United States trade with the People's Republic of China rose 11.3 percent last year to $374.5 million, largely on the strength of a sudden burst of U.S. agricultural exports in late fall. Yet Washington, Peking's number three trading partner of a few years back, now ranks eighth behind not only Japan and Western Europe, but Australia and Romania as well.
The dominant reason is the American government's political and economic stance against diplomatic recognition and most favored nation status. This policy stands in the way of longterm agreements, such as the five-year accord the Common Market recently signed with the PRC as a prelude to China's stated intention of doubling trade between them. China and Japan, its number one trading partner, have agreed to a seven-year trade pact with $9 billion to $11 billion scheduled to be spent over the first five years.
At the same time, the American businessman must bear some of the blame for not being competitive enough, according to Christopher Phillips, president of the National Council for U.S.-China Trade.
"U.S. companies must be more serious and pragmatic than ever if they are to win a share of China's future orders," he said last week in announcing a new audio cassette program designed to assist American industry in dealing with the Chinese.
The 12 hours of tapes, containing 24 interviews with some of the first American business executives to visit the PRC in nearly a quarter century, are a latter day version of the logs of the great 19th Century sea captains who opened up the China trade.
They tell fascinating tales of personal adventures and vent frustrations with local language, customs and propaganda. They warn about Chinese stickness over protocol and marvel at how much the Chinese know about Western technology and markets, and American companies' foreign and domestic competitors.
They also offer valuable practical advice about establishing contacts, presenting material in technical seminars, negotiating and bargaining.
Stanley Marcus, former chairman of the board of Neiman-Marcus, recalls this delightful exchange during his 1972 visit. "I said, 'I would like to see some antique robes.' He said, 'We don't have any.' I said, 'I'm sure you must have them.' He said, "They're too expensive." I said, 'Who says so?' He said, 'The Macy's buyers said so.' Marcus nevertheless bought 198 and resold them for up to $6,000 each.
The tapes reveal how much East is still East and West is West. Alexander Eckstein, a former professor at the University of Michigan, was referring to the PRC's economy when he said, "In effect, they are applying our own standards to our own system and their standards to theirs so you have total asymmetry."
David Cookson, vice president of Far East operaions for the ICD group, chemicals traders, used similar words with regard to importing. "There are certainly two sets of rules for the Chinese when they buy and when they sell . . . a prime example being the inspection: When one buys from them, it's the inspection final from them; when one sells to them, it's the inspection final in China, on arrival."
The many problems with inspection have led the council to propose preshipment inspection by a neutral independent agency, such as the Societe Generale de Surveillance in Geneva which carried on inspections in China until 1949, working in tandem with the PRC's Chinese Commodity Inspection Bureau.
Another visitor, Harvard Law School Associate Dean Jerome Cohen, declared, "The most striking thing to the newcomer to the Chinese business environment and legal environment is there's no ready proof that China has a legal system in the conventional Western sense."
In face, according to Walter Sterling Surrey, senior partner of Surrey, Karasik and Morse, there are no lawyers in China. They have law schools but no bar. One deals with "legal experts," who may not necessarily have a legal background; yet on-the-job-training has prepared them for the most sophisticated international legal arguments.
Surrey, who has made four trips to China and participated in difficult arbitration sessions, said many businesses compared conciliation in China to "being pecked to death by a thousand Peking ducks. You just conciliate, conciliate, and conciliate until you are finally worn out."
Robert Johnson, vice president of marketing for the petrochemical firm UOP Inc., had these words on selling technology: "You should provide a price only after you know preceisely what you are quoting . . . No matter what you add on afterwards, the price never goes up; but if you knock things out, you can be pretty sure it will go down." A veteran of 11 trips to China, lawyer Eugene Theroux of Baker & McKenzie, adds this warning: "The Chinese will get you down to your lowest price and then ask for a discount because you're not going through a distributor."
