Why is the SEZ essential for industrialization?

Intercultural management of joint ventures between China and the German-speaking countries


Statutory declaration

only made using the specified aids and marked the passages taken verbatim or content-wise from the sources used as such.

Preface

The word "intercultural" was therefore used in the title of the work to - in addition to the word "international" - to point out the fact that especially in joint ventures there is an intensive interaction between the promoters of the two cultures, which results in a high degree of interculturality Sensitivity becomes an essential criterion for success. Therefore, Chapter 2 deals in more detail with the socio-cultural framework conditions in the People's Republic of China. Furthermore, in Chapter 3 the political-economic and in Chapter 4 the legal environmental conditions are examined in more detail.

Chapter 6 provides basic knowledge about joint ventures, including the manifestations, strategic goals and the success and failure factors of this form of cooperation. Furthermore, the two legally possible types of joint ventures in China, including their legal provisions, are explained.

We would like to take this opportunity to thank Hon.-Prof. Dr. Klaus Czempirek for supervising the diploma thesis.

Numerous economic factors can be named as reasons for an economic engagement in China 1. On the one hand, participation in the domestic market potential of the growth market China offers great expansion potential for foreign companies. The People's Republic with around 1.28 billion inhabitants has had very high economic growth for around two decades 2, and the resulting steadily increasing purchasing power, in connection with the strong pent-up demand for the acquisition of consumer and capital goods and infrastructure facilities, is an enormous attraction for foreign companies of all kinds. Companies can benefit from various local location advantages, such as the low production costs due to the relatively low wage and raw material cost levels or various government investment incentives, e.g. in the form of tax breaks for direct investors. The improving environmental conditions have a supportive effect. Above all, China's WTO accession in November 2001 has contributed to a gradual reduction of tariff and non-tariff trade barriers, the relaxation of investment regulations and the creation of increasing legal certainty and transparency in business with China. In addition, the level of training is continuously improving. 3

However, the risks and problems of investing in China should not be concealed. These include the political instabilities and social tensions due to regional development disparities and separation tendencies in some provinces, the widespread corruption and nepotism, the strong involvement of the bureaucracy in almost all levels of economic activity, the risk of brand piracy and imitation the still inadequate legal protection in technology transfer or the short-term changes in the legal framework. Furthermore, the sometimes serious deficiencies in the infrastructure and in the sales systems, the lack of security of supply and quality in the local procurement of raw materials and intermediate products, or the geographical and, above all, cultural distance represent problems when engaging in China. 1

The following areas offer good business opportunities in view of increased government and / or private demand 2 :

Infrastructure and construction projects: The Chinese government has recognized that the maintenance of economic growth must be supported by a massive expansion of the infrastructure. There is an increasing demand for private investors to participate in these projects, for example in the form of the BOT (Build-Operate-Transfer) process. Specifically, large companies have good opportunities for road and rail transport, energy generation and distribution, raw material extraction and processing and for the telecommunications industry 3. In addition to the large operating companies, there are opportunities in the supply sector for medium-sized companies.

pulses can also be seen in the pharmaceutical industry, where there is increasing demand for pharmaceuticals for self-medication and products from the health care sector.

2.1. Culture - general

a) "Today's Chinese, at least those with foreign contacts, have long since westernized’. Any problems that arise cannot therefore be caused by cultural differences. "

b) "If people have only known each other long enough, for example because they work together, then they automatically learn to understand and respect one another."

c) "Whether employees in a mixed-cultural company harmonize optimally with one another or not is of secondary importance, because it is a so-called soft factor as opposed to hard factors such as financing, legal protection, market analysis, etc."

If two or more groups are brought together without specific coaching, their mutual differences do not equalize, but rather intensify 3. The third hypothesis is refuted by analyzes of failed international JVs, according to which only around 30% of the failures are due to technical, financial or strategic problems, but in around 70% culture-specific conflicts were responsible for the failure 4.

that on the one hand there are universals in humanity that are innate by nature and recognized worldwide. So all people have a need for love and sexuality, happiness, freedom,

Peace, health, respectful treatment or after social contact. On the other hand, every person is like no other, since each is a distinctive one personalitythat is not predetermined by human nature or national culture, but is individually innate and partially learned. 1

collective phenomenon, as it is at least partially shared with people who live in the same social environment. Culture is learned, not inherited. It is derived from our social environment, which programs our inner patterns of thinking, feeling and acting 3. The individual building blocks or elements of a culture are often called Cultural standardsdesignated. These are “the norms and standards for the execution and assessment of behavior that are shared by people living in a culture and that are regarded as binding 4". They offer the members of a society orientation for their own behavior and enable them to decide which behavior patterns are to be regarded as normal, typical and still acceptable, or which are to be rejected. These cultural standards relate to the elements common to a nation, but do not claim to describe individuals 5. It should therefore be pointed out that in the present work with “the Chinese”, “the Westerners” etc. we do not mean one hundred percent of the population, but the majority who make a certain standard the typical norm of this culture. 6

If one looks at cultural differences, it can be determined that these are an icebergsame. Eating habits, language, etiquette, customs, appropriate clothing, etc. are the tip of the iceberg sticking out of the water. Although these differences are easy to spot, they are not the most important ones, especially since some of them can change quickly. To the

The submerged part of the iceberg counts the values, basic assumptions and attitudes or basic aesthetic characteristics of a society, such as a culture-specific feeling of space and time. These differences are far more persistent and difficult to see, which is why the following remarks focus on these elements of national culture 1 deal. 2

