An Analysis of Formal and Informal Business Rules in China

Formal rules refer to the rules made by laws or government regulations, according to which firms must do or cannot do in doing business. More importantly, government often plays an important role in formulating formal rules. In China, different government carries out completely different formal rules in different times. The changes of businessmen are a good example of formal rules.

During the period of Mao's rules, China experienced two violent political mass movements, the Great Leap and Cultural Revolution, which inflicted great suffering on the nation. At that moment, Mao Zedong carried out the policy was "everything were belong to the Communist Party, belong to the country". In other words, the government controlled every industry lines. Nobody can be allowed to do business. However, at that moment, China government has lack of experienced people in running business, the sales volume of these firms were not as good as they owned by the previous family. And these families have escaped to overseas already, or they will be taken into jail.

After Mao Zedong died in 1976, Deng Xiaoping became the most influential political official in China. Beginning in 1978 Deng took steps to repair the damage of the Cultural Revolution and initiated the Reform and Opening. The reform and Opening can be divided into three stages. The initial stage of reform took place between 1978 and September 1984. The reform in this stage was focused on the rural area. In the urban areas experiments on expanding enterprise power were carried out, and enterprises were required to pay taxes instead of handing over their profits. For special economic zones and 14 coastal open cities were established, while further emphasis was placed on opening to the world. At that moment, people began to be allowed to do some business in special economic zones.

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The second stage was from October 1984 to December 1991. Deng focused on the reform of state- owned enterprise, and price system reform was also major task. The government mandatory plan was decreased at a large scale and the investment authority was terminated. During this period, the China's economic was unprecedented developed in a fast speed. Some foreign investors began to enter into China and looked for their business partners. I should say that the investors gained a large number of benefits than the followers. As the first group of foreign investors, the government provided them a lot of favorable policies to encourage them to set up factories or build their own representative offices. Followed with a variety of investment, the Chinese people who were in the real estate industry have become the predecessors of millionaires in China.

The third period from January 1992 to the present, the government carried out the "market economy" policy which was also proposed by Deng. In this period China's opening and modernization has reached a new and historic stage. Now it focuses on transformation and system innovation. It began to emphasize on reforming the small state-owned enterprises, and especially encourage the people to contract the companies which will be closed soon. Moreover, the government offered a great number of attractive policies to push the jobless people to explore their own business. In other words, the private firms have been established widely in the whole country. It is not only offering more and more working opportunities for all the people, but also improved the people's living standard. One study showed that by 1997, China became the world's 10th largest trading nation. With this kind of satisfaction investment environments, doing business in China has become a popular trend in all over the world.

Informal Rules

Informal rules are the rules from history, culture or custom which the firm refers to and sometimes pays much attention to when doing business. Although informal rules are not limited in laws or by government, they are also very important for firms to concern their special function in doing business.

China is the most populous country in the world. This has meant that Chinese society and culture are complicated. In China's business system, culture always influence to Chinese business activities.

When I began to discuss the China's informal rules, I have to discuss the importance of network which we called it "guanxi" in China. For example, we usually have a welcome party for our business partner when the first day business negotiation has been finished. We am aim to close the relationship with our business partner through the party. In the party, we'd like to continue our today's topic and try to create the friendly atmosphere for our business partner. Through this way, we are going to reach an oral agreement with our partner about the difficult terms and then obtain the more favorable conditions in next day's negotiation. However, the purpose of the welcome party is quite different between Chinese businessmen and foreign tradesmen. Sometimes we think we have already finished discussing the troublesome problem with them, but they don't remember they have given us any promise at the welcome party.

In addition, due to the China's long history and colorful culture, the Chinese people have some special expression when they doing business. For instance, if the Chinese businessman say "let me think it over" during the negotiation, it means he disagree the negotiation terms. In Chinese culture, it is impolite to say "no" to anyone else. In our view, we should defend other people's dignity when we doing everything. If the foreigner businessman does not know anything about the culture, he might wait for the further response from this Chinese person. In fact, he had better change the relative terms as soon as possible in order to reach the contract.

Of course, with the development of globalization, Chinese people's ideas and views have been refreshed already. A small example could be given to illustrate my point of view clearly. In the past years, Chinese people usually work in the same company from the first day he entered into the society until he retired. In other words, a person should be loyal to his company in the whole life. However, this kind of view has already been refreshed in these years, especially after the opening policy carried out in 1990's. If the boss is not satisfied the employee's working attitude, he can fire him.

On the contrary, the employee has the same right to fire the boss if he is not satisfied the salary or work environment which the boss offered. It means nowadays employee have already got the same right as their employer in China. They can choose the interesting job and do not need to contribute the whole life to stick at a boring work. Our parents have not completely accepted this new concept, but we are enjoying it very much. We got more benefits from it; we are luckier than our parents to choose our boss and job by ourselves. Also, it makes our employer to pay more attention to care of the employees. From our part, we can get more satisfaction salary and favorable welfare from the company. It makes us luckier than our parents. Of course, this kind of things will be happened because of the times is changing all the time.

Conclusion

In a country, the business system will be changed whenever the formal or informal rules are changed. Together with the economy development, China government is keep changing the formal rules to suitable for the market thus to get the benefits from the rules. All in all, informal rules should be obeyed while it is in line with the formal rules. When there is a confliction between the informal rules and formal rules, you have to listen to the formal rules firstly or you will break the laws thus make troubles for yourself. The better you understand of the formal rules and informal rules of China, the more profits you can obtain when you doing business in China.

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