The Chinese way of doing business is changing

THE COST of GlaxoSmithKline’s record fine was more than the 3 billion renminbi it handed over in hard cash. There was also humiliation; the company offered a formal apology to the Chinese government and all Chinese people.
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Shanghai

But British businesses operating in the Middle Kingdom have been paying an even bigger cost. That cost is fear; the fear they may be next.

Any outsider going to China on business is told that personal relationships are critical and generosity is the grease which keeps that cog moving. When I went to China a few weeks ago, I brought small boxes – red boxes - of British-made chocolates for my contacts as a token of respect. (They were only worth about a fiver each; thankfully, it’s the thought that counts.)

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But in the modern China of sudden wealth and ostentatious display, traditional tokens of respect quickly became a bounty of backhanders. Lavish banquets, jewellery and free holidays were all offered as “tokens”. It sickened the Chinese public and offended the new brooms at the top of the Chinese Communist Party. They decided to act. Companies – domestic and foreign – were investigated and punished.

Unlike previous Chinese government initiatives, this one didn’t peter out after a few months. President Xi Jinping said his anti-corruption crackdown was his number one mission. The scale of the enquiries widened as each investigated gift unveiled a new web of transactions.

All of which shocked those British companies which had been schooled to offer generous hospitality as the price of doing business. For over a year, they’ve been checking their receipts, fearing that what was once seen as respectful hospitality would now be regarded as blatant corruption. They feared that – like Glaxo – they would be made an example of.

Some Western businesses have had enough. Earlier this month a lobby group for US companies, the American Chamber of Commerce in China, accused Beijing of targeting foreign businesses with investigations into price-rigging and corruption. In the Chamber’s own survey, three in five businesses asked said foreign business had become less welcome in China. China’s officials dismissed the complaint as “groundless”.

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The successful British businesses I know in China say they don’t feel targeted. They see the anti-corruption crackdown as driven by domestic politics, not a dislike of foreign business. Well-entrenched Party officials who had enjoyed the biggest bribes needed to be removed to prevent them obstructing plans to change Chinese business practices and bring in more efficient tendering processes. And as the economy slows and fears of unemployment rise, what better distraction for an anxious public than to see the chastening of the corrupt?

Bribery, corruption and price-fixing are illegal in all major business markets, and are investigated thoroughly – just look at how America’s financial watchdog, the SEC, has used anti-bribery laws to levy multi-million pound fines on British companies, not for alleged offences in the USA, but for actions in India and south east Asia. The issue with China is that its investigations are seen as arbitrary and capricious. The World Bank’s regular global survey of standards of national behaviour gave China poor marks for adherence to the rule of law.

What began as a domestic investigation is now a global affair involving some of the world’s largest companies. To remain successful in what will soon be the biggest business market on the planet, analysts in China say British companies need to realise that the Chinese way of doing business is changing. Traditions of respect and hospitality will remain, but fewer contracts will be won on the strength of personal connections or generous gifts. The best product or service, at the best price, will win. China’s business culture is becoming increasingly westernised. Western companies need sharper antennae to keep abreast of that change, and need to demonstrate that they are in China for China; not just making profits for themselves, but creating wealth and jobs for China and its people.

About the author:

Declan Curry has been a business writer and broadcaster for more than 20 years.

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He is best-known as business presenter on BBC One’s “Breakfast” programme, his programmes on BBC Radio 5 live and appearances on the “One Show”. He has recently returned to written journalism, having been published in newspapers, magazines and websites in the UK, Europe and the USA. He is in demand as a conference chairman, after-dinner speaker, awards host and facilitator of company events. He was in China earlier this month to study successful British companies there.

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