The Art Of The Chinese Deal


Lessons from the Front Lines

of Doing Business in China

By James McGregor

Wall Street Journal Books

336 pages; $27

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Editor's Review

Star Rating
Four and a Half Stars

The Good A colorful and cautionary how-to by an experienced China hand.

The Bad Its strength may also be a weakness: Unrelenting focus on the art of the Chinese deal.

The Bottom Line Sound prescriptions for Western business folk.

The title of James McGregor's book tells you precisely what you're getting. One Billion Customers: Lessons from the Front Lines of Doing Business in China is his engaging account based on almost two decades of experience -- as China bureau chief of the Wall Street Journal, head of Dow Jones China (DJ ) business operations, chairman of the American Chamber of Commerce in China, and partner at a China-focused venture-capital firm. Like the best China business books, including Jim Mann's Beijing Jeep and Tim Clissold's Mr. China: A Memoir, McGregor's volume is both colorful and cautionary, offering sound prescriptions for Westerners.

One Billion Customers begins with a good historical overview, starting with Britisher Lord George Macartney's 1793 arrival on the Chinese coast, as he sought to crack open the prosperous but insular nation. A whirlwind tour of China's past brings the reader up to China's 2001 entry into the World Trade Organization. McGregor uses his close contacts with key players -- in this case, Charlene Barshefsky, former head of the Office of the U.S. Trade Representative, and chief China negotiator Long Yongtu -- to nail the hidden story of the down-to-the-wire negotiations that brought about this seminal event.

Throughout, McGregor provides practical advice: Each chapter ends with a section called "The Little Red Book of Business," a play on Mao Zedong's Little Red Book. After a description of China's economic opening, he writes: "Chinese negotiators are masters of making you feel you need them more than they need you" -- advice as useful for a potential U.S. investor as for a U.S. trade negotiator. Then he observes: "The Chinese try to play you as being 'unfriendly' to China if you don't give them what they need. Don't be afraid to tell them that friendly business is based on a fair deal for all."

McGregor keeps things lively by recounting the experiences of Western and Chinese businesspeople, officials, entrepreneurs, journalists, and the occasional crook. He introduces people like the power couple Zhang Xin and Pan Shiyi, two real estate magnates, and the wily former telecom czar Wu Jichuan. The latter tried to stymie the rise of telcos such as UTStarcom Inc. (UTSI ) and to control foreign investment in the Internet. Then there's the saga of Rupert Murdoch's attempt to enter China's media market, and the story behind the rise of his business partner Liu Changle, a former army officer. These tales provide a window onto the creation of China's only 24-hour news station and the beginnings of a more independent press. Still, McGregor warns: "Objective news is making progress when it serves the interests of the state, but don't expect a free press in China in your lifetime."

I particularly enjoyed reading about the former head of China Construction Bank, Beijing Mayor Wang Qishan. The author recounts Wang's jousting with Morgan Stanley Asia's (MWD ) former chairman, Jack Wadsworth -- and how ultimately, the two created China's first joint venture investment bank, CICC. While some of the friction in this undertaking was likely due to the egos of the two titans, McGregor points to a deeper problem: the tendency of Chinese partners to have a skewed vision of who should benefit. "Avoid joint ventures with government entities unless you have no choice," he advises, "then understand that this partnership is about China obtaining your technology, know-how, and capital while maintaining Chinese control."

McGregor warns that the investor may also face the real danger of getting "caught in the crossfire" of the often fractious political relations between the mainland and the U.S. This is a risk for any company given American concerns about job losses, the swelling trade deficit, and the value of the yuan -- and an even bigger danger for technology companies vulnerable to accusations that they are building China into a tough rival of the U.S.

There is some comfort for those who fear that China is an unstoppable juggernaut. McGregor notes that China's rote education system has produced a strong workforce but "too few innovative business leaders and line managers capable of building the large organizations that will take China business global." And when a powerful leader emerges, such as Zong Qinghou, founder of Chinese beverage maker Wahaha Group, too often there are no competent successors. The problem is China's system of "top-down management under a benevolent dictator," writes McGregor. The jury is out, he writes, on how well the Lenovo Group-IBM (LNVGY ) (IBM ) alliance will meld its very different corporate cultures.

The China dreams of many foreign investors might end badly, as the author's tales attest. But China's market is likely to retain its allure. Those coming to seek fortunes would be well advised to bring McGregor's One Billion Customers with them.

By Dexter Roberts

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