But in more and more cases it’s the Chinese side that has the last word.  It used to be that Mainland negotiators were confused and intimidated by binding contracts – now the tables have turned and the Chinese are exploiting Western assumptions about legal agreements.  The Chinese are more than happy to sign on the dotted line, knowing that they can use their Western partner to climb the technology ladder and acquire the know-how to develop marketable products on their own.  Once the Chinese side has gotten what it needs from the partnership, it is a simple matter to drive the foreigner out with front-line tactics that play out on the factory floor and the distribution network.   Chinese dealmakers have learned to honor the letter of the contract while shredding the spirit of the agreement.

It is easy to blame the Chinese side – there’s plenty there to criticize.  They play fast and loose with the truth, they exploit the home-court advantage and outmaneuver western partners with government & bureaucratic connections.  What they don’t  do is mix up their tactics.  Chinese negotiators tend to be consistent and predictable.   When they find something that works they keep doing it – over and over.

Western management has often been its own worst enemy in China.    HQ managers view contracts as set-in-stone blueprints, and they are quick to see any variance between the document and the real world as the fault of their own front line managers – be they purchasing, sales, HR or operations.

Western negotiators need to stop negotiating the contract and start negotiating the business.   China business is not won with boardroom masterstrokes – it’s a battle of inches slugged out on the front lines.

Here are the rules for building a China-ready negotiating team:

1. Plan for two sets of negotiations
   Senior managers tend to talk with one another about collaborative, win-win deals, but the real negotiation is the one that plays out on the front line – and that one is cut-throat and competitive.  HQ managers have to budget the time, resources and bandwidth for an ongoing negotiation, and stop living in a fantasy world where contracts are binding and win-win is the norm.  TIC – This Is China.
2. Get more feedback from your own  front lines.
   Purchasers, salesmen, HR and engineers should by your first source of business intelligence.   Large western organizations tend to be poor at internal negotiation, and favor top-down information flows.  That usually means that the people who know the least about China are making all of the decisions.    Develop open-ended procedures for getting feedback – not annual company meetings or boilerplate status updates.

   Adjust corporate culture if necessary.  Senior managers must be more tolerant of failure, delays & disconnects.   “No-nonsense tough-guys” who bully underlings to get the job done at any cost are suppressing the only reliable flow of information that the company has – honest assessments from the front-line staff that is dealing with purchasing, selling, hiring and producing.

3. No more one-size-fits-all solutions.
   Multinationals that have spent time, money and effort to build global systems try to apply them to China, and the results are often mixed at best.  Companies that negotiate effectively in China use flexible systems that are specific to their Mainland business.  Chinese don’t care how you do it in America, England, Italy or India.
4. Know their weaknesses, know your weaknesses.
   They steal IP.  They may not consider it theft or wrong, but you probably do.   Westerners are lousy at relationship-building and time management – at least by Chinese standards.    Don’t paper over the big issues.  Make your weaknesses and differences the core of your relationship building – not a forbidden secret that no one can talk about.
5. Constructive engagement means many small conflicts – not fake smiles and pretty lies.
   Your counterparties are tough-as-nails Chinese business professionals, not fragile China dolls.  As long as business disputes are not personally embarrassing or political in nature, then a very wide range of topics are ‘in bounds’.   Westerners have bought into the propaganda that Chinese are all delicate flowers who will wither and faint if confronted.    Lots of small, manageable confrontations is a relationship.  One big confrontation is a failure.
6. It takes a team.
   Americans all want to be cowboys and Europeans still love their aristocrats, but China is about the team.  Don’t show up alone.  Negotiating teams should be multilevel and cross-departmental.   Chinese like authority, so senior management has got to be involved in a committed and serious way.  Purchasers and engineers who get “abandoned” by an HQ that doesn’t engage frequently with their Chinese counter-parts are easy targets for competitive negotiating tactics.
7. Always be looking for new counter-parties and new opportunities.
   Expanding your network in China means constantly searching for new stakeholders and counter-parties – both within you existing partner’s operation and from new (external) potential partners.  This may be your only long-term source of leverage.  If you have a single counterparty in China then you are perceived as weak and vulnerable.   This is another area where your front-line people can provide valuable input and feedback.
8. Empower your front line.
   Your front line staff needs the ability to build and block.  They must have the power to build relationships and block potentially problematic transactions.  “Divide and conquer” is a favorite technique of Chinese negotiators, and they are quick spot a purchasing manager or salesman who is not getting enough support from the home office.    Your people need the range of motion to build relationships (which may mean breaking from standard operating procedures) and to hit the panic button if they spot a problem that threatens the bottom line.
9. In China, failed negotiations end – successful ones never do.
   Renegotiations are par for course here, and your Chinese counterparties consider it normal.  You have to as well.  You should treat ongoing renegotiations as an opportunity to build and expand relationships – not as an attempt to rip you off.  This is where real guanxi comes from – the give and take that arises from a shifting business environment.  Chinese feel that source of long-term stability in business is strong relationships – not  thick contracts and rigid adherence to out-dated agreements.
10. For the Chinese side technology is the goal, time is the weapon.
    Chinese negotiators often assess the success or failure of a deal by the technology and IP they acquire.   They don’t really care how they get it.  One of the most successful tactics is to manipulate western negotiators with time tactics.  They rush to sign and drag their feet when executing.  The hope is that you will over-deliver  IP to win what you think is a valuable contract, and then throw up so many roadblocks while executing the actual business that you will go away – or go broke- before they have to deliver.

