Mike Berrell is a former Professor of Work Organisation at RMIT University and an expert in China and the global economy. He has been working on and off in China for the past 15 years, and currently consults for multinational corporations operating in China. He is co-editor of the book Business Networks and Strategic Alliances in China. He talks about the art of doing business in China and avoiding trouble:

How is it different to do business in China than in, say, Australia?

The principle thing to keep in mind is that any initiative in China is based mostly on relationships. Personal relationships are of fundamental importance. So you have to make sure those relationships are established before you make any commitments, whether that’s intellectual or capital. The companies that have run into trouble have primarily been those that have gone in without those connections already in place.

Do you think that’s been the case with Rio Tinto?

Rio Tinto is a very large company, and I’m sure they will have done their homework. But there certainly have been cases where companies have gone in on the assumption that their prominence in the western economy will set them up, and that doesn’t always carry the day in China.

Stern Hu has been living in China for many years, so it seems unlikely he would be unaware of the nuances of conducting business in China. Is it possible that Hu has somehow been acting against China’s interests?

I think it’s possible, but people don’t tend to deliberately act against the interests of China. Just because they don’t understand, they quite often put themselves in that situation. The thing you have to remember is that history is yesterday in China. People are still talking about things that happened 20 or 30 years ago.

People talk about China opening up … but you only have to scratch the surface to realise that you’re dealing, in some ways, with a very traditional society with very conservative views.

There’s been a lot of speculation that this is about China flexing its international muscle to the rest of the world in its place. What do you make of that theory?

That might well be the case. It’s been fifteen years since China has come forward to rattle the sabre, but I think it probably isn’t that. I think there are probably other issues involved. And we may only start to find out about those two or three months down the track.

The motivations of the Chinese are really made on the day. Sometimes they may not always think about what the consequences of an action will be one or two years down the track, and that’s something that many western business people find bewildering.

Do you think Kevin Rudd’s softly-softly approach is the most appropriate way to handle the Hu situation?

It’s the only way to handle the situation. To go full steam ahead, as the western mindset might encourage you to do, that never works in China.

How much of Hu’s arrest do you think may have been about saving face?

The thing about China is that face is the most important thing. You have to be very cognitive that if a deal falls apart, if the wheels fall of the wagon, it has to happen in a way that everyone comes out saving face.

Are westerners working in China aware of the risks — that their phones may be tapped or that their emails may be intercepted?

In my view, many western business people are not aware. They don’t have any induction into the way that China works, they just go in and think that because they’ve been living there for one or two years they understand how it works, and they don’t.

It’s important to have that maintenance [when dealing with China] – the chief of the company needs to go on regular visits, even if they’re not directly involved, just to show that they’re still interested, and so on. It’s very important to know who your counterpart is, and also to know who the decision-maker is, because it’s not always the director who’s making the decisions.