The insider view: Shanghai
Published: 04 Mar 2014
The most populous country is becoming ever more important to the world’s economy, according to John Zheng, ACMA, CGMA, CFO at Mitsui Sumitomo Insurance China. He believes that China’s annual GDP in 2013 may have grown by as much as 7.7 per cent, which is higher than the target set by the government. Moreover, inflation remains under control: the rate last year was likely to have been about 2.7 per cent, compared with 2.6 per cent in 2012, he says.
Modernisation was the main economic theme of 2013, Zheng adds. “Policymakers carried out reform in the manufacturing and financial sectors, including closing outdated production facilities, setting up the Shanghai pilot free-trade zone and initiating modern urbanisation. Although the economy slowed in the second quarter, there was a healthy rebound later in the year – a trend that may persist in the next one or two quarters.”
Local debt problems present some threat to the stability of China’s financial system. But, as the scale and structure of this debt differs from that of the pre-crisis situation in the US, “we should not worry too much about the systemic financial risk. In the next three to five years China is expected to see miraculous economic growth,” he says.
But Val Zha Yinqun, ACMA, CGMA, finance operation director at pharmaceutical giant Wuxi AppTec, suggests that the economy is about to enter a more challenging phase, because Beijing is hoping to swap China’s existing export-driven approach for a more local consumption model.
“This will be more painful in the short term, but it may result in sustainable economic growth in the long run,” he predicts.
Shanghai has a relatively diverse management culture, according to Thomas Xu, FCMA, CGMA, vice-president of finance at Carlsberg China, but he notes that the traditional deference to status remains important in state-owned enterprises.
“You can actually tell someone’s seniority from the way people speak to them,” he says. “If you hold a meeting with such an organisation, you should ensure that you know the ranks of its participants. By contrast, in foreign-invested enterprises (FIEs) people tend to call each other by their English names, while employees who don’t have an English name are encouraged to choose one. In general, there is also a higher level of trust in, and empowerment among, front-line employees.”
The traditional belief is that there is a strong gift culture in China and that doing business can be difficult without a gift, but this culture is changing, according to Xu.
“In the FIEs I’ve worked in there are explicit policies that govern business ethics and forbid such gratuities. Instead of sending gifts, my finance team established relationships with the tax authorities and gained their respect through demonstrating technical competence and professionalism.”
Another cultural development has been China’s movement towards sexual equality at work. “In the firms I’ve worked for there are company-sponsored leadership development and mentoring programmes tailored for female managers,” Xu says. “There are lots of success stories concerning women who have been promoted to director and vice-president positions.”
Despite these changes, Xu says that some elements of Chinese management culture have changed very little. “It’s not unusual to find company leaders who like to deliver messages in an ambiguous manner and do not like to give explicit answers,” he says. “It’s necessary to read between the lines to understand the real meaning of the message from the top in this culture of ambiguity.”
Wuxi AppTec’s Yinqun believes that Shanghai has an open business culture, based on its long history as a centre of international trade.
“Most people here work for large businesses, so the culture is driven mainly by the mix in these firms,” he says. “Most local companies have a macho culture, where the founder plays an important role in decision-making, even after they go public. Most state-owned enterprises have a bureaucratic culture, while most FIEs here have a ‘work hard, play hard’ approach. But all of them are learning from each other, so a mix exists.”
Yinqun says that Shanghai firms are keen to absorb the latest management techniques, such as the harnessing of big data, “although most believe they still cannot control it at this stage”. He adds that the lean approach has recently become popular, which may have been driven by an enthusiasm to streamline the public sector and eliminate corruption.
Foreign firms operating in Shanghai must learn how to nurture relationships with government departments, because “public servants have a higher status than most people here”, says Mitsui’s Zheng.
He adds that forming “a solid relationship with a supplier or purchaser will help you to set up a stable and long-lasting business here. You always hear that the Chinese sign contracts at the dinner table rather than the negotiating table.”
As well as investing in industries that the government supports, FIEs should aim to form strategic alliances with large, state-owned businesses, advises Wuxi AppTec’s Yinqun.
“If a joint venture is established with local partners, goal congruence and conflict management must be considered carefully to realise long-term collaboration. But don’t be too aggressive and always balance the short- and long-term benefits,” he says.
Carlsberg’s Xu suggests that business success is aided by learning some duan zi (funny anecdotes), which are useful for breaking the ice in business settings. He also advises getting connected with a local partner to smooth the process of travelling inside China.
Another recommendation for those working in Shanghai is to pick up a local hobby. “China is famous for sports such as badminton and ping-pong, and there are several world-class masters who are willing to offer private classes at a reasonable price,” Xu says. “If you like art, traditional ink painting and calligraphy are also a good choice – and they will bring you closer to Chinese culture, too.”
China by numbers
GDP (purchasing-power parity) in 2012: $12.26trn
China is the world’s 2nd largest economy
Real GDP growth in 2012: 7.7%
CPI inflation in 2012: 2.6%
Population: 1.3 billion
Unemployment in 2012: 6.5%
Source: CIA World Factbook