After our last discussion of foreigners and relationships in China, you may be tempted to dismiss ‘guanxi‘ as another word for ‘corruption’ – or at least a quick road to disaster. Unfortunately, nothing involving international business in China is ever quite so black & white. While it is a bad idea for westerners to rely too much on guanxi, remember that your Chinese partner or counter-party may be a firm believer in it.

When the literature talks about ‘cultural barriers’ between China and the West, be aware that the key differences are not “fork & knife vs. chop sticks” superficialities – they are deep-seated core beliefs like guanxi vs. due diligence. When you tell your Chinese associate that guanxi is an archaic custom, it is like HIM telling YOU that checking references and analyzing financial reports are silly wastes of time.
If you plan on working with Chinese, the issue of guanxi is certainly going to come up.

Here are 10 rules for dealing with Chinese partners who believe in guanxi:

Caveat #1: Do not be overly dismissive.
Guanxi may or may not have real benefits – but what really matters is that the Chinese people you are speaking to genuinely believe in it. When I am doing business with Chinese counter-parties who are too quick to disregard my advice about performing due-diligence or market research, it sends me the wrong messages about their general competence and respect for American methods. Likewise, when you dismiss their advice about guanxi, you may be correct – but in the wrong way. You may mean, “I don’t want to engage in corruption or shortcuts” but they may hear “I don’t understand Chinese methods and don’t have much respect for your opinion”. The first conversation you have with a Chinese counter-party about guanxi is the perfect time to discuss the approval process of your deal or business. It is also an appropriate time to take the moral and ethical temperature of your counter-party, industry, and general practices in your new business.

Caveat #2: Chinese really believe, not only in guanxi, but also in its uniquely Chinese characteristics.
The only thing worse than saying ‘guanxi doesn’t exist’ is to say, ‘every business culture has some form of networking and relationship building’. Many Chinese – particularly those not experienced with international business – find this insulting. (A later post will deal with the issue of Face – not to be confused with western notions of pride, status or reputation). Westerners tend to look for common ground, but Chinese may consider it a swipe at the integrity of the Chinese culture.

Caveat #3: If your new partner’s only contribution is guanxi connections, you had best be on your guard.
Chinese consultants and counter-parties know that you have read that guanxi is vital to business in China. In other words, your counter-parties may believe that building guanxi is a short-term goal of yours. When I was in Beijing in the early 90s, it was a sure bet that every foreigner gathering or junket had at least one guy who offered to connect you with the right people. In those days, it was a real job because doing business in China was so opaque and convoluted. Nowadays the rules are much more straightforward – for good or ill. You should not need special connections to get most approvals – and if you do then you should take it as an indicator that your business plan has flaws. In 2010 China, most experienced Chinese managers should either have the necessary connections or know how to develop them as needed.

Caveat #4: Guanxi is a rental, not a purchase.
Guanxi does not transfer. When your guanxi guy goes, so does the relationship.
As ChinaLawBlog points out, your guanxi relationship is with a person at the organization — not the organization itself. When your special relationship at the ministry, regulator, supplier or distributor moves on you have to start all over.

