Doing Business in China: A Personal View

About a decade ago, I had been working with Damjan DeNoble, who was at that time a health care consultant in China, but wanted to go to law school. Towards that end, he asked me to review his “personal statement” for his law school application to the University of Michigan. I reviewed it and liked it so much I asked him if I could run it on the blog. He said yes, but wanted to hear back on his application to Michigan first. Damjan was (to no surprise by me) accepted to University of Michigan Law and he long ago graduated from there and he is now killing it as the founder of an immigration law firm in North Carolina on the cutting edge of legal tech. attending in the fall.

I secured Damjan’s permission to run his law school personal statement on our blog because it very nicely (and personally) sets forth what it can be like to try for a small foreign business to operate in China and deal with its laws. I also like how upbeat it is, especially as we are right now in the holiday season.

So here goes, better late than never. Enjoy.  .  . .

Commitment Negotiations, by Damjan DeNoble.

After receiving my college degree, I went to China and enrolled in a four-month business and Chinese language program at Beijing University. I stayed in Beijing for the next two years, working as a pizzeria restauranteur, dabbling as an importer of Croatian canned food into China, and founding an Asia-based healthcare consulting business. Accompanying this last venture, I started the Asia Health Care Blog which has become popular in its own right. By far the most important thing I did, however, was propose to my girlfriend with a carved wooden ring bought from a Tibetan street vendor.

Steadily throughout this two-year sojourn, notions I held of legality were challenged by a system of law enforcement which demanded I not only know what is legal, but also what is ‘negotiable’. My social acumen, on the other hand, was constantly challenged by shifting cultural terrain. Daily, during my first year in-country – what veteran travelers call the ‘adjustment period’ – I wanted to pull my hair out due to all the negotiating I had to do with straightforward issues like getting salary on time, retrieving deposits on untarnished apartments, or convincing contracted business partners to respect the terms of signed agreements. But, as my understandings of guarantees in China matured, I learned how, in most cases, one’s negotiating position was largely a matter of perception, and that negotiating away from a guarantee often works better than negotiating towards one.

In the Beijing restaurant industry knowing a few key police inspectors is the difference between long term profit and loss. Because Chinese regulations are selectively enforced and because they change faster than one can retrieve them at the ministries, business owners must, instead, entrust their future to the regulators themselves. It is the regulators who enforce the law and it is up to them to define laws’ negotiable areas. By the time I was a staked member of The Kro’s Nest restaurant, and after we had opened a flagship seven hundred square meter pizza bistro inside Worker Stadium Park, dinners with the police had already become a predictable, Friday night ritual. Dressed in after-work plain clothes, officers of the Sanlitun Police Department would sit down on our terrace rocking chairs. Compliments would be made all around, and inevitably Kro and I, the only two foreigners, would be complimented on our Chinese language skills.

We took this time to get the low down on any new regulations, negotiate away from our need to strictly adhere to some of the less sensible ones, and, of course, negotiate down on any upcoming fines we were bound to face. For their part, the policemen developed a good sense of the people they were dealing with in their area of jurisdiction and received a nice meal or two on the house.

Considering that (1) our business was unlicensed through June of 2008 and (2) neither Kro nor I ever had work visas, this whole situation is rather remarkable. The way Yuenjie, the principal Chinese owner of Kro’s Nest partnership, explained it, “This isn’t corruption. It’s cooperation.” We were demonstrating an adherence to the men carrying out and defining the law, and, in so doing, we committed to being ‘harmonious’ citizens of the Sanlitun police district. Whether or not any laws were being broken was entirely dependent on our continued good behavior – defined as any behavior that did not have the potential to embarrass the police office.

In stark contrast to the long process of scrutiny I was used to with Beijing businesses, I learned that the criteria for entry into the Croatian market was much less strict; to operate one simply had to show up and be Croatian. On my first night out to dinner with the Croatian embassy staff, I learned that due the rareness of my particular profession – out of fifty Croatians in China, I was the only businessman – the ambassador’s office had, “on my reputation alone,” designated me as the China ‘go-to guy’ for an Adriatic sardine manufacturer. I was reminded that my ethnic identity, even with an American passport, was non-negotiable and that the greatness of Croatia had peaked with the initial waves of euphoria after an all too misguided war in 1991. What else could explain the sudden advent of a “go-to guy” reputation for a twenty-three year old with a business resume that goes as far as “he runs pizza restaurants in Beijing”?  It turns out that the embassy sensed it was being pushed around by Chinese business interests and wanted help. I somewhat jokingly suggested they expand their entertainment budget and lobby for increased funds to struggling Croatian universities.

My now-fiancée came to visit after I had already been negotiating my way around China for fourteen months. By this point I was wrapping up my involvement with the food industry and starting to look into various healthcare research gaps in Asia. While still in the cab from the airport, she commented on how remarkably patient I had become with life and with people. At the time, I thought the comment quite queer. Now, looking back, I realize that my perspective on time and my beliefs about what degree of mental toughness constitutes patience had become almost antipodal to hers. I had adjusted to new circumstances where moments and promises like ‘get back to you soon’, and ‘sure, no problem’ operated on a unique plane of space-time parallel to, but different from, the one she was familiar with in America.

The fact that I moved back to America this past September, and left much of China behind in order to support her through medical school might, therefore, appear to be a rash decision. But, if China taught me anything it is that commitment to relationships is non-negotiable.

We will be discussing the practical aspects of Chinese law and how it impacts business there. We will be telling you what works and what does not and what you as a businessperson can do to use the law to your advantage. Our aim is to assist businesses already in China or planning to go into China, not to break new ground in legal theory or policy.