The China Business Conundrum with Ken Wilcox
Fresh out of the studio, Ken Wilcox, former CEO of Silicon Valley Bank and author of "The China Business Conundrum", shares his experiences establishing Silicon Valley Bank’s joint venture in China, uncovering the challenges of navigating cultural differences, guanxi, and examine China’s playbook in bringing successful foreign ventures onshore. He reflects on lessons learned, from differing views on contracts and negotiation tactics to the complexities of building trust in a new business landscape and offers invaluable advice for Western companies eyeing the Chinese market. Last but not least, he concludes by sharing his hopes for the book’s impact, emphasizing the importance of understanding and collaboration between the East and West.
"But what I didn't realize is that the main reason they wanted us in China was so that they could study our business model and figure out how to copy it over time. And that was something I wasn't expecting, but I should have. If I were less naive, And if I were better prepared, I would have realized that was the intention. So the original title, the working title I had for my book, which I had to change because the publisher didn't like it, my original title was 'One Bed, Two Dreams' (同床异梦). Because that's a phrase that most Chinese are familiar with." - Ken Wilcox
Profile:
Ken Wilcox (Main Site, LinkedIn, Substack), Author of "The China Business Conundrum: Ensure That "Win-Win" Doesn't Mean Western Companies Lose Twice" (Amazon)
Here is the edited transcript of our conversation:
Bernard Leong: Welcome to Analyze Asia, the premier podcast dedicated to dissecting the pulse of business technology and media in Asia. I'm Bernard Leong, and it is early morning. Why do most businesses have a hard time setting up in China and what lessons can we learn from it so that we can succeed in Making our business there? With me today, a pretty distinguished guest, Ken Wilcox, author of the China Business Conundrum, talks about the difficulty of doing business in China and what we can learn from that. Ken, welcome to the show.
Ken Wilcox: Thank you so much. Happy to be here.
Bernard Leong: Yes. I do know that you have worked at Silicon Valley Bank for the past 30 years. You retired in 2014 based on your biography [as the former CEO of Silicon Valley Bank till 2010 and former Vice-Chairman, Shanghai Silicon Bank from 2010-2014]. So you are a very interesting guest, but first always, as a tradition here to start with your origin story, how do you start your career?
Ken Wilcox: I began my career in a completely different field, earning a PhD in German studies and teaching at the University of North Carolina in Chapel Hill. However, I didn’t enjoy it as much as I had hoped, so I left academia and pursued business school. After graduating, I started working at a Boston bank, focusing on lending to early-stage technology companies—a field I’ve been involved in for nearly 40 years. Over time, my role shifted more towards management. I joined Silicon Valley Bank in 1990, became its CEO in 2001, and planned to retire at the end of 2010. Just then, the board received word from Beijing that the Chinese Communist Party wanted us to establish a joint venture bank to support technology companies in China. Excited by the opportunity, I agreed, and my wife and I moved to China in early 2011, where we lived for four years.
Bernard Leong: So, you actually started with a Boston bank, became the CEO of Silicon Valley Bank, and then moved to China. Without giving an opinion on what happened to Silicon Valley Bank last year—since that was beyond your tenure—what are your perspectives on what could have prevented the durational mismatch during the crisis in 2023?
Ken Wilcox: I believe the crisis could have been avoided, though it might be unfair for me to make definitive statements since I wasn’t there. That said, I can think of at least four ways it might have been prevented.
First, we could have returned to an earlier practice. When a technology company raised significant equity and brought those funds to us, we didn’t put the entire amount on our balance sheet. For instance, if a company raised $100 million and wanted to deposit it with us, we would suggest they place $20 million with us and allocate the remaining $80 million to a third-party money market mutual fund. This approach avoided the risks associated with having excessive deposits on the bank's balance sheet.
Second, maintaining active lines of defence is crucial. In commercial banking, we often emphasize these safeguards. If the CFO makes a poor decision, who steps in to counter it? Typically, it would be the head of risk management, the asset-liability committee, the board’s risk or finance committee, regulators, or even advisors like Goldman Sachs. Unfortunately, it seems all these lines of defence failed in this case.
Third, they could have employed hedging strategies, which they didn’t. Proper hedging could have mitigated some of the risks.
