Reality of graft gets in way of the China business dream

Endless platitudes about this massive market gloss over corrosive effects of its corruption

PUBLISHED : Wednesday, 16 October, 2013, 12:00am
UPDATED : Wednesday, 16 October, 2013, 3:10am

Don't bother stopping the presses for news of the visit to China by George Osborne. The British finance minister is trying to drum up business, and is sticking to the usual script, which contains all the familiar phrases like "land of great opportunity" and "great mutual benefits", usually followed by platitudes about "untapped markets" and so on.

Politicians can be relied on for this kind of diplo-babble but when it comes to China, you generally find that even hard-headed businessmen start echoing them as they seek to expand their companies in the country.

I was particularly struck by a recent television interview with Philip Green, the British businessman who founded the Arcadia clothing conglomerate, a relative latecomer to the Chinese retail market.

Having met Green many years ago I can confirm a widely held impression that he is not the planet's most pleasant human being, but he has many virtues, not least of which are minimal tolerance for BS and a hard-headed appreciation of what it takes to grow his business empire. Yet here he was revisiting the platitudes about China. In reality, Green's late arrival in the Chinese market says rather more than his words in an uncharacteristically coy interview.

In other words: get real if you want to do business on the mainland

Although my own business is far from being on Arcadia's scale, I understand this coyness and can testify that the reality of operating businesses in China is light years away from all this fancy talk.

Obviously, talk about corruption in China is hardly new information, but the devastating impact it has on doing business is often underestimated.

Green knows China from years of having had goods made there and presumably also quite understands the massive divide between sourcing goods on the mainland and selling goods into this market.

I too understand this because, like practically everyone else in the food business, my company sources equipment and a host of other supplies from across the border.

A recent experience with a mainland-based company confirmed the pitfalls of trying to source some heavy industrial equipment for a factory.

The logic seemed obvious: why go through a Hong Kong middleman, whose expertise lies in handling this stuff, when the goods were going to come from the mainland? However, the reality was that the struggle to get precise delivery dates, ensure quality control and obtain detailed design plans meant that what looked like a good deal slowly began to look less and less feasible and more costly.

So far, so bad, but at the end of the day buying goods in China does not present insurmountable obstacles, particularly for a company with Arcadia's clout. However, Arcadia now wants to expand as a supplier to the Chinese market, and this is quite another matter.

We, too, in our infinitely more modest way, had thought about opening a business or two on the mainland. Indeed we were invited to do this. Maybe not from day one, but very soon thereafter we were made vividly aware that it would entail certain payments and the acquisition of certain partners to make the project work. There are many fancy ways of describing this, but I prefer the plain English description of bribery, which was the essential part of all these discussions.

Bribery is an ugly word and I am reliably informed that it is also illegal, so in polite circles an alternative vocabulary has been devised for talking about this matter.

The most favoured word in this vocabulary is "realism". In other words: get real if you want to do business on the mainland.

However, it is difficult to shirk what the reality entails. Many, maybe most foreign companies, seek to skirt around the more brutal aspects of bribery by employing "experts", "advisers" and possibly partnerships so that others can be employed for the dirty work. We are now seeing a number of those engaged in this kind of activity being swept up in an anti-corruption offensive that may well provide reassurance to those determined to be reassured.

The rest of us are likely to be a lot more circumspect, because the virus of bribery is so virulent and, in my experience, so direct, that a few arrests are really not going to make that much difference.

Some foreign companies swear blind that they never get involved in these shenanigans, but it really does not change