“Last November, Oriental Outlook magazine printed a diary that Hunan entrepreneurs Mao Shijian and Zhou Difan had kept during the eight months they spent trying to get their fireworks business registered. The publication of the diary, whose 105 entries each recorded a gift or a bribe paid out to local bureaucrats, eventually resulted in thirty-six officials and party functionaries being disciplined.
…Because Zhou and Mao were not well-connected in town, they sent their gifts through Zhou’s brother, Zhou Dixuan (called Liang Wenkuan in the Oriental Outlook article). As a result, the favor they curried belonged solely to Zhou Dixuan even though he didn’t put up any cash. Once Zhou Dixuan forced Zhou and Mao out of the picture, he and his wife began to systematically fleece their investors and franchisees…
According to Chinese law, prosecution for bribery can take place only when gifts total more than RMB 200,000; although Zhou and Mao gave Zhou Dixuan more than RMB 300,000 to build relationships with local officials, the authorities only confirmed that RMB 180,000 had been accepted. Despite all of the publicity, there’s a good chance that most of the people involved will get off with little more than a slap on the wrist.
The (sort of) moral of the story is that “paying out bribes is likely to backfire, and if you must curry favor with the authorities to get your business off the ground, make sure you do it in person”.
While we do not recommend or support bribery, the development of legitimate relationships and guanxi is certainly still important – and the last point rings true in that context too: “make sure you do it in person”. Too often we see businesses in China relying 100 percent on their local MD or advisor. Only when that person makes unreasonable demands (aka blackmail) or leaves (sometimes under a cloud) does the overseas management realize that they have no links of their own with key officials, clients, suppliers, or even other staff.
Danone / Wahaha is a case in point, but we have seen it in a lot of cases that do not make the papers – a GM who hid real suppliers behind a series of shell companies so that his foreign bosses did not even know who the real suppliers were, or a joint venture where a staff member tried to blackmail the foreign owner, in relation to “issues” they had not been aware of, in order to avoid being fired, and so many more…
If you do not own the relationships, then ownership of the business can become a whole lot more difficult…so invest in those trips to China, and enjoy the food, karaoke – and friendships – that can result.