China Apprentice

Where to start a business in China - PRD or YRD

In most foreigner’s eyes, the subject of this article is hardly even a consideration. For most westerners not familiar with China, there are only two cities in which to do business – Shanghai and Beijing. In fact, outside of these two internationally well-known metropolises, few would be pressed to name other big cities in China. But rising real estate prices and a quest for even cheaper Chinese labor, has led some western investors looking elsewhere in the vast Middle Kingdom to start business. Shanghai has long been known as the financial center of China with a blossoming skyline of modern skyscrapers with bars and restaurants to rival New York City. But what most foreigners may not realize is that Shanghai has not always been known as a business capital.

Geographically and often quite politically isolated from the northern powerhouses, Guangzhou was actually the first city in China reputed for business. Without going into too much history (admittedly I’m no expert), Guangzhou was one of the first cities in China to open to the outside world in the 1600s where it was designated one of the only trading cities where foreigners could come onshore and conduct business. The silk, porcelain, and opium trade led to the war with the British that eventually conceded the territory of Hong Kong to the imperialists. This official foreign port only gave the business-minded Cantonese an excellent means to continue doing what they do best – making money.

Today, the people of Guangdong province have a reputation in China identifying them as the most skilled business people. The people of Chaozhou, a city north of Guangzhou are actually referred to in an ancient proverb as the “Jews of China” (in a good sense - meaning throughout China they are most skilled at business). While Shanghai has succeeded in recent years in attracting big foreign investment, Guangzhou has always been a place of entrepreneurs and opportunity.

Professor Jiang Lin 林江 at the Lingnan IMBA program at Sun Yat-sen University in Guangzhou recently gave a seminar detailing the differences in culture between Guangzhou and Shanghai that give Guangzhou it’s edge in entrepreneurial business. Prof Lin has done vast research on Chinese politics and the interaction with business. He currently teaches a course titled “Critical Issues” at Lingnan where he explores these interactions. Prof Lin was the official translator for Yuan Geng, one of the key figures credited with giving rise to Shenzhen SEZ – the first special economic zone in China that contributed to the recent economic boom. Prof Lin regularly consults leading foreign companies in Guangzhou such as Honda and Toyota on their business strategy in China. He was also the consultant to the key Dongguan investor in China Digital TV, a corporation that after listing on the NASDAQ exchange increased by over a factor of ten in value. His experience and expertise well qualifies him to compare the advantages and disadvantages of incorporating a business in Guangzhou or Shanghai.

Below are some of the main characteristics of Guangzhou’s business culture. First and foremost, Guangzhou is a city that support and encourages entrepreneurs and small businesses. Foreign companies or just those with a good idea may like to consider Guangzhou as a possible location.

- Local Guangzhou people have learned from Hong Kong how to do business – this is a classic case of the chicken or the egg – did the Cantonese learn from Hong Kong or were the Cantonese always just so good - the most efficient port in the world has given Guangdong a wealth of international business experience – while Hong Kong has morphed into more of a regional financial center, Guangzhou remains the mitochondria power supply behind the Pearl River Delta. Guangdong has the highest GDP of any province in China and was the first to surpass the 10,000 USD mark a couple years ago.

- Guangzhou has long-established relationships between business professionals and government officials – separated from Beijing, Guangdong government is intertwined with local business. Being so far from the national government, Guangzhou officials rarely have much opportunity for promotion beyond the provincial level. And they like it that way. Entrepreneurial ventures throughout the city guarantee the government officials have a great opportunity to make money themselves – far supplementing their modest government salaries.

- Shanghai government emphasizes support of state-owned businesses – most of the financial services in the city go toward these largely inefficient enterprises. While Louis Vuiton and Rolex may be common storefronts in Shanghai, the city harbors few local Chinese brands that are now gaining international recognition.

- The PRD contains the most Small and Medium Enterprises (SME) of any other province and financial institutions are used to lending to these entrepreneurial outfits.

- Guangdong people are well-traveled – the majority of Chinatowns around the world speak Cantonese. Why? Because Cantonese people have a reputation for chasing opportunities and going where money can be made. Many of those people return – many do not – this creates a network of Chinese all over the world that contributes to the business success back home.

- Guangzhou is a city of immigrants – like any land of opportunity, Guangzhou attracts people from all over – most of which are from neighboring provinces. People travel to Guangzhou from within China to seek opportunities in the big city. This creates a culture of diversity, tolerance, openness, and pragmatism. No one speaks perfect Mandarin and rarely do visitors encounter a snobby elitism sometimes characteristic of Beijing natives.

- Basic infrastructure is some of the best in China – perhaps due to the proximity to Hong Kong, Guangzhou boasts the fastest subway line in the world, some of the world’s tallest buildings, and a modern, efficient transportation network.

- A mild climate keeps Guangzhou natives and outsiders coming back (the summer heat also keeps people away!)

On the other hand, there are three main points about Shanghai culture that give it advantages over Guangzhou.

- Traditionally known for its “haipai wenhua”

- Shanghai blends the best of northern and southern business culture – while Guangzhou may specialize in entrepreneurship, Shanghai takes the best of Beijing’s talent for long-range planning and patience and balances this with a southern drive for quick returns and high profits. Guangdong tends to attract 3-year-or-less investments less inclined to make long-term high-tech investments.

- Strong central government connections – In China, guanxi can be everything - Shanghai officials and businesses maintain many high-level relationships with Beijing authorities – this allows for easier granting of national certifications and business permissions. Over 4000 central government officials hail from Shandong province and therefore have roots in Shanghai.

- Though Guangzhou attracts much immigrant labor, Shanghai is a national source of talent. Guangzhou’s entrepreneur culture puts less emphasis on education and more on practical skills and vocational studies. Guangzhou youth are born to parents who made their success through hard work and clever business savvy. Shanghai students excel in engineering and sciences.

This entry was posted on Wednesday, November 7th, 2007 at 11:39 am and is filed under Chinese MBA, Cultural, Business, China Industries Analysis. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.