Caixin
BUSINESS & TECH

Doing Business in China: Frugality Campaign Bears Fruit for Foreigners

By Doug Young

It’s the time of year when weather starts improving with the onset of fall, which also means the arrival of mooncakes that are a standard gift during the Mid-Autumn Festival. But such mooncakes seem to be getting rarer these days. Some may see that as a good thing, since few people I know are big fans of the traditional pastries, which are usually quite dense and calorific, much like traditional fruit cakes given out during Christmas.

But the growing mooncake scarcity has less to do with changing traditions or growing health consciousness. Instead, the decline is a direct result of the twin anti-corruption and frugality campaigns from Beijing, since many of those seasonal treats typically came from state-owned employers and government agencies.

That leads us into this week’s column topic, which looks at the changing face of gift-giving and general corporate schmoozing in China. As someone who has lived here for much of the last three decades, I can say with a strong degree of certainty that the twin campaigns have radically changed China’s corporate culture involving such entertainment. All of those changes have been long overdue, and were sorely needed to bring corporate China into the 21st century.

Until recently corporate gift-giving in China was mostly a euphemism for bribery, which was rampant before the current campaigns. The 1990s and first decade of the 21st century are filled with stories of people lavishing everything from cars to expensive vacations on government officials and top executives at big state-owned enterprises in exchange for preferential treatment. One of those was in the headlines just last week, detailing how inspectors discovered drawers and cabinets stuffed with jewelry and expensive liquor, and even a couple of secret rooms filled with other pricey gifts in the office of the former chief of the big wireless carrier China Unicom.

Such stories have a long history in reform-era China. A popular pun when I was here in the late 1980s saw people use the word “yanjiu,”literally meaning “research,” to sarcastically describe the practice of giving expensive cigarettes “yan” and liquor “jiu” to officials in exchange for favors. What started as relatively petty gift-giving morphed into something much larger as China’s economy boomed and those officials became gatekeepers to huge business opportunities sought out by eager entrepreneurs.

New code of conduct

In my effort to get the latest on what’s happening on the gift-giving front, I talked with contacts from both the large and small foreign business communities, and also some friends at local Chinese companies, private and state-owned. The picture that emerged is somewhat complex, since each company type has its own code for what is and isn’t acceptable.

The good news is that foreigners now have a far more-level playing field for doing business in China than they ever did in the past. Most foreigners I’ve talked to over the years said their company policies prohibit them from offering money and lavish gifts as part of their business process, meaning they were shut out from areas where such practices were common among local Chinese.

I should add that despite such virtuous talk, at least some of the biggest foreign names still got sucked into the gift-giving game. That fact was at the forefront of international headlines back in 2014, when British drug giant GlaxoSmithKline was fined a record $490 million for making millions of dollars in bribes to doctors, hospitals and other healthcare professionals to promote its products.

But since that scandal, the big multinationals have become even more cautious than they were before. One of my contacts who has worked at such firms says they treat dealing with big state-owned enterprises and government officials as the same thing, and are far more careful when dealing with such entities than with private firms. That includes following rules that strictly ban any major gift-giving that could be construed as bribes.

Another foreign contact, who runs a much smaller shop, has a bit more flexibility, but noted that such officials will rarely accept gifts these days for fear of getting caught. He added that mooncakes or tokens of similar value are the most that many officials will accept these days. Many will also decline to dine at expensive meals paid for by their business contacts, and some will even do the once-unthinkable and offer to pay from time to time.

The story was similar from one of my contacts at a private Chinese company, who said the days of giving “famous brand” gifts, such as Moutai liquor or designer bags are pretty much gone. The days of big banquets sponsored by government agencies, state-owned enterprises or even private hosts are also quickly becoming a thing of the past. He also noted that small tokens of appreciation are still acceptable, such as stored value cards for shopping at big supermarkets like Carrefour, which he still gives out.

The situation is stricter at big state-owned companies, according to another one of my sources who works at one. He detailed a new internal policy that limits all expensed meals to no more than 2,500 yuan ($380), regardless of how many people attend. He also told a tale that shows just how extreme things have become, with the anti-corruption watchdog in Beijing becoming directly involved when one of his firm’s employees used the company name to purchase a couple of bottles of Moutai at a local supermarket.

The bottom line is that the playing field is rapidly leveling for foreign businesses that were previously at a disadvantage to Chinese rivals who were far more eager to play the gift-giving game. Whether or not that situation continues over the longer term is anyone’s guess. Based on my own experience, I sense that a new generation of more professional, Western-style officials is slowly gaining influence at many of these government agencies and state-owned entities. That makes me cautiously optimistic that the era of lavish gifts and big banquets may soon be firmly relegated to the history books.

Doug Young has lived in Greater China for two decades, including a 10-year stint at Reuters, where he led China corporate news coverage. Send your questions or comments to DougYoung@caixin.com.

Share this article
Open WeChat and scan the QR code
Copyright © 2017 Caixin Global Limited. All Rights Reserved.