By now just about everyone has a rough outline on the goings on surrounding Bo Xilai, Chonqing’s former power boss.  To grossly summarize:

  • Xilai and his wife were very powerful.
  • Businesses (including foreign businesses) were taken by Bo Xilai and his wife’s power and sought to ally with them.
  • A British businessman, Neil Heywood, who did at one time ally with them is dead and Bo Xilai and/or his wife may have had some connection with his death.
  • Bo Xilai has been removed from power.

Believe it or not, the above makes for a great learning experience.

The first lesson is that you should not think that allying yourself with the very powerful in China is necessarily such a great thing.  Of course it can be, but it also can be a double-edged sword, as we discussed extensively in “You Want China Guanxi? You Can’t Handle China Guanxi“:

Having grown up in a small Midwestern city, I have an inherent (and what I see as a healthy) distrust of government. Every government. Anywhere.

I was yet again reminded why when I read this excellent Wall Street Journal article on British Petroleum’s recent problems in Russia, entitled, “Misreading the Kremlin Costs BP Control in Russia Venture.” BP thought its getting close with key Kremlin players would protect them in Russia. Most unfortunately, for BP, however, when its key Kremlin players fell out of favor, it too fell out of favor. Russia can be particularly problematic, but other countries certainly are not immune. I have seen up close and personal how allying with government can be like playing with fire:

  • Many years ago, I was working with an American company who was on the verge of getting a huge supply contract with the Korean navy. The son of the President was setting up the deal. I knew the deal was in the trash when I saw the son on the US evening news getting into a Korean police car in handcuffs.
  • Many years ago, my law firm had a very close relationship with a Russian vice-governor. His beloved daughter was one of our paralegals and, lo and behold, company after company from this Russian province would contact my firm for international law assistance. This work dried up rather quickly when the father was axed to death.
  • Many years ago, we had a client who ran a business on Chinese military bases. The whole practice was of questionable legality, but his closeness to a high ranking military official seemed to isolate the enterprise. Then the high ranking official retired and within less than a year, our client was off all the bases and a new company was there in its place.
  • We had a Russian company as a very good client, the owner of which decided he wanted to be Governor of his province. He ran and lost, in a fairly close election. Within a year, his various companies had become greatly diminished because of constant government investigations that appeared to have been done to keep our guy in his place and to teach him not to run for office again.

Government people come and go and when “your” people are gone, much or all that you have worked for goes with them. This is NOT a reason not to ally your company with government, but it sure is a reason to remain wary.

The second lesson is that you should not underestimate the potential for your business relations to turn violent.  We have written extensively on this over the years and just about whenever we do, someone accuses us of being alarmist.  We are being alarmist, but for good reason. We also sometimes get accused of trying to scare people to drum up more legal business. That accusation is absurd because as far as I know, telling people to beware of their life and limbs in China is not a terribly good way to score more China legal business.

In “Shanghai Thugs Forcibly Remove Shanghai Residents. Why This Matters For YOUR Business,” we talked of how those doing business in China should at least be cognizant of the threat of violence:

Though China is relatively safe, one should absolutely not write off the possibility of violence in one’s business dealings in China. My law firm has been called in at least a half dozen times where violence was either threatened or occurred. We tell our clients that if they owe money to a Chinese company or are involved in any sort of dispute with anyone in China (partner, employee, etc.), they should avoid meeting to discuss the dispute/problem anywhere other than in a neutral, very public place in the day time. A high end hotel lobby in Shanghai or Beijing is a good choice.

We wrote the above about a year ago and if I were to write it today, I would say that the number of times where we have been involved in matters with violence or threatened violence is up to a dozen. A few weeks ago, I was talking with a friend of mine who works in China for a leading international risk management/security/hostage negotiation company. I was telling him that we had been seeing a big increase in Chinese companies making veiled (and not so veiled) threats against our clients over alleged debts. This friend then told me that his company was getting three business hostage takings a month, up from about one a month in the last few years. I then sought to clarify what he meant by “hostage takings” and he said that did not even include the situation where a large group of people menacingly hang out at your business; he was talking about only those situations where someone was being held against their will under threat of violence.

I am not saying that China is a violent country and I do not think it is. But it is still a developing country with an inchoate legal system. What this means is that frustrated people are a lot more likely to “take things into their own hands” than in most Western countries. What this means for you is what I said above: at minimum, if you are in any sort of dispute with a businessperson in China, do not go to that person’s turf to try to resolve it.

And for those who think I am being too alarmist, I end this post with two emails I received this week, to show that at least I am not the only one:

  • As you know, Bo Xilai was removed from the Politburo today. His wife is being investigated for the murder of Neil Heywood. While it seems to be a plot from a thriller novel, the Chinese themselves admit to the investigation. See the official Xinhua report below. However, I want to point out that Heywood was apparently murdered as the result of a financial dispute with the Bo Xilai group. Often in my discussions with clients, I advise extreme caution when dealing after financial disputes have arisen. Some people accuse me of being overly cautious. The Heywood event shows why I am concerned. When money is involved, the rule of law doesn’t seem to matter much and too many Chinese businesspeople deal with it using gangster techniques. If Gu Kailai was willing to commit murder, think about what a local person would do, particularly when desperate.
  • I am seeing violent incidents like this [Bo Xilai] increasing, not decreasing. The money in business in China just keeps  rising and the more money involved, the greater the chance for violence. There is a lot of talk about the poor economy and I think that is helping to increase violence. Ten years ago, the Chinese were afraid to beat up a Laowai but that has changed.