Caveat #5: Guanxi cuts both ways.
It places obligations upon you – and you do not always control how you will pay back a guanxi debt. Examples have included pressure to accept low quality production, delays, inferior materials, IP theft, material theft, corruption, nepotism, etc. Remember – guanxi is a series of favors, and you have to give to get. The problem is that you have only the most limited control over what you will be asked to do, and how it will be valued. That is the side of guanxi that people do not talk about with Westerners much, but Chinese understand well.

Caveat #6: It is not the same as corruption, but it can be close.
The regulatory standards are higher for Westerners in China – both among Mainland bureaucrats and those back home. Even the appearance of corruption can come back to haunt Western dealmakers – and it is definitely your responsibility to monitor and control the activities of your employees, partners and agents. ‘Business as usual’ for local Chinese is too weak a standard for foreigners. You need to have rule & procedures and prepare for different contingencies. If a Chinese businessperson appeared in a US court and said, “but someone I just met told me that everybody ignores that local zoning regulation”, he might appear dishonest, arrogant and/or clueless – but extremely liable. Well, you’ll come off the same in a Chinese court when your new guanxi connection goes awry.

Caveat #7: Foreigners cannot really build it up the same way that locals do.
Consider the difference between a business proposal from your high-school buddy or college roommate and a Chinese businessperson that you’ve had dinner with a few times. Both constitute a connection – but your relationship with your former roommate has completely different characteristics. You can be more honest with him about his ideas, make suggestions and possess a deeper understanding than you ever would with the Chinese counter-party. The danger isn’t necessarily that your Chinese associate will try to cheat you – he may kill you by being overly polite and sensitive to your feelings.

Caveat #8: Distinguish between everyday guanxi and ‘special relationships’.
If your counter-party’s guanxi is rooted in familiarity with ‘standard operating procedure’ at the ministries, regulators, supply chain and distribution channels -then the situation is fine. It is a normal business competence that weighs in his favor – but is more of a basic requirement than a game-changer. But take note of ‘special relationships’ – like a close relative of an official or executive at a customer or supplier. These are the entanglements that get messy quickly.

Caveat #9: China has laws now.
Chinese have a very high regard for bureaucracy, procedures and regulations. Guanxi is not as important as it once was, and low-level transactions and routine approvals should not require special connections. In fact, circumventing basic rules can cause BIG problems later on. Remember that it is much easier for foreigners to get money into China than getting it out. It is easy to find fixers who can speed your investment through – but getting the licenses and permissions to actually sell goods, repatriate profits and move money may be a different story.

Caveat #10: Guanxi may be able open some doors – but it can also close and lock them.
Strangers are not generally ripping off westerners who lose investment, IP and assets in China usually. 9 times out of 10, the very people assured them about the power of their guanxi connections that turn around and use them to lock out the westerner once the assets are transferred.

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But they are.

Contract
Americans see a contract as an independent entity – external from the two counterparties. Once signed and executed, the contract becomes another party in the deal – a neutral, binding, legally significant document. It becomes both the originator of the deal and the arbitrator of all disputes. Chinese view a contract as a record of a meeting of the minds between two specific individuals at a certain time and place, under specific circumstances. It is certainly useful as a tool towards reaching an understanding – but the actual agreement is between people. From the Chinese perspective – reasonable, honest men do not try to use contract trickery to enforce agreements that are no longer relevant under a new set of conditions. To the American, the contract is the final authority regardless of what has happened since the signing. A very good recipe for business conflict.

Risk
Risk, as used by Americans, encompasses two concepts. It includes a) possibility of loss and b) uncertainty. To Americans, these are two sides of the same coin. To Chinese, these are completely different things with wildly different ramifications. Possibility of loss doesn’t frighten Chinese deal-makers, but uncertainty drives them nuts. Confronted with an unclear or uncertain future, the wise Chinese deal-maker shuts down and waits for further information. When the American side attempts to push him into action, the Chinese side smells trouble, deception and trickery. Conflict and mistrust ensue.

Long Term
Research we’ve done indicates that when Chinese and Americans are involved in a negotiation, there are accusations and recriminations that one side is invariably short sighted, one-off and win lose, while the other is long-term thinking, cooperative win-win. The irony is that there is complete agreement over who is who. I am long term, cooperative and win-win – HE is short term, competitive and win-lose. Both sides saw the other as one-off cut throats. It was one of the few things both Chinese and Western negotiators agreed on. I’m long-term win-win – the other guy is just in it for the quick buck.

