Expats Living in Shanghai

Depending on the person you speak with in China, there seems to be two contradictory aspects of social behavior when doing business in China. For example, when making and honoring promises:

[Chinese businesspeople] will keep their promises…

On one hand, some people observe that “Chinese people are willing to do anything to preserve face and their reputation, so they will keep their promises, even when inconvenient. In this way, Chinese people are generally very trustworthy to do what they say.”

But…

A [Chinese businessperson] ran away with the money!

On the other hand, many foreigners visit China with intentions to do business, get involved with a Chinese business partner, then return home with horror stories about deals falling through because the Chinese partner didn’t honor their own word, and “ran away with the money” instead.

There is truth to both sides. The following is my own theory on social behavior in China, which attempted to make sense of both sides of the story, while accounting for the Chinese conception of “guanxi” and sense of face.

The Inner Circle Theory on Contradictory Behavior in Chinese Guanxi and Face
For a Chinese person, an individual is either in their inner social circle of “guanxi” or out of the circle.

Inside the Inner Circle
People who are a part of the person’s family, friend groups, and close coworkers are all considered inside an individual’s “inner circle”. For everyone inside the inner circle, the dynamics of face, respect, and accountability are all in play. This is when people behave in high-trust ways, and treat others like family.

Outside the Inner Circle
In contrast, strangers and new business contacts are considered outside of the “inner circle”. For these people, the social dynamic involves more of a hierarchical, ritualized, tit-for-tat game of face. This plays out in several ways, one of which is the person buys you dinner while expecting something in return next week. This is also the stage of the relationships with a Chinese person in which foreigners come back with horror stories of low-trust behavior with Chinese businesspeople. This is readily explained by the fact that, if a foreigner is not considered part of the inner circle, there is no shame or risk of losing face associated with conducting unscrupulous behaviors.

If the premise of the “inner circle” theory is true, then it would explain the co-existence of two, seemingly contradictory, pieces of evidence: Chinese cultural dynamics support both trustworthy, win-win behavior and low-trust, win-lose behavior in business.

Now What? 3 Recommendations to Foreigners
What can foreigners like us do in this case?

1. Honor Your Own Word
Regardless of other people’s behavior, follow through if you promise to do something to preserve the chances of having good behavior being reciprocated. It only takes proving you are unreliable once to someone important to lose future opportunities.

Chinese people may overcomplicate things by reading into actions much more than you are probably used to. A last minute cancellation of dinner plans with friends may be interpreted by American friends that you are either too busy or just being a jerk that day. However, a Chinese friend will run through a litany of thoughts: whether you were angry at them, if you are a terrible person, or worse.

Foreigners, in order to keep themselves out of troublesome situations should be cautious about agreeing to a favor, partnership or project with a Chinese individual as you will be expected to follow through with your words. Simple acknowledgement or agreement can sometimes be misinterpreted by Chinese for a promise to follow through with something, so it is important to make it clear if you are or if you are not going to actually follow through with the project to avoid any misunderstanding and expectations.

There are so many ways to say “no” in China, anything from “We’ll see” or “Let’s talk about that again a little later” to “Maybe next time”, that there is no reason to commit to something you won’t do.

2. Don’t Depend on Promises without Precautions

Chinese are not as willing to make short-term or long-term promises in comparison to western countries, but prefer rather come to short, loose agreements knowing that an agreement may need to be altered.

However, even if the words are clearly written on paper, it’s not necessarily set in stone. A promise is something that is not definitive. Situations change and promises aren’t always kept. Even when things are outlined in a contract, and it is signed by both parties, Chinese people may re-negotiate or disregard the contracted terms afterward. Signing of a contract or making of a promise is just the beginning of the deal-making process, which can be frustrating for a foreigner more accustomed to firm, clearly defined agreements.

3. Build Strong Relationships, So Precautions are Less Crucial

Overall, Chinese people rely more on relationships and social reputation to accomplish their objectives more than words exchanged or written agreements signed between two parties.

Even if you honor your word, expect that someone will not to keep their word at some point, especially in the beginning. There are many people who try to make fast money, and do whatever they need in order to justify their deception. In most cases though, they will only do it if they think there is little to no repercussions.

Protect yourself by doing business like the Chinese do: Only do business with people vetted through guanxi, who would lose a lot of face if they were to ever “take the money and run”.