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Table of Contents
The Case Study
China and Chile open up to the rest of the world
Chile: Economic reforms and opening-up to the outside world
The diplomatic framework of the bilateral relationship: first contacts
Setting up diplomatic relations between Chile and the People's Republic of China
Diplomatic relations during Pinochet's regime
Bilateral relations at the end of the 20th century
The free trade agreement (FTA)
Features of Sino-Chilean relations
The rhetoric of firsts
Other features of the commercial relationship
Box 1.1
Culture and economic interaction
Rationalism versus Culturalism
The Influence of Confucianism,Taoism and Buddhism on Chinese business culture
Box 2.1
Box 2.2
Decoding the Chinese code: intercultural culture and communication
The importance of culture for the Chinese and Chileans
Cultural representations
The conceptualization and role of culture
Cultural adaptation
Tell me who you know and I will tell you who you are ... guanxi
Guanxi as a sociocultural mechanism
The importance of guanxi in business
The Chilean experience of guanxi
Features and aspects of guanxi
Sources which generate guanxi
Mechanisms for building guanxi
Box 4.1
Box 4.2
Xinyong: Trust in business
Familiarity: interaction and understanding as sources of trust
Shared identity as a source of trust
Contracts and trust
Box 5.1
Appendix 1 List of interviewees
Sample Pages Preview

The free trade agreement (FTA) The first negotiations on the free trade agreement began at that very APEC meeting held in November 2004. After five rounds of negotiations, the treaty was signed in 2005 and came into force in 2006 once it had been ratified by both legislative bodies. According to Zhang, the discussions about the free trade agreement were steered by the interest of the Chinese government in institutionalizing its economic commercial relations (2006a, 113). Two strategic motives can be identified to explain China's desire to institutionalize its economic relations with Chile. Firstly, China wished to learn from a nation with acknowledged experience of and knowledge about the processes involved in international economic negotiation. In fact, this expertise of Chile's in bilateral negotiations has been widely recognized as a distinctive characteristic (Domínguez, 2006), a key factor in its soft power (Tulchin, 2004) and a source of opportunity for attracting those countries who wished to learn from the Chilean experience (Interview 58). In other words, from China's standpoint, a free trade agreement with Chile would be considered, as a Chinese expert describes it, as a "testing ground" (Interview 31) or "an experiment, a first step in preparing its team for future negotiations" (Interview 73), as well as a good rehearsal (Wu, 2008, 11), which would enable China "to enter into the next stage with other Latin American businesses" (Interview 67). One Chilean diplomat put it this way: I get the feeling that with China […] there is always the notion that Chile is a country which, although not very big, (is) serious, resourceful in its thinking … [the Chinese think that] they can play around with ideas with us, debate, discuss in order to get an idea of how things are. Chile makes a good sparring partner, a good guinea pig. We can learn (say the Chinese). That certainly happened with the FTA, they will never say it, but it is clear, by implication. For that reason they have entered into subsequent negotiations (Interview 54). This fits in with previous studies in which Chinese academics present the free trade agreement with Chile as bringing with it "positive experiences for future negotiations for free trade agreements between China and the rest of Latin America" (Lu, 2006, 41). Likewise, former negotiators of the Chilean free trade agreement who were interviewed for this study explained how, during the course of the negotiations, the Chinese were openly interested in learning from the Chileans, thus showing their need to acquire knowledge from teams with greater experience of negotiating, as is the case with Chile17. One former negotiator explains it in these words: In the case of China [the negotiation process] was much more important than in other cases because they had no previous experience of what was going to happen. When it is established that there is a willingness to negotiate a free trade agreement with the United States … both the United States and Chile know what this means. So, we sit down and we define the issues and that is that. When we sat down with China, when we were going to make a start with China, we did not know what we were going to do […]. There were even conversations about finding out what a free trade agreement consisted of, what were the compromises that needed to be considered (Interview 56). This was reinforced by the fact that the Chinese diplomatic teams were mixed in their make-up. On the one hand, there were those who had been trained in the West and on the other were those who were more traditional, but less experienced in international negotiations (Interview 73). A second strategic motive can be found in China's chance to use this institutional bond to demonstrate a benevolent example of cooperation between China and Latin America (Lu, 2006, 41). Thus the free trade agreement with Chile would be a positive precedent for future agreements with strategic partners for China in Latin America: In this sense, we can assume that the agreement would be a preliminary step, with a demonstrably important effect, for future negotiation with Mercosur. Chile is a very stable country compared to the other nations in the region, which facilitates trade and investment, and means that it can serve as a 'bridge' – a real one, not merely a rhetorical one – between Asia and the rest of Latin America (Pérez Le-Fort, 2006a, 100-101). The free trade agreement also has a functional role insofar as it has a demonstration effect beyond the confines of Latin America. Medeiros, for example, points out that China has recourse to free trade agreements as a soft power tool, in that they can be used to gain a commitment from different countries to obtain market economy status (2009). In fact, one interviewee explains that during treaty negotiations at the Santiago APEC in 2004, a request was made for Chile to be recognized as the guarantor in initiating negotiations for the free trade agreement (Interview 67). Chile's recent economic history commended it as a good potential partner in an institutional pact such as the free trade agreement, owing to its reputation as a successful nation when it came to applying liberal economic policies (Aggarwal and Espach, 2004, 15). This, in turn, would allow China to be seen as a responsible stakeholder in the global economic sphere, capable of embracing the free market economy. From that perspective, a further symbolic element exists, which consists of representing China as a nation which considers other developing countries to be legitimate business partners, thus reinforcing the western order (Caballero, 2008), and generating, in addition, a demonstration effect for the international community. In the words of this Chilean diplomat: This free trade agreement is in some ways symbolic for other Latin American countries; it is a gesture towards free trade not just for the rest of Latin America, but also for the rest of the world. I think that this treaty with Chile can be seen in turn as a possible way of being able to do the same with (other) countries which are rich in natural resources (Interview 58). This opinion is shared by Chinese officials when they refer to the importance that this treaty held for China not only in the context of Latin America, but also in a much broader sense (Interview 60)...