Is it truth – or is it Truth?
Truth, Justice – and the American Way. We of the Caucasoid persuasion tend to view Truth as an external, universal constant. It is bigger than we mere mortals – or at least bigger than we Westerners. Asians think that this is nuts. Everything changes. Price levels, supply chain factors, weather conditions – the world is always in flux. Yin and Yang, ups and downs. A man’s word is his bond – or it isn’t – to Americans. A man’s nature is reliable and consistent – or it isn’t – to Chinese. A righteous American feels that the words you said yesterday bind you today. A righteous Chinese feels that your intentions yesterday bind you today. Legalism died in China with Mo Zi – around 390 BC – when he and his book-burning Mohist posse got themselves bitch slapped by Confucius & the Morality Boyz (word to your Father) . For Americans, Legalism started in the Wilderness and was embodied in the US Constitution – and survived until around 2004.

Harmony & Justice.
China isn’t all fluidity and flux. Some things really are bigger than all of us – but it ain’t Truth and it ain’t Justice. It’s Harmony. The Chinese believe that we all gotta get along to go along. Americans like rock-hard Justice – like the kind that judges and courts can dispense. Chinese like soft, eternal Harmony – like that kind that rises from the will of the People. Both are great – but they don’t live in the same house.

Relationship.
Two successful 45 year old salesmen. One is Chinese, one is American. They have exactly the same worldview – a good deal-maker makes use of his network and his product benefits to make win-win transactions. But a 25 year old Chinese and a 25 year old American have completely different notions. That’s the default setting. Chinese start with the deal-making process by building relationships – and wait for the transactions to grow from there. Americans start with the transaction (i.e.: test orders) and the relationship grows from there.

Thoughts, comments, corrections? Share your opinions.

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Experienced dealmakers will spot a flaw in the design of this experiment. First of all it is a one-off with no future. Second, it is blind with no history. I designed a variation of this experiment for my undergrad negotiating class at NYU’s Shanghai campus. I call it the Factory Game. The two actors are Brand (from the US) and Manufacturer (China). Brand (B) approaches Manufacturer (M) with a unique product and contracts for a specific factory run – with price, quality and IP protection all stipulated in the agreement.

If all goes well (i.e.: cooperation, Win-Win) B receives quality merchandise at a fair price. M receives a fair payment, technological know-how and future orders. But either side may ‘cheat’ (i.e.: competitive Win-Lose behavior). B can cheat by failing to pay in full or by going to another factory with future orders. M cheats by failing to deliver, poor quality production or theft of IP.

To make it more realistic, I set up the game as 3 iterations (or ‘contracts’) of 3 trials each (to simulate repeat business).

In Iteration A the value of the contract was level each time – say 1,000. This was the baseline case, and represented a deal with an unknown partner.

In Iteration B the contract value rose each time – 1,000, 2,000, 4,000. This case represented a growing market or a ‘key-partner’ relationship.

Iteration C had a falling value – 1,000, 500, 250. It was intended to model a saturated market – or a declining relationship.

Payouts were set as a % of the contract value.

W-W yielded a 50 : 50 payout.
W-L => +75 : -25
L-W => -25 : +75
L-L => -10: -10

My pre-experiment assumptions: Actors would quickly see that it was in their best interests to stay ‘honest’ and cooperative as expected outcomes rose, but resort to cheating Win-Lose behavior as returns fell – or when a ‘contract’ was about to expire.

What really happened? — The participants fell victim to their own emotions and ego positions instead of coldly calculating their firm’s interests. Many participants based their decisions not on FUTURE payout possibility, but rather on PAST counter-party behavior. If A cheated last time, then B was gong to cheat this time – regardless of outcome.

One set of teams had the following outcome:
Trial one: Win-Lose when the payout was stable – as one actor attempted to score a short-term win.
Trial two: Lose-Lose – as distrust from trial one completely negated the possibility of maximum gains.
Trial three: Win-Win. Both sides realized that their barn-burning was counter-productive and anti-competitive (vis a vis other student groups!). Unfortunately, the Win-Win behavior only came into play AFTER the market had peaked and the best returns were behind them.

At first it sounds like they were just inexperienced and emotional – after all, the participants are undergrads with limited business history. But we see the same behavior all the time from so-called professional negotiators. What lessons can US negotiators in China draw from this exercise?

