China – Learnings from the trenches - The concept of “interested”

Talk about lost in translation. One of the fundamental gaps is the concept of “interested”. A rich looking Chinese, or an official with entourage comes along to a pitch or a concept, and says “I am interested”. All of a sudden, we think it is green light for a transaction. My word is my bond, right? 

So we spend time, effort, money, only to find out that was never the case. We then go back and blame the Chinese for having led us down the garden path.

Sound familiar? Let’s analyse this.

Why do Chinese say “I am interested”?

1)     Interested = “can we close the meeting now?”: This is particularly the case with Chinese officials in a first meeting. Many of them visit Australia as part of preliminary research that happens to include tours of famous Australian locations. On top of the official itinerary in short visit, they have souvenirs to purchase, sights to take pictures of, and possibly friends to catch up with. It is unlikely that they have bandwidth or the motivation to seek to do a transaction.  By giving you a positive indicator, it is another way of saying “I have heard enough, let’s close the meeting”. 

2)     Interested = “I understood you and will look into it”: This is generally the most common among both State Owned Enterprises and entrepreneurs. Depending on the reporting or the stakeholder process, they are acknowledging that they understood your pitch and that there is a possibility of getting to the next step.   

3)     Interested = “I think we can do business together”: This is the most positive one can get to. It is an indication that there is clear chemistry or interest alignment, and there are likely to be next steps.       

Unfortunately, none of the above says “I am interested, let’s do a deal”. Deep down, I suspect most of us understand that is the case, but cannot defy the desire to want to think that a Chinese is going to come in and give us the deal of the century. 

So how should we really react when we hear “I am interested”?

If the transaction is an auction and you are the vendor, Chinese has, to their detriment, proven to be a great bridesmaid or stalking horse given its recent behaviours and inability to manage completion risk expectations. That means it is best to keep them warm and keep them interested and hopefully they can conduct a transaction. However, the best chance is to leverage their interest as competitive tension, and focus on a party with lower execution risk (unless, of course, they can prove otherwise). 

If it is a private treaty transaction, then the following factors should be considered:

·      Are they from the industry: Generally, people from within the industry are more likely to understand the transaction and therefore execute. If they are not from the industry, look for track record of completing overseas transactions to get some comfort.

·      Be chased: wait for feedback and be the one that is reactive. By showing that you are not as keen, it’s an underlying confidence in your offering and Chinese will believe you have other options.

·      Ask the western questions and seek proof: There is no need to be courteous when you are spending time and money to consummate a transaction. Ask the direct questions: how will you fund it? What is your strategy? Who is your external advisor? If they give you smoke and mirrors, immediately be alert and proceed cautiously.

Next time, I will discuss the need to identify the principal to maximise prospect of a transaction.