How to Dicker with the Chinese

They are scrutable if a U.S. firm is patient and prepared

The dining rooms of the Min Zu (Nationalities) and Peking hotels are jammed these nights with foreign businessmen dawdling over dinner because there is little else to do in the Chinese capital after dark. But an American hoping to compare notes with a Western colleague on the art of negotiating in the Middle Kingdom will be disappointed. Fearful of tipping off competitors, each company group huddles by itself and speaks in hushed tones. Says a U.S. businessman: "You sit there surrounded by Westerners all whispering about their deals, but you never find out what they are up to--nor do you tell anybody who you are or why you are in Peking."

That is only one of the surprises and difficulties facing U.S. companies trying to push through a new Open Door to China trade. Some other challenges: preparing reams of technical material for Chinese bureaucrats who will want to debate every minute specification of a widget; staying reasonably sober through Peking banquets that may include as many as ten bottoms-up toasts drunk in 110-proof mao tais; determining just how big the China market really is in the first place.

Since last fall, new U.S. deals with China--to build hotels, open iron mines, sell planes, oil drilling equipment and even Coca-Cola--have been popping like firecrackers at a Chinese New Year celebration. U.S. exports to China leaped from $171.5 million in 1977 to $823.6 million last year, and forecasts of the 1985 volume range up to $6 billion.

Skeptics suspect that those predictions may be too euphoric. Peking has very little interest in importing consumer goods; those Cokes will be mainly for tourists.

China is avid to buy foreign technology, but how much it will be able to pay for is inscrutable. The still poor country has little to sell abroad, and it is most uncertain what sums it can borrow, from whom and on what terms. Finally, veteran China traders suspect that in many cases what now appear to be three sales will turn out to be only one, for which the Chinese have invited three companies, unknown to each other, to negotiate and submit what amount to competing bids--a strategy not unknown in the West.

Still, the China market can be huge for those companies that know how to tap it. Unfortunately, not many Americans have yet acquired expertise in the art, and some of the advice the neophyte China trader will get is conflicting or just plain wrong. Some traders insist that an American should avoid all attempts at humor in dealing with the Chinese; others assert that Chinese negotiators enjoy a hearty laugh. One American advises colleagues not to wear suits and ties, for fear of embarrassing the Chinese, who will almost certainly be dressed to a person in Mao jackets. Nonsense, say older China hands: the Chinese are rather impressed by a dark pin-striped suit.

Out of the confusion, however, emerge some clear rules: be patient, be friendly, and above all be prepared. "For a negotiation that would take six months some place else, anticipate that it will take at least two months longer in China," advises Eric Kalkhurst, North Asia sales director for Fluor Corp., which has won a fat contract to develop a Chinese copper mine. And that is after a delegation visits Peking; wangling an invitation to go there often takes much longer. Some deals signed last fall were the fruit of contacts that were made as early as 1972.

Opening procedure: write to a Chinese ministry or government-run Foreign Trade Corporation that might be interested in a product or service. Include in the packet a proposal, plus all the technical data that can be amassed--papers, speeches, manuals--and the company annual report. The Chinese want to study in advance everything about a firm. Send several copies: the Chinese may want to distribute the material widely, but they are woefully short of Xerox machines.

Then wait, and be ready for mystery; one U.S. executive corresponded for years with a Chinese official who signed himself, Get Smart-style, as M 903. A breakthrough can come when least expected. An American businessman was sitting in a dentist's chair in Hong Kong having a tooth drilled, when a messenger rushed in with news that a Chinese official whom he had been trying to get an appointment with for weeks wanted to meet him in the street immediately. Once invited to Peking, rule No. 1 is never go alone. The Chinese will ask more, and more detailed, questions than any one executive can answer. Depending on the importance of the deal, a good-size delegation would be from four to six: some experts who can discuss the details, and one or two top officers who can sign on the spot if asked. They should go with a commitment to stay as long as necessary.

Negotiating sessions generally consist of a morning meeting from 9 until noon, a break for lunch, then an hour or two in the afternoon; each session opens with a pot of steaming green tea. All are conducted in English, through an interpreter supplied by the Chinese. (Japanese businessmen complain that they face a greater language barrier than Americans, since many more Chinese speak English than Japanese.) Nonetheless, it is wise for Americans to bring their own interpreter, if they can find one skilled in both the Chinese language and U.S. business terms. Misunderstandings do occur; once some Boeing negotiators, slipping into airline slang, referred to a small bulkhead in a 747 jet, where food trays or small luggage can be stored, as a "doghouse." After many blank stares, the puzzled Chinese asked, "Why design your airplanes to accommodate dogs?"

The first few days may be devoted to getting-to-know-you chitchat, but shortly the Chinese will start asking technical questions. This probing can go on for days; indeed it tends to become a test of patience as well as expertise. Voices should never be raised. Says David Janet, an executive of Houston-based Pullman Kellogg, which has built eight ammonia plants in China: "To the Chinese, an indication of anger is a demonstration of a loss of self-confidence." On the other hand, says Mike McDaniel, a negotiator for Micrometrics of Norcross, Ga., which is selling chemical and pharmaceutical equipment to Peking: "I've been in countries negotiating with people hostile to me because I am American. But the Chinese really want our help." McDaniel also found them very candid about how far behind the West they are in technology.

When the talks turn to price, Chinese negotiators usually ask a Western firm to quote first, and then bargain hard for a discount, sometimes implying strongly that a competitor will provide one. But unlike the Russians, who haggle in the fashion of bazaar rug merchants, the Chinese when they finally state a price quote a realistic one that they actually expect to pay. Perhaps the worst mistake an American company can make, next to coming to Peking unprepared for highly technical discussions, is to quote an unrealistically low price to promote an initial sale. The Chinese will snap it up--and expect the same price on all future deals. Another nono: trying to skim the market for a quick profit on a single sale. The Chinese will not only turn down the deal but blacklist the firm, because they want to develop long-term relationships.

While all this goes on, social life is another problem. The Chinese will invite a visiting American to at least one banquet at which they offer many toasts to "friendship"; each toast is followed by a call for "kan pei" (bottoms up), and form requires that both the toaster and the head of the guest delegation must drain their mao tai glasses and then hold them upside down to show they are empty. Some thoroughly toasted Americans have observed that the Chinese rotate the toasting duty among themselves, while the U.S. delegation chief has to do this bottoms-upping every time; it is both wise and permissible for him to inform his hosts courteously that, say, four such toasts are his limit. It is also wise for an American group to arrange a dinner for its Chinese hosts. Aside from trips to the Great Wall and the Ming Tombs, businessmen find little to do in Peking but business. Evenings tend to be spent at the hotel puzzling over just where the negotiations stand.

That can be the most trying part about doing business in China. Marshall Goldberg, director of administration at Brooklyn's Monarch Wine Co., which will import Chinese beer and vodka into the U.S., recalls a telling episode. During Monarch's negotiations in Peking, disputes over how much advertising would have to be done in the U.S. got so prickly after three weeks of talks that "we walked away saying, 'Let's part in friendship.' " The Chinese, Goldberg recalls, then coolly "took us to the Peking opera that evening and the next morning put us on a train to Ts'ing-tao to see the brewery there. Through the train window, they said, 'We'll see you in Peking to resume negotiations.' They had wanted to see if we might say something different, the night before, when we were together socially. We didn't, so they knew we meant business." A deal quickly followed.

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