Businesses face severe corruption in China

Corruption is like cancer, if left untreated, will kill the host in the end.

On June 17, China’s supreme leader Xi Jinping said corruption in the country remains “severe and complicated” and that the “stubbornness and danger” of corruption cannot be underestimated.  He emphasized to party cadres to maintain a clean relationship between the government and business community.

Xi is certainly right about the seriousness of the corruption problem in China.  However, even though the problem is real, Xi’s fight against corruption is essentially a power struggle, where he uses instruments of the state to eradicate all political opponents.  As such, Xi’s anti-corruption campaign cannot be seen as a means of promoting competitiveness, transparency and integrity in the business community, values which are all essential for healthy economic development.

In China’s totalitarian regime, there is a lack of independent checks and balances and the power to dictate anti-corruption policies is in the hands of whoever is in power at the moment.  

In this climate of constant power struggles, which is destabilizing the business environment, CEOs and investors will have to be politically astute enough to know who to place their bets on.  Even then, there is the risk that whoever is in power today may not be in power tomorrow and this will have ramifications for businesses that were seen to be close to them.

Additionally, it does not help that in Communist China, the party’s interest, which has now been subjugated by Xi to represent his own interest, overrides that of the private sector.  Since coming to power, Xi has tightened control over the private sector and demanded that all businesses must be subservient to the Chinese Communist Party.

All these factors compounded the corruption problem and effectively increase the risk of more corruption as CEOs and investors seek powerful officials as patrons to help them navigate the treacherous bureaucratic maze and tiptoe around political minefields.  CEOs and investors also have the false perception that patrons can “protect” and “facilitate” businesses.  So, in all likelihood, in Communist China, corruption and hence the cost of doing business is much higher as compared to any free and open democratic country.

Therefore, corruption still is a very significant problem, as it has become a way of life as well as a way of doing business in China.  The cancerous growth of corruption is not going to abate any time soon and there is a risk that it will worsen as collusion between officials and businesses become more serious.

Corruption is like a cancer tumor, killing the host in the end

Corruption is the act of receiving, asking for or giving any bribe as an inducement or reward for a person to do a favor with a corrupt intent. There are many kinds of bribe, including money, sexual acts, properties, promises and services. In return, a person may ask for favors which can include unfair business advantages, confidential information and other special privileges.

For a company, corruption undermines healthy competition, raises the cost of business operations, destroys corporate and individual integrity and poses reputational risks. If allowed to take root in society, corruption can lead to a breakdown in social order, tarnish the reputation of an entire country and result in a loss in overseas investor confidence. Effectively, corruption, if left unchallenged, can bring down a country and leave the economy in tatters.

In reality, however, even with harsh penalties, corruption, a serious matter with far reaching consequences, cannot be totally eradicated.  This is because corruption stems from a weakness of human nature – greed, temptation, the desire to amass wealth or to obtain business through unfair means.  Be that as it may, it does not mean that we have to take a defeatist stance.  It only means that we cannot afford to let our guard down in the war against corruption.

Action from the top is key to fight corruption

In operating in China, CEOs and investors must do their part to stamp out corruption in order to protect their businesses and investments from being caught in thorny and compromising situations.  A clean operation is a competitive edge, which will protect the company and employees, boost reputation and staff morale and make doing business more attractive for customers and partners.

A company’s top management has to take the lead, in pledging and taking action towards zero-tolerance of corruption.  The attitude from the top has a large impact on the values by which the company’s employees and business partners operate.  Strong and visible action by top management against corruption is crucial for the rest of the employees to develop and embrace good business values such as fairness, transparency, integrity and meritocracy.

The pledge and commitment from the top for zero-tolerance towards corruption has to be translated into action through the formulation of a clear and visible anti-corruption policy, which will institutionalize the best practices for employees and partners through a code of conduct and a prescribed set of rules and principles.

An effective anti-corruption policy, when properly communicated to all stakeholders within and outside the company, lowers the probability of corruption, reinforces deterrence, advances a company’s professional reputation, and provides confidence to potential customers.

CEOs and investors should put their money in other pro-business Asian countries 

In theory, with collective power coming from all CEOs and investors doing their part in fighting corruption, on the macro level, the countries that they operate in can remain a conducive place for doing business, and they in turn will have benefited immensely from an incorruptible and clean system.  However, with this being said, it takes two hands to clap.   A clean government’s support is necessary and businesses cannot expect to fight corruption on their own. 

Importantly, with the long-standing pervasiveness of corruption found throughout all levels of the bureaucratic system, and with the corrupt culture firmly embedded into the opaque governance structure, it is relatively difficult for CEOs and investors to take the moral high road and remain above the fray, if they want to continue to do business in China. 

Additionally, with the worsening economic crisis, persistent zero-Covid policy, high-handed crackdowns on private enterprise, and the near certainty of Xi being anointed as leader for life at a party congress later in the year, maybe it is the right moment now for CEOs and investors to finally realize that the gravy train is long gone and that it is time to pull their money out of China.  

Photo credit: iStock/ Derek Yung. Jan 23, 2021, Hong Kong. Residents wait in line for mandatory Covid-19 test after locking down of Jordan district.

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