2.2. Similarities

Similarities include those already in point 2.1. explained universals, which are "a whole playground for intercultural connections" 4represent. The following also exist, for example similaritiesbetween the two cultures 5 :

2.3. Hofstede's cultural theory

identified individual countries. These are for the German-speaking countries and for China in Table 2.1. can be seen: 1


Table 2.1 .: Country-specific point values ​​of the Hofstede 5D model

Source: taken from Weidmann (1995), p. 22f (compiled from Hofstede (1991)

The individualism vs. collectivism dimension describes the relationship between the individual and the group or society as a whole. Individualism is expressed by the fact that people primarily take care of themselves and their immediate environment (e.g. family) and the focus is on striving to achieve their own goals. Collectivism, on the other hand, expresses itself through a strong sense of belonging to a group (“we-feeling”), within which one takes care of the interests of the members and gives priority to group goals over individual goals. The individualism index shows that collectivism prevails in China, but individualism prevails in German-speaking countries. This collectivistic behavior manifests itself in the work environment, for example, in the fact that people are judged according to their group membership, group goals and interests are clearly in the foreground, employees are more motivated by a feeling of belonging and harmonious interpersonal relationships are more important than tasks. Employer-employee relationships are moral, and employees expect the company to look after them like family. 3

The degree of Masculinity or Femininitydefines what value members of a culture attribute to the qualities of assertiveness and materialism on the one hand, and fellow human beings and quality of life on the other. Even though the differences within this dimension are not serious in the countries under review, it can be seen that China is roughly in the middle and the German-speaking countries are more at the masculine end. In China, this is expressed in the workplace, for example, in that overly self-confident behavior is ridiculed and people sell themselves below their value. Furthermore, empathy and the willingness to adapt are very important, the emphasis is on cooperation and a good working atmosphere and performance competition is generally less high. 1

In terms of the long-term versus short-term orientation, there are again strong differences between the German-speaking countries and China. The dimension describes the degree to which a society has a "pragmatic, future-oriented attitude towards a dogmatic, present-day perspective" 3having. Since the long-term orientation is of great importance, especially in the societies of the East, and the values ​​of this dimension, namely frugality, perseverance and perseverance, status and shame (preservation of face) are closely linked to the teachings of Confucius (see 2.5.2.) this area is also known as Confucian Dynamics. Chinese prefer long-term development and indirect enforcement strategies. The Chinese are convinced that the shortest route is not a straight line, but the apparent detour. There is a pronounced acceptance of approximate solutions, and changes are responded to in a flexible manner. There is no linear goal orientation with the focus on a single goal. Rather, there is an alignment to a target field (see also 2.9.). In the Chinese work environment

Feld shows the long-term orientation, for example, through pronounced pragmatism, perseverance in pursuing goals, or saving to secure the future. 1

2.4. Reaction patterns when different cultures meet

The alternative of mutual isolation as a fourth possibility clearly does not represent a strategy for bridging the strangeness. Only alternative 3 fulfills Hofstede's demand for a "cultural relativism for international actors that recognizes the other culture without denying its own" 3. This cultural relativism does not mean the lack of norms for oneself or for a society. However, he calls for the renunciation of hasty judgments when dealing with people from other cultures. Accordingly, it is a mistake to readily transfer the norms of one person, group, or society to another. Instead, before making any assessment or action, one should inform oneself about the nature of the cultural differences between societies, as well as their origins and consequences. 4

1Even if a change in values ​​can be seen in China due to urbanization and industrialization, many religious or philosophical ideas have been preserved. In contrast to some other countries, these views have a largely positive effect on the country's economic development, as there are no religious hurdles that could call economic activity into question. Caste thinking is just as unknown as in Hinduism, as is the belief in fate, which can be found in parts of Islam, for example. It should be noted that most Chinese do not worship a central deity and do not draw a clear dividing line between religions or philosophies of life. For example, it is not uncommon for the Chinese to visit several churches or temples of different faiths. The three most important philosophies of life or religions are briefly explained below.

The leading ideological guiding principle in China is Confucianism, which cannot be viewed as a religion in the true sense of the word, but above all is an earthly-oriented state and moral philosophy to promote human virtues. Confucius (551 - 479 BC) developed his social order as a reaction to the chaotic, revolutionary upheaval of the Chinese Empire around 500 BC. His philosophy turned out to be the most useful and successful and still shapes behavior in everyday Chinese life to this day. It is based on the rational basis that harmony with the eternal world order can be achieved through right behavior. According to Confucius, the stability of society is based on the unequal relationships between people (vertical principle), because, according to his teachings, a society can only be stable if it is structured in a strongly hierarchical and patriarchal way 2. This vertical principle is reflected to this day in the family, professional and state areas. Other Confucian behaviors found in everyday life in China include, for example, the importance of school education as access to power, the importance of performance and diligence as the basis for success, the placing of the protection of the individual behind the protection of the general public, the high level of respect for the elderly (Principle of seniority), the importance of harmony and avoidance of conflict in interpersonal relationships (principle of harmony or preservation of face), or the “way of the center” (avoidance of extremes). Furthermore, calmness, perseverance, discipline, sincerity, courtesy, modesty and frugality apply

as elementary values ​​of Confucian ethics. Acquiring wealth is not viewed as indecent according to this philosophy, because one is doing good for one's family, for which one is responsible. 1