Not long ago Chile was an economic poster-boy for South America. The first of the continent's countries to join the OECD, its liberal trade opening had wrought suitably profitable returns with a period of impressive growth. But the easy gains of early liberalisation are drying up: growth rates are becoming sluggish and the vulnerabilities of over-reliance on mineral exports and a limited number of key trading partners remain clearly visible.
In 2006, the Chilean government had hoped that a Free Trade Agreement with resource-hungry China would provide Chilean entrepreneurs with access not only to a massive new market for a more diverse compendium of exports, but would encourage Chinese FDI to boost its own domestic growth. Sure enough, by 2012 China had become the largest destination for Chilean exports, but as this timely volume shows, the relationship has failed to develop either the depth or breadth which was anticipated, or to break Chile out of the constraints set out above. Mineral exports still dominate the export ledgers and have proved inconstant according to China's own fluctuating demand and related global prices. Meanwhile Chinese FDI, despite growing overall, has been marginal compared to that flowing into other regional destinations such as Peru, Colombia and Brazil. Despite its successes, the business of doing business with China has proved more complex and less accessible than previously thought.
Of course, Chile is not the only rather disappointed trade partner in this sense: China's own opening up to the global trade regime has been viewed as a new frontier of opportunity by just about everybody, but China has both the size and the confidence to engage the world largely on its own terms. Capturing a market of 1.4 billion is no easy task and firms from around the world have found that even small slices of it often remain elusive. The barriers to trade and partnership constructed through a prolonged period of attempted Chinese economic self-reliance have barely diminished and often prove frustratingly hard to pin down. Capitalism does, it seem, have local variations which are rooted in something more profound than 'irrational' interventions in the market such as corruption and bureaucracy. That doesn't mean we need to resort to imposing the kind of crude and orientalist stereotypes peddled by Max Weber in The Protestant Ethic and the Spirit of Capitalism back in 1905, but it does mean we need to look again at a much wider range of factors impacting upon economic activity, including the possibilities presented by inter-cultural exchange.
Nothing new there of course. Culture as a component of business relationships is a much examined topic. The Internet is awash with websites offering the would-be international entrepreneur top tips to doing business in China which amount to abbreviated cultural guidebooks. But how used have we become to the orientalist assertions which place the country and its people mysteriously out of reach; unknowable, unpredictable, unassailable. Can these be overcome by advocating the simple two-handed surrender of a Chinese-language business card, by the offering of gifts, and carefullyprogrammed entertainment schedules designed to seduce potential business partners with illusions of informality and personal connectedness, as suggested by such websites. Is Chinese business etiquette really so formulaic and 'fixed'? Surely we need a more sophisticated and nuanced approach to understanding how the local business cultures of both parties in an international exchange shape contexts and outcomes, and how they themselves are neither fixed nor immutable, but subject to amelioration and adaptation.
As this important book illustrates, the inter-cultural contexts of these exchanges are inevitably as dissimilar as the cultures of the parties themselves. Academic frameworks which build their understandings on exclusively American or European interactions with China may not suffice for those seeking to understand the economic interactions between the Asian giant and a country such as Chile. The book draws upon extensive fieldwork and gives voice to the very participants who have comprised the evolving Chilean-Chinese economic relationship, offering a unique and original set of insights with an invaluable and transferrable methodology.
But it does oh so much more. While foregrounding the inter-cultural context of economic exchanges is a valuable exercise in itself, Labarca shines a light on the complexities which arise from a two-way traffic of exchange as well as the multiplicity of participants when an evolving economic relationship is being actively nurtured by governments on both sides. Can governments foster the all-important trust which underpins relationships between business partners, or do their interventions have only a marginal impact compared to an appreciation of, and adaptation to, the partner's values and practices? An appreciation of trust has filtered through to the mainstream of academic study when it comes to business partnerships, and to our understanding of inter-state relations, but little has yet been done to evaluate trust as an outcome of intergovernmental trade agreements in so far as it softens the edges of entrepreneurial concerns on either side of the exchange. Indeed, what constitutes, as well as how to build, trust are culturally-determined notions, adding to the layering of the study at hand.
In the end, the results of this study contribute to the case against the argument that cultural homogenisation is an inevitable accompaniment to globalisation. There may certainly be a necessary process of adaptation, an instrumentalist accommodation, even a learning of cultural modes and practices which is re-imported to alter domestic business cultures. But the evidence here suggests that Chinese business communities have retained their cultural integrity even as the barriers to global economic integration have been lowered. The strength and potential of the Chinese economy suggest it remains up to the rest of the world to learn how to live with that.
Prof Emma Murphy
Durham University

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