How to do Business Without Western Rules

What do you do when your board fires your company’s chief executive, only to find he or she will not give up the helm? In the west, you call a lawyer and

 confidently await vindication in court. In China, you must learn to wield subtler forms of influence. Consider the case of Sorbic International, a food additives group listed in London and based in Linyi City in Shandong. The board voted in April to replace the chief executive — but giving effect to this decision proved harder than it seemed. In China, controlling a business means having physical possession of the company’s “chops”, a type of seal that has been used for centuries to give effect to official documents. Employee or not, Sorbic’s sacked chief executive still had the chops. And that meant he was still in charge of the company’s operations — and its bank accounts, out of which millions are said by the board to have been transferred.

The two sides disagree about the facts; the executive says he is owed back pay, had been promised a majority interest in the business and is still operating the company. Regardless, there is no point in the board complaining that its predicament over the chops is unfair; no one doing business in China is in any position to insist on western rules. But that does not make the position hopeless, or the idea of investing in China unwise.

China has systems for resolving disagreements that are reliable and predictable. They are merely different from the ones most westerners are used to. The key, when confronted with a recalcitrant Chinese counterparty, is to understand who can influence him or her, and what these potential influencers care about. In Sorbic’s case, the key person turned out to be Guo Shuqing, Shandong’s high-flying governor. One of the first Chinese nationals to graduate from Oxford university, Mr Guo is sophisticated, savvy and fluent in English. He is also well versed in western finance, having been chairman of the Chinese banking and securities regulators. And he is fully aware of the state visit President Xi Jinping plans to make to Britain in October.

There is no point complaining to a court that this is unfair. But the position is not hopeless

By lobbying through diplomatic channels, the Sorbic board (to which I am an adviser) appealed on macroeconomic grounds. Their loss, they explained, would affect the flow of foreign capital into Shandong. The Chinese counterparty has quietly agreed to negotiate. If the two sides were slugging it out in court, they would not be talking to each other. It is not just in resolving disputes that westerners need to adjust their assumptions if they are to understand China well enough to profit from doing business there. Billions have been spent on projects such as the high speed railway that flashes at 308kph over the northern plains — wasted, you might say, if you insist on measuring decisions by their internal rate of return. But what is happening in China today has little to do with such financial calculations and everything to do with social stability.

For 2,000 years China has been caught in a dynastic rhythm that oscillates between stability and chaos. Each tiny nerve ending of the Chinese government is attuned to signs of strife; its sole objective is social cohesion. This model has survived for millennia. The Chinese people are involved in the great historical task of jian-guo, or building up the nation after a century of chaos. Keep this in mind, and much that would be incomprehensible becomes clear and predictable. All societies indulge in social spending and, in that light, a railway in China is intellectually no different from a Massachusetts highway or an NHS hospital in Rotherham. Many westerners believe that the values by which they live represent a unique contribution to human dignity.

All the same, those values are not universally shared. Civilisations have often tried to conquer those they did not understand. This time, we must find the words, wisdom and compassion to influence, rather than coerce.

The writer is author of ‘Mr China’ and leads an effort to promote the study of Chinese civilisation in British schools.

15 September, 2015