Parallel to Confucianism, Taoism (Daoism), which goes back to Lao Tse, developed in China. Since Confucianism did not provide any answers to metaphysical questions, most Chinese supplemented their Confucian conception of society with Taoist philosophy, which placed nature at the center of their considerations 2. Taoism follows noble humanity as a mirror of Taos (course of nature) and teaches the harmony of micro- and macrocosms. This includes that the primal forces Yin (the feminine, the earth, the weakness) and Yang (the masculine, the sky, the strength) are in balance: "No big without small, no light without dark, no male without female, no life without death, no yin without yang - this is the dialectic of Taoism " 3. Accordingly, the human being is instructed to integrate into the harmony of the world. Traditional Chinese medicine is also rooted in the harmony theory of Yin and Yang. 4th

Buddhism, which originated in India, also originally found many followers in China. Since the Buddhist persecution in 845 AD, this religion has had only limited broad impact in Chinese society, and at no time did it replace Confucian ideals. 5

Superstition is also widespread in China, but much more so in the south of the country. For many Chinese it is therefore important, for example, to consult oracles or special masters in order to find out the best time for weddings, funerals or business openings. Offices and other rooms are also designed and furnished strictly according to geomantic wind-and-water rules (“fengshui”). Colors and numbers also have clear signals. For example, the colors white, dark blue, dark green and black herald pain and death.Red, pink, orange, yellow and gold, on the other hand, signal happiness and joy, gold also stands for wealth. All even numbers are considered lucky, with the exception of the 4, which is the unlucky number for southern Chinese because of the similar pronunciation with the Chinese word for death

applies. Odd numbers, on the other hand, signal sadness and calamity. The best number is 8, and 6 is also good. 1

2.6.1.1. Hierarchy and top-down principle

Wait for instructions "from above" and, if the decision-making situation is unclear, do not bring about any decision of your own accord (strict top-down principle). Initiative is not desired in this system, but the respective superior can count on the unconditional loyalty of his subordinates. 3

Ranking is an important issue in China due to the hierarchy. This also applies to the rank of foreign business partners. Since the Chinese business partner has to know his rank in order to classify the foreign business partner, business cards are included Title(see 2.10.6.) essential in business with China. One should

- of course in consultation with your own company - give a title as high as possible on the business card (such as "Head of ..." or "Manager of ..."), from which your own decision-making authority emerges specifically in the area of ​​interest to the partners . Failure to observe this can in some cases lead to a violation of the dignity of the Chinese business partners during negotiations. More often, however, this leads to the fact that the meeting is viewed by the Chinese partners as a waste of time, as they assume that the lower-ranking person does not have the appropriate decision-making or signing authority. Similar problems can arise due to the Seniority principleof the Chinese. This seniority orientation of the Chinese means that older people are shown a high level of respect. In business life it also means that promotions are primarily based on age and not

be made according to the qualification of the person. Applied to foreign business, this seniority orientation of the Chinese can lead to the problems described above when sending a young negotiating partner to China, even if the person's professional competence is high. One solution to this problem is to build on the contacts of older, possibly even retired employees who accompany the younger person at the first meeting of the Chinese business partner and “open the door” for them. 1

Another specialty of Chinese culture is the term “guanxi”, which can be translated as “relationships”. However, the term goes beyond the European understanding of the pure relationship to achieve social benefits. These are complex and informal social networks, which can be understood as a horizontal structure that transcends the otherwise strictly vertical-hierarchical and mostly bureaucratic structure. They enable the individual to achieve goals in a roundabout way that would not be possible officially: “To the Chinese, 'Guanxi' is a sort of tit-fortat, 'You scratch my back, I'll scratch yours' arrangement . Someone with whom you have ‘Guanxi’ can be counted on to do your favors, bend the rules, and even break them sometimes on your behalf. It is a cultural phenomenon to Chinese all over the world ... " 2. It is also important for foreign business partners to be accepted into such informal networks by constantly establishing and maintaining relationships. Although this involves a lot of time and costs (e.g. for gifts), these investments are worthwhile. If you are only part of these networks, they prove to be very sustainable and make business life in China much easier, e.g. when interacting with authorities or customers. 3

Confucianism's striving for harmony and the emphasis on mutual relationships are causes of a pronounced one Group orientationof the Chinese. Avoiding open conflicts is seen as the top priority of the group. There is great solidarity within the group. You offer each other help and support and show respect to the group members. However, this pronounced group loyalty is offset by indifference towards the anonymous society, which leads to a deliberate delimitation from other groups (faction principle). Outsiders cannot count on the support of the group. The dividing line is depending on the situation or context between families and companies 4, Universities, "Danweis" 5or cities or provinces. 1

2.7. Bureaucracy and corruption

would not supplement a low salary by accepting courtesy. For foreign companies the question arises as to the ethical justification of “lateralLevies ".You should be aware, however, that doing business in China without these “mandatory allowances” will be very difficult. The Giftsserve to maintain relationships and are therefore to be viewed as an investment in the future. Accordingly, a surcharge should always be included in offers to cover the cost of the addition. Although corruption is practiced up to the highest levels of government, the Chinese government tries to take action against white-collar crime and abuse of office in regular campaigns. So far, however, it has not been possible to meet this challenge in a satisfactory manner. 3

2.8. space and time

The Chinese people's perception of time is also significantly different from European standards. According to the motto “time is time and money is money”, time is seldom scarce, but rather

because it offers the individual protection and security and acts as a stabilizing factor of the Chinese society through the provision of jobs, housing, health care, etc. It is found to be the most pronounced

Danwei form in the villages, where production and living space largely coincide. Because these two areas are in the

Cities fall apart more and more often, there the individual is often both a Wohndanwei (e.g. residential district) and a

Workdanwei (e.g. factory, university faculty). It can be observed, however, that the Danwei structure of the Chinese

Society is slowly being broken up by the increasing introduction of market structures, especially in the personnel area

and becomes less important. Nevertheless, it is still the foundation of life for around 2/3 of the population. (Schuchardt (1994),

P. 80f and p. 103; Niembs (1996), p. 43ff)

rather seen as a freely available resource 1. Punctuality according to western standards is only given a subordinate role 2. In addition, there is no clear separation between work and private time. For Chinese business people, all time outside of the rest of the sleep is the business. Several things are processed in parallel and in a network, whereby interruptions, e.g. within meetings, are not perceived as annoying by the Chinese. 3This polychronic approach is discussed in more detail below.

