Hu Jintao’s Promise to Business: Can He Deliver?

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Memo #53

Robert Hanlon – rjhanlon [at] interchange.ubc.ca

Two weeks ago, fourteen of the world’s most powerful CEOs converged on Washington for a brief 45 minute opportunity to engage Chinese President Hu Jintao (Google was noticeably absent). Of the many issues raised, one has been China’s renewed commitment to the protection of U.S. corporate interests in the Mainland. President Hu voiced support for reform, opening-up, transparency, as well as a fair and just investment climate. Hu then highlighted intellectual property (IP) and government procurement as areas where foreign firms have equal treatment to their Chinese counterparts.

But can China deliver on such claims? Doing business in China often requires corrupt acts while the judicial system struggles to implement IP protection. One area of concern has been China’s excessively bureaucratic state system, driving some firms to cut through the red tape by providing questionable facilitation payments. In fact, recent estimates suggest upwards of 64 per cent of all corruption cases in China involve a transnational business actor. While such payments may improve market access, they do not guarantee IP protection as was spectacularly seen through the recent attacks on Google.

This lack of security has forced many firms to depend on relationships (guanxi, 關係) with officials or joint venture partners. Such murky relationships often subject firms to significant risk through business dealings with politically exposed persons (PEP), increasing a company’s exposure to violating existing anti-corruption legislation. Consequently, the Chinese Communist Party (CCP) recently published its first white paper on the government’s anti-corruption efforts. While the document does not introduce any path breaking Party strategies, it signals a highly visible attack on those engaged in corruption from powerful elements within the Party.

As easy as it is to criticize the CCP on grounds of dysfunctional law, observers must consider the clusters of clean state officials devoted to building a strong China. It is these leaders who will transform the country. Not surprisingly, they have their work cut out for them considering the current investigation rate of corrupt offences hovers around 10 per cent. While improving this record takes time, Beijing is committed and will likely continue its efforts through high-profile crackdowns. The question remains how the 434,600 foreign enterprises that operate within the Mainland borders will adapt to a China that no longer tolerates bribery and collusion.

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