CHINA: GOVERNMENT RELATIONS PRACTICE

For many companies, dealing with the Chinese government is a humbling experience. The State Council consists of 28 Ministries and Commissions. The Head of each Ministry and Commission carries the title of Minister, a ranking equivalent to that of a Provincial Governor. China's leaders are not elected and can't lay claim to a democratic mandate. 

The first challenge for a Government Affairs professional is determining which Ministry governs your particular business and what regulations apply. Government decisions are not  very transparent. In the past few years, the Chinese government has also issued a bewildering number of new regulations. All new rules and regulations are published by the Ministry of Commerce in the MofCom Gazette. Simply staying abreast of regulations being issued and those on the horizon is one of the most daunting challenges a Government Affairs professional faces. There are many question marks in the current regulatory regime. If there's a gray area or new area, you may find various pieces of the government competing for domain. In these circumstances, companies need to consider which area they'd prefer to be regulated by  and then strengthen their hand by sharing information with that Ministry or office.

A lot of Chinese regulations are deliberately written vaguely because the government has the upper hand if you're operating in a gray area. Officials can choose to enforce a regulation to the letter if they want to crack down on you, or they can be benign if they don't. After an idea is drafted into legislation, it enters into a consultation phase. During that phase, companies can either directly or indirectly influence the legislation before it reaches the National People's Congress. In addition, the Chinese government is proactively soliciting various business chambers for input on legislation.

You need to have a government relations function for your China operations before you go to China. You can't seriously do business without government relations. The reality is that the Chinese government extends its reach deeply into business. Finding and retaining top talent ranks as the greatest challenge for companies operating in China and among the hardest jobs to fill are government affairs positions.

When it comes to assembling a government affairs team in China, the best is to hire former Chinese officials for their deep knowledge of how the system works. These individuals know whom to call, how to phrase requests, how best to couch suggestions in acceptable language and how to interact with Chinese government officials. Patience and modesty are the key virtues for a Government Affairs professional working in China, given that accomplishing anything through government channels is time-consuming.

When working with the Chinese government, seek alignment between the strategies of your company and the policies of China’s leaders. Meeting Chinese government officials prior to or in parallel with negotiations with Chinese business executives increases the chances of success.

Dealing with the Chinese Government

It’s all about power. The power of China’s leaders comes through their leadership of the Communist Party of China (CPC), which is constitutionally mandated to lead the government in China’s one-party political system. The fulcrum of CPC control is its appointment and promotion of all key government officials especially Party Secretaries (the top bosses of ¨Provinces and Municipalities), Governors and Mayors—and of all key senior executives of state-owned enterprises. In fact, all officials and state-owned enterprise executives are evaluated based on their achievements of China’s leaders’ policies.

To distinguish government relations from business is to betray naiveté as to how China’s “system” works, where good relationships with Chinese government officials facilitate better relationships with Chinese business executives. (Indeed, government officials can become state-owned enterprise executives and vice versa).

Thus, country managers of multinational corporations doing business in China should make government relations their personal responsibilities. They can have direct reports who focus on government relations, but this should not diminish their own “ownership” of government relations. Furthermore, when foreign firms take the Chinese market seriously, when China is or will become a global revenue driver, their worldwide CEOs should focus on Chinese government relations.

Sequencing relationships is vital: Top-down optimizes the system. When CEOs meet Chinese officials prior to or in parallel with negotiations with Chinese business executives, the character of the business meetings changes subtly; the Chinese executives become more respectful and the meetings become more productive.

Ideally, the foreign firm’s relationships with Chinese officials should be conducted independently by the foreign firm itself and not only via the foreign firm’s Chinese partner. The Chinese partner will always want to arrange these meetings, but the foreign firm should, at least on occasion, do this on its own. While the Chinese partner may argue that they know the Chinese system far better which is obviously true; the fact remains that the foreign firm must develop independent relationships with officials or it will forever be held captive by its Chinese partner.

Furthermore, because the Chinese partner is, indeed, part of the system (and thus, must obey strict reporting hierarchies and protocols), the foreign firm will have greater flexibility in arranging meetings. Many senior Chinese officials enjoy visiting with foreign CEOs in order to gain international understanding, a new criterion by which they are assessed for promotion.