2.9. Approaches to achieving goals

Accordingly, for the majority of management tasks, a day can be regarded as the smallest realistic time unit for planning. If a stage in such a system cannot be reached, all subsequent stages would also fall behind with a strongly monochronous, linear schedule. Therefore, instead of the “critical path” strategy in China, a person-related, polychronic approach is usually chosen (see Fig. 2.1. Right-hand side). A kind of basic framework is planned, but the plans can be changed ad hoc and flexibly if there is another way to achieve a goal. The points in Fig. 2.1. right side stands for useful people who are connected to each other in a network of relationships and can arrange everything necessary quickly and unbureaucratically. Given the above-mentioned Chinese framework conditions, this intertwined network appears more promising than detailed resource planning, compliance with which can often not be guaranteed. This method of working saves time from cross-connections between the projects running in parallel, i.e. if the contacts activated in one project can also be used for other projects. Obviously, no culture is one hundred percent located on a single page. Nevertheless, people in German-speaking countries tend to be monochronous and the Chinese tend to be polychronic. 5


Fig. 2.1 .: Subject-related-monochronous versus person-related-polychronic approaches

Source: taken from Reisach et al. (1997), p. 313

To receive conditions. In order not to let the time factor be used as a means of pressure against you, generous time reserves should be planned for all trips to China. In addition, one should not consider agreed appointments to be irrevocable, but rather contact the business partner several times between planning and the meeting to confirm the appointment. 2

The Chinese script knows over 50,000 characters, whereby only around 8,000 characters are required for the high-level language and only around 2000 characters are required to understand the basic features of a daily newspaper.Grammar and spellingare the same across China. Thanks to the universal signs, texts can be written and understood nationwide. The Dialectshowever, differ massively, so that a purely oral communication between Chinese people from different regions is often extremely complicated or even impossible. In such cases, communication is only possible using characters that are familiar to everyone 3. The standard Chinese language Mandarin is based on the northern dialect (Beihua), in addition to which a large number of regional idioms, such as Shanghai Chinese, Cantonese (especially in Hong Kong), Minanhua or Hakka, are spoken. 4

The mentality of a cultural area is essentially shaped by the structure of the language. In-depth knowledge of the main features and characteristics of the Chinese language and writing helps to empathize better with the thinking and the often very pictorial expressions of the Chinese partners. In the context of this work, however, cannot be discussed in more detail. 1

When doing business in China, there is no way you can rely on your knowledge of English alone. Because the actual, mostly older, Chinese decision-makers very often do not speak a foreign foreign language or are often unwilling to speak it when negotiating with foreign business partners. Even if there is a trend towards learning more English, especially among the younger generation, in China, the use of a qualified interpreter is usually essential for negotiations. Usually each side provides its own interpreter for important negotiations - if only for reasons of familiarity and loyalty. When choosing, one should not only pay attention to the linguistic ability. Since the interpreter filters information through his wealth of terms and experience, this can lead to content-related irritations in business issues if the interpreter has insufficient technical and commercial qualifications. In addition, the interpreter should not only be the deliverer of what has been said or written, but also as acultural moderatoract, as literal translations can lead to misunderstandings regardless of the situation and the cultural context. Another important criterion is the loyalty of the interpreter. The risk of the pursuit of one's own or third-party interests through the distortion or withholding of information can be reduced by hiring the interpreter exclusively for the company. If there is already a JV in China, the best option for negotiations with third parties is the use of a technically competent Chinese employee from the joint venture. 2

2.10.3. Communication behavior


Table 2.2 .: Expressive and ritualized modes of communication

Source: taken from Reisach et al. (1997), p. 327

(these trust each other and are not hierarchically separated), strangers (these have no relationship to one another) and enemies (these no longer have a relationship). To a certain extent, superiors also have the right to express their needs more openly than their subordinates. There is also a direct response in emergencies. In all the other cases, i.e. when it comes to protecting the face, the Chinese take an indirect and ritualized approach. 2

- Cushioning: If you want to ask, demand, reject or criticize something, the speech should begin and end with something positive. Everything that increases prestige is positive, e.g. praise, thanks, compliments, seeking advice, etc.

- Omit:Everything is addressed except the critical point, so that it is noticeable (e.g. to the question "Are you well accommodated?" The answer "The view from the hotel window is nice" - but the rest less so).

- Sympathy:You put yourself in the position of your counterpart and speak in your own way (e.g. the statement "You have a hard day tomorrow" means "I'm tired too").

