterised by direct action, while the Chinese approach continues to be influenced by careful consideration.Westerners are generally impatient to explore creative solutions that emerge from interest based discussions, seeking to unpack suggestions on the spot.

The Chinese generally respond negatively to what they consider attempts to control the agenda in unexpected ways. The Chinese will want to take suggestions away for consideration, requiring time to create in-group solutions – and expect to re-introduce such proposals to the negotiating table when they are agreed internally.

A source of great frustration to action-oriented, time-constrained Western negotiators, the ‘exploration’ stage is when the Chinese cultural intermediary (zhongjjan ren) can be most helpful.

The choice of Chinese cultural intermediary - who can interpret where the power lies, body language, what is spoken, what is unspoken and

the interplay of face and guanxi - is a major factor in the success of West/East negotiation, particularly when the stakes are high.

By selecting a respected and appropriate cultural intermediary who can establish personal links between the Western and Chinese group to build the bridges of guanxi, however tenuously, a Western company dramatically increases its chances of negotiation success.

During the exploration process, rather than refusing a suggestion outright, Chinese negotiators may change the subject, turn silent, ask another question, or respond by using ambiguous and vaguely positive expressions with subtle negative implications, such as hai bu cuo (seems not wrong); hai hao (seems OK); hai xing (seems fairly alright); hai keyi (appears passable).

In response to a direct question about what a Chinese counterparty thinks of a proposal, there may be the response of yanjiu yanjiu – let us study it – despite having no intention to do so.

Meanwhile, an issue that is besetting the progress of the negotiation is left unattended.

The Chinese party can be frank with a trusted intermediary whilst, for reasons of face, they will continue to hide their true feelings and reservations from a Westerner.

“Never underestimate the role of the trusted intermediary within the team. It’s how General Motors wrested SAIC away from Ford in the final rounds of negotiation”Elizabeth Neidel

Getting to yesThe 1981 classic ‘Getting to Yes’ has defined Western ‘integrative’ or ‘principled’ negotiation.Its methodology suggests four key stages: ‘Separating the people from the problem’; ‘Focusing on interests rather than positions’; ‘Generating options for mutual gain’ and ‘Insisting on using objective criteria’.

‘Getting to Yes’ anticipates a win-win solution that is clearly defined and respected in its implementation.

In such a model, negotiation reaches its final conclusion in the contract. The contract is legally binding and can only be modified by consent and legal approval. Mutual profit opportunity is circumscribed within the contract.

The Eastern approach to the conclusion of negotiation is that broad understanding has finally been achieved and is sufficient to begin collaboration. The ‘agreement’ is more akin to a memorandum of understanding and signals the beginning of the working relationship.

Given the rapidly changing environment that characterises the Chinese marketplace, Chinese principals assume, without ill intent, that they may modify the agreement according to contextual circumstances - without necessarily informing the other party.

Chinese principals believe that such action would be implicitly understood to be in the interests of both parties, leading to greater long-term opportunity.

Indeed, many Chinese will see such activity as proof of how much they value the relationship and the extent of their commitment to making the joint venture a success.

When such initiative is incorrectly interpreted by a Western partner, it can lead to irreparable breach of relationship as in the famous case of Danone and Wahaha.

In 1996, Danone gained access to one of the largest beverage markets in the world, while Wahaha received the investment it needed to accelerate its growth in the Chinese marketplace.

Over the course of the twelve year relationship, misunderstandings emerged that led to prolonged and destructive legal battles.

Danone accused Wahaha’s CEO, Zong Qinghou, of undermining the joint venture and Zong Qinghou, drawing on the raw nerve of history, accused Danone of imperialist behaviour damaging to China’s national interests.

In China, it is best remembered that a negotiation is never concluded and that time set aside regularly to revisit the agreement is rarely wasted.

“The beginning and the end reach out their hands to each other”Chinese proverb

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“Mutual understanding requires the shaking of one’s own frame of mind, to familiarise oneself with the unfamiliar, to open oneself to the difference of the other”Naoko Saito

10 Practical SuggestionsNegotiators who prepare carefully from their own perspective and from that of the counterparty more than double their chances of success. It is suggested that Western negotiators can better prepare for their Eastern counterparts in the following ways:

1 Be prepared to present issues broadly and not rush into detail

2 Regard time spent on exploring the big picture at the outset as a positive

3 Regard positions or offers as opportunities for discussion rather than debate or challenge

4 Recognise the need of the Chinese counterparty to consult and take time

5 Prepare for a slow change in positions rather than rapid trade-offs at the negotiating table

Eastern negotiators, in their turn, it is suggested, can better prepare for their Western counterparts in the following ways:

6 Provide information and give clear emphasis to important points

7 Respond as directly as possible to questions and accept that differences may emerge early

8 Aim to give a preliminary response to proposals, indicating where there may be some flexibility or room for creativity

9 Recognise the Western need to see linear progress in a negotiation

10 Recognise that saying no to a proposal (while giving reasons) will not necessarily lead to loss of face but be interpreted as a step in the exploration of possibilities

Research suggests that cross-cultural negotiations fail, not because the scripts and behaviours are different but because the other party misinterprets what the other party, with genuine goodwill, is trying to achieve.

By showing respect for the other’s culture, by acknowledging and anticipating differences in approach and perhaps by following some of the guidelines in this booklet, we hope that that your cross cultural negotiation will benefit.

“Tolerance, inter-cultural dialogue and respect for diversity are more essential than ever in a world where people are becoming more and more closely interconnected”

Kofi Annan

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Neil Selby is European Director of Executive Education for CKGSB, China’s leading independent business school with alumni constituting 14% of China’s GDP. In this role, he has pioneered innovative educational programmes that bring together entrepreneurial Chinese and European business leaders. He has held international leadership positions at Oxford University’s Said Business School and has been Chief Executive in the manufacturing and services sector in several countries. He speaks French, German, Polish and intermediate Chinese in addition to his native English.