The Golden Rules of Operating in China

From Power Centers to Trademarks to Social-Media Censorship, What You Need to Know

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China's growing middle class and spending power have made it a key part of marketers' growth strategies. Here are some tips for navigating both written and unwritten rules of doing business in the world's most-populous country.

"Especially as a foreign company, you need to know that you're always playing an away game, so things are subject to change," said Dick van Motman, president-CEO of DDB Greater China.

"I always like the line in a contract that says, "In case of any doubt, the Chinese [language] contract will prevail.' To me, that says it all," Mr. Motman said.

Tom Doctoroff, JWT's CEO-Greater China
Tom Doctoroff, JWT's CEO-Greater China

1. The Communist Party is always in charge.
This truism pervades all aspects of doing business in China. Though generally business-friendly, the government is unyielding to any entity seen to be working at cross-purposes with the party.

"There's one golden rule: Anything that gets in the way of the party's right and responsibility to advance, protect and define the interests of the people will be verboten," said Tom Doctoroff, JWT's North Asia area director and CEO-Greater China. "It has a thousand variations on this theme, but that 's the rule."

Unilever's China spokesman told local media last year that the company might raise detergent and soap prices to offset higher commodity costs. China's economic-planning agency, the National Development and Reform Commission, responded by publicly criticizing Unilever's and fining it $310,000 for allegedly sparking panic buying when Beijing was trying to cool inflation.

"Severe punishment was meted out this time to break ugly habits and build new rules," the NDRC said, adding that other groups should "absorb the lesson."

A remake of a Michael J. Fox Diet Pepsi ad had to observe traffic rules.
A remake of a Michael J. Fox Diet Pepsi ad had to observe traffic rules.

2. Censorship rules are vague and subject to interpretation. But they're enforced.
"Nobody knows exactly what the censorship rules are. But any time an ad violates a Confucian code ... about how people should relate to each other and society, it will get rejected," Mr. Doctoroff said. For example, students don't challenge teachers, "and under no circumstances should you have an alternative center of power," Mr. Doctoroff said.

A JWT ad for Pizza Hut in 2000 featured a student proclaiming the tastiness of the Edge pizza. It was pulled because it represented an alternative power center. Two years before, JWT reshot an 1987 ad in which Michael J. Fox dashes out to buy Diet Pepsi, but had to ensure that its Chinese actor observed traffic signals.

Mr. Doctoroff is waiting on a review of a Samsonite spot with a doctor traveling in a van labeled with a red cross. "My bet is it won't be allowed," he said.

3. Be prepared when your brand is sucked into politically sensitive news events.
China's massive online ecosystem can cause situations to spin out of control quickly. Most users of leading microblogging platforms Sina Weibo and Tencent Weibo (each reports more than 300 million users) post mundane details of their lives, but some scour the web for news, tips and rumors. With no free press, microblogs are a key source of news.

Last month, a Ferrari crashed in Beijing at 4 a.m., the $700,000 car ripping in half. The driver died and two female passengers were injured. Police refused to comment, fueling speculation that the victims were from politically powerful families. To throttle chatter, censors deleted news stories and microblog posts about the accident.

"Ferrari" remains a banned search term on microblogs. (A link to Ferrari China's Weibo appears above the line "In accordance with relevant laws, regulations and policies, search results for "Ferrari' cannot be shown.") Ferrari did not respond to a question about how the ban has affected its online marketing.

4. The rules of online can change. Overnight.
"The internet in China fills a unique vacuum here, where entertainment is not very entertaining," said Sam Flemming, founder and chairman of social-media research and consulting firm CIC. "News also may not be as newsworthy as consumers may want. So the internet is a little bit wilder, a little bit more interesting than mainstream media. ... Weibo in particular is the most interesting platform for entertainment and newsworthy content."

But the flip side of Weibo and its huge user base is that Beijing is figuring out how best to regulate it. In addition to banning sensitive terms, Tencent and Sina suddenly shut down the comment function on their Weibo platforms for four days recently after widespread but unsubstantiated rumors of a coup in Beijing.

The government has also issued a rule requiring microblog users to register their real names and national ID numbers with the website operator. So far, compliance appears to be low. It's not clear whether authorities will carry through with the plan, but some point to potential upsides for marketers. Numbers provided by digital-media outlets are notoriously unreliable, and better reporting would improve measurement, as well as weed out "zombie" followers that can be purchased cheaply to make a user (or brand) seem more popular.

5. China has a terrible food-safety record but takes food safety very seriously.
Last month, two multinational companies were singled out by state TV for alleged food-safety violations: A McDonald's in Beijing was accused of selling chicken wings 90 minutes after they were cooked, violating company policy allowing only 30 minutes to pass. And employees at a Carrefour store in central China were accused of changing expiration dates on chicken and selling ordinary poultry as more expensive free-range birds.

Shenzen Proview Technology is demanding $1.6B to relinquish the iPad name.
Shenzen Proview Technology is demanding $1.6B to relinquish the iPad name.

The two companies issued public apologies the next day.

The Chinese government is "very eager to point out the weaknesses of multinational companies," Mr. Doctoroff said. "This isn't just a question of protecting people's interests but protecting its own legitimacy."

6. Don't end up like Lady Gaga -- make sure you own the rights to your name.
In China, a trademark is generally awarded to the party that registers it first rather than the one that uses it first. So Apple finds itself in a legal battle with Shenzhen Proview Technology, which makes computer monitors and LED lights, over rights to the iPad name. The financially troubled company will reportedly part with the name for $1.6 billion.

And NBA legend Michael Jordan has sued Qiaodan Sports Co., a sports-apparel retail chain, for using his name and jersey number without permission. Qiaodan (pronounced "chee-ow dan") is Mr. Jordan's name in Chinese. The company also uses a silhouette logo that 's very similar to Nike 's Air Jordan.

Both Michael Jordan's name and jersey number have been co-opted.
Both Michael Jordan's name and jersey number have been co-opted.

"Trademark squatting," as the practice is called, can create some unexpected associations. The L.A. Times reported that a Guangdong company makes public-address systems under the J. Crew name. "Eminem" is registered by a man in Beijing who wants to import liquor under the rapper's moniker. Lady Gaga is trademarked by a manufacturer of walking sticks and sausage casings.

"That these trademark cases are being played out in the open indicates that China is trying to move to a more transparent and single-interpretation economy as it develops from an export to a creation economy," Mr. van Motman said. "They understand the necessity."

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