5 Considerations About Bribery in China

For those out there with 20 free minutes and a curiosity to learn more about China's Financial System, I strongly recommend you peruse the attached report from the Brookings Institution. It's a fairly comprehensive, though not exhaustive (nor exhausting to read), account of the Chinese Financial System, and the authors have elected to write in a Q&A format, which I believe in this case is super helpful. Give it a read when you're going to sleep this evening or on the john tomorrow…

One section, conspicuously left out, is the notion of 'greasing palms,' otherwise known as bribing. Because there wasn't much mention of this in the report, I thought I might try to fill-in-the-blanks for monkeys who have an interest in that sort of thing. So, here are 5 Considerations About Bribery In China:

1) It's illegal, but only when it is

– No big surprises here. Although when talking about business in China, bribery is often taken for a given or expected, because it is an illegal practice, many refuse to take part in it all together. They may find themselves at a competitive disadvantage when push comes to shove, but empirically, there are more and more organizations that elect not to participate in such illicit schemes.

The government itself will tell you they're working on enforce/crack down on bribery and corruption, but much of the activity goes through unreported. Those at the top have little incentive to become whistleblowers, and those at the bottom wish to remain in the head honcho's good graces.

2) It works well, up to a point – There. I said it. Paying off the right people in China, not unlike other places, can get you a seat at the negotiating table or get a required license/permit. It generally can't, however, turn something illegal into something legal, but in fact the most pedestrian use of bribery is to speed up a certain process…

Getting land registered or re-zoned, pushing a product registration through a regulatory body, or even ensuring an IPO receives favorable treatment from the PORK (Public Offering Review Kommittee) are all fair game. Paying off a police battalion to not arrest you after you've committed murder? That's so 1980s.

3) It's sophisticated, when you deal with the pros – There exist countless positions in banks and large corporations known as 'relationship hires.' These are the guys who have been around the block and know precisely which buttons to push. While the principals are few, the methods are many. Gone are the days of suitcases filled with cash, as they've been replaced with a more nuanced system. Through the grapevine, as I have never engaged in such practices directly, I've heard of bribery taking the form of:

Luxury cars, barrels of oil, gift cards to malls and luxury stores, luxury goods themselves, flights and hotel rooms in Hong Kong, Sanya, or other getaway destinations, tuition payments, watches, dinners, and of course, red envelopes filled with cash. The system has become more refined over time –there now exist special gift cards, that are able to be used in malls and department stores. The initiator pays in cash and the whole transaction is thus untraceable.

4) It places the government in limbo, which the government actually likes – Because the system of kickbacks is so deeply entrenched in business practices (for example, nearly every medical device or good sold to a hospital involves some sort of 'ancillary fee' to pay the nurses and doctors, who make measly salaries, to select a certain brand. This is what distributors are for…) the government can only step in so much. All the talk in the news of corruption crackdown is largely posturing, with little substantive policy change to support the proposals.

I will say, though, that the egregious display of wealth and ostentatiousness of some select government officials has been a great thing for the central government, allowing them to fire a few bullets at medium-profile officials (who were not going anywhere, anyway). This degree of flexibility that certain corruption provides the government with is actually advantageous in a lot of ways. They can pull the trigger when they see fit and sit on their hands when they care to as well.

5) It is the result of Guanxi, not the cause of it – This is a personal theory, but I'd like to air it here to gauge ya'll's response to it: I believe the system of 'Guanxi,' or heavily tit-for-tat relationships, facilitates this corruption and bribery, rather than is a result of it. As a phenomenon rooted so deep in Chinese society, Guanxi can provide an excuse for actions on the border of acceptable and inappropriate.

But where exactly does the line get drawn? If you invite a business partner out to a fancy dinner, is that bribery? What about treating them to a round of golf? Giving them a watch? Talking to your friend who can arrange acceptance into a university for their child? Where does the line get drawn and who should define it?

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Comments (7)

Jul 3, 2013 - 9:49pm

The last question of where the line is between appropriate and inappropriate is a great question to think about. Having done a brief stint in a law degree, you quickly realise there is no way to appropriately legislate every particular action.

Borrowing from criminal law the notions of actus reus and mens reas, I think gifting becomes bribery only when the act and the intent are congruent. Therefore a gift given with no intention of seeking an ulterior agenda would not be deemed a bribe. Having said this, it could just as easily be argued that in a system like China where "guanxi" plays so heavily, it would be immature to think that any gift offered doesn't carry with it an alternate agenda.

Another question that would arise then, would be what is the necessary intent? Intent to influence a person? So giving a gift to a person in the hopes of them liking you a bit more? What is the necessary intent?

At the end of the day, bribery is an issue that sits on a spectrum with no correct interpretation. And I think the onus to identify a situation as bribery is a reflection of an individual's values.

Jul 4, 2013 - 12:50pm

I work in REPE largely focused on China and a big portion of the job is obtaining land through government auction (or working with developers who do)... you can do it cleanly and still compete / make money, and I believe most foreign firms do... if you can do that cleanly you can do a whole bunch of things cleanly. There is corruption, but it's not as omnipresent as you might think.

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