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BUSINESS & TECH

Doing Business in China: Anti-Corruption Drive Nets Tigers, but Fails to Swat Flies

By Doug Young

This week’s column picks up from last week, when we looked at the state of gift-giving and the diminishing role of such bribery in corporate China.

In that instance it was clear that Beijing’s twin anti-corruption and frugality campaigns have done the once unthinkable and nearly stamped out the practice of lavish gift-giving to top government officials and executives at big state-owned companies.

But the same can’t be said for more low-level gift-giving and other forms of corruption that continue to thrive despite the wider clampdown.

The good news from the high-level clampdown was its equalizing effect for foreign businesses, which were often reluctant to play the gift-giving game when competing with local rivals for large state-linked contracts.

But it seems that both Chinese and Western companies still engage in at least some forms of more petty corruption at lower levels, despite President Xi Jinping’s pledge to go after both “tigers” and “flies” when he launched his signature anti-corruption and frugality campaigns nearly five years ago.

Stories of people abusing their position at the rank-and-file level are quite common. One of the most rampant abuses involves using company funds as a personal bank account, with employees claiming reimbursement for just about anything. One of my contacts at a state-owned enterprise always gets receipts for any large personal purchases, which he then unabashedly claims as official expenses, covering the costs of everything from his personal meals, to massages and items like bedding and kitchen utensils.

Such false expense claims certainly aren’t limited to China, and I also know plenty of Westerners who do similar things. But the brazenness of some things you see here goes beyond anything anyone would attempt in the West, mostly because many people here often seem to see such claims as a legitimate benefit of their jobs, even at private companies.

That form of corruption is certainly unhealthy in any company or government entity. But the practice I find more worrisome is the subtle use of one’s personal position to extract “gifts” and other favors from business partners. To get a better handle on that situation, I talked with one of my contacts in the media, which seems like a good microcosm for the kinds of things that happen throughout the broader corporate world in terms of petty corruption.

‘Traffic Money’

Those in the media know the main form of petty gift-giving for our industry comes in the form of money-filled red envelopes or “hongbao,” often euphemistically referred to as “traffic money” to offset the money reporters spend to get to and from events. While the days of giving luxury cars and all-expenses paid trips to exotic destinations to senior government officials seem firmly in the past, the same isn’t true for giving red envelopes.

It seems the rules for such gifts are quite well defined, with local reporters in a metropolis like Beijing or Shanghai getting 300-500 yuan ($45-$75) for attending individual press conferences. Out-of-town media get slightly better compensated at 500-800 yuan a pop. Foreign and domestic companies alike engage in such practices, one of my contacts said, using third-party intermediary event organizers to avoid any violation of company policies on direct gift-giving.

My contact also detailed another form of corporate-sanctioned corruption, which sees many media outlets agree to do interviews with executives at big companies with the understanding that the resulting articles will be positive. Those media outlets then collect big fees for their “services,” and the resulting stories are frequently run as regular news without any disclosure of their paid nature.

One of my contact’s most interesting stories involved the annual March 15 Consumer Rights Day, which has become a recent institution in China for its exposes involving companies that offer defective or misleading products or otherwise mistreat consumers. In the run-up to the date, many media outlets will call up major corporations and threaten to write negative stories about them based on supposed consumer complaints, he said. Companies are then asked if they might consider running an advertisement in the media outlet making the veiled threat. If the company ultimately buys an ad, which many are quite willing to do, the story is suddenly killed.

Another non-media contact told me similar things happen in his industry involving manufacturing, with procurement personnel often getting things like gift cards from the suppliers they deal with. Such gifts, ranging from supermarket vouchers to value-added gasoline cards, might sound innocuous at first glance. But apparently the amounts can get quite large, since anyone with a car can easily burn through a 10,000 yuan gas card in a relatively short period.

I said last week that the higher-level corruption could be relegated to the history books even after the current frugality campaign ends, since the younger generation of Chinese seem more professional-minded than their predecessors and thus are more likely to eschew such gifts. But rooting out this petty corruption could be more difficult, since many see it as a perk of their jobs.

One saving grace for foreigners seems to be that we’re often not expected to participate in such smaller gift-giving. That means failure to play the petty corruption game doesn’t put you at a major disadvantage, though perhaps your calls might not get returned quite as promptly as someone who gives out 1,000 yuan grocery vouchers.

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.

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