Corresponding to the indirect communication behavior, the conflict resolution is also handled indirectly, with conflict resolution taking place on several levels. For the time being, non-verbal signals, gestures and symbols are used to indicate a problem, because afterwards, if the conflict is successfully resolved, all those affected can pretend that nothing has happened. If this way of resolving the problem is unsuccessful, the relationship is intensified, e.g. by highlighting the common concerns and goals, and / or the disputed point is trivialized, taboo or denied. At a certain point, downplaying is no longer enough. Insistence, even when compromise proposals are put forward, hardens the fronts. Instead of all factual presentations, confrontations or even the threat of legal remedies, it is more expedient to use an intermediary (e.g. boss, friend, acquaintance). An ideal mediator is expressly not objective and neutral, but rather weighed or connected to both sides and ranks above the contestant. It is also advisable to use an intermediary in the event of problems with government agencies. If there has already been an open conflict, the only way out of this is to isolate the troublemaker as completely as possible by an impartial conversation leader 1to come to an agreement at a higher level. 2

There are also fundamental differences between China and the German-speaking countries in the way they argue. The decisive factor for the differences are not only the social dimensions, but also the different orientations in the thought patterns. Thewestern styleThe reasoning is mostly deductive, i.e. the reasoning begins with the core statement in order to "get to the point" immediately. Only then are the explanations and reasons to underpin the core statement fanned out, why one should use adeductive thought pyramidspeaks. In contrast, explain Chinesefirst of all all the premises, conditions, etc., in order to then derive and present a conclusion at the end of the chain of arguments (more inductive Thinking Circle).This fundamental difference often creates communication problems. A culturally untrained Chinese, for example, considers the core statement of the western partner at the beginning to be only an insignificant link in that of him

expected chain of arguments and perceives no or one wrong core concern. The Westerner, on the other hand, might consider the Chinese to be illogical babblers. Even if both sides are aware of the differences, the Western style of presenting key messages without preparation often seems aggressive, surprising or arrogant to the Chinese. Likewise, the encircling, synthetic method used by the Chinese can have an unsettling effect on Westerners. 1

Greetings and small talk: Due to the increased contact with other countries, Ge has also found a light, long handshake in China, which should be accompanied by a nod and a slight bow. If you want to express special feelings when greeting or saying goodbye, you can grab the other person's hand with both hands. Hugs and pats on the back are unusual. Knowledge of greetings in the national language is an advantage. If possible, the salutation should include title or hierarchical position and surname 2. Most meetings with Chinese begin with extensive small talk, especially if the people don't know each other. Suitable topics for the first meeting are first positive impressions about the country, small talk about the weather, about Asian cuisine or about the trip. From the second meeting you should also inquire about the well-being of the business partner and his family. Critical or disparaging remarks of any kind, negative events such as illnesses or mistakes, or conflict-prone issues of a socio-political nature (e.g. regarding human rights) are unsuitable. 3

Gestures and facial expressions: In China, self-control is the sign of a strong personality. Those who have their body and emotions under control are also trusted with power and strength. For example, the Chinese rarely use the rhetorical hand gestures that are common in the West when speaking.Extreme gestures should therefore be avoided by foreigners. An important and frequently used non-verbal medium in China is the smile, which

is used in a wide variety of forms. For example, a smile stands for “thank you” or “please”, as a greeting, as a sign of joy, approval, recognition or praise, but also for a warning, apology, as an expression of embarrassment, to fight terror or as an indirect message of sadness. The interpretation of the message that a concrete smile is supposed to convey can only be understood through years of experience in dealing with the Chinese. In any case, people in China are well advised to smile as often as possible. Laughing out loud, on the other hand, is considered a lack of self-control. Eye contact should only be brief and not too intense. Arms crossed in front of the chest, hands stretched out in trouser pockets or on the hips, pointing with the index finger at people, or crossing the legs, for example at the negotiating table, because the tip of the foot inevitably points to a person sitting opposite, are frowned upon . 1

Apologies and compliments: When it comes to apologies, they should be pronounced often and in good time in Asia. Because apologizing, even if there is no concrete reason for it, is associated with educated behavior and can easily defuse precarious situations. Compliments are a good bridge for establishing relationships or for easier entry into conversations and should therefore also be pronounced often. 3

therefore be placed in an embarrassing and shameful situation. Criticism is therefore in China

in a discreet and indirect way, very carefully, impersonally, and mostly put forward with a simile. Direct criticism should always be avoided. 1

The conduct of negotiations also shows that business partners from German-speaking countries primarily conduct their discussions in a result- and goal-oriented manner, while the Chinese side tends to have one processthat gradually paves the way to consensus. For the Chinese side, building a stable relationship is more important than pure factual orientation. 3

eastern bargaining magic. The Chinese way of negotiating is best dealt with with competence, patience, and a healthy dose of tenacity. 5

must be agreed within the Chinese side. In addition, members of the delegation are often exchanged, which further complicates the negotiation process. In addition, Chinese delegations are seldom endowed with far-reaching decision-making powers, because there is always a senior - often not directly involved in the negotiations - who has to agree. For these reasons, decisions are practically never made in a meeting itself. Rather, the rounds of talks serve to exchange information that is necessary for internal advice, coordination and decision-making. Even the signing of the contract usually does not mean the end of the negotiations, because renegotiations are common whenever new aspects arise. (see also 4.3.). 1