The fourth measure is more complex, so I’ll set it aside for now.
In summary, there were several steps that could have been taken, though it’s perhaps not entirely fair for me to pass judgment.
Bernard Leong: I completely respect that perspective because there’s no point in throwing anyone under the bus. What I’m really curious about is your career journey. What lessons or life advice can you share with my audience?
Ken Wilcox: I have plenty of advice, but I’ll narrow it down to three key points: life lessons, not financial ones. First, I always followed the philosophy of Cyrus the Great, an ancient Persian ruler from 500 years ago, who is credited with saying, “Diversity in counsel, unity in action.” I advise CEOs to embrace this. When making a major decision, gather advice and perspectives from experts, stakeholders, and team members. Only then can you decide, but ensure it’s your decision, not the result of a vote. Voting isn’t, in my opinion, an effective practice in a commercial enterprise.
Second, learn how to interview well. Hiring the right people is critical, yet interviewing is notoriously difficult. Candidates often pick up on subtle cues during the interview and give you the answers they think you want to hear. It’s only a year later that you realize they aren’t the person you believed them to be.
Third, be mindful of your mental models. These are the frameworks we all develop to interpret the world around us. However, when we move to a different place, especially one vastly different from our own, those models may no longer apply. For example, American mental models simply don’t work in China, as the two cultures are fundamentally different.
Bernard Leong: That’s a perfect segue into today’s main topic—your new book, The China Business Conundrum. Thank you for the digital copy. I spent some time going through it, and it helped solidify my understanding of China. During my time at Airbus, I travelled to China to engage with the drone industry there. Here’s a question I reserve for all my distinguished guests: What’s one thing you know about doing business in China that very few others do?
Ken Wilcox: When I tell you this, you’ll probably think, “Oh, I already knew that.” But this is something few Westerners truly understand—though many Asians might already know it. During my first year in China, my assistant, a highly capable Chinese national, told me, “Ken, you’re never going to succeed here.” Surprised, I asked why. She replied, “Because you have a bad habit—you always say what you mean, and you mean what you say. We don’t do that here.”
Until she pointed it out, I hadn’t even considered this a problem. Over time, I came to see how right she was. I had been too blunt [and] too direct—qualities that are valued in the West but not in China, where communication is far more nuanced and subtle. My time there taught me the importance of adapting to these differences.
Bernard Leong: I think sometimes this also ties into language differences. The Chinese language tends to be more metaphorical, while Western, Latin-based languages are often straightforward and logical. This might reflect the differences in communication styles. But let me ask, what inspired you to write your book, and who is your intended audience?
Ken Wilcox: I don’t think Americans have generally been very successful in China, and frankly, it might always be challenging for us. However, China is simply too big and too important to ignore. It’s critical for us to understand China better so that we can collaborate more effectively. That’s why I wrote the book—to address misunderstandings and help Americans be better prepared. Shockingly few people in the U.S. have any real understanding of China.
Bernard Leong: Taking a step back, your book also provides a historical context for how you brought Silicon Valley Bank to China. Why was it important to establish Silicon Valley Bank in China? For a general audience, could you explain what Silicon Valley Bank does and its significance to the technology ecosystem?
Ken Wilcox: Great question. Simply put, Silicon Valley Bank serves only technology companies and venture capital investors—they represent 100% of our client base. Technology is a unique, global industry. To stay cutting-edge anywhere, you must be cutting-edge everywhere because innovation transcends borders rapidly. One country or region may excel temporarily in specific areas, like semiconductors, but this knowledge spreads quickly. It’s ethereal, borderless, and accumulative. When I was running Silicon Valley Bank, I believed it was essential to be present in every innovation hub worldwide, and I still feel that way.
Bernard Leong: Silicon Valley Bank’s significance is often underestimated in regions like Latin America or Asia-Pacific. It provides the foundational infrastructure for technology startups to thrive. Could you share highlights of how you built Silicon Valley Bank in China to finance tech companies during the emergence of giants like Baidu, Alibaba, and Tencent, as well as newer players like ByteDance and Pinduoduo?
Ken Wilcox: I’ll admit, we didn’t do as well as we could or should have. Had we understood China better before arriving, we might have been better prepared. The challenge was that China was unlike any other market we had operated in. For example, our mental models—the frameworks we used to understand the world—worked well in places like Germany or the UK, but they failed in China. Even India, in some ways, is more similar to the U.S. than China.
