Sacred cow multinationals in the firing line

PUBLISHED : Monday, 17 August, 2009, 12:00am
UPDATED : Monday, 17 August, 2009, 12:00am

For top executives of the multinational conglomerates keenly and warily watching the latest developments of the Rio Tinto case unfolding on the mainland, some of them can be forgiven for thinking nostalgically of the good old days.

It seems not very long ago that chairmen or chief executive officers of the multinationals were given the red-carpet treatment normally reserved for heads of state, minus the guards of honour and the 21-gun salute, when they flew into Beijing on their gleaming private jets.

They were met by then president Jiang Zemin, premier Li Peng or other top government officials in the Great Hall of the People, and their meetings were the top items on CCTV prime-time news and splashed on the front pages of newspapers the following day. For those tycoons, an audience with Mr Jiang or Mr Li was the best public relations exercise they could get for their businesses, and the mainland leaders wanted those meetings to signal the importance of foreign direct investment, particularly after the June 4 crackdown on student protesters in 1989.

Ironically, the increasing demand for audiences was believed to have given rise to a thriving, very specialised business in which large sums were paid to middlemen who had the political connections to set up those meetings.

The business started to wane in recent years, particularly after President Hu Jintao and Premier Wen Jiabao assumed office in late 2002 and early 2003, since China had already become one of the world's largest recipients of foreign direct investment. While attracting FDI is still important, the leaders have more urgent domestic priorities. Mr Hu and Mr Wen have rarely met with top executives of any multinational in public, and the private meetings with long-time business acquaintances have remained private.

These days, the multinationals have found their luck has changed and they are prone to bad news on the mainland. Recently, Google repeatedly became the target of the wrath of mainland internet censors, who accused the global search engine of not doing enough to stop pornography from reaching Chinese users. The Google officials complained privately that the mainland's own search engines - including Baidu, which had similar problems - were let off easily.

When the mainland's state security agents detained four Shanghai-based employees of the British-Australian mining giant Rio Tinto and alleged that they had violated the mainland's state secrets law early last month, the news sent a chill down the spines of executives of all foreign businesses, including multinationals, on the mainland.

Last week, Beijing appeared to bow to international pressure and formally arrested the four on charges of commercial bribery and trade secrets infringements, which are far less serious than the earlier allegations of stealing state secrets and carry less-severe penalties.

The overseas media has focused on the lack of transparency in the Rio Tinto case, the mainland's murky state secrets laws and whether the case is politically motivated. For its part, the mainland media has begun publishing articles highlighting the rising trend of bribery cases involving multinationals on the mainland.

Besides Rio, their latest ammunition is the case announced by the US Securities and Exchange Commission at the end of last month, which said Avery Dennison, one of the world's biggest label makers, agreed to pay a US$200,000 fine over charges that employees had bribed mainland officials with kickbacks, sightseeing trips and gifts in order to get lucrative contracts from 2002 to 2007.

Mainland newspapers listed half a dozen high-profile bribery cases involving multinationals, including one in which Lucent Technologies was accused of paying for nearly 1,000 mainland officials on 315 trips to Disneyland, Las Vegas and the Grand Canyon in the name of 'factory inspections'. Siemens was accused of bribing government officials to get contracts for medical equipment, subway and electricity transmission projects, and the US investment bank Morgan Stanley said in February that it had fired an employee based on the mainland for an apparent violation of the US Foreign Corrupt Practices Act, under which it is a crime to bribe foreign government officials.

All those uncharacteristic attacks on multinationals, almost unthinkable even five years ago, signal a significant shift in attitude towards them by mainland officials and ordinary mainlanders.

This will make it even more difficult for the multinationals to do business in a culture that is deeply rooted in corruption, with officials openly soliciting kickbacks and bribes for contracts.

Ironically, most of the high-profile bribery cases mainland newspapers have gleefully chronicled would never have come to light without the investigation by foreign regulators, such as the SEC in Washington or the internal investigations by the multinationals themselves.

In 2004, when Lucent Technologies was fined for bribing mainland officials, it was asked to turn over to mainland authorities an 800-page report implicating mainland officials and telecom companies it had bribed, but nothing has come of it so far. Another report, detailing Siemens' bribes implicating mainland officials, was recently sent to the mainland's anti-corruption authorities and is likely to suffer the same fate.

Why? The informed speculation is that the two cases may have implicated princelings - the children and other close relatives of top government officials.