In order to be successful in negotiations in China, they should be prepared very carefully and conducted sensitively. Foreign business partners often only value specialist knowledge and expertise and attach little importance to the personal component. In addition, they set themselves a goal, but often do not know what goals and motives the partner has. Without knowing them, however, it is also difficult to achieve your own goal. War General Sun Tsu 2once said: "Whoever knows the enemy and himself will be victorious in a hundred battles."Preparatory phaseFor important negotiations, in addition to a comprehensive self-analysis, provide sufficient information about the negotiating partner, for example about their economic strengths and weaknesses, goals, needs, skills and their working methods. In addition, knowledge of the composition of the Chinese negotiating team and the decision-making structure is of great importance for a positive negotiation process. The careful selection of the people in your own delegation, including the distribution of tasks and roles, is also part of the preparation phase, whereby the seniority principle must be observed in addition to professional and social criteria. Therefore, if possible, the oldest person should take on the role of head of delegation. It is also advisable to name an explicit negotiation observer who filters out contradicting statements or hidden customer requests by observing the verbal and non-verbal utterances of the Chinese side, and a messenger who is responsible for distributing documents or handling urgent telephone calls. On the importance of a qualified interpreter was

already in point 2.10.2. pointed out. The negotiation goal itself should be flexible. If there is a lack of leeway, a negotiation can break even with small differences of opinion. A subdivision of the goal into milestones seems to make sense, whereby one should be flexible in the order of the achievement of these sub-goals. 1

It is important to record the agreed results in writing after each negotiation for the further course of the negotiation and for the formulation of contracts. Joint documentation has proven to be advantageous 3. To avoid translation errors or misunderstandings, important final documents should be translated from English into Chinese and back into English. If there are discrepancies between the two English texts, reformulations are necessary to prevent the Chinese side from later invoking a text interpretation that is unfavorable for the foreign side. 4

3.1. Special influencing factors in Asia

Japan: On the one hand, there are the Japanese, who still play the leading economic role in Asia. Japan supports the countries in the region with the transfer of technologies, financial aid (development money), professional training of personnel and administrative assistance, for example in the expansion of country-specific development programs. Through this economic power, Japan also exercises its influence on a political level, e.g. in the UNO work or in the economic and political organizations in Asia. 1

Decentralized, cross-border networks abroad based on family inter alia. Connections, which in turn are woven into a global network of networks. They invest the generated capital in the billions in Southeast Asia, making them leading investors and business tycoons in the region 3 . 4

The administrative structure of the PR China 5, which is presented in Appendix 3, is strongcentralized governanceto recognize. The State Councilis the supreme body to which all commissions, ministries, administrations and institutions are subordinate. TheSupreme state

advocacyand theSupreme Courtare formally equivalent to the Council of State, but in fact of much less importance. Legislation (National People's Congress), judiciary (Supreme Court) and the executive (commissions, ministries and offices) are incumbent on different institutions, but in contrast to the democratic principle of the separation of powers, they are not independent because they are subordinate to the National People's Congress. TheNational People's Congressis a kind of parliament with representatives from the various provinces of the country, but from theChinese Communist Party(CCP) is dominated. Thus, the actual political decision-making power lies in the hands of this party, which permeates all political institutions and also has great influence in the economy, e.g. when filling management positions in companies. The center of power within the party lies in what is known as the CCP's informal leadership circle, which also includes the military(People's Liberation Army) is heavily involved. This claim to leadership is increasingly being questioned by some provinces. The prosperous coastal areas in particular demand greater autonomy and decision-making power, which is due, among other things, to the level of transfer payments to the lagging hinterland regions and the distribution of tax income between the regions. There are other parties as well, but one cannot speak of a real political opposition. Differences of opinion are usually clarified in advance through discussions. The wholepolitical processis embedded in a highly complex network of personal relationships and obligations and is difficult to understand because the power struggle largely takes place behind the scenes. 1

China is on the way to a "socialist market economy with Chinese characteristics", or, to put it in other words, in a transition phase between plan and market, without, however, aiming at the free market economy as the ultimate goal. Rather, it tries to find its own, better way that combines the advantages of both concepts. The market economy reform course therefore only serves the goal of achieving a higher level of prosperity. The basic principles of socialism, such as social equality, state redistribution and state economic control as a means against the defects of the market economy, are upheld in this system. However, the macroeconomic management and control should no longer, as in China's planned economy before 1978, through detailed state planning, but through theCreating a bindinglegal and economic Framewhich is to be supplemented by state controls. However, macroeconomic control instruments such as the targeted control of key interest rates or the money supply are still rarely used because they fear a far-reaching loss of control over businesses. Rather, familiar control measures such as setting import or export quotas or subsidies are still used. However, China's accession to the WTO (see 3.3.) Will change this situation in the medium term. Appendix 4 presents the basic

Characteristics of the planned economy, socialist market economy and “western” market economy versus. 1

- Continuation of the policy of opening up foreign trade (e.g. by joining the WTO) and intensifying trade and economic relations with foreign countries

-Increased promotion of foreign investments in the inland provinces

-Improving the international competitiveness of Chinese companies by improving the product quality of Chinese companies, including through increased cooperation with foreign countries in the fields of science and technology

-Support the export activities of Chinese companies by improving the export financing and insurance system within the framework of the WTO guidelines

-Support Chinese overseas investment

- Increased use of information technologies in administration, information and electronic commerce

3.3. China's accession to the WTO

In the area of ​​theinternational tradebecome the most important Effects be 1 :

The following effects in particular will be seen in the case of foreign direct investment: 2 :

A Roland Berger study 3 examines the effects


China's WTO accession on various Industrial sectors.On the one hand, the pressure on the individual branches of industry will depend on the extent of their globalization, on the other hand, on the current protection through tariff and non-tariff barriers, which will disappear in the medium term with WTO accession. The most serious effects will be in globalized industrial sectors, where the protection of the end products or the entire value chainFig. 3.1 .: China's WTO Accession - Impact on(Suppliers) is still high and the products

different industries

Source: taken from Keller et al. (2000), p. 32are therefore largely isolated from international competition. The pressure on prices and quality will be felt particularly strongly in the automotive and telecommunications industries (see Fig. 3.1.).