One major mistake was misunderstanding roles in corporate governance. We negotiated that I would be the bank’s president and our joint venture partner’s representative from Shanghai Pudong Development Bank would be the chairman. In the West, this seemed perfect: I’d run the bank, and he’d oversee board meetings. But in China, the chairman essentially runs the organization, while the president functions more like a COO. When we started, we both thought we were in charge, which led to significant conflict early on.
Another key difference is how risk is handled. In the U.S., banks are allowed to fail, and when they do, they disappear. In China, banks are state-owned. When they face challenges, the government steps in and arrests someone if necessary, and recapitalizes the bank quietly. This approach allows Chinese banks to take greater risks. In the U.S., we had almost no competition because lending to tech companies was seen as too risky. In China, every bank wanted to copy our model without the fear of failure.
Bernard Leong: One striking point in your book is how businesses entering China must navigate the trio: the Chinese Communist Party (CCP), the government, and Chinese culture. Many assume the CCP and the government are the same. Why do you see them as distinct?
Ken Wilcox: While the party and government overlap, they aren’t identical. In the U.S., businesses aim to comply with laws and keep government interactions to a minimum. In China, the government and the party are deeply involved in business. It’s complex because many officials wear multiple hats—government officials, party members, and business leaders—all at once.
For example, my main contact, the chairman of our joint venture partner, wore these three hats interchangeably. It took me months to realize that, to him, these roles weren’t distinct—they were one and the same. This can be confusing for Western companies, especially when they’re required to establish a party committee within their organization. The role of these committees varies widely. Some people say they’re just a place for party members to gather monthly. Others claim they act as a "secret board," influencing the official board’s decisions. There’s no single, clear definition, which adds to the confusion.
Bernard Leong: What are the biggest issues businesses typically get wrong when setting up in China? Is it mainly about regulation or bureaucracy, or is it something else?
Ken Wilcox: That’s a great question, and the answer is—it’s a lot of things. A major challenge is cultural differences, which you alluded to earlier. Let me highlight a couple of critical ones. First, in general, Chinese businesses aren’t particularly focused on contracts. They’d much rather work with a memorandum of understanding (MOU).
Bernard Leong: That sounds about right.
Ken Wilcox: Yes, but MOUs are flexible by design and can change. Often, they shift based on the counterparty’s perception of leverage on any given day. For example, we spent nearly a year negotiating a contract with our joint venture partner. What we didn’t realize was that adhering strictly to the contract wasn’t necessarily expected. Later on, when they deviated from the agreement, we were baffled. To them, it was perfectly logical to make adjustments as leverage shifted. At one point, they even wrote a letter to our board in California, essentially declaring that they were throwing out the contract and starting over because they believed they now had greater leverage. This was incredibly confusing for me—coming from a Western perspective where contracts are sacrosanct and cannot be altered on a whim.
Bernard Leong: That’s quite a contrast to the U.S., where the rule of law is foundational. In some places, though, the rule of law seems more flexible and subject to change.
Ken Wilcox: Exactly. In China, it’s more like the "rule of party" rather than the "rule of law." Laws there, in my experience, are much more negotiable and nuanced. For instance, in the U.S., you can’t negotiate with the Federal Reserve. They issue directives, and you comply. In China, you can actually negotiate with regulators, and a lot depends on the relationships you’ve cultivated with them. If you have a good relationship and do something they disapprove of, they might simply tell you not to do it again. In the U.S., if you breach regulations, the Federal Reserve could come down hard on you with severe consequences.
Here’s an example that illustrates this difference: We wanted to offer a product called a trust account, which was like a deposit account with a higher interest rate. In China, every banking activity requires a separate license. Unlike in the U.S., where one banking license typically covers everything, replicating Silicon Valley Bank’s model in China required about 20 different licenses—for checking accounts, savings accounts, trust accounts, and so on. We didn’t have the license for trust accounts, but a bank called China Merchants offered to let us "rent" theirs.
