Under the Table: An Intermediate Course
Before I delve into addressing how Western business professionals and companies can avoid China’s “corruption trap” while maintaining face, consider the following reports that have surfaced over the past week:
“An official in charge of rooting out police corruption in a north China city has been fired for arranging a police motorcade for his mother’s funeral.” – Chinese Corruption Fighter Sacked For Corruption, New Zealand Herald
In China, “nine out of the top 10 anti-graft fighters in the past three decades have faced retaliation. A survey published last week found that only 40.1% of respondents felt obliged to report suspected corruption, while some 31% did not. Some 36.4% of the people polled said that they did not think their tip-offs would be taken seriously, while 34.9% were worried about repercussions.” – Dark Days for China’s Whistleblowers, Asia Times
“If you think the executives at AIG have it rough (whether they deserve it or not), try being rich in China. Numerous members of Forbes’ China rich list have been jailed over the years, and the rest have to wonder if they’re next.” – The Forbes Curse in China, Forbes.com
These few examples aptly summarize the harsh intricacies of an institution that threatens to undermine the great strides China has made over the past three decades and erode the economic, social and political structures of what may otherwise soon stand to be the world’s most powerful nation. But, when corruption fighters are accused of corruption, business tycoons are jailed for their successes, and common citizens are choosing silence over justice, how can any nation continue to thrive? Wait- doesn’t this seem a bit like what we’ve recently seen in the US and in nearly every other country on the planet? As expressed in ‘Under the Table: An Introductory Course,” corruption is a GLOBAL practice. Now that China’s become a top contender in the ring, the spotlight is pointing directly East (39°55′N, 116°20′E to be exact).
According to Wen Jiabao, 2009 will be the year of a massive corruption crackdown, which includes a halt to “any construction of new government buildings, training centers and government hotels” until 2010, investigation of corruption cases involving government organs and officials, and increased monitoring over China’s business elite. I don’t think I need to point out what types of punishment await the accused but I should emphasize that, given the current fabric of global relations with China, more than a few foreign professionals are bound to get snagged in this anti-corruption net as most recently seen with Morgan Stanley’s Garth Peterson. How can you and your business play by the rules while staying in the game? First, you need to know what to look for:
Fancy Gifts: If a new car or a set of golf clubs arrives at your office, scrawl ‘Return to Sender,’ pour yourself a nice glass of scotch, and take a thirty minute break behind closed doors. Ditto with vacation vouchers, share dividends, and any other type of luxury good or service. Incidental gestures such as pens or a standard bottle of booze (a 95’ Chateau Margaux is not standard) are generally acceptable as long as it complies with company policy. A weekend spa getaway to Sanya? Not okay.
Sweet Deals: Do you need to expedite a license for your company but either don’t qualify or haven’t completed the necessary paperwork? Tough luck. In these types of cases (otherwise known as “speed money” or “power trading”), it’s always better to do the work yourself over paying off a local official to do it for you. In any and all instances where an exchange of money, gifts, property or stocks may be made in an effort to secure something that you haven’t earned or don’t deserve, forego the temptation at all costs. This also applies to sliding bundles of cash under the table in exchange for a sales or distribution monopoly. Even initiating a conversation can get you into a lot of hot water. Making “sweet deals” is at the top of the anti-corruption campaign list this year; deportation and jail time is a pretty sour consequence.
Commercial Pacts: So, you think a local official can get you a tasty deal on a bid for an infrastructure project, property transaction or government contract? According to China Law and Practice, special favors that facilitate commercial ventures such as “offering business counterparts or their staff money, property or disguised kickbacks (including, but not limited to payments for promotion, sponsorship, research, consultancy services or those structured as commissions)” may result in the loss of your freedom and livelihood. An exception? “Giving or accepting discounts or commissions in the course of a transaction provided such arrangements are transparent and clearly reflected in the accounts.”
Lethal threats: Lethal threats fall somewhere along these lines: “if you don’t perform this kind of illegal action, then I will have you arrested for performing that type of illegal action.” (“Religious activities” was a legitimate threat a few years back). “Lethal threat” corruption in China is rarely discussed but it does occur, targeting green entrepreneurs who reek of hunger and desperation. Lethal threats have a tendency to cross into the rule of law, so don’t ever assume that, by turning a lowly PSB official into authorities for trying to blackmail you, you will save your hide. On the contrary.