American businessmen should know their bottom line and not be persuaded to go below it by Chinese flattery or the fact that a government minister is a member of the negotiating team, observers warn. After traveling thousands of miles, most executives would be reluctant to walk out and tell the Chinese to take the offered price or leave it. On rare occasions the ploy has worked, though.After he took such a course of action, the manufacturer of blow-out preventers for oil wells found his Chinese hosts trailed him to the airport to sign a contract on his terms.
There should be no significant difference in profit margins between Sino-American deals and those with other countries. Their ideological opposition to capitalism notwithstanding, the Chinese recognize Western business has the right to a fair return. Although Chinese are very tough bargainers and the amount of executive time spent negotiating in China is very expensive, there are financial compensations.
Because the Chinese say they have no inflation and therefore will not build it into contracts, they often agree to pay a higher price at the outset for future delivery of industrial products. Commodities are bought at current world rates.
An American firm has to convince only a single purchaser, the Chinese government, and does not waste time and money making presentations to many potential buyers. There are no middle men, no advertising and no commissions. While the palms of officials of other centralized economies may occasionally need to be greased, the Chinese are scrupulously honest and expect their trading partners to be an old hand added.
While imports from China stagnated last year, exports rose 26.7 percent to $171.5 million. Commodities, especially soybeans and raw cotton, accounted for $64 million; petroleum equipment contracts amounted to $63 million. The 1977 figures were still far below the record $819 million in exports set when the U.S. shipped the PRC 3.2 million tons of grain worth $351 million in 1973-74. In the interim. a $2 billion accumulated trade deficit, the recession, the succession struggle after Mao Tsetung-s death and the devastating earthquake all put a damper on foreign trade.
Chairman Hua Kuo-feng has declared that 1978 will witness a big expansion in trade. The council predicts products most in demand by China will be more petroleum equipment like jack-up rigs and special chemicals for mud drilling, airplanes to crop dusting and other farm machinery, chemicals, and telecommunications and transportation equipment. In order to get a larger share of the market, American companies might heed some of the lessons learned during the first six years of trade:
You don't sell to the Chinese; they buy from you. The PRC rarely can be sold on any products it has not already decided it needs. U.S. consumer goods, such as housewares and food, luxury items and materials manufactured in China are not wanted. A rare exception was International Harvester's adhoc sale of equipment for transportation of oil rigs from one field to another.
Normally the U.S. corporation is expected to take the initiative by sending proposals to the interested branch of the PRC government. although it is possible to work through a few established China agents in this country. However, if the Chinese urgently desire a product, the whole deal may be completed by telex.
The Benthos Co. of North Falmouth, Mass., never had dealt with China when "out of the blue" it received an unsolicited order for two underwater corers used to retrieve sediment samples from the ocean bed. The corers were shipped within a month.
American businesses often take longer than their foreign competitors to follow up on a Chinese invitation to make a presentation. Three month is enough. Patience also is a necessity. "You've got to figure on five or six hours in CHina for every hour you would spend in America," said an offical of Valmont Industries, which sells irrigation equipment.
Technical seminars are critical to the sale of industrial goods. Three to five highly qualified technicians are recommended for what can be an ordeal. "They want to know the price of every little nut and bolt, right down to the nickel," said one executive who found himself having to get 14-foot telexes from the home office. Translations of precise technical terms should be made in advance because interpreters are sometimes unqualified - but be careful not to use pre-revolutionary Chinese vocabulary.
The Chinese do their homework and know much more about some industries - aircraft, for example - than their factories would indicate. Americans should be frank and can feel free to criticize Chinese industry, but they should resist attempts by the Chinese to get proprietary information. "If that happens, smile and go on to the next subject," a veteran advises.
On the protocol issue, every group must have a spokesman to communicate with the Chinese group leader. Formal banquets and toasts are a must, but informal, friendly relations are encouraged.Gifts should be limited to small company souvenirs, books on the USA, industry textbooks and technical movies.