When we informed our board in the U.S., they were horrified and insisted it was illegal and absurd. But in China, it’s perfectly acceptable to rent another bank’s license. We went ahead with it, and it worked. It’s just one of many examples of how the business environment in China operates differently, and how assumptions based on Western norms can lead to misunderstandings.
Bernard Leong: But isn’t there a risk that they could change the rules to say you can’t sublet a license anymore? Wouldn’t that be a significant risk?
Ken Wilcox: That would depend on the quality of the relationship we had with the regulators. If the relationship was strong—and we worked hard to maintain those—they might simply give us a warning, saying, “You can’t do that anymore; we’ve decided it’s not acceptable.” We wouldn’t face severe consequences. In the U.S., however, if the Federal Reserve told you to stop doing something, the repercussions would be far more punitive.
Bernard Leong: That’s interesting. It ties into the concept of relationships, or guanxi (关系), which is a loaded word and often used to explain how things work in China. What do businesspeople typically get right and wrong about this concept?
Ken Wilcox: When Americans like me first encounter guanxi, we often equate it with friendship or a good relationship. However, it’s much more intricate than that. For instance, Americans might be baffled by the custom of receiving gifts every time they meet someone for lunch or a meeting. It feels unusual because we’re not used to giving or receiving gifts in such situations.
Guanxi develops gradually over time through reciprocal actions. I do something for you, then you do something for me, and this cycle continues, building trust and predictability in the relationship. In my view, it’s all about mutual trust and a quid pro quo dynamic, which can take time to understand and appreciate.
Bernard Leong: That resonates. As someone culturally Chinese but raised in Singapore, I realize now that I naturally operate on favors rather than monetary exchanges when helping others. Hearing you articulate it so clearly brings new perspective to my own experiences.
Ken Wilcox: It’s hard for many of us from the West to grasp at first. To complicate matters, American companies face the constraints of the Foreign Corrupt Practices Act, which strictly limits the acceptance of gifts. When gifts are received in China, there’s often uncertainty about how to handle them. Should they be declared? Are they breaking U.S. laws? This complexity is compounded by the fact that gifts can sometimes be quite valuable.
Bernard Leong: Working for a multinational corporation, I had strict rules to follow—such as not accepting gifts over a certain value, like $100. I also had to declare everything I received. There was definitely a need to push back at times. Shifting topics, one thing I appreciated in your book was how you discussed building a local team for Silicon Valley Bank in China. How did you engineer trust and ensure performance excellence in the team?
Ken Wilcox: It’s both similar and different from building teams in the U.S. In China, we eventually had around 300 employees, almost all PRC citizens. One cultural difference that initially surprised me was how my team members would report on their work during meetings. They’d often begin by saying, “Under Ken’s guidance and with the support of my team, we achieved X, Y, Z.” At first, I found it perplexing. Why the constant reference to my guidance?
The key is to always be open, honest, and consistent. Never mislead your employees, which is, of course, essential for any good leader—whether in the U.S. or China. For example, while our employees were professional and high-character, there were behaviors acceptable in China that would cause issues in the U.S.
One example was paying “special favors” to CFOs who deposited large sums with the bank. In the U.S., this would be considered unethical and could result in severe consequences. However, in China, this practice was often seen as part of doing business. It took me some time to understand that this wasn’t dishonesty—it was a different cultural expectation.
Another instance involved account officers working simultaneously for the bank and another company, such as an insurance firm. They’d sell insurance products to the same clients they managed as bankers. In the U.S., this would be a massive conflict of interest, but in China, it wasn’t uncommon.
Bernard Leong: So, it’s essentially cross-selling, but adapted to the Chinese business culture.
Ken Wilcox: Exactly. The challenge was discerning between practices acceptable in China but not in the U.S., and those unacceptable in both contexts. To navigate these differences, you essentially have to immerse yourself in Chinese culture and adapt your mindset.
Bernard Leong: That makes sense. I’ve seen something similar with friends who’ve worked in China for over a decade. When they return to Singapore, they experience reverse culture shock—they’ve adapted so much to China’s ways that they struggle to re-adjust. I find myself reminding them, “You’re in Singapore now; it’s back to the rule of law.”
Ken Wilcox: Yes.
Bernard Leong: I have a couple of quick questions. First, in your industry or with recent technological shifts, has anything in the last 12 months changed your perspective?
