In April 2016, though Chamber International, the The Law Society of England and Wales
commissioned me to write a feature explaining why it's important for UK firms to take regional variations in China's society seriously . The original article can be found on The Law Society website here, and also on Chamber International's here.
The full article is reproduced below:
China's Regional Variations – Challenge and Opportunity
Why is it important for UK firms to understand China's regional variations? There are three main reasons:
Because these variations are greater than many realise and have significant consequences
Because work opportunities may come from any part of China
Because targeting a region (or regions) away from Beijing, Shanghai, Guangzhou and Shenzhen could be a better strategy for small-medium firms looking to enter or expand in the Chinese market
We can see this in a number of different ways. Let's begin first with China's political framework. China's national government is based in Beijing of course, but each province and city has its own government and party structure too, normally reflecting the national arrangement. So for example there is a national department of health, but each province and city also has its own department of health. With individual provinces being bigger and more populous that many nation states, it's not surprising that they wield enormous power, and exercise significant autonomy. Provincial departments are not always simply sub-departments of national ones, and in some cases they can feel almost like parallel entities.
Chinese society's social values also contribute to this sense of regional independence. As I've written elsewhere, trust is highly valued in China because it is such a rare commodity.[1] Through generations of Chinese society, men and women have aspired to live by the Confucian ethic, which has remarkably little to say about the individual's obligations towards strangers (those who are neither family, friends or state – in other words, most other people). Furthermore, the justice system has yet to convince most people that it can guarantee justice for them. Taken together, these factors go a long way to explaining why Chinese people (individuals and companies) prefer to turn to existing trust relationships in order to get things done – most often this means looking for local/regional solutions, rather than reaching out to Beijing.
Another helpful way to consider regionality in China is by "city clusters". UKTI and China Britain Business Council have written helpfully about this, as have Asia legal specialists Dezan Shira[2]. Each of these clusters have an identity of their own though they may cross provincial boundaries. identity is not political, but is related instead to business, communications and industrial proximity – rather like we in the UK might consider the East Midlands to be a hub for certain industries. The urban cluster which falls within Heilongjiang and Jilin provinces, for example, is strongly influenced by its proximity to Russia and Korea, and is particularly strong in the automotive and heavy engineering sectors. Understanding and targeting one or more "city clusters" can be an effective strategy for developing business in China – of course the Beijing, Shanghai and Pearl River Delta areas are examples of these clusters, but there are many more (UKTI suggests 12 significant city clusters in total).
A unique piece of research from Harvard and MIT highlighted another type of regional variation, this time with respect to ideology.[3] Across Chinese society we see a "spectrum" of ideologies displayed – personal views regarding economics, politics and society. That's probably no surprise; we might expect the same in any country. What is remarkable about this phenomenon in China though is that it can be considered a single spectrum. A Han Chinese person who is economically liberal (a free-marketeer), is almost inevitably going to be both socially and politically liberal too in Chinese terms. And a Han Chinese who is conservative economically (preferring a more socialist, planned economy) will also believe in conservative Chinese social and political values.[4] This ideological spectrum can be mapped out geographically, and its implications for doing business in China are significant. It means, for example, that even though your business partners in, say, Shanghai and Xining may be somewhat similar in terms of outlook, the values and ideologies of their clients – the atmosphere within which they do business – will be vastly different.
Finally let's consider ethnicity. UK firms are not always aware of the implications of China's diverse ethnic mix, even after years of engagement with China. Minority ethnic groups comprise 8.5% of China's population, but that percentage varies by region of course. Take the city of Lanzhou for example - home to nearly 4 million people, and most famous for its noodles and petrochemical industry (though less well-known for the surprising fact that it's twinned with Chorley in Lancashire). About 10% of its population are from the Muslim Hui minority.
Ethnic factors affect business in China because they add a further twist to language challenges. And meals – so important when building business relationships – are affected too. The accountant in office I managed for years in China was Hui, so the whole team considered her needs when bringing food into the office to share, or choosing a restaurant to eat lunch in. Furthermore, the question of trust (see paragraph on social values, above) means that in China people in some minority ethnic groups are most likely to turn to others within that group to get things done.
An understanding of regional variations within China is essential when developing business strategy. Within the limits of this short article all I've been able to do is try to explain why this is the case – if you're considering deepening your involvement in China or would like to understand your situation there better, contact me at Chamber International.
[1] Chinese Business Relationships – Are We Strangers Or Friends?
[2] See http://www.china.doingbusinessguide.co.uk/the-guide/choosing-the-right-location/ and http://www.china-briefing.com/news/2012/02/23/chinas-industry-clusters.html
[3] PAN Jennifer & XU Yiqing China's Ideological Spectrum (2015)
[4] Contrast this with the UK's multidimensional spectrum where, for instance, two free-market capitalists might hold entirely different ethics regarding family, relationships etc. Or two very "traditional" might vote for two very different political parties.