No business without 'guanxi' in China

Last Updated: Mon, Sep 21, 2009 06:45 hrs

Beijing: "I cannot do business in China without bribing people," the representative of a German company in Beijing complained.

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"At headquarters, they always say we should stay clean and not pay any bribes, but then you wouldn't get anywhere here," the businessman said, explaining his dilemma when attempting to conquer the huge Chinese market corruption-free.

"The people I'm dealing with here ask me directly on the phone, 'Where is my money?'" he said.

Low prices, top-quality products and connections, or "guanxi" in Mandarin, are necessary to do business in China.

But Western, or in this case, German, technology is expensive. There are also other strikes against the German businessman. If there can be no guanxi, which have to be maintained by favours or plain corruption, what is left is quality, which, on its own, fails to cinch any business deals in China, the businessman said.

Large corporations doing business in the world's most populous country face similar problems keeping their hands clean.

"Bribes or kickbacks are part of the traditional business conduct in China," said an official from a large German firm that employs thousands of people in China.

"It's really difficult to dissuade our Chinese employees or the sales reps (representatives) who work with us (from providing bribes), but we try," he said.

An increasing number of foreign companies have found themselves at the receiving end of the dangers inherent in the opaque network of corruption, business and politics as the latest investigations against prominent companies like the Coca-Cola Co or the British-Australian miner Rio Tinto Group show.

Three Chinese employees and the head of Rio Tinto's Shanghai office, Stern Hu, an Australian citizen of Chinese birth, have been detained on corruption charges since August.

The case caused international concern as China's authorities decided to move against Rio Tinto only after plans by state-run aluminium company Chinalco to acquire a substantial share in Rio Tinto met with Australian resistance.

But the detentions also triggered a renewed discussion in China's media of the scourge of corruption, which is present in all strata of society.

Not only foreigners but also Chinese need guanxi to get ahead. It is an open secret that school headmasters and teachers accept bribes. Doctors take special care of individual patients when adequately "compensated". Drug companies also bribe their way into hospitals.

Even judges can be bought if one has the right connections, and the construction and real estate sectors are infamous for corruption.

Favouritism is rife as well. Officials in oversight bodies are in bed with the factory owners they are supposed to supervise. Some even own company shares.

Often functionaries from government departments and China's Communist Party are connected in Mafia-style networks with businessmen, security forces or even criminal gangs.

Police do not enjoy a good reputation either. In the southwestern metropolis of Chongqing, a number of high-ranking officials is facing jail terms as new party leader Bo Xilai cleans house.

The former trade minister, once a potential candidate for the premiership, is making a name for himself in the province as a corruption fighter. As a result, the deputy head of Chongqing's police force is now in prison with the head of the traffic police and the director of the city planning office, whose death sentence has been suspended for two years.

Power and money are closely connected in the Communist Party and make its venality and moral decay a question of political legitimacy.

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China's people are sick and tired of corruption. Some regard official media reports that more than 50,000 officials were found guilty of corruption over the past six years as a success. For others, it is a declaration of failure.

But mostly, there is a sense that battling corruption in China is a quixotic undertaking.



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