A good overview of China WTO concessions,broken down by industry, can be found on the page http://www.ahk-china.org/china-wto/china-wto-koncessionen.htm. At http://europa.eu.int/comm/trade/bilateral/china/drop.htm you can find a comprehensive list of the reduction in Chinese import duties over the next few years, with the products listed according to the six-digit HS nomenclature . The website http://europa.eu.int/comm/trade/pdf/chn_servsched.pdf explains in detail the effects of WTO accession in the field of services. It would go beyond the scope of this work to go into these changes in more detail.

2 China GDP(Gross domestic product)


has been very positive for around two decades. In 2000 it was already USD 1,076.9 billion, which puts China in second place in the Asian region behind Japan with a GDP of USD 4,677.1 billion. In the period 1980-1990 and 1990-2000, GDP increased by an average of 10.1% and 10.3% per year, respectively. Estimates for the period 2000-2004 assume an average annual growth of 7.4%. China is therefore unlikely to be affected by the global economic downturn. That the Chinese economy even during the Asian crisis - in Fig. 3.2 .: Real GDP growth China 1996-2002

Source: F.A.Z. Institute

Unlike most other countries

of the region - has hardly lost any of its growth is shown in Fig. 3.2. clearly visible.

TheGDP per capitawas USD 853 in 2000. However, there are very large differences between the individual regions (see Appendix 5). In 1999, Shanghai was the absolute front runner with a per capita GDP of USD 3,307, followed by Beijing with USD 2,079 and Tianjin with USD 1,820. The regions of Guizhou (USD 296) and Gansu (USD 442) had the lowest GDP per capita. 1


Fig. 3.3 .: Development of inflation 1994 - 2000

Source: World Bank (http://www.worldbank.org/data/)

The following table shows the development of the economic structure:


Table 3.1 .: Development of the economic structure since 1980

Source: World Bank (http://www.worldbank.org/data/)


3.4.2.Country rating

The bank-specific institutional investor country rating was used to represent the country's creditworthiness 2elected. China has a rating for September 2000 of 60.6 out of 100 possible points and is 39th out of a total of 145 countries assessed. The credit risk in China is therefore classified as moderate. 3

By far China's most important trading partner by region is Asia with a cumulative export and import volume January-November. 2001 of USD 261.06 billion (56.4%). Europe ranks second with USD 88.41 billion (20.4%), followed by North America with USD 80.16 billion (17.3%). 4By countrythe main trading partners are as follows:


Table 3.2 .: China's most important trading partners

Source: MOFTEC (http://www.moftec.gov.cn/moftec_en/)

3.4.4.Main export and import goods

3.4.5.Types of companies in China

Appendix 7 contains a more detailed analysis of the types of company with regard to theirStrengths and weaknesses,which is important for the choice of partner (see 7.5.), among other things. A look at the output per employee shows the large discrepancies in the efficiency of the individual types of company. The output per employee in 1997 was USD 867 for state-owned companies, USD 3,951 for collective companies and USD 5,962 for private companies including companies of foreign investors. 3

As part of the Chinese opening policy, the targeted promotion of foreign investments has been promoted since the beginning of the 1980s in order to gain Western know-how and capital

import. For this purpose, so-called "special economic zones "(SEZ Special Economic Zones) in Shenzhen, Shantou and Zhuhai (in Guangdong Province), in Xiamen (Fujian Province) and in the island province of Hainan. Due to the successful trial run of the SEZ and pressure from other provinces, another 14 coastal cities received approval in 1984 to offer foreign investors the same perks as the SEZs. In these so-called “open Coastal cities " 1became (with the exception of Wenzhou and Beihai) subsequently so-called “economic& technological development zones "built. After 1985, China declared the Pearl River Delta in Guangdong Province, the southern region of Fujian Province, the Shandong Peninsulas and Liaoning, the Yangze Delta and the greater area around the city of Xiamen to be "open" Economic Zones ".Beijing and the provincial capitals were also given the same status in 1992 as the 14 “open coastal cities”. In addition, through the decentralization of decision-making powers, regional authorities can decide for themselves on the approval of special economic zones within certain limits, which has been used regularly in recent years. 2

places, which is why the location is hardly manageable. Therefore, a precise review of the privileges for the respective location is necessary.In order to avoid that the advantages often offered independently by local authorities cannot (or cannot) be granted later due to a lack of an effective legal basis, it should always be checked whether the privileges were established with the approval of the central government. 4

Inadequately developed infrastructure and a low level of education among employees, these attempts have so far met with little response from foreign investors. 1

4.1. General

4.2. Legal norms for international economic relations

- published foreign trade laws with their implementing ordinances and often provisional rules

-internal, unpublished guidelines, rules and negotiation instructions that are difficult for foreigners to understand (so-called “Neibu”), although their importance has decreased significantly in recent years

- Agreements with foreign countries, especially to avoid double taxation and to protect foreign investments

-General Chinese laws that are relevant to foreign companies doing business in China, such as the General Contract Law, Labor Law, or Product Quality Law

- Domestic Economic Contract Act: This law is only applicable to business contracts between Chinese companies and organizations (but also joint ventures and WFOEs!) That were concluded before October 1, 1999.

- Foreign Trade Contract Act:With a few exceptions, this law applies to all commercial contracts between foreign and Chinese companies, but it also only applies to contracts concluded before October 1, 1999.