Ken Wilcox: Changed my mind? Not necessarily. But I have reached one conclusion that was tough to come to during my time in China. When we went there, I had an open mind and heart. I genuinely expected we’d be treated well. And to be fair, the people I worked with directly were respectful and professional. Yet, from an American perspective, some of their actions didn’t feel reciprocal.
For example, I’ve come to believe that the main reason they were so determined to bring us to China was to study our business model and learn how to replicate it. Early on, before my wife and I moved to China, I had meetings with a high-ranking government official who was also a prominent figure in the party. He said, “Ken, we really want your bank in China. It’s more important than any bank we’ve ever met. You’re more significant than Morgan Stanley or Goldman Sachs. And, by the way, you’re one of the smartest Americans we’ve ever encountered.”
At the time, I thought it was exaggerated flattery, but it still felt promising. I assumed he’d help us succeed in China. What I didn’t realize was that their primary goal was to understand and eventually copy our business model. If I’d been less naive and more prepared, I might have anticipated this.
My original working title for the book was One Bed, Two Dreams, a phrase familiar to many Chinese. It captures why things didn’t work out as expected. My dream was to help Chinese technology companies expand globally, but their dream was to learn our business model. For example, when they granted us our license, they stipulated we couldn’t use Chinese currency for three years. This made it nearly impossible to do business initially because most companies needed renminbi, not U.S. dollars.
During those three years, they encouraged us to “prove our commitment to China” by teaching our business model to other Chinese banks. They even subsidized us during this period because they knew we wouldn’t generate significant revenue. After the three years, when we were finally allowed to use renminbi, they informed us, “We’re so glad you came to China, and we admire your business model so much that we’re launching a bank of our own using your approach. Would you mind staying on to advise this new bank?”
It felt as though they were appropriating my intellectual property, though I’m not sure they saw it that way.
Bernard Leong: That title, One Bed, Two Dreams, perfectly encapsulates this dynamic. It’s a fantastic title—culturally relevant and deeply meaningful. Honestly, your publisher should reconsider it for the Chinese version of the book.
Ken Wilcox: I agree. It really resonates, doesn’t it?
Bernard Leong: Does success in China require being an established brand like Apple, Tesla, Louis Vuitton Moet Hennessy (or LVMH Group in short), or IKEA—companies with unique advantages that are hard to replicate?
Ken Wilcox: Being an established brand certainly helps, but it’s not the only factor. Any Western company entering China, particularly if it operates in an important industry from the Chinese government’s perspective, needs to understand that they are likely welcomed because China wants to learn from them. How long you’ll remain welcome often depends on how long it takes them to acquire that knowledge.
Take General Motors as an example. They entered China in 1985 when the country had no real auto industry. The Chinese government wanted them there to learn about automobile manufacturing—not to ensure GM’s long-term profitability. It took decades for the Chinese auto industry to develop, and during that time, GM was welcome. Now, as China’s auto manufacturers have matured, GM is losing market share and may eventually withdraw. At that point, China’s auto industry will likely export globally, leveraging both their own expertise and what they learned from GM.
China’s automakers have done a remarkable job not only learning from foreign companies but also advancing beyond them in many ways. I believe China will dominate the global automobile industry in the future.
Bernard Leong: That dynamic applies to other industries, like smartphones or semiconductors, doesn’t it?
Ken Wilcox: Yes, though the timeline varies. For example, semiconductors will take longer, but smartphones are already there. Companies like Xiaomi are major players, and Apple is steadily losing ground in China—and could eventually lose ground globally.
Western, Korean, Japanese, or even Singaporean companies are welcome in China as long as they provide knowledge or skills that help build local industries. But once China has developed its own expertise, those companies will face competition—first within China and then globally. I’m not saying that’s wrong, but companies must go in with a clear understanding of this reality.
Bernard Leong: What happened to Silicon Valley Bank’s Chinese entity after the SVB crisis and its acquisition by First Citizens Bank in the U.S.?
Ken Wilcox: After the regulators took over Silicon Valley Bank in March 2023, they dismantled the bank into separate components and auctioned them off. Some parts sold quickly, but others took months. Ultimately, the joint venture in China didn’t receive any bids.
