Gifts, Guanxi and Corruption in China

Corruption in China has been prominent in the news over the past few months. If you do business in China, you should be aware of recent events. China’s new leadership is cracking down on corruption. The US started cracking down on corruption back in 2010 with a special enforcement unit. The US government also initiated a number of enforcement actions in 2012.

With all of the above happening, we are declaring January “Corruption Month.”  We will publish an article on gift giving and corruption in China every Thursday in January.

If you are American you should be aware of the Foreign Corrupt Practices Act (FCPA). If you need more background on the FCPA, I wrote about the FCPA earlier in 2012. There are also a lot of good reference sites. If you need an actual legal opinion, I suggest you contact a real lawyer who practices in this area.

Corruption in China – Is it really that bad?

One recent study says corruption in China is not that bad at least not when you compare it to per-capita income. The study compared the level of corruption to the per-capita income in both the US and China. The study found that corruption in the US was higher than in China if you compare times when per-capita income was the same. This means comparing modern day China to the United States in 1870. At that time, China actually had less corruption relative to per-capita income. The study concluded that there may be a life cycle of corruption that involves less corruption as societies and countries mature. I guess the US was a teenager in 1870.

On the other hand China was rated at 39 on a scale of 100 (0 being highest level of corruption) and ranked 80th out of  174 countries. China reportedly believes that the level of corruption threatens the communist party’s ability to stay in power. If this is really the case (and I believe it is), then you can expect changes in how corruption is enforced. For more information on corruption in China, please check out the Business Anti Corruption Portal website on China.

From my perspective, corruption is an enormous problem in China. Political and Military positions are bought and sold for enormous sums and the new office holder recovers the cost by demanding gifts and bribes from underlings. In this fascinating article, Li, a small business woman in Jinan, details how for mid-autumn festival she gave about “$800 to each official she needs to keep happy.” She goes on to explain that the officials track who gives the best gifts. She implied that if she falls below others, it will impact her ability to do business.

There is corruption in every country. Without creating an independent investigative, judicial and enforcement process, there is little hope that the government can stem the tide of corruption that threatens to swamp the entire country. Add the culture of giving gifts and trading favors and you have an extremely slippery slope. When does a favor or gift become corruption? The easy answer is when it is a direct trade for something else.

The War on Corruption in China

The War Corruption in China has been all over the news with the recent leadership change in China. Steve Barru (@sbarruchinahand) also argues that this latest anti-corruption campaign in China will ensnare more higher level officials. Mr. Barru also believes that the campaign will not address the systemic drivers for corruption, which are the lack of checks and balances in government.

Corruption may threaten China as a whole or just “the party.” the question is can China survive the burden of the cost of corruption. Weibo and the internet may be China’s biggest hope against corruption. Time details why expensive watches are no longer in vogue with chinese officials in the article “Bringing Down Watch Brother.” The articles describes how  a picture of  an official wearing an expensive watch smiling at the scene of a grisly car accident went viral on Weibo. The official was eventually removed from office.

What Now?

Over the next month, we’ll be detailing how to articles on the culture of giving gifts, trading favors and corruption in China. I hope you enjoy the posts.

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Trackbacks & Pingbacks

  1. […] in Colorado. Any China vet will tell you that the people I am talking about were all trying to build a relationship/develop Guanxi with […]

  2. […] On January 10th, 2013, an article by Hong Tu (formerly Colorado Chinese Language Center) was mentioned briefly in the Wall Street Journal Blog. The article was on Gifts and Guanxi in China. […]

  3. […] into corruption is key to your success in China and to staying out of jail in the United States. Corruption is a serious issue for anyone who does business in China and while the perks are changing, the […]

  4. […] business in China requires some understanding of Chinese culture. You probably already know about Guanxi and gifts in China. You need to give a return gift that is slightly better than what you receive. As the relationship […]

  5. […] I was warned about gifts within a week of  moving to Taiwan. I was told, “Be careful. The gifts are never free. They always want something in return.” The warning came from a seasoned but jaded westerner who understood how things work but did understand that it was just a cultural difference not  manipulation. Chinese people give gifts. Gifts are an important piece of your strategy to build Guanxi in China. […]

  6. […] that we’ve covered the update on the FCPA and corruption in China and you know that the wrong gift could have legal repercussions, let’s talk about Guanxi and […]

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