Interview for That’s Beijing

This is going to run in the next issue of That’s Beijing, along with my second sports column, if I ever write it. It is so much more fun to write these blog entries. McGregor is an interesting guy. He actually is the dude who bought this house and the car we drive, when he was running the DJ operations here. We had him over for dinner last month and he reminisced. He is a great tale teller and I definitely recommend his book. I really don’t know him too well, though, and besides, as he says in his book, “In China, a conflict of interest is viewed as competitive advantage.”

Five questions with James McGregor.
James McGregor is the author of One Billion Customers: Lessons From the Front Lines of Doing Business in China. He was the Wall Street Journal China bureau chief in the early 90s before moving to the paper’s business side and becoming the chief executive of Dow Jones’ China business operations throughout much of the 90s. He next became a venture capital investor and is currently a China business investor, adviser and entrepreneur.

•You write that when you first started reporting from here in 1990, American business did not want to talk about their success because China was seen as an international pariah. When did you see that start to change?
It’s still that way, though not for precisely the same reasons. Deng Xiaoping made it kosher to invest in China but no one’s ever made it okay for a foreign company to make a lot of money here. That is looked at as exploiting the Chinese people, so companies still try to keep their heads down here a bit.

From the American or European end, the acceptability of doing business here goes back and forth. On the one hand, companies like to promote that they are doing business in China because it help boosts their stock prices. China is a hot market. On the other hand, however, whenever geopolitical problems arise and the U.S. and China have differences, people like to keep their heads down. China is a mixed bag. It is a complicated place so it is not always a simple story for a business to explain.

•What do you think is the biggest misconception people have about doing business in China?
A lot of the consultants purposefully make China a more mysterious and otherworldly place because that gives them power with their clients. I don’t believe China is that complicated. People here are the same as they are anywhere. Of course it has its own traditions and cultural differences and understanding them is important, but it’s not that complicated. What I try to do in the book is demystify it and say, “This is how people think and this is why… This is the way people act and this is why.” They have a couple thousand years of culturally encoded behavior and you just have to take the time to try and understand that.

•You say that one important thing to understand is that in the U.S. we have the rule of law, while China has rule by law. Can you explain the difference?
The rule of law is the blind goddess of Justice where the law is above everything. As we see right now in the U.S. with Scooter Libby being indicted and as we saw with Clinton and Monica, sometimes the law does things in the U.S. that seem sort of dumb and excessive, but it’s the law and it must be served.

In China, you have rule by law. The law is the means for the rulers to keep control of society and I don’t mean that in a bad way. It’s a huge improvement from personality and cult of personality running the country. They try to have a codified system of rules and regulations dictating how things work, but the party has to be above the law. That’s how the system works. The party is the law and justice is whatever makes the system look good.

•You offer a lot of warnings about becoming too dependent on guanxi or a single government official. Is this something you’ve seen often?
It happens all the time. You have to realize there are 60-70,000 Chinese students in America at any given time. When they graduate they go work for these companies and say, “I have the silver bullet because my uncle is the Minister of Natural Resources” or my brother is this or my friend is that.

Americans are vulnerable to this way of thinking because they are always looking for the silver bullet, the simple solution, the quick way to cut through all the red tape and difficulties. But it doesn’t work that way in China. You have to have many, many layers and levels of support and you have to fit well with what China wants to do and its own plans for economic development. On some level, that seems apparent but it’s not obvious in the United States. You don’t plan your business around what’s good for the United States. You plan your business around what’s good for you and what’s going to make money. It’s counter-intuitive for most people, but if you are trying to get things done, you have to be able to show that what you are trying to accomplish will be good for China and not just your company.

•You talk about lack of trust and people’s expectations of being cheated. In practical terms how does that impact how you have to treat both your employees and your partners and colleagues?
It makes it a more difficult business environment because people just assume you are going to try and cheat them. They think that’s automatically the way you are going to do things and that’s one reason people like to hire people they know or people they know know. Doing business with strangers and hiring strangers, you often assume they are going to rip you off. That is going to take a generation or two to come out of the system. The place has been through 200 yeas of turmoil during which many people have in fact been betrayed and cheated, and that’s the main reason for the high level of distrust between individuals who don’t know each other. V