It’s Ethics, Not Ethnicity

More than 30 years after China’s policy of “reform and openness”, the verdict on its reliability is still pending. If after so many years the answer is not unquestionable yet, however, it means that the trust factor should be reconsidered. China is not challenged for its success, but questions remain on how that was achieved. Determination and ambition of the country are fully legitimate; what is debatable is the respect for those that are commonly called rules of the international community.
This is not free from errors or arrogance, but over the years it has built a body of behavioral norms and legal rules, which serve as foundation for international economic relations. Such body of prescriptions is traditionally associated with the concept of ethics, even though sometimes it stands directly in the precincts of cogent rules. In very recent years, China’s compliance with international standards has seen more shadows that lights. Foreign companies complain about the persistence of old mistakes; foreign corporations bidding to public tenders frequently lose despite presenting very cost-effective offers. IPR violations is still rampant on a large scale, corruption has rather increased more than vanished.
The European Chamber of Commerce in China has published reports on these recurrences, echoed in interviews with international managers. It is a phenomenon that analysts call “economic nationalism”. As GDP increases, local appetites grow more than proportionally. This is an old vice with new features. That’s why it is a more serious source of concern. Time has not done justice to defects, only changed them.
In the early 80s only a superficial analysis could have assigned a role of “white knight” to China.
The combination of endless and cheap labor force for companies with a huge market available was perceived as unique but immediately contradicted by the facts. China was not only unprepared but it had no intention to pursue this role. Non-conformity to international business standards had political, economic, cultural implications. It was also a defense against its own inexperience. Chinese records are full of copies of products, imitations of famous brands, and the misappropriation of technology. On top of the difficulties lies the government negligence and the partiality of the courts of justice.
This system however has not prevented large gains for foreign investors. Growth has been so spectacular to withstand the irregularities. The same underlying optimism greeted the entry of China in the World Trade Organization, WTO. Benevolence bet on the future: over time China would become more similar to developed countries, abandoning its tradition of breached contracts, violated industrial property and manipulated accounting books. Ten years of adhesion to the WTO have undoubtedly improved the business climate, but other obstacles have hindered the full deployment of an economy based on merit.
More powerful lobbies are now active and organized to care for their profits. They are not direct expression of the authorities, but sometimes have found protection and support within them. They do not possess specific criminal mission, even though the border between the violation and the standard is often interpreted without clarity. In the past, unscrupulous individuals took advantage of the easy enthusiasm created by the opening of China. Today we rather see a confluence of interests of rampant entrepreneurs, local governments, trade unions who have abdicated their original role, speculators, and opaque financial institutions.
It’s a new face of China: prepared, skilled, and internationalized. Against these dangers the ruling class – both the CCP and the government – seems sincere but impotent. Anti-corruption campaigns and exemplary punishments proved insufficient. When you try to impose a “scientific style of work”, it means that the performance of the economy threatens to spin out of control if left in the hands of profiteers. It is therefore legitimate to wonder if China is headed toward an economic dualism never experienced before: on one hand the search for regularity, on the other the persistence of incorrigible vices.
The diversity of China is not at stake, but its connotations for foreign companies definitely is: an attractive country progressively removing obstacles or a melting pot of private interests with no rules, totally alienated from control by the central government? The answer lies in its complexity. China has changed its traditional unity, split into a series of political, territorial and behavioral differences. Some companies are virtuous, others are not. The same heterogeneity exists for banks, local governments and business operators. If considering China an undifferentiated monolith was a mistake in the last century, today it is unforgivable.
Every business has to be analyzed, each budget must be read, and each area must be explored. After so many years, China is still not what we want, but what it has decided to be. However embittering this might be, there is no other solution than sharpening the weapons of analysis and business acumen.