Wang Zhile, director of the Transnational Corporation Research Centre under the Ministry of Commerce, said the next five years would see China shift from a "low-cost manufacturing centre towards an innovative market economy."

Wang said this shift would require multinational corporations to move away from management primarily based on personal relationships with government officials, and develop "strategic and sustainable approaches to corporate-government relationship management."

Constantly interacting with different levels of government in China and making effective adjustments in business strategies in responding to changing government policies will be most critical factor in relationship management, concluded experts and corporate officials attending the second Annual Summit on Government Relationship Management, held recently in Beijing.

Changing Chinese market

Shifting from absorbing direct investment in the manufacturing industry to encouraging more diverse investment has been the hallmark of China's foreign investment strategy since 2001.

And this foreign investment is helping China become the most competitive "world factory" and the most attractive global market.

The country is also becoming a massive stage on which co-operation and competition among multinational corporations and between multinational corporations and Chinese enterprises can take place.

"With the changing competitive environment in the domestic and global markets, enterprises should readjust their strategies to adapt themselves to the market," said Wang.

Foreign companies develop themselves through increasing and expanding their investment from manufacturing to research and development, marketing and the service sectors, and the integration of their management in the country.

But the rapid growth of multinational firms in China has been a source of great concern for domestic enterprises, scholars, officials and the media, worrying they will undermine the development of domestic industries.

Recent media reports on cases, like the finding of the Sudan I dye in KFC foods, and the trademark dispute between Hisense and Siemens, were all directed against multinationals.

"In such a situation, multinationals need to further enhance their relationship with government," stressed Wang.

"A sound government relationship is the guarantee of enterprises' healthy development," said Zheng Yannong, executive vice-president and secretary-general of the China International Public Relations Association.

The relationship with government is a vital part of companies' public relations management.

How to manage

"Multinationals need to study new situations and problems and carry out new strategies in response to these changes," said Wang.

It is a great challenge for companies' government relations staff to adapt to China's unique situation when insisting on the company's global operating principle, noted Wang.

Experts suggest following principles.

First is to interact with all levels of government in China.

Multinationals should establish a communication channel with the government, which must include visits from senior management and discussions with government officials.

Second is the development of relations with government through organizations, such as foreign enterprises' associations, social organizations and domestic industry associations.

"Enterprises should fully utilize industry associations' resources to develop relationships with government," remarked Gu Jiaqi, executive vice-president of the China Group Companies Promotion Association.

China's industry association have strong government connections - something which sets them apart from their foreign counterparts.

Some industry associations were established by government, with some even being former government departments.

Many associations have sound industry information and take part in the drafting of government policies.

The third principle is that the personal relationship, known as guanxi in Chinese, is not enough when it comes to forging good relations with government.

The fourth is that companies should remember that there is no one-size-fits-all solution. Business in China should be conducted with "Chinese characteristics."

Experts suggest multinationals should place the running of their China operations in the hands of someone who understands Chinese issues, and is familiar with government officials, government structures, or even has some practical experience in government.

US company Eastman Kodak is widely regarded as good example of this approach.

It appointed Ying Yeh, who had been a diplomat in the US Government for over 20 years and was once the commercial counselor at the US Embassy to China, as vice-president of its China regional operation and general manager of public affairs in 1997.

With her diplomatic skills and good relationship with government officials and business circles, Yeh played a crucial role in the company's negotiations with Chinese Government, which gave the green light to Eastman Kodak's US$1.2 billion investment project in the country.

The deal helped Eastman Kodak gain an important foothold in the Chinese market.

The company's co-operation with China Lucky Film Corp in late 2003 was also regarded, to a certain extent, as a result of its good government relations.

Kodak's principles

"Based on Kodak values, we build and utilize warm, trusting, sustainable relationships with all levels of Chinese Government," said Yeh, now the vice-president of Eastman Kodak.

She outlined 10 fundamental principles for government relationship management in China:

All business relationships involve government.

Guanxi is only the first step in government relationship management, but is insufficient in terms of influencing government thinking and decisions.

Do not have the same approach in different areas.

Exploit all contacts.

When in Rome, do as the Romans do.

Some things are better left unsaid.

All politics is local. There is a new generation of leaders in China.

Be a respected corporate citizen.

Seek help from trade/industry associations, NGOs, the American Chamber of Commerce, business councils, the US Embassy, and Washington, DC.

Visits by the company's top management. But these must be well-prepared and purposeful. If you come empty-handed, you will go home empty-handed.

"Skills and experience are important in establishing good government relationships, but the fundamental issue lies in enterprises' social responsibilities," said Wang Zhile.

(China Daily April 5, 2005)