China's Manufacturing Economy: Growth, Culture, and Risk

Introduction: China's Economic Rise

There is a time and stage for all types of manufacturing, and what may succeed in China is not likely to succeed in many other countries, such as the United States. The Chinese economy has developed very fast, and that rapid development has attracted attention from across the global business community. This has led to a rapid increase in foreign direct investment in China and a growing share in international trade. New businesses are continuously entering China, trade agreements are being finalized, and large numbers of foreign nationals are relocating there. Consultants around the world are studying the meeting point between foreign managers and their Chinese counterparts.

Some reasons for the growth of business in China are rooted in culture — one of the oldest in the world. Chinese culture has long maintained a system of client and patron relationships that kept the country's rural areas stable. The Chinese term for this relationship is kan-ch'ing.

Cultural Foundations of Chinese Business

In the historical past, and even today, the possession of good kan-ch'ing was considered essential for social well-being — for feeling at ease in society and maintaining good relationships with those around you. Farmers, for example, developed this kind of relationship with their landlords. Landlords felt that they had to depend on the goodwill of their tenants to receive rent, even when it was legally due under Western concepts. Normally, a tenant would pay the full rent on time if he could. If he faced difficulties, he would discuss the matter with his landlord and arrange to pay a smaller portion for the time being. In the event of severe hardship caused by droughts, floods, or heavy rains, the tenant could explain to the landlord that he was unable to pay in order to survive. A landlord with good kan-ch'ing would accept this explanation, and the tenant, in better times, would repay what was owed. This kind of client-tenant relationship maintained goodwill throughout the entire community, as the quality of all relationships depended on the strength of the bonds between individuals.

The business culture of greater China is also very different from that of North America. In North America, people typically develop business relationships through indirect hints rather than direct conversation. In some other cultures this is achieved through direct eye contact. In greater China, the business relationship is usually much deeper. It is built through the exchange of gifts, favors, and goodwill gestures. These relationships are called Guanxi, and this practice exists wherever Chinese people conduct business. In American terms, Guanxi might be described as "ingratiating personal relationships" — a set of mutual obligations that are assumed to exist automatically among business acquaintances. The source of these relationships is not necessarily business itself; it can stem from the city where one's parents were born, the university one attended, or even extended family connections. This leads to managerial positions in China often being filled by family members, friends, and longtime colleagues rather than solely by the most formally qualified candidates.

These relationships are grounded in trust, obligation, and mutual dependency. There is always an element of give and take. Chinese businesses have also recognized the need for managerial improvement through the introduction of new technologies in both hardware and software. This turning point in China's traditions came through the Third Plenary Session of the Eleventh Central Committee of the Communist Party, held in December 1978 — a moment widely known as the Managerial Revolution in China. It began with the introduction of new management techniques in 4,000 enterprises in Sichuan in 1979. Similar units were also established in Hunan and Anhui provinces, and the system was rapidly expanded to over 36,000 industrial enterprises. While these numbers appear large, they represented only 16% of the total number of state-owned enterprises in China — yet they accounted for 70% of the enterprises that were generating profits.

Through this process, a framework was established for the major tasks of reform: strengthening the economic responsibility system, improving management in state enterprises, and achieving better planning and financial control. This was followed by the promotion of capable people and the reduction of overstaffing through organizational restructuring. Worker discipline was also improved through strict penalty and reward systems, which further enhanced financial control. Rewards took many forms, including group incentives, individual rewards, and moral persuasion. In today's China, the moral element has been combined with material rewards. Despite this, the salary structure in China remains relatively low, though it has given opportunities to many people at the second and third tiers of society to afford better housing and clothing. Since 1990, the political element has become less significant across China, and money has become the primary motivating factor. Employment is becoming more difficult to find as companies restructure to survive or are forced to close. China is said to have more than a million millionaires, yet there are also approximately 200 million unemployed Chinese — one of the highest unemployment figures in the world, with around 3% unemployment in urban areas alone. This situation is, however, having the positive effect of encouraging many young Chinese to start their own private companies rather than seeking traditional employment.