Legal Industry News

China Corruption. You’d Have To Be Blind….

Source: China Law Blog

One of the things I have learned from doing this blog is to roll with the punches that really do not have all that much to do with what I have written. If I write a post on how Hong Kong is usually not very relevant to the typical SME going into China, I get angry comments and emails from people incredulous at how I can be ignoring the many companies that go public via Hong Kong. And if I write a post, entitled, “China Corruption. We Ain’t Seeing It,” on how foreign companies do not NEED to engage in corruption in China, I get a whole host of angry emails and comments about how China has massive corruption and how I must be sticking my head in the sand. 

Well duh. I know there is massive corruption in China. We all know that.  

But, that does not mean that foreign companies must engage in it themselves in order to succeed? All I know is that in registering a company in China or registering IP in China (I pick these two things because they are the two most common registrations for foreign companies doing business in China) we have never been hit up for “extra fees” by a Chinese official and I cannot say that of a number of other emerging market companies in which my firm has done this sorts of registrations.  

Just by way of an example, here is comment left by Peter Humphries, who, for some unknown reason, believed that my post (and our readers) were claiming foreign companies NEVER engage in corruption in China (even though nobody ever said anything like that):

Of course there’s corruption in China, and especially at foreign companies. Otherwise you won’t have all those FCPA regulations rearing their heads and scaring the shit out of US executives responsible for their China operations. I wonder about the readers here and if they’re really involved in China at the ground level or just passing student level comment because the statement “we ain’t seeing it” as was noticed by Ted Baker is naive to the extreme and these comments displaying an ignorance of what remains a major managerial and operational concern.

I did not even bother responding to Mr. Humphries at the time but I remember thinking how it would have been nice had he gone back and read ANY of the following posts, before attributing something to me that I never said and never believed and essentially calling me and our readers complete idiots:

• U.S. Company Bribery In China: Violate The Law, Go To Jail
• A Legal Checklist For China Business, where I talk about FCPA compliance as a key issue for American businesses in China.
• China Bribes And Transparency…. Or Why The FCPA Matters.
• China And The Foreign Corrupt Practices Act (FCPA). Sometimes You Just Have To Step Away….
• The Foreign Corrupt Practices Act. Can You Say China Relevant?
• The FCPA And China. Do I Need To Get All Loud On You? (This one is my personal favorite)
• Understanding China FCPA Risks. Who Is A Foreign Official? (I state I am “becoming obsessed with the FCPA)
• The Foreign Corrupt Practices Act (FCPA) Wants You. Even If You Are In China.

So yes, Mr. Humphries, I know there is corruption in China and I know foreign companies engage it in there as well.  Heck, I am always talking about how people do not seem to understand how much corruption there is even in the United States.  And just in case anyone out there is really as dumb as Peter Humphries seems to think we all are, I urge you to read this very thoughtful post on the FCPA Professor Blog detailing/analyzing the U.S. Government’s FCPA case against and eventual settlement with Veraz Networks, Inc.

I thought of all this when I received the following very nice email from “Andrew” today:

I remember you posted a blog a few weeks back about why Japanese manufacturers weren’t going to “pack up and move” to other South-East Asian countries due to a number of reasons. One of them was actually that corruption in China, according to Transparency International, was actually lower than these other countries. Have you read this article in Jamestown about the accumulation of so much wealth in China by so few families? Highlighted by the Mayor of Zhongshan? 

I also remember reading something in the Heritage Foundation a few years back by John Tkacik Jr. or Derrick Scissors that describes how most of the middle to upper class in China are, in fact, members of the Communist Party. This point, in some ways, is validated by the new book by Richard Mcgregor in so much as It seems impossible to rise out of destitution without being a member, or certainly connected to them, no? This is certainly not true in all cases, but I’m curious about what your thoughts are?

I read the Jamestown article (it’s excellent) and my thoughts are that the wealth analysis is probably true and that life does tend to be good for high (and even many mid-) level party and government officials. But, near as I can tell, life is good for these people not because they are receiving money from American companies, but because they are receiving money from Chinese companies and because they are able to give their friends and cronies money making opportunities.

Corruption in China: Just because it can easily be avoided by most American companies doing business in China does not mean it is not there. 

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