The China market is huge and growing, and most major companies have a China strategy, whether they know it or not. Appreciating how to work effectively with the Chinese government and how to deal properly with Chinese officials are essential for success.

Dealing with Local Government

To be successful in China, foreign companies must build strong, lasting relationships with not only the central government but with local governments as well. Local PRC government offices exert a significant amount of influence on foreign companies’ operations in China. The influence can stretch beyond expected areas such as product and investment approvals, customs clearance, and taxation to touch on matters such as land use, human resources, and marketing. Given the extensive reach of government and quasi-government entities in China, many foreign companies seek best practices to manage the wide range of government relationships.

Continued expansion of foreign companies into China has brought a heightened recognition of the importance of government relations at all levels. Many companies have a dedicated, centralized, corporate-level Government Affairs (GA) staff based in one location in China, frequently in Beijing. With the increasing number and complexity of policies that affect foreign companies in China, GA staff often focus on maintaining relations with central government officials and linking broader corporate goals to national government priorities. This broader focus often leaves little time to manage local government relations that are essential to ensuring smooth daily business operations.

In addition to GA work at the national level, companies often manage government relations at the sub-national level, which includes Provincial, Municipal, District, and County levels, to support business operations in that specific jurisdiction. Sub-national GA work tends to focus on compliance and implementation to ensure smooth daily operations at the company’s local facility rather than on policy development. Companies that cultivate relations with local officials when business is going well increase the likelihood that they will have channels to use when specific problems arise.

A company may need to work with all local government administrative levels depending on the issue. In general, provincial-level government agencies set the goals and development strategies for the whole province. GA work at the provincial level tends to focus on promoting awareness of the company’s products and services to influence top provincial decision-makers and on gathering information about the province’s plans for implementing industrial and macroeconomic policy. In addition, certain provincial regulators, such as provincial development and reform commissions and provincial bureaus of commerce, have approval authority for foreign investments above a certain threshold or in certain industries.

District and zone government agencies are generally micro-regulators responsible for implementing the policies that touch on daily business operations, such as business licenses, tax registrations, import and export clearance, work safety inspections, and utility supply.

Best Practices

Building and maintaining successful government relationships in China is a challenge. In addition to the significant language and cultural barriers, the environment is rapidly changing. The  best practices here below are designed to assist companies in navigating the obstacles encountered in developing effective government relationships in China and increase their success.

1. Understand China’s vertically integrated and complex power structure and all stakeholders.
2. Develop a government relations strategy. The Chinese government is involved in every aspect of business in China and is a key constituency. As a result, a foreign  company doing business in China must seek to develop relationships with key government officials. Introductions to these officials are often made by the Chinese partner, intermediaries, lawyers, or others.
3. Identify powerful and influential people and organizations at different levels of the party-state system as well as policy entrepreneurs.
4. Create government relations messaging that demonstrates commercial goals are aligned with the objectives of Chinese government and society.
5. Spot and analyse the role of individuals in power relations, hierarchies, networks, and status positions.
6. Determine whether a behind-the-scenes influencer may be driving issues in unexpected ways.
7. Map the complex web of stakeholders needed to address each issue.
8. Engage proactively before critical need emerges.
9. Train government relations employees to work together closely.
10. Develop “guanxi.” China is not a place where individuals function alone. As a result, personal relationships in China are critical. “Guanxi” is a Confucian concept of relationships and connections that is at the heart of all business dealings in China. It encompasses a set of complex values including hierarchy, respect, mutual benefit, and “face.” In developing guanxi in China, there is no substitute for humility. A foreign company that enters China with the attitude that it is sophisticated and will show the locals how business is done is likely to fail. In addition, one should look to benefit those with whom one seeks to develop relationships. It is a matter of giving in a powerful way as opposed to taking or expecting benefit.
11. Build the personal relationship with the Chinese party on a day-by-day basis. Like guanxi, “youyi,” or friendships, are critical for success. The better the personal relationships, the more likely the venture will be successful. A foreign company must work on this everyday, and company managers should seek to develop friendships with the Chinese personnel with whom they are working. This process is commonly referred to as “jiao pengyou.” The basis for Chinese friendships historically has been through family contacts, schools, and work contacts. the parties.
12. Track and evaluate government relations performance and adjust strategies accordingly.