Chinese Negotiating 101: The Last Minute Change

I can sympathize with the Trump administration.  Twenty some years ago, after our prospective Chinese joint venture partner made a dramatic, last-minute change in its position, we had to scuttle our JV deal and cancel the signing ceremony, which meant I had to not only tell our CEO that he had flown to China for nothing, I then had to hastily arrange two days of site-seeing for him (and pretend it wasn’t actually a huge disappointment).   Not exactly the career boost I was looking for from my interaction with the CEO.


Trump may be an expert negotiator, but the Chinese are no slouches

Donald Trump may have mastered the Art of the Deal but, for the Chinese, negotiating is like ping pong.  They take it more seriously than most everyone else, so they’re better at it than most everyone else.  We should get used to it.  Just because we sign an agreement—if we sign an agreement—doesn’t mean the negotiating will stop.  I learned that over 25 years of doing business in China.   


We had to adjust to a last minute change

For that joint venture negotiation, shortly after our CEO’s plane took off from the US, we received a list of new demands from the prospective partner, including a significant change in the ownership percentages.  Fortunately for our side, I wasn’t our lead negotiator.  That job was filled by a former Chinese government official who had immigrated to the US only a few years before.  He was an outstanding negotiator, even by Chinese standards.  For weeks he had told the other side that last minute changes would not be accepted.  He specifically stated that, the day before the CEO was to depart the US, the deal was final—no last minute changes.  Clearly, our lead negotiator knew Chinese tactics all too well.


When the new conditions arrived, we didn’t just say “No.”  We said, “Goodbye” and walked away, a position we maintained even as the other side told us they would drop the new conditions.  My Chinese colleague knew that word would travel fast in our industry and that, if we ever wanted to make another deal, we had to demonstrate that we mean what we say.  He was right.  Word did get around.  Our next set of negotiations was much easier.  We had another deal, and a good partner, six months later. 


The Chinese negotiate like they play ping pong—better than everyone else

It may sound like stereotyping to say that the Chinese are good negotiators, but I think every Chinese person I ever met (I lived there for ten years) would agree that the Chinese are more “fierce” negotiators than Americans, and they wouldn’t think of it as a negative.  From my experience, people from poor countries are generally better at negotiating, and I can think of two possible reasons why.  First, poor countries have fewer brand name companies and products.  Large companies with many stores and/or ubiquitous brand name products tend to sell at standard prices.  There is no haggling.  But when you do most of your shopping at small stores and markets, everything is negotiable, so negotiating becomes second nature.  Secondly, in less developed countries, the rule of law tends to be weak (as it was in America in its early stages of development).  Weak rule of law begets a mindset in which no deal is final.  Looking for angles and jockeying for position never ends because what is written is not necessarily the final word. 


Constant renegotiation is one reason why enforcement is so important

This last point is why the most critical issue in these trade talks has always been enforcement.  Many of the measures required of China will take time to implement and will require the acquiescence of innumerable national and local government units.  Even if China’s senior leadership is 100% committed to meeting its obligations, it won’t be easy.  So, in a sense, the negotiations will never end.  There will be continuous monitoring and, in all likelihood, continuous discussion. 


This is why, more than most trade agreements, the deal with China must, to a certain degree, be similar to the WTO itself—not just an agreement to change some rules, but a framework for evaluating changes and adherence over time.  The framework must include mechanisms that are efficient and effective, i.e., we can’t haggle and wait forever each time an issue is raised.  This will be the true test of whatever agreement is reached with China. 


We can expect more fireworks from US-China trade

Given the nature of the negotiators, Trump vs. China, it is surprising we haven’t seen more fireworks during these talks.  Hopefully the most recent surprise will be nothing more than a bump in the road on the way to good deal for all sides.  Either way, rest assured, even when a deal is signed, the negotiations won’t be over.  The US will have to continue to monitor, engage, cajole, and negotiate with some of the best negotiators in the world—the Chinese.  Even after Trump leaves office, maybe the US should put him on retainer.