1 – Set the stage for trust, or you will poison the potential relationship from the start.
Test orders are an American concept while systematically building relationships is Chinese. Americans assume that the relationship will grow from successful transactions. Chinese assume that successful transactions will grow from relationships. The result is that Americans tend to under-promise (“we’ll have to see how well you do on the first order before we discuss raising the volume”) while the Chinese over-promise (“oh yeah, we can definitely do what you want at the right price and quality level” – even if they don’t know what they are doing – yet). Both behaviors tend to undermine trust in the early stages of a US-China business relationship.

2 – Penalties and missed bonuses are often interpreted by Chinese actors as ‘cheating’ behavior – and a betrayal of trust.
Americans often employ the ‘carrot and stick’ technique of using potential bonus payments and penalties to enforce positive behavior. Unfortunately, Chinese counter-parties often view this as dishonest and manipulative. It is human nature to count the bonus and ignore the penalty during the pre-execution phase of the deal. Once trust is lost, it is very difficult to restore. A missed bonus – regardless of how justified the American side feels it to be – often triggers negative behavior from the Chinese side.

3 – Guanxi-building activities like dinners, tours and meetings are the Chinese method of vetting partners.
You should be doing the same. Use your banquet time to talk about how you and your counter-party define success. What are your goals? How can you work together? American negotiators are often shocked at how much time the Chinese waste on relationship building. Chinese negotiators are equally shocked at how much opportunity the Americans waste by not building proper relationships.

4 – Overly picky contract terms tend to be counterproductive.
Your corporate lawyer thinks you can write-out the risk of overseas deals, but in China this can be counter-productive. Detailed contracts with penalties and financial stipulations can make the Chinese side feel that you are not a suitable long term partner. Contract terms that seem normal in the US can trigger the “cheat” switch in China — since they think you are already pulling fancy tricks.

5 – Relationships are not organic in China.
Americans tend to feel that close relationships are the product of positive experience and time. Chinese negotiators are a bit more transactional, and expect partners to ‘work at the relationship’ in the early stages. Don’t blow an opportunity by paying lip-service to your Chinese counter-party. When they say, “we want to have a good relationship” it isn’t necessarily a pro-form business platitude. Use the opportunity to define slippery terms like ‘trust’, ‘success’ and ‘long-term’. Assumptions can be lethal in a cross-cultural negotiation.

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“What the hell is this? That isn’t what I ordered.”
Herb Feldstein, Feldstein Fixtures and Lighting. Paramus NJ

I ran a pair of surveys on Linkedin recently. One survey appeared on a set of Linkedin business groups with NO specific geographic orientation and asked, “What is the most difficult aspect of doing business?” I broke down the deal process into 5 phases –

1) Finding appropriate counter-parties
2) Clarifying deal terms
3) Finalizing the deal – signing the contract
4) Executing the agreement / doing the actual business
5) Post-deal compliance, Quality Control

I ran another survey with the same answer choices, but which phrased the question slightly differently – and targeted China-oriented business groups. This time the question was: “What is the most difficult aspect of doing business IN CHINA?”

The results were as follows:

Linked.com Surveys

Outside of China, a little over 50% of the respondents said that the biggest challenges occurred pre-deal, with only 23% reporting that their main difficulties occurred once the contract was finalized. In China, however, almost half of respondents said that their problems started AFTER they thought an agreement was reached.

One can draw two conclusions from this data:

1. Chinese businessmen deceive, cheat, mislead, or otherwise fail to honor their word.

2. Westerners in China are choosing inappropriate counter-parties, aren’t doing proper due diligence or are cutting WAY too many corners early in the negotiating process.

Which conclusion is valid? Let’s take a look:

Is choice 1 correct?
Considered politically incorrect and borderline racist in the west, answer 1 is not without validity. But rather than accuse your dear author of racism for vilifying the entire Chinese Nation with charges of dishonesty, better you re-examine your own puritanical notions about the universality of honesty as a virtue. You may be the one guilty of a subtle yet pervasive form of racism – one that is far more damaging and dangerous to you than to your Chinese counter-party. You may come from a society that holds Judeo-Christian notions of an objective, immutable Truth and considers honesty to be a simple matter of black and white, good and evil – but not everyone in the world necessarily shares your opinion. Chinese history is peopled with strong, moral and SUCCESSFUL leaders who instructed their students about the virtue and efficacy of deception. Sun Tze, in the classic “Art of War” is the most famous Chinese leader to advice followers on the most effective ways to employ deception. Years later, Mao Ze Tong’s “On Guerilla Warfare” described how deception and surprise could neutralize an enemy possessing superior technology and firepower. Even Deng Xiaoping’s “White Cat, Black Cat” lecture effectively argues that managers need to adapt a fluid, pragmatic approach to be successful.