What do you know?

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  • A few years back my good friend Jay said during my interview with him that “Guanxi either dies or it goes to jail”.  In this case, I would say he has been proven right on both counts. 

    R

  • Nulle

    Guys and Gals, this article is equally applicable to any country or terriority within Asia, middle East and Africa.  (HKG-triads, SouthKorea-gangs, Japan-Yakusa, Vietnam/Thailand-triads/gangs)

    Stanley Ho (or Ho family) controls the triads and the underground money industry in Macau.

  • Mi_fu

    I still tend to believe that the British Citizen died of excessive alcohol intake (a person who rarely drinks is more vulnerable).
    A foreign business man killed (poisened!) by the wife of a member of the central comitee, the story is too bizarre, it simply doesn’t make sense.
    But the story is also too bizarre to be simply be made up by political opponents of Mr. Bo
    Hopefully the undergoing investigation will reveal the truth.

    Anyway, a sad story for the ordinary people of Chongqing.

    Relations … well you have the same issue in the B2B business. You build up an excellent relationsship with the procurement manager of your customer and than he/she retires or leaves the company … That is daily business, escpecially in a fast changing environment  as China.

    Business and violence…
    I have been doing business in all parts of China since 25years. Never seen or heard a case that a business dispute turned violent. The Chinese courts won’t be lenient in such a case. And most Chinese are very rational. Using violence is a high risk but the chances to gain anything are zero (I always have the principle: polite people are entertained first).
    20+ years ago I witnessed a lot of street fighting, but this seems to have decreased a lot. Most likely related to general development of the country.
    Threats of violence and violence are absolutely different things.

  • It’s not business, it does involve law, and it is an example of violence. Yesterday’s 新京报 had a report about a guy driving a little, old Xiali whose car stalled in the middle of a narrow road. The driver of a Merc stuck behind the Xiali as the Xiali driver tried to get his car started got very impatient (purely anecdotal experience suggests Merc drivers get impatient when the car ahead stops momentarily at a stop sign or for a red light) and started hurling abuse. The Xiali got started and headed on his way, the Merc followed. The Merc driver phoned up a few mates, who got in an Audi Q7 and drove out to meet the Xiali. The blocked the road, and when the Xiali, unable to stop in time, crashed into the front of the Audi, they got out and beat the Xiali driver badly enough for him to be hospitalised. Fortunately somebody managed to call the cops who got there in time to arrest the assailants. However, I have no doubt that in this day and age my pale skin and auburn hair would not be enough to protect me should I find myself in similar circumstances.

  • Boston

    Dan, I know it’s a law blog, and this innuendo may be pushing things, but it also touches upon an issue that perhaps might be summarized, in the context of the Bo Xilai lessson, as “who do you trust?”  Deferring to a Chinese native at a university here in Cambridge (Massachusetts, that is, and it’s definitely not Bo’s son, Bo Guagua!), who follows various stories and microblogs in China in her spare time (as opposed to attending princeling parties), she has noted that there are many, many stories circulating in China right now, that apparently Bo Xilai’s rather imposing (and possibly murderous) wife, Gu Kailai, had originally introduced Neil Heywood to the woman who would become his Chinese wife, Kailai’s close friend, Wang Lulu.  That would possibly explain why Mr. Heywood’s “family” had so readily accepted the (ever so Hitchcock-like, straight out of North by Northwest and James Mason’s drenching of Gregory Peck with a full bottle of bourbon) explanation proferred back while Bo was still very much in power, that Mr. Heywood somehow drank himself to death.   And she’s still refusing to talk to the BBC, as she’s still “too sad.”  So another lesson, be careful who you choose as friends, or even more dramatically, who you choose to marry, and be aware of how they were referred to you!   

  • Ed

    Dan:

    You say ‘I am not saying China is a violent country and I do not think it is’.  While I am not going to either agree or disagree with this statement, I think there are a few points to make. 

    I’m coming up for eight years in China, and I used to think it was an amazingly peaceful place.  Now, I think it is actually a very violent place in some ways.  I will explain why. 

    Violence in China tends to occupy a different place in the social matrix than in the west.  I am talking very generally here, but in the west, unlawful violence is mainly committed by those at the bottom of the social ladder, individuals acting on their own behalf. 

    In China, unlawful violence is mainly the province of the powerful, and is the opposite of the individualistic violence one finds in the west.  It is nearly always to enforce a power hierarchy or to protect financial interests, and is often committed at least at the behest of those in the mainstream of society, not those on the fringes. In China, the threat of violence is a very real threat for every professional or businessman, and the more money involved, the bigger the threat. That would be unthinkable in the west. 

    So, my view now on Chinese society is that the social structure is created by coercion – people stay in line (in every sense – socially, economically, politically) because there is a constant threat of violence. My personal feeling these days is that the social structure is wound as tight as a drum, and is very very tense. 

    My broad point is that if we look at the statistics, we might find that on paper China is not especially violent. However, if we look at who violence affects and when, we see that China is very very different from western countries. 

    To finish with an anecdote on the attitude of Chinese people, I spoke to an old friend a few days ago about the Neil Heywood case.  He works for the Chinese government and is very ambitious, and I am English, so for some reason he thought it was funny to greet me by saying ‘hello Neil’.  I told him that I didn’t think that joke was funny.  His response was to say, ‘don’t worry, you are fine, I’m not a member of the Politburo yet’.