Global Business Forum, BA 545

This and That

Cate showed me a list of typical American culture and ideologies the other day.  As I’ve always thought that we’re becoming more and more alike in globalization, I was surprised to see that there were still a lot of differences that I didn’t realize.  I felt it compelling to share them with you =)

Attitude toward Age

Typical in the U.S.

American emphasis on concrete achievements and “doing” means that age is not highly valued; the older you are, the less you can accomplish.  Age is also suspect because new is usually better in American culture, and the elderly are generally out of touch with what’s new.

Typical in China

The concept of “respect the senior and take care of the young” is deeply rooted in Chinese philosophies.  Age usually can be translated into years of experiences and wisdom.  In the business world, elderly people can also get laid off because of high compensation costs just as it happens in other market economies.  However, in general, the society does not feel right to “discard” people who contributed years to the company.

I remember some of my childhood bedtime stories are about sacrificing the young for the seniors.  The aged are the ones who are more likely to turn into trustworthy leaders in times of turmoil.

Concept of Fate and Destiny

Typical in the U.S.

The concept of self-determination negates much of the influence of fate and destiny.  Parents tell their children they can be whatever they want to be when they grow up.  There are few givens in life, and people have little sense of external limits.  Lack of success is their own fault.

Typical in China

Many of my friends in China believe that individual success depends on family background, luck and your knowledge and skills (in order of importance).  It is true to some extent, because family background significantly influences people’s vision and exposure given that the education system does not encourage “out of the box” way of thinking.

Separately, most of the Chinese people have the same definition for success: social status and wealth.  Children are raised to standout in sever competitions and achieve “success” under their parents’ guidance.  Sometimes pursuing a different track is considered as self-indulgence and rebellion.

View of Human Nature

Typical in the U.S.

People are considered basically and inherently good.  If someone performs an evil deed, we look for the explanation for the reason why the person turned bad.  People can and should be trusted.  We are fairly open to strangers and willing to accept them.

Typical in China

If there is a stop sign without a traffic light in China, you don’t expect people to stop.

People are considered basically and inherently good too.  However, people do not trust strangers easily because we are surrounded by too many deceptions and traps.  We’ll have to assume people do not act honorably at the first place in some cases for self protection or protection of certain rules.  If your business partner in China is not a well-established state-owned enterprise, credibility and reliability should always be your first concern.

Attitude towards Taking Risks

Typical in the U.S

There will always be enough opportunity to go around, so taking risks involves no real danger.  For the truly ambitious, failure is only temporary and possibly necessary to future success.  Experimentation, trial and error are important ways to learn or improve upon your product or service.

Typical in China

The Chinese are known for their conservatism.  We always save for the rainy days.  People usually do not jump around for work.  Risks will be taken as long as there is a backup plan.

Concept of Face

Typical in the U.S.

In individualist cultures, no premium is put on saving face because people can take care of themselves.  What other people think is not so crucial to survival or success.  We can say what we think without worrying about hurting other people’s feelings, and we likewise appreciate directness.

Typical in China

Watch out if you wanna talk in a straight forward way in China!  You’ll have real friends but also random enemies.  Saving face does not equal to hiding the truth.  As confrontation is not popular in the Chinese culture, people appreciate euphemism to address problems.  It’s always helpful to think in other’s shoes before you talk.

Attitude toward Formality

Typical in the U.S.

Americans tend to be casual and informal in social and professional interactions.  Informality is also more necessary in a mobile society where people are always meeting new people.  We don’t stand on ceremony, or use titles or rank when addressing each other.

Typical in China

Comparing to my American counterparts, my life in China is a lot “harder”.  We always use a title or rank when address those who are senior to us, we are required to sit still with hands folding behind our backs when in elementary school classes, and we need to judge whether it is an occasion where sitting with crossing legs is impolite, etc…

Gift Etiquette/Gift Taboos in China

As a Chinese saying goes, a goose feather sent from thousands of miles away is a present little in size but rich in meaning.  As the Chinese do not usually use ‘thank you’ cards, giving gifts is an important way to say thank you.  When visiting someone in China, it is always great to bring some small gifts to show your respect to the host and friendship.

However, you may want to know some taboos before selecting the gifts.  To avoid any awkward moment when giving your Chinese friends gifts, here are some tips on what not to give:

CLOCK — Do not buy a clock as a present / gift, especially as a gift to old folks.  In Chinese clock is “zhong” while giving present is ‘song’ and when you combine both it becomes “song zhong” which means
paying last respect when someone die”.

KNIVES — A Chinese saying goes as “one cut two parts”, indicating the breaking of a relationship.  Giving a knife symbolizes your intention to break the relationship, a message that you surely would not want to send when trying to extend your network!

GREEN HATS — Better not give green hats to your man friends, especially those who are married.  It’s derived from a Chinese saying goes as a man who wears a green hat is one who is being cuckolded.