Win-Win negotiation is hardly standard operating procedure in the US (remember “never give a sucker an even break”?) and it certainly never really caught on in China. Astute Chinese dealmakers would be ashamed at leaving money on the table or failing to maximize their benefit in a transaction. If the Western counter party is satisfied with the outcome of a deal then the Chinese side has clearly not worked hard enough. Let the Westerners wave signed contracts around all day long – there are always new opportunities and new counter-parties coming down the road.

Or is Choice 2 the true explanation?
Westerners just aren’t doing enough due diligence and are rushing into deals with the wrong counter-parties and a poorly considered deal structure. Actually, I think that this may be the problem much of the time. International lawyers are constantly warning Western clients that suing in Chinese courts is an expensive, time-consuming and ultimately unsatisfying endeavor (www.ChinaLawBlog.com – assorted) – yet novice deal-makers still seem to think that an aggressive legal strategy will remedy any unfavorable deal outcome.

There are several major factors leading Westerners to accept less stringent deal structures (or unreliable counter-parties) in China than they would back home.

A) It’s so hard to get to the negotiating stage with ANY Chinese counter-party that no one wants to let go of the first guy who seems to fit the bill for fear of never finding another one. China is indeed a difficult environment to do your first few deals – and between jet-lag, culture gap and language problems, senior Western managers have been known to suffer from some pretty serious lapses in judgment. Tired, confused and frustrated, otherwise savvy Westerners tend to hear what they want to hear – and believe promises that they would ordinarily suspect.

B) The politically correct types are so afraid of making the Chinese side “lose face” or are so anxious to “build guanxi” that they don’t drive a hard enough bargain — or don’t ask for the right things. Are you in town to buy & sell – or are you here to make friends and build your network? It’s very hard to maximize your profits and ‘build guanxi’ at the same time. Many Americans have left money on the bargaining table – or worse, signed deals that don’t provide adequate safeguards or quality controls – in the name of ‘building a long term relationship’. Well – once that American has to explain to his boss or board of directors why he’s just squandered the firm’s money he tends to be less excited about his new relationship in China.

C) Not knowing how to structure a proper China deal. When money changes hands the power balance shifts. That’s when smiles disappear — and phone calls don’t get returned. If your China deal involves up-front payments or transfers of assets and IP, then you are putting yourself in a very dangerous situation. Pay attention to the way you have structured your deal so that your Chinese counter-party doesn’t have to choose between common sense and honesty. Trust is wonderful. Verification is better.

Experienced deal-makers – Chinese and Westerner alike – know to budget time and bandwidth to post-deal negotiation in China. No matter how much time you spend hammering out the deal terms and contracts, you should still expect to conduct your second REAL negotiation after you thought the deal was already done.

Click here to see the original Linkedin poll

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A friend of mine was in China meeting with chemical suppliers – as he has been doing once a year for a long time.  The bulk chemical business isn’t glamorous or slick – there are no showrooms or brochures.  Negotiating points tend to be confined to price, quantity, quality and freight.  Even among those who make their living from the bulk chemical business, it doesn’t inspire much passion.

That’s why this American businessman was caught off-guard when his cordial conversation with a supplier he knew well suddenly turned angry and bitter.  The American made what he thought was an innocent comment about recession in China – and his counter-party was shocked and insulted. 

• To an American, a recession is part of a broad economic cycle characterized by several quarters of declining consumption.
• To some Chinese, a recession is a western problem stemming from corruption, sloth and dishonest market manipulation.  Furthermore, it repudiates one of China’s greatest economic achievements and the fine work of China’s leaders. 

The American was making the common negotiating error of seeing the whole world from his one point of view.  Culture creeps into many aspects of negotiation in China, and more than a few deals have been scrapped by the simplest of misunderstandings.

It reminds me of another story told by a Chinese factory owner who made what he thought was a non-controversial off-hand comment questioning the intelligence of a certain US president.  Everyone he knows– including American colleagues and acquaintances living in China– used the same kind of language all time, but now it had gotten him in trouble and put an important relationship at risk.

Just because something is obvious to you doesn’t mean your counter-party won’t be offended or insulted.  In China, the visiting negotiator generally does better confining his small talk to discussing the best way of doing business in China.