China’s Shifting Business Landscape

The relationship between business and government in China is very different than what you are used to. It is worth your time to become familiar with some of the differences.

Change Comes Fast in China

In one week a major Chinese ministry disappeared and a new state owned company appeared. The process of change really started when the former head of the ministry was expelled from the Party about 4  months ago, but the transformation was completed at warp speed. This is quite different from the United States. The Patient Protection and Affordable Care Act was passed in March of 2010 after a year of discussion, debate and protests. The regulations are still being written and the new law is still rolling out. The government estimates that the law will be fully implemented in 2015, nearly 5 years after it was passed. There are advantages and disadvantages to both systems, but in the end these differences are reality.

Corporations wanting to do business in China need to be nimble and prepared to react quickly to changes not only in the marketplace but also in the regulatory environment. The Chinese government is far more involved in business than the United States’ government. The regulations affecting your company can change overnight. You want to respond quickly to avoid a possible government campaign against your company.

To do business in China, your company needs to streamline mechanisms for change and empower local managers to react quickly. You or your staff also need to stay on top of developments in the regulatory environment and build strong guanxi with regulatory agencies to minimize the impact of these changes.

Government Structure in China

While the US has a Federal and State system, China’s government is a hierarchy run by the Communist Party. The Party Politburo is at the top of this hierarchy.  The Party overseas the army, the State Council, the National People’s Congress (NPC) and the Chinese People’s Consultative Conference. The NPC is China’s legislature and, according to the Chinese constitution “the highest organ of state power”. In fact, the NPC typically rubber stamps laws formulated by the Party. The State Council implements the laws, like the US executive branch. The Chinese People’s Consultative Conference advises the government; it has no authority or power. The Chinese army is commanded by the Communist Party. For more information see this white paper put out by the Congressional Research Service.

Business Regulations in China

The structure of the government and Chinese culture both have an impact on how laws are written and regulations are implemented. Guanxi networks play a key role in Chinese culture. Local governments often favor local champions when enforcing laws or implementing regulations. China’s international relations or friction with trading partners like the US can also have a bearing on how regulations are implemented. As early as 2010, there were reports of a shift in regulation that benefited Chinese businesses.

In the United States, federal regulations trump state regulations and this results in a generally cohesive system. In China, the central government has direct control of all regulations; however, because the culture is so relational, how regulations are implemented can vary greatly from place to place. Your China business plans need to take this into account.

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