At the opening of a store in Shanghai. The rules of business elsewhere often don’t apply in China. - AFP photo

January 1, 2009: All the rules of winning and sealing contracts do not always apply in China. If you produce a watertight contract covering every possible contingency in over 1,000 pages, your China partner would probably reject it out of hand.

So says old China hand Teo Yee Cheong, founder and chairman of Bizpoint Systems, which has been in the software business since 1983.

“A contract should be just two pages – if you give your China partner a completely watertight one, you’re in effect telling him that you don’t trust him!” says Mr Teo with a grin.

From the China business people’s point of view, contracts are just starting points to build a long-term relationship based on trust and mutual interest.

• Hence, Rule no.1 when doing business in China: Keep your contract short and simple, covering only the main principles of the deal (e.g., start and end-dates, overall cost and payment schedules and other highlights).

Such a document will provide leeway to make adjustments in milestones and other details when circumstances and conditions change. Locking both parties into an ironclad legalistic document right from the start is seen as foolish, simply because no one can predict the future.

The unspoken but crucial understanding is that when problems arise, both sides will try to resolve amicably, says Mr Teo.

• Rule no.2 is therefore, to build trust, and more trust. “You need to develop a close relationship with your China counterpart,” Mr Teo emphasises. It’s not simply a business-like arrangement, but personal bonding to the point that he invites you to his house. “When he invites you for dinner in his house, then you know that at last he can trust you.”

• Understand his hints, is Rule no.3. Unpleasant though it sounds, you cannot pretend to be obtuse when he suddenly professed admiration for your Apple iPhone or when he talked about the excellent Singapore school system and sighed loudly that his kids in China could not enjoy such benefits.

You also need to get used to the fact that when you have given him an expensive gift or paid for an elaborate dinner, he didn’t turn around to say thank-you. The reasoning seems goes like this: you have been accepted and trusted by him, and is now “family” to him. So, between kinsmen who are comfortable with one another, there is no need to thank each other constantly.

“Work your relationship until you’re comfortable with them. When in a karaoke session, sing just as nosily, even if you can’t carry a tune.”

• Rule no.4 sounds esoteric but necessary – you have to use your intuition in estimating how much long-term financing you may need before the deal bears fruits.

There are no scientific forecast and spreadsheet figures to go by, simply because you can’t project precisely how much you will need. Conditions on the ground change very fast and often diametrically. This means you must be there, on the ground, managing the operation so intimately that you “know” in your guts how much time and money the project or deal will need, each step of the way.

“You gotta own the business, and not to get someone else to handle it on your behalf while you shuttle back and forth between Singapore and China,” says Mr Teo.

• Rule 5 is hard – have sufficient revenue to keep the business going. “Entertainment is expensive in Chinese cities,” Mr Teo points out. “One serving of sharkfin soup costs 800 yuan (S$100 or one month’s wage of a lowly employee), and you pay, not just for the business partner, but often, for his managers and other employees who also tag along for free meals!”

China business people often have perverse taste – they know that sharkfin and bird’s nest have no nutritional value but they love such food because the servings are expensive and, even better, someone else is paying.

“If you go to China without knowing exactly what your goals are, you may end up wasting your investment and get nothing but bad memories,” says Mr Teo who has been in the country for more than a decade, and by his own admission, has yet to make his fortune there.