The Most Interesting Company in China

In the USA, when you first interact with someone, you assume you are relatively trustworthy and that they are who they say they are, unless they give you some reason to be suspicious. In China, the default stance is that you are always suspicious and you only believe someone is who they say they are, and can deliver what they say they can deliver after they’ve given you reason to believe them. In other words:

  • In the USA, innocent until proven guilty
  • In China, guilty until proven innocent

China is an extremely low trust environment. As Fukuyama argues, Trust is an economic lubricant, reducing the cost of transactions and enabling cooperation.

Yet, in this ultra low trust environment, companies still have to offer financing terms to their business partners. The result, is that collecting the outstanding cash is very difficult, many payments are unable to be collected, and companies are often uncertain of their overall financial position. From Dec 1st until Chinese New Year, many Chinese companies are focused on collecting outstanding accounts. Books are typically closed on (Lunar) Chinese New Year.

They don’t have much penetration yet, but Dun & Bradstreet (DNB) has partnered with Huaxia Bank to expand into China. (Huaxia is 20% owned by Deutsche Bank).


Every Chinese company having a D&B number would be a big step forward for businesses, and with Web 2.0 technologies, D&B should be able to leverage the Chinese business community to get an early read on which companies are growing, which are struggling, and who you can trust to pay on time – if ever.

Note the D&B/Huaxia JV started in Dec 2006, more than a year after Deutsche Bank acquired a 20% stake in Huaxia, yet it doesn’t seem to be getting a lot of traction yet. Probably not ideal to structure this sort of thing as a JV – since it’s not in the business of actually granting credit, just acting as an information service, and since D&B is a strong global brand that can quickly earn trust in China, it’s probably better structured as just a Foreign Enterprise, ideally selling stakes in that enterprise to each of the biggest Chinese banks. That way you’ve got government support, access to proprietary government information, but you have the free market incentives necessary to succeed anywhere.

It’s already been nearly 4 years, and the JV may need to be restructured, but D&B has the potential to have a huge impact on China – an impact on society far beyond what consumer goods companies can hope for.

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