Pay Your Bills Before Chinese New Year
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Personal Story on Workers Collecting Before Chinese New Year
Chinese New Year is right around the corner and what most people don’t understand, is the scramble for money that comes along with it. Just last week I was rushed out of our nursery when two, large Chinese men came to collect money (that we don’t owe btw).
At year end, companies are expected throw annual parties, hand out red envelopes to employees, and most stressful of all, close out any payables accumulated throughout the year. It’s a domino effect of companies pushing out payments as long as possible, up until the last minute, which is the last day just before Chinese New Year starts. This puts an unbelievable amount of strain on the financial system and companies operating in it.
As a result, workers often times go on strike for owed wages and in serious cases, threaten companies with their own life to move the needle. In our case, farmers are hanging out in our office and barricading the doors. No fun.
The goal of this post is for you to better understand stresses that plague Chinese business owners at years end through our own story.
Chinese New Year
Chinese New Year (“CNY”) falls between February 7th — 13th in 2016. It represents the end of the Lunar calendar and most important holiday in Chinese culture. Everything, from factories to restaurants close their doors to bring in the New Year with their families. Chinese companies hold annual company parties, hand out red envelopes (another form of bonus), and gifts to employees for a job well done (China Highlights wrote a nice summary here). However, Chinese New Year isn’t all celebration, largely due to payments.
Payment terms in China
Payment terms in China, as a relation based society, can vary from full payment pre-shipment (new relationships) to multiple years (good relationships). Savii businesses delay payment(s) for as long as possible with one hard deadline: the day before Chinese New Year. It’s acceptable to push off payments until then, but bills need to be cleared at the end of the year.
Government contracts are also structured this way — payments are closed out before Chinese New Year. Chinese managers at years end run all over the country, giving gifts, and trying to collect all of their receivables. Since most of the money in the country waterfalls down from the government, it sure is a busy time of year and a stressful one at that.
Payment hiccup at higher levels trickle down from upper management to the people actually doing the work: farmers/laborers and where it gets not-so-interesting.
Personal story
Recently (January 28th, 2016), I showed up to our Shandong office in the afternoon around 3:00pm to meet with our production manager and supervisor. After 30 minutes with the supervisor, our Production Manager and I decided to walk to the nursery to put my eyes on the trees.
Everything proceeded as normal until 4:00pm, when our driver whipped into the nursery and said “we need to go”. Apparently between the time I showed up to the office at 3:00pm and 4:00pm, two large Chinese guys showed up to push us for money. Our driver was sitting in his car at the entrance to our office and overheard them say “the American should be in the office”. News traveled fast.
My first reaction was to go sit down with them face to face — hear them out, explain the situation, and handle it like adults. You can solve almost any problem by listening. However at the advice of all our employees, particularly ones that have been through this before, they encouraged me to head back to the hotel for the night and not get caught up in the mess.
Background on why workers showed up
For context, I’ll explain why these guys showed up in the first place (for the record, we don’t owe ANY money).
Our partner, let’s call them Party A, is contractually obligated to install/invest in our nursery infrastructure in full, and we will repay them in 5 years either through sales or a lump sum. Party B is the contractor they used to install the infrastructure and finished construction June 2016.
Payment terms were set up as such that Party A will pay Party B 50% at the end of the year (February 2016) and the remaining 50% at the end of the second year (February 2017). All is good, until February 2016 and Party A has not paid Party B, which lead to workers showing up at our doorstep. Why us you might ask?
You’d think Party B would go directly to Party A to collect, but it’s more complicated than that. Party A and Party B have a long working relationship and Party B doesn’t want to hurt their ‘connection’ (we call this 关系 in Mandarin).
Instead, they decide to disrupt our operations (office environment, blog roads in/out of our nursery etc) and force us to do one of two things:
- Go back to our partner, Party A, and push them to make payment. Under this scenario, Party B doesn’t look bad and upholds their relationship.
- Since our operations are disrupted, we bite the bullet and pay back Party B the 50% far ahead of schedule, outside of contract.
We could always take the legal route but as you know, that’s a long and ardous process that won’t solve our problem in the short-term. While we’re working through the options above, workers will continue loitering at our office and possibly take action against our assets (no bueno).
I need to rely on some relational judo to work through this and will update the post as soon as we bring it to resolution.
What happens if they caught up with me in the nursery?
Don’t worry, they weren’t going to beat me up. People who have experienced this before told me they would have cornered me, held my legs, not let me get in the car, lay down in front/behind the car — basically done anything and everything to bother me enough to pay bills.
If I retaliate and get physical, they will submit a claim and I would be forced to dish money out for injury. Apparently even if I decided to walk back to my hotel, they would follow me or prevent me from doing so. Honestly I don’t understand their tactic — our assets are in the field and strapping me down doesn’t free me up to actually solve their problem.
To avoid this, our employees encouraged me to go back to the hotel immediately and focus on the problem at large. I couldn’t tell if they were joking or not, but they encouraged me to:
- Check-in to hotel under a pseudo name
- Change my cell phone number
- Take the first train back to Hangzhou
Obviously I did none of the above but sheds light on how they address / think about the problem. Deflect as much as possible and work through it relationally with our partner. We’re actively working through solutions now and I’m happy I got out untouched this time around. Not going back to the nursery anytime soon, however.
How often does this happen?
Talking with our employees, this is very common at the end of the year, especially in Northern China. China gets incredibly cold from November — March and there is not a lot of work for farmers. With a lot of time on their hands, they can afford to loiter / beg for payments.
Below are just some examples given to me by our employees and a link to a few images ( ‘swipe’ pictures left-right).
- Workers standing on roofs/equipment, threatening to jump if they aren’t paid.
- Locking managers inside of offices until they do something about it (or parking cars in front of an elevator)
- Breaking windows of cars and factories in rebellion
- Disrupting operations and refusing to work after Chinese New Year
When people are backed up against a wall, they resort to desperate measures. I couldn’t imagine being a laborer and not being paid for 3–6 months. Without any other means, I might do the same thing. I’ll make sure to fill in any other stories as I hear about them throughout the Chinese New Year.
Our company only has experienced the tip of the iceberg and can only hope nothing serious happens. Perhaps this is a growing pain or a deeper, systemize wide problem that the government is going to need to address.
Moral of the story: pay your bills before Chinese New Year.
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Story originally published on madeincharlie.com on January 31st, 2016.