-Uniform Contract Law (EVG):This came into force on October 1, 1999 and replaces the domestic and foreign trade contract law for

closed contracts. It also replaces the Technology Contract Act of 1987, which was applicable to technology contracts between Chinese partners (including JVs and WFOEs). The TOE represents an important development in Chinese legislation, as it recognizes freedom of contract as a basic principle of contract law for the first time and unifies the legal framework for domestic and foreign contracting parties in its scope.

4.3. Understanding of contracts and law on the Chinese side

have a fundamentally different meaning than ours. Contracts in China are viewed more as intermediate results on the way to long-term cooperation and as a kind of letter of intent for a mutually beneficial business relationship. You feel more committed to your partner than to the document itself. So it is believed that contracts can be adjusted at any time due to a changed situation. This renegotiation is not viewed as a breach of contract, but is considered a completely normal part of developing a relationship. Agreements among “friends” are given greater importance than written agreements. It is therefore definitely worth investing a lot of time in building friendly community relationships. However, this does not mean that contracts from foreign business partners can be neglected, as the exact drafting of contract texts can be very important for later conflict resolution. Foreigners should be aware, however, that the contract alone is not sufficient to safeguard the interests of both parties. 2

The following table provides a summary overview of thecontradicting contractual understanding of Chinese and western parties:


Table 4.1 .: Overview of Western and Chinese understanding of contracts

Source: taken from Schuchardt (1994), p. 87

In China, a two- or three-step process has been used to resolve disputesnaturalized. In keeping with the Chinese mentality, an attempt is first made to settle differences of opinion through friendly negotiations. If this does not lead to any results, an arbitration procedure is usually initiated. Only if this approach does not lead to a solution is an arbitration tribunal (in rare cases also a state court) called upon. Usually the possibility of conflict resolution through Chinese courts is not mentioned in contracts and laws. This behavior of the Chinese can be explained with the risk of losing face in open disputes, regardless of whether the party is right or wrong. The Chinese are also not afraid to suggest that a foreigner suing in court or arbitration will bring about the end of the business relationship even if he is apparently in the right. 1

The importance of this possibility should not be underestimated, since forms of non-adversarial conflict resolution are still preferred in the PRC. This procedure is not only expressed in contractual practice 2, but also in legislation, which sometimes calls for an "amicable settlement of disputes". 3

4.4.3.arbitration

4.4.4.Arbitration

The most important Chinese arbitration tribunal is the CIETAC (China International Economic and Trade Arbitration Commission). Form contracts of the Chinese foreign trade organizations usually provide for the agreement of CIETAC arbitration. The Chinese also regularly propose CIETAC arbitration for individually negotiated contracts. Usually the arbitration tribunal consists of three arbitrators. Each party chooses an arbitrator from the CIETAC list, and around a quarter of these arbitrators are now of foreign origin. The chairman is determined by CIETAC. Foreign parties can represent themselves or have them represented by a lawyer. For some years now, a language other than Mandarin has also been used as the language of negotiation. A Chinese lawyer may be advantageous for the foreigner if he has good relationships ("guanxi"). 3

Referees often take part in legal training, and enforcement problems arise (see 4.4.5.). 1

For the individual forms of investment by foreign direct investors (WFOEs, EJVs and CJVs), special laws have in some cases been passed (see 6.5.2. And 6.6.2.). In addition, there are laws that apply to all FIE forms of investment. This includes, for example, the regulation of raising capital, which is briefly explained. In order to prevent companies with foreign participation from having too high a debt capital ratio, the “Tentative Provisions on the Ratio of

Registered Capital and Total Investment of Equity Joint Ventures ”entered into force 1. The following Minimum equity ratiosare prescribed: 2


Table 4.2 .: Minimum equity ratio for direct investments

Source: taken from Wolff, A. (2001), p. 65

In earlier years, companies with foreign participation had to have the necessary foreign currency

- mostly through exports - generate it yourself. Since this was often not sufficiently possible for the companies, they often had to take the relatively expensive way of exchanging Renminbi (RMB) 3against foreign currencies at the Foreign Exchange Adjustment Centers (so-called "Swap Centers ")choose. According to the "Regulations on the Settlement, Sale and Purchase of Foreign Exchange" of June 20, 1996, the Chinese currency RMB has been on "current accounts" since September 1, 1996. convertible.This means that the foreign currency required for the fulfillment of contracts with foreign countries for the delivery of goods, services or the transfer of profits can be acquired from authorized banks against documentary evidence of the need. However, this does not apply to the second type of foreign currency accounts, the so-called Capital accounts.Account movements on these accounts, such as share capital payments or foreign credit granting and repayments, require theApproval by theExchange Control Authority SAFE(State Administration for Foreign Exchange). Import transactions with a payment term of over 90 days also require approval, as they are automatically classified as foreign loans. A payment term of a maximum of 90 days should therefore be aimed for. All intra-China monetary transactions must be made in RMB 4. The Chinese government's goal of making the RMB fully convertible by the year 2000 has been postponed for the time being due to the Asian crisis. 5

Income tax for natural persons: The taxation of natural persons has been standardized for foreigners and Chinese since 1994. If you stay in China for more than one year, the worldwide income is taxed, but for stays under five years, with the approval of the tax authorities, only the Chinese income is subject to tax. For stays of less than one year, only income from China is taxed. The different types of income are taxed differently. There is a progressive tax rate of 5 to 45% for wages and salaries; the top tax rate is levied on the monthly income component, the RMB 1Exceeds 100,000. Fees for licenses, dividends and interest as well as rental income are subject to a uniform withholding tax of 20%. 2