A decade ago, many U.S. banks would have been eager for a Chinese banking license, but the deteriorating relationship between the U.S. and Chinese governments has made companies hesitant. They doubt their ability to succeed in the current environment. As a result, the Chinese joint venture disappeared.
Two or three months ago, the Shanghai Pudong Development Bank, along with the Chinese government, officially dissolved the joint venture. What remained was absorbed by Shanghai Pudong Development Bank, and the entity no longer exists.
Bernard Leong: So it essentially became part of the Chinese partner’s operations?
Ken Wilcox: Exactly. It was fully absorbed into the Chinese entity.
Bernard Leong: What’s one question you wish more people would ask you about doing business in China or your book, The China Business Conundrum?
Ken Wilcox: It’s not necessarily about asking me directly, but I believe Americans would benefit from understanding this: back in 1982, a prominent sinologist, Lucian Pye, wrote a short book titled Chinese Commercial Negotiations. It’s only about 100 pages long, but it left a lasting impression on me. Before going to China, I read it and found his observations fascinating, albeit hard to believe.
In the U.S., those of us in banking were often required to take a negotiation course, typically based on the Getting to Yes methodology from the Harvard Negotiation Project. The principle behind it is straightforward—you and I, as negotiating parties, aim to understand each other’s needs and find a win-win solution.
However, Pye argued that Chinese negotiations don’t work that way. Instead, they focus on leveraging power to win. I was skeptical at first, thinking Pye’s view was overly cynical. But after spending time in China, I realized he was absolutely right. Negotiations in China are fundamentally about understanding and maintaining leverage to secure an outcome favourable to one side. It’s not wrong—just different—and I think more Americans would benefit from grasping this distinction before they begin negotiations in China.
Bernard Leong: That’s an insightful distinction. I’ve read both books on negotiation in Chinese Culture and Getting to Yes, and the cultural differences in approach are stark. The emphasis on leverage and winning in Chinese negotiations really stands out. Now, as my traditional closing question: What does success look like for your book, The China Business Conundrum? And I hope your preferred title for the Chinese edition gets reconsidered!
Ken Wilcox: I hope that the book reaches a wide audience, not to criticize China but to offer a realistic understanding of what it’s like to do business there. China and the U.S. are both major global players, and we can’t avoid interacting with each other. The key is learning how to collaborate effectively, and that starts with understanding the other side. You can’t change others—you can only change yourself. If readers can learn from my experiences and apply those lessons to improve their own outcomes in China, that would be the greatest success for this book.
Bernard Leong: Thank you for sharing your insights. I’ve gained a lot from this conversation, and you’ve certainly helped me rethink aspects of doing business in China. Before we wrap up, do you have any recent book recommendations that have inspired you?
Ken Wilcox: Absolutely. Two books stand out. First, Beijing Rules by Bethany Allen offers great insights. The second is Hidden Hand by Clive Hamilton and Marika Olberg, both respected sinologists. These books have been incredibly helpful in broadening my understanding of China.
Bernard Leong: Those sound excellent. And before we finish, is there anything else you’d like to share?
Ken Wilcox: Yes, one last thought: whenever my wife and I reflect on our four years in China, we always agree that they were the most fascinating years of our lives. The Chinese people are wonderful—kind, hardworking, and talented. The challenges came more from dealing with the Chinese Communist Party, which wasn’t always easy. But we certainly aren’t anti-China or anti-Chinese.
Bernard Leong: I completely understand. I have many friends and former students from China, and we stay in touch regularly. Finally, how can my audience connect with you?
Ken Wilcox: I have a website, a Substack, and I’m active on LinkedIn. If anyone wants to subscribe to my Substack, they can email me directly, and I’ll add them to the list.
Bernard Leong: Fantastic! I’ll include all those links when the interview is published. Thank you so much for this conversation—it’s been insightful and thought-provoking. I look forward to speaking with you again.
Ken Wilcox: Thank you, Bernard. I truly appreciate the time we’ve spent together. Bye-bye!
Podcast Information: Bernard Leong (@bernardleong, Linkedin) hosts and produces the show. Proper credits for the intro and end music: "Energetic Sports Drive" and the episode is mixed & edited in both video and audio format by G. Thomas Craig (@gthomascraig, LinkedIn). Here are the links to watch or listen to our podcast.
