Engagement has been the basic tenet of US-China negotiation for the last 30 years. The idea was that as China opened to the rest of the world, it would start to align its systems, interests and priorities with international norms. Yes, it sounds funny and condescending now – but as recently as the mid-1990s China had to deal with annual Most Favored Nation trade status debates in Washington, DC. (We’ve all forgotten about that, but Beijing hasn’t.)
For Westerners, the core of engagement is that "They" become more like "Us" when They finally stop being so poor. It’s not a failed policy – but it is an outdated one. China and US counter-parties are much more similar in terms of values and priorities than they were in, say, 1987. But for Westerners making deals in China, our negotiating environment isn’t nearly as favorable as it was in 2007 – and it is unlikely to be again.
International deal-makers in China got a little spoiled in the decade before the Crash. The boom of the 2000s was doubly good for MNCs opening and expanding businesses on the mainland. Big consumption in the West was great – but China’s internal economic policy-making gave a big boost as well. China Inc wanted to upgrade in a hurry, there was plenty of low-hanging fruit for investors with technology or brands, and the Chinese middle class still found big-picture images of international-style affluence both appealing and transferable.
"Win-Win" had a special meaning in Beijing before the crash, because Chinese counter-parties were looking to win twice. The first would be the win of benefiting from commercial openness and broad shots of MNC investment. Jobs, training, investment and methodology were great benefits – but they were just the first set of gains. The second win would come when local enterprises, particularly state-directed local enterprises, were able to replace the foreigners and complete the service and manufacturing chains domestically.
Back to basics
Post-Engagement negotiating is more old-school than the pre-crash love-fests, where everything was possible but nothing was easy. Now some things will be easy and many things will just be impossible. We don’t sit down to negotiate with purely private counter-parties anymore – there is policy in every deal. From here on in, sometimes NO really means NO.
Westerners have grown used to having access to a wide range of industries and markets. In the old days there was a list of pillar industries (off-limits), encouraged industries (high-tech) and a wide swathe of "not disapproved" gray areas.
For a decade or so, Westerners assumed that the gray could eventually be turned into profitable green. That is becoming a less good assumption. China Inc’s unofficial view is that some Western brands and technologies are definitely less equal than others.