Understand Dynamic Stability for Doing Business in China

Dynamic Stability Control (DSC) is the complex electronic stability control system in modern automobiles which allows you to have a more dynamic driving style without losing control. It constantly checks vehicle speed, steering angle, wheel rotation, lateral and transverse acceleration, brake pressure and yaw to register imminent instability so that DSC can intervene in real time to keep the car stable. While capitalist system generally trusts Adam Smith’s invisible hands to navigate through the economic peaks and valleys, or occasionally a ditch, Chinese government is still trying to fine-tune its DSC system while at the same time powering forward through its increasingly mighty economic engine.

We tend to forget that over a relatively short period of time of about thirty years, no other country has ever achieved as much economic growth as has China. Progressing at a lightening speed, however, has implications in creating many divisions in the society which the government has to manage. Ever since the famous “white cat black cat theory” from Deng Xiaoping, Chinese government has generally adopted a pragmatic approach in balancing the thriving economic development vs political stability of the society. For policy development, Chinese government generally takes a “learning by doing via experimenting” approach. Policies are often rolled out in a specific region or industry to test viability and public reactions before being progressively adopted with necessary adjustments. The imbalance in economic development between different regions further highlights the needs for varying and dynamic policies. Nationwide adoption of the increasingly stringent environment regulations is a good reflection of government response to the increased public demands in different regions. Corporate tax laws, IP laws, and industry-specific regulations are all changing or evolving. There is no doubt the US China trade negotiation will result in further adjustments in the macroeconomic environment regardless of the outcome of the negotiation. The notion of ‘dynamic stability’ is achieving greater prominence than the notion of ‘static stability’, which the central authorities supported in the past.

Coming back to the question of doing business in China by international companies, one of the most difficult issues to deal with is the dynamic nature of the business environment including policy and regulations. Here are a few options for companies to consider in the environment.

Embrace the Changes

While western companies doing business in China always look for certainty to reduce risk, there will always be an air of uncertainty to deal with, ranging from a last minute change for long pre-arranged meeting to a regulation you thought you had finally understood. It is the reality. You need to not only accept it, but also embrace the dynamics to your advantage. Rather than complaining a last minute change, take advantage of the change to advance your interests. It is also worth pointing out that, even with all the uncertainties, most of the policy changes are pointing to a direction of more favorable business environment. 

Do not take no for an answer 

With the vast bureaucratic system, there are countless barriers for you to get through to get what you want. However, do not simply take no for an answer. In a recent meeting with a Chinese Governor, he specifically emphasized that “our job is to make the impossible possible”. He cited specific examples how he had to cut through the red tapes to get things done. China regulations often leave enough ambiguity for interpretation. Being creative, within the system, can often allow companies to accomplish the impossible.

Stay true with principle but be flexible with implementation

Each company has its fundamental value and principles. Regardless where you conduct business, you should not deviate from your fundamental principle for the sake of convenience or short term interests. However, you do not need to be stubborn in how to stay with principles. Coming up mutually acceptable solution often takes creativity and a trusting relationship between the parties. Companies that are willing to invest time and resources to develop the long term relationships will always have the insights and the advantage to navigate the system.

Doing business in China’s dynamic environment is like driving constantly in the fast lane, sometimes even against oncoming traffic. It is important to know when to drive full speed ahead and when to leverage the fine-tuned DSC system to get to your destination. 

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