Editorial: Trust important if business with China to flourish

Sir Henry van der Heyden. Photo / NZ Herald

Companies would be foolish to expect no hitches dealing with a different culture but the secret is being able to learn from mistakes

Confronted this week with the potentially damaging consequences of his blunt and all-encompassing warning about doing business in China, Sir Henry van der Heyden reached for a customary means of damage control. It had, he said, been taken out of context. Actually, it was not. The former Fonterra chairman had told a businesswomen's conference in Tauranga that exporters should be wary of fraudulent behaviour in China, adding, "Don't ever trust them... . never". This may have been part of broader comments about doing business in a culture in which things are done somewhat differently. Nonetheless, it would have been sufficiently specific for Fonterra's partners, in particular, to feel affronted.

Subsequently, Sir Henry resiled from his position and apologised. His comment was, he said, ill-judged. There was no way, however, that it could be retracted. In his defence, it could only be suggested that the nature of his audience may have led him to let his guard down and speak in the vernacular. Nevertheless, more diplomatic words should have been expected from a man who played a key role in building Fonterra's strong relationship with China and who is about to become the chairman of Auckland International Airport.

If these had been employed, he would have been far from the first to warn of the difficulties of doing business in China. The complaints are many. They range from unclear regulations that are open to various interpretations through to a lack of transparency, infringements of intellectual property rights, difficulty enforcing the terms of a contract, and corruption.

Contrary to what happens outside China, the main problems tend to occur after a contract has been finalised. Often, this is the outcome of choosing an inappropriate partner or rushing into a poorly considered deal.

As much as anything, Sir Henry was probably referring to the level of corruption. If so, he would, again, not be the first to warn of its widespread nature. Indeed, China's new President, Xi Jinping, identified fighting corruption as a priority in his first speech as leader. He has promised to show no leniency over an issue that has started to shake the foundations of the country's economic development, so much so that he considers it a threat to Communist Party rule.

Sir Henry's comment about never trusting the Chinese came in response to questioning about how small businesses could ensure they were not ripped off when trading there. He said subsequently that the real intent of his comment was, "be wary, be very careful". Fonterra, itself, learned a hard lesson when it was dragged into the Sanlu melamine scandal five years ago. Other New Zealand businesses have also endured setbacks as they sought to establish themselves. The secret, however, will always be to learn from errors.

It would, of course, have been foolhardy to expect there would be no problems. As with any country with a different history and culture, business people in China bring particular traits to the negotiating table. The institutional and legal framework, as might also be expected, also has unique characteristics. That makes the building of strong relationships capable of withstanding minor misunderstandings all the more important. It means there should also be a degree of trust, even if legal strictures are an important part of every business contract. Which is why Sir Henry's mis-speaking did matter.