Grand Corruption: Repeat after me: “any activity involving substantial amounts of cash or prizes either given to or taken from high level officials will ruin my entire life. I may never see my spouse or kids again, I will most definitely lose everything that I’ve ever worked for, and there is a slight chance that I will spend the rest of my days behind bars making chopsticks.” Regarding grand corruption, you may have gotten away with it ten years ago, but times have changed, my friend. If your powerful Chinese partner in crime is going down, so are you.
As I’ve stated before on this blog, if you’re doing business in China, it will be next to impossible to avoid a situation that involves one or more of the above outlined types of corruption. So, how should you handle these legal and cultural hurdles without looking like a chump and embarrassing your Chinese partners in the process?
Play by your country’s rules. Play by China’s rules. Do this simultaneously. Are you a United States citizen doing business in China? Brew yourself a pot of coffee and read The Foreign Corrupt Practices Act. Then, read it again. Finally, practice your Chinese on the Relevant Rules and Regulations section of the Central Commission for Discipline Inspection website.
Assume “corruption” ignorance. In all related circumstances, never conclude that your Chinese associate is aware that he/she is conducting a suspicious or illegal act. “Under the table” practices are an ingrained and prominent component of Chinese society; the longstanding cultural tradition of adhering to the informal “rule of man” over the West’s formal “rule of law” has made for a very slow and difficult adjustment. Just because the national government and global community are busy pointing fingers does not mean that the message is clear. With this in mind, instead of citing a wrongdoing (for example, “Mr. Wang! You could get in serious trouble for giving me a membership to Mission Hills Golf Club”) redirect the criticism toward yourself. It is your fault that you can’t accept the gift, no big deal, you’re sorry, and hopefully one day you can spend an afternoon on the course together. Your job here is not to reeducate, but to save your Chinese partner’s face and move the business relationship forward- legally.
Save face. Don’t embarrass yourself, your Chinese colleague or your respective company. See above. Say “mei shir, mei guanxi.” Repeat.
Stay friendly. One of the biggest mistakes I’ve seen in US-China business relations is a rampant misperception that cultural difference must equate to a distant and awkward partnership. Make it a habit of asking your Chinese partner about their children’s studies, their recent vacation, and the new vehicle they purchased- don’t be afraid to get close. By staying friendly, you’ll have a much easier time brushing off any potential “corruption” snafu with a light and quick conversation that won’t seem so… well… foreign.
Keep your guanxi in check. Are you thinking about offering a business associate free services in an attempt to improve your guanxi? If you are gaining any business advantage through this offer- whether on or off the books- you might want to reconsider. Ponder this observation from ‘The Institutional Economics of Legal Institutions, Guanxi and Corruption in PR China’: “Corrupt behavior aimed at achieving private advantage can very well be identified in China, and there is a considerable amount of it. A particular characteristic here is that a considerable portion of these corrupt transactions take advantage of the existence of guanxi networks.” How will a guanxi defense hold up in a court of law? Not so well, I’m afraid. When it comes to the business of relationships, tread carefully.
Recognize family ties: As Stephen Porter commented on a recent post, “in China, advantage and access and leverage is all about family ties.” This idea also applies to corruption. According to ‘The Characters of the Corruption Crimes and Anti-Corruption in China’ the saying “corruption of the whole family” is used to describe a situation where two or more people in a family commit bribery and corruption crimes together. “Among corruption cases investigated by prosecution services, there commonly occurs that of husband and wife, parents and children in the collusion of embezzlement, and even husband, wife, parents and children.” Translation: if Mr. Wang’s mother was arrested for under the table deals and his brother-in-law has been sitting in prison for a while, Mr. Wang is probably not walking the straight and narrow either.
Keep your trap shut: If one of your Chinese business partners continually reverts to under the table deals, the last thing you want to do is run to the authorities to tell on him. That’s right- regarding this type of crime, I am advising you to keep your distance and look the other way. Don’t blab about it to your other coworkers, don’t share this information with your spouse, and don’t get involved. Similarly, if you receive a fancy new pen in the mail from a prospective associate and you decide to keep it, don’t show it off to all your colleagues at the next company meeting. If you’re offered a lifetime membership to some swanky new club- which you will have to give back- don’t write about this experience in the company newsletter. Follow the law, be respectful of national customs and practices, and keep your trap shut.
When in doubt, steer clear: If it seems suspect or illegal, it probably is.
Missed the first installment of this series? Check it out at “Under the Table: An Introductory Course”
For the very few of you who are as obsessed with the “corruption trap” as I am, I will follow up with ‘Under the Table: An Advanced Lesson,’ where I’ll challenge a few theories and assumptions made by China-focused “corruption” scholars and answer any questions that come my way. As always, comments are welcome.
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