China Corruption. Et Tu? Do You Even Know?

For 23 years I worked for the CIA and in black ops throughout Greater China during late 80s and most of the 90s. Presently, I am attached to the U.S. Commerce Department, and occasionally get “loaned out” to State, if you know what I mean. I know a lot about goods counterfeiting, one of my specialties. Sometimes I comment on national TV about it. Anyway, Brubaker always does fine work–as do you, Dan. Both you guys know how silly it is to pretend to be PC when opining or reporting about the Chinese as traders or “regulators”–and you guys never do. Kudos for the way you do it. You tell the truth–but you do it with class.
But me? I can just say it. Most of those Asian fuckers will never tell you the truth about anything.

To be fair, I believe it was a commenter, not Rich, who listed out these types of transgressors.
It’s an interesting list. And I have seen them all in one form or another. One of my clients was attempting to renew their contract with one of their largest accounts in China. Although this was a global account, the local decision maker was determined to personally benefit from the deal by insisting on a kickback for his approval. Unfortunately, this attitude is not uncommon in China and in some industries is considered a normal practice. Foreign firms operating within these industries will find it difficult to compete and must find innovative ways to circumvent paying bribes.
Either that, or others simply assume that this is how business is done and accept the practice with various levels of reluctance. One of my clients in fact just assumed that their procurement department was accepting kickbacks and was rather surprised when I suggested that if this was occurring, it was tantamount to those employees stealing from his firm.
I have also met foreign executives who had taken on a perverse fascination with bribery and guanxi; almost as if they had found their element. Strangely, these are folks I meet once and generally never see them again. I assume that although they appeared to revel in the underhandedness of their business model they didn’t completely understand the game and got burnt.
More often than not, and this is where this list is incomplete, the companies I see confronting bribery were genuinely unaware that it was occurring in their China operations and were flabbergasted to find out. They took immediate action to stop the activity and carried on their business a bit wiser on how to control the risk internally.

Tim,
I too have “met foreign executives who had taken on a perverse fascination with bribery and guanxi; almost as if they had found their element..” I think that, generally, these are people who have never really believed in rules and see China as their opportunity to finally operate however they wish. However, just like you, I think most of these people wash out fairly quickly and not so much because they get caught by governments, but because they really have no idea how the game is played.

Dan, interesting post, and a topic I have tried to research and write on in the past, with little success – unsurpirsingly, as no-one wants to talk about it.
I think one issue that your post and the commenters doesn’t touch upon is the very difficult position local staff can be in when they are expected to perform to international standards in a Chinese environment.
I’ll illustrate this by relating a story (apologies if it is familiar, I may have related this story in another comment):
A good friend of mine is a Chinese born and educated accountant, who at one time was the Financial Controller of the Chinese subsidiary of a very large US company in the technology industry. When auditing the procurement departments purchases, he found that commonplace items were being bought at prices up to ten times market price. It was obvious that the manager responsible was giving contracts to associates at inflated prics, and the total concerned was at least hundreds of thousands of RMB per month. He called a meeting with the manager in question, and subtly informed him that he knew what was going on. The head of procurement told my friend to back off in no uncertain terms, and told him that he knew where my firend lived, and to be careful. My friend realised the delicate nature of his position, and informed his superiors in the finance department, who engaged a Hong Kong based private investigator to investigate.
All was quiet for a few weeks. My friend cycled to and form his office, and was just turning into the gate of his community one day when he saw some movement out of the corner of his eye. The next thing he remembers is waking up in intensive care with a fractured skull. His doctor told him that he had been hit across the side of the head with an iron bar or something similar, and was lucky not have brain damage.
My friend had another friend who worked for the local police department, and went to him for advice. The policeman told my friend that there it was pretty much impossible to find sufficient evidence to connect the procurement manager to the attack, but suggested that one option would be hiring someone to retaliate. My friend never told me what he did in this position.
The point is that my friend’s employer, as a top-tier international company, expected the highest standards from the finance department that my friend was in charge of. However, they were not in any positon to protect my friend from the consequences of those expectations. When trouble came, the best they could do was employ a HK based investigator, who according to my friend didn’t understand the local environment and caused more harm than good. It isn’t hard to see how a less conscientious person would have turned away from dealing with the corruption issue.
At the time, my friend’s wife was pregnant, and he had no faith whatsoever in the ability of his employer to protect him, so he changed jobs very swiftly.
However, before he left, I was chatting to him one day, and asked him how things were going. He told me that because of increased vigilance by his superiors, he was no longer able to pay the customary bribe to the local tax department through the company accounts. His solution was to pay the bribe out of his own salary, and as he said to me, ‘after all, he is my contact, and when I am with a new company I will still need to go to the tax office’.
From the point of view of a foreign manager, it is very hard to know how to deal with this issue – if you push your staff too hard to adhere to international standards, you may be pushing them out on a limb with respect to their own environment, which is too much to expect of anyone.
From the point of view of local staff of international companies in China, they may find themselves in the position where they would love to meet company expectations, but they are under significant environmental pressure to behave otherwise, up to and including the threat of physical danger.

I know SSL 227 personally. He’s right. No reason to mince words. What he said.