Despite Beijing’s apparent officiousness, control of China is not centralized.

Jack Perkowski: First of all, most people think that; people spend a lot of time in Beijing with the Central Government because they think, okay, the way China works is you’ve got these guys on top in Beijing and then whatever they say kind of goes into the provinces and the cities. That doesn’t work that way. China is actually very decentralized. And so, while you can have these great relationships in Beijing, which can maybe help you in some way or another, they never really get you to where you want to go. What you really need to do is develop those relationships in the local level. So, today, I would spend very little, almost no time with the Central Government, very little time with the provincial governments, will spend all my times with governments with the local governments.

So we got 17 factories in 8 different provinces in China. We tend to be in a lot of the inner provinces and a lot of the smaller cities in China. We tend to be one of the best employers in that city, so we become very important to that city. And I’m a big proponent of the big fish in a little pond theory where if you go to a city of 600,000 people which isn’t a big city there, it’s a small city. If you go there and you’re the best employer in town, you get a lot of attention from the local government.

So what we’ve learned to do over the years is to really, first of all, make sure the local government understands everything that we’re doing, and what we’re doing is good for the community, and then working with them. And you’ll be surprised how much they can help you.

Our piston ring business is located in a city called [IB] which is about 4 hours from Shanghai. And every time I go, the Party Secretary comes out to meet me and takes me to dinner. This one time I went there, he couldn’t wait to see me. He couldn’t wait to take me to dinner to tell me that they have been working for 6 months to get our joint venture, a $2 or $3 million tax refund. I don’t even know. None of our people really knew that we were eligible for it. They didn’t tell us they were working on it. But they just went ahead for 6 months to get it because they thought it’ll be good for the joint venture. And of that money that came back, two-thirds of it came from the provincial government, but one-third came from the city’s pocket.

So they actually turn back money that they had taken, rightfully so, and taxes, and they got it back to us by some special tax refund provision.

That’s just blew me away, because here, they didn’t tell us about it, we didn’t know they were doing it, we didn’t ask them to do it, but they knew it’d be good for the joint venture if they can get us that money. So that’s the kind of relationships that we’ve been able to develop. And that’s what’s possible in China.

Recorded on: September 22, 2008