The Perils of China’s Guanxi

 

Country risk firm’s new report says multinationals are at risk in China

 

China’s anticorruption campaign, now into its third year, is presenting real risk to foreign businesses, altering accepted working practices built on guanxi, or connections, and dampening sentiment in key markets, according to a report released today by the country risk firm Steve Vickers Associates.

Because it is aimed at breaking the links that win advantage through association, the campaign is like no other in recent Chinese history. Guanxi is a central idea in Chinese society and has governed the way business is done by Chinese not only in China itself but across the world. China’s new leaders are out to change that.

Because western businessmen so enthusiastically adopted guanxi as a way of navigating Chinese society, those connections are posing risks, according to the Vickers report.

The Vickers firm is hardly alone in identifying the risk. The harshness of the overall campaign has caught the attention of Li Hejun, the head of solar manufacturer Hanergy Group and China’s richest man, who warned delegates to the Chinese People’s Political Consultative Conference last week that the drive is snaring private entrepreneurs to the point where it is damaging the economy. Li said added that the lack of a legal structure to wind down the firms of those netted is resulting in unpaid debt and collapsed companies.

Wang Qishan, the head of the Central Commission for Discipline Inspection, is leading the corruption purge. At last week’s National People’s Congress, he told delegates it is not going to slow or abate any time soon. Some of China’s most senior figures are targets apparently including associates of the retired Jiang Zemin, 88, who headed the Chinese government from 1989 to 2002, and Hu Jintao, who succeeded him to lead the country from 2002 to 2012.

The campaign carried out 53,065 investigations, disciplined 71,747 cadres and severely disciplined 23,646 by the end of 2014, according to the Vickers report. Much of it has been aimed at links that spread far and wide from Zhou Yongkang, the head of China’s security services, who now could face the death penalty.

The report also points out that the purge has also opened up space for others to climb the government ladder, replacing the thousands who are being displaced. “Any business that can identify winners early could forge links that could provide a real competitive advantage.” Asia Sentinel