WHITE CHRYSANTHEMUMS — A flower arrangement is an acceptable gift.  However, never pick white chrysanthemums because they are only used on funerals.  Actually all chrysanthemums are considered to be funeral flowers, so try to avoid this category.

NUMBER TABOO — There is a prevalent saying in China that happy events come together. Hence, whenever an event of great rejoicing and congratulation occur, the gifts will be all sent in even numbers and accordingly those sent in odd numbers should be avoided as taboo, especially on weddings.  An exception is the even number “four”.  “Four” sounds like “death” in Chinese, which is not appropriate.

Cultural differences in giving/accepting gifts:

The Chinese will decline a gift two or three times before accepting it. Do not give up on the first try, but be sensitive to genuine refusals.

The Chinese do not usually open gifts when they receive them.  You are preferred not to open a gift given to you unless they insist.

Some gift ideas:

A gift that represents your culture

The Chinese host would love chocolates or a bottle of wine

Fruits that contain the meaning of luck, e.g. oranges

China Tax Overview

A weekend on Shiva’s Differed Tax midterm just reminded me of China Tax.  So here goes:

Legal Framework

National People’s Congress →State Council →Ministry of Finance / State Administration of Taxation → Municipal government

Tax laws → Regulations and Provisional regulations → Tax Circulars, Notices, Methods and Rules → Local Regulation and Rules

Major Types of Taxes and Tax Rates

Tax		Applicable To	Rates
1	Corporate Income Tax	income	25%
2	Business Tax	Service income	5%
		Royalties	5%
3	Value Added Tax	Domestic sales	13%, 17%
		Export sales	0%
4	Consumption Tax	Import & manufacture of certain consumer goods	3%-45%
5	Customs Duty	Imported products for domestic use	Average 10%
		Imported products for export processing	0%
6	Withholding Tax	Dividend	0%
		Interest	Normally 10%
		Royalties	Normally 10%

Major Preferential Tax Treatments

Types of Incentives	Eligible Industrial Sectors/ Activities
Tax reduction and exemption	Infrastructure projects Agriculture, forestry, animal husbandry and fishery projects Income from energy and water conservation activities and environmental protection activities Income from qualified technology transfer Possibly, other types of passive income derived by foreign companies, but these items are not specified in the Law and expect to be covered in implementation rules
Reduced tax rate	High / New Tech enterprises (15% tax rate) Small and thin-profit enterprises (20%) Encouraged industries in certain regions e.g. -  High / New tech enterprises in Special Economic Zones and Pudong -  Encouraged projects in Western region
Super deduction	Qualified R&D expenditures Wages paid to handicapped and other needy people as encouraged by the State

Individual Income Tax Rates

For income from wages and salaries, a monthly deduction of 1600 yuan shall be allowed for expenses and that part in excess of 1600 yuan shall be the taxable income.

Tax Rates	Monthly Income (CNY)
5%	1-500
10%	501-2,000
15%	2,001-5,000
20%	5,001-20,000
25%	20,001-40,000
30%	40,001-60,000
35%	60,001-80,000
40%	80,001-100,000
45%	100,001 and above

In the news

China cut export tax rebate from July 1, 2007 to reduce trade surplus.  However, Effective from November 1, 2008, China will raise tax rebates for certain exports to help producers cope with smaller profit margins as a result of slacking market demand, the yuan’s appreciation and rising production costs.

Movies and Books

As Kristi mentioned the other day, showing your respect is important in doing businesses in China.  My interpretation of respect include the understanding of communication style, the social setting, ideologies, and other elements in culture.

If there is little chance to make a travel plan in the near future, it’s always easy, cheap, and entertaining to pick up some ideas from movies.  The following two are good ones for you to taste a bit of the Chinese history and the cultural differences between China and US.

The Last Emperor

The movie depicted the life of Puyi, the last emperor in China.   The story happened between 1908 and 1967, a period that China underwent a series of political turmoil and dramatic changes.  Puyi’s life was intertwined with the Qing Dynasty, the Chinese Revolution, the Warlord Era, WWII, establishment of the People’s Repulic of China and the Cultural Revolution.  Altough the screenplay writers were westerners, I was quite suprised to find that the movie presented a fairly faithful portrait of China at that time (I used “suprise” here b/c in many western movies you’ll see the Chinese elements nothing but mysteries and fantacies; and as far as I know, there are few Chinese movies that can successfully show that chaotic period of time with such integretiy and depth).

The Treatment

When a Chinese friend of mine asked her parents to come to the US and helped her take care of the newly-born baby, she gave them a list of things “not to do” to avoid troubles.  It reminded me of the movie the Treatment.  Altough the parental love for children should be the same no matter in the east or in the west, the ways of raising children are quite different.  Strict parenting is common in China, and spanking on the butt is one of the popular punishments if the kids do not follow the diciplines.  In addition, respecting and following seniors is very important in Chinese culture… Well, there is a lot for you find out in the Treatment.  The first time I saw the movie was in a cross-cultural communication class back in college years in China.  It should be interesting to watch it from the other side of the Pacific Ocean!

One Billion Customers

James McGregor wrote the book based on his almost two decades of experience in China — as China bureau chief of the Wall Street Journal, head of Dow Jones China business operations, chairman of the American Chamber of Commerce in China, and partner at a China-focused venture-capital firm.  One Billion Customers begins with a good historical overview, starting with British Lord George Macartney’s 1793 arrival on the Chinese coast, as he sought to crack open the prosperous but insular nation. A whirlwind tour of China’s past brings the reader up to China’s 2001 entry into the World Trade Organization.  Throughout the book, McGregor provides practical advice with a section called “The Little Red Book of Business” at the end of each chapter.

China’s Legislative System and Misc.

Legislative bodies:

- The National People’s Congress and it s Standing Committee make state laws

- The State Council and its relevant departments draw specific regulations respectively

- Relevant authentic organs of ordinary localities and governments formulate local regulations

One interesting charateristics of China’s legislative environment is that there is always a lot of document work invovled when doing businesses in China.  Lists of application documents required by various administrative authorities are usually available on their respective website, but if you think it’s a easy work, you may soon find yourself getting frustrated after rounds of rejections.  The implication here is :interpreting the laws, regulations and various implementation rules by yourself is far from enough.  Instead, you’ll need to communicate with the relevant government officials to confirm your understanding before preparing for the documents.  Be prepared that interpretations of the regulations and implementation rules vary on individual basis (by individual I mean government officials).  A more effective way is to ask directly: “What key words I should put in my documents?”

What did the Olympic Games bring to China? (1)

Among all of the questions I received regarding my hometown, the Beijing 2008 Olympic Games have always been the hot topic.  To what extent would a sports event change a country or a city?  I went home with the question in September 2008.

The traffic in Beijing has always been a big challenge to the extreme of your tolerance.  However, the traffic was not that bad on my way from the airport to my home in downtown, an apartment building about 10 minutes walk from Tiananmen Square.  The odd/even number driving restriction worked, and it didn’t seem to border the Beijing car owners much.  People enjoyed the convenience brought by the improved public transportation system, and were quite happy that they contributed to the blue-sky days in Beijing.

Beijing subway map in 2007

Beijing subway map in 2008

Was odd/even number driving restriction a sustainable solution to solve the traffic problems and fight against air pollutions in Beijing?  After rounds of public hearings, the consensus concluded that further infrastructure development rather than usage restrictions should be the way going forward.  The capacity of the current public transportation system is far from enough to serve people’s traveling needs.  There were already commercials popped up in subways, “Feel too crowed to breathe? Get a car!”

Beijing subway map for the future

On my first day arrived in Beijing, I was glad to see that things were happening in a fashion that we dreamed of 7 years ago when the International Olympics Committee announced Beijing to be the host City for the 2008 Olympic Games.

Background of China’s Financial System

Chinese currency: Renminbi (RMB), Yuan

Exchange rate as of Oct. 5, 2008 1 US dollar = 6.8575 yuan (down from 1 US　dollar = 8.7 yuan in 1994)

The central bank: The People’s Bank of China

The regulatory authorities:

China Banking Regulatory Commission (CBRC), China Securities Regulatory Commission (CSRC), China Insurance Regulatory Commission (CIRC)

Stock market:

Shanghai Stock Exchange, Shenzhen Stock Exchange, Hong Kong Exchange

Foreign Investment:

China’s banking system is highly regulated and relatively underdeveloped.  Four big state-owned banks include Bank of China, China Construction Bank, Agricultural Bank of China and Industrial and Commercial Bank of China.  China has been opening up its financial market from the end of 2006 to fullfill its commitment to the WTO.  Foreign financial institutions have been permitted to provide foreign currency services to Chinese enterprises and individuals, and have been permitted to provide local currency business to all Chinese clients since then.  However, according to the Catalogue for the Guidance of Foreign Investment Industries, banking and insurance industries are still in the restricted category, meaning high qualification, capital requirement and conditioned company structures to participate in the market.

Due to tight foreign exchange controls, Chinese domestic investors are not allowed to invest in the overseas capital market directly.  Instead, Qualified Domestic Institutional Investor (QDII) has been introduced to allow investors to invest in foreign securities markets via certain fund management institutions, insurance companies, securities companies and other assets management institutions which have been approved by CSRC.  Qualified Foreign Institutional Investor (QFII) is the opposite investment scheme to allow foreign investors to invest in China’s captial market.

Fundamentals that are posing challenges to the economy and the financial system year to date:

Exports under pressure due to the global slowdown, appreciation of RMB, and increasing commodity and labor costs

Domestic investment by corporate slowing down

Real estate developers facing weak property sales, falling housing prices and tightened financing conditions

If you have any questions regarding the above, please feel free to contact me at fangf@u.washington.edu!