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He who craves wealth joins the party

He who craves wealth joins the party

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In his ongoing series for Splash looking at how to conduct business in the People’s Republic, Charlie Du Cane, the head of Clipper (Hong Kong), today looks at corruption in China.

“Corruption? Corruption is government intrusion into market efficiencies in the form of regulations. That’s Milton Friedman. He got a goddamn Nobel Prize. We have laws against it precisely so we can get away with it. Corruption is our protection. Corruption keeps us safe and warm.”

If you read the tautological nightmare that is the UK Bribery Act you will draw succour from the above. This excellent quotation from the movie Syriana encapsulates three points. First, there is no agreed definition of what corruption is. Secondly, there is no agreement that corruption is entirely negative in its impact. Thirdly, no one seems to be able to regulate it into extinction.
Whilst I recognise that corruption is a global phenomenon, and China is far from the worst offender, this post will focus on China and corruption.

When I worked in Beijing, my then company asked me to start a research report, taking articles from Chinese sources and distributing English versions. This being 2012, a troubled handover was turning into a scattergun anti-corruption campaign. In the shipping industry dozens of executives either fled or were arrested. I would nervously report to my COO on a weekly basis where I thought corruption had got close to our company. One article by a blogging professor sticks in my mind, where he suggested 10% of the Chinese GDP was being spent on bribes.

But let’s look at what’s going on under the surface.

When is corruption clearly wrong? There are some acts of corruption that I witnessed in my time there that were so stupid and so obviously criminal that we should call them what they were. Theft is theft. We have all heard of Chinese police chiefs being found with mattresses made of renminbi, and I have witnessed many acts of theft in my time in China . In one company I worked for, an equipment manager did a lot of business purchasing various equipment from one supplier. His western boss would approve as the costs were reasonable, and the quality good. Of course, he couldn’t read the Chinese invoices, which showed that his supplier’s registered office was this manager’s home and he was negotiating bulk purchases at a discount and selling on at market price to his employers.

What about gifts? The culture of gift giving is obviously huge in a country where everything public is very personal. How big should they be and what should they be? I remember in one week being given a bottle of wine worth about $4,000 and $3,000 in cash – the cash went back, the wine was delicious – and both were reported. Importantly both weren’t given to make me do something – they were expressions of friendship from people who we had a close relationship with. Is this corruption? Is this culture? Is cash corruption, but wine not?

What about cronyism? The recent disappearance of banker-to-the-princelings Shao Jianhua shows there is an entire culture of the well-connected taking advantage of the many opportunities the rampant growth of China has offered. Is this really corruption? Arguably this isn’t corruption at all, but normal development in any society. Hell, I come from the UK where dukes rank among the wealthiest citizens and 19 of our 54 prime ministers went to the same school. The close interaction between money and politics exists in every society and always will. On balance it creates wealth for that society and we shouldn’t criticise the Chinese for being human.

What is the golden rule to understand corruption in China? In the People’s Republic, with a strong but fractured government, no separation of powers, and an inadequate regulatory system, corruption’s definition is often at the discretion of those in power. Especially at the top of corporations, state-owned enterprises, and government institutions, corruption is declared because the powers that be declare it to be so, not because an impartial legal system has ruled it to be so.

This leads me to conclude with four ignoble truths about corruption:

1) Sometimes it’s just theft, however its dressed up.
2) Sometimes you must pay attention to culture.
3) You are always going to have an elite in any society.
4) In China, what those with power says, goes, whatever the law, whatever the morality.

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1 Comment

  1. arvind
    September 18, 2017 at 9:57 am

    totally endorse the four truths Charles ; generally it is held that the more prosperous the middle class gets the less is the corruption –it also implies thy will become e more educatedand therefore the less “corruption ” there will be in society –saying –its somewhat proven by the western model Charles bit i just think it doesnt work for the eastern one( now that i live in your side of the world maybe it holds true here too but i think to a far lesser degree ) since the quantum of people living in the lower middle class and poverty sector is far greater than the ones above –i dont know why but its maybe something to do with dna or its to do with dwindling resources , where an internal clock tells you that such good times will not last and like any species one tries best to make it survive forever little realizing the fact that the “corruption ” one is indulging in will be responsible for its very demise–the point to note is that its not the lower middle class and poor who are indulging in this behaviour its the ones above in the social ladder .
    this maybe the ruminations of a pessimist .