【ABC】Foreign companies 'bribe' their way into China

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Foreign companies 'bribe' their way into China

By finance reporter Sue Lannin for The World Today



Posted Thu Jul 23, 2009 4:12pm AEST
Updated Thu Jul 23, 2009 4:33pm AEST


Analysts and Transparency International say corruption by foreign businesses is rife in China (Reuters)

A Chinese business consultant says too many Western companies think they have the right to bribe their way into China.

The arrest of Rio Tinto executive Stern Hu and his three colleaguesin Shanghai has focused attention on alleged corruption in the Chinesesteel industry.

Transparency International says that companies from emergingeconomic giants like China are perceived to routinely engage inbribery.

One estimate puts the cost of corruption in China at more than $100billion a year or around 5 per cent of gross domestic product.

Corruption crackdownChina's Central Government has made big efforts to crack down on corruption but it still remains a big problem.

A study by the Carnegie Endowment in 2007 estimated that around 10per cent of government spending, contracts and transactions are used asbribes, kickbacks or stolen, and the problem is also coming fromforeign firms.

Bruce McLaughlin runs Sinogie, a consultancy which advises companieswanting to do business in China. He says too many companies think theyhave to pay bribes.

"Unfortunately some foreign companies do feel that they have to.They're wrong. If you're asked to bribe to get something to whichyou're legitimately entitled, then you can either walk away or you canthreaten to go over that person's head," he said.

"There is this thing that some foreign companies are still convincedthat this is the way business is done in China and that goes from thesmallest foreign companies to the largest."

Bruce McLaughlin knows of foreign companies that have paid bribes and suffered for it.

"One good example would be a foreign paint company which had movedinto Zhongshan in southern China and they have paid bribes to beallowed to move into an environmentally protected area which offeredlow taxes for environmentally friendly companies," he said.

"They didn't meet any of the criteria and they shouldn't have beenthere, but they paid bribes to get in so they could pay the low taxes.

"Because of the Central Government paranoia now there's a policy ofrotating staff from city to city or from district to district and thathappened here. The person they paid the bribes to was rotated away.

"Next person came in, discovered that this company was in theenvironmentally protected area, violating all the rules and the bribesnow counted for nothing - they bribed someone who wasn't there anymore- and the factory was closed down. They lost all of their capitalinvestment."

AlternativesMr McLaughlin says there are ways to get around requests for bribes.

"You're dealing with a very multilayered bureaucracy. At one level,if you're looking to invest for example and somebody says well you'regoing to need to pay bribes to get approval, there are hundreds ofthousands of other towns that would love your investment," he said.

"If you're tied to a particular place, or tied to a particularproblem, and somebody starts to ask for bribes for example, you caneasily go over that person's head.

"Go up, if it's a municipal problem go to the provincial level. Ifit's a district problem go up to the municipal level. Even just areally polite veiled threat is often enough to make things go away."

Corruption watchdog Transparency International says companies basedin emerging economic giants like China are perceived to routinelyengage in bribery.

Michael Ahrens, the head of Transparency International Australia,says China has improved in terms of cleaning up its act but it stillhas a long way to go.

"Certainly a number of measures have been taken by the Government inBeijing indicating that they are taking it very seriously. How farthese are translated into practice is of course another question," hesaid.

There have been high profile corruption cases involving foreign companies in China including IBM and Hitachi.

Michael Ahrens says foreign companies need to make sure they get own house in order when doing business in China.

"I think that they are becoming much more wary. Speakingpragmatically now, it is possible to do business in China withoutpaying bribes, and some very large companies are doing that," he said.

"It's certainly a risk that companies need to face up to and theyneed to have very strong programs in place to train their executiveshow to resist the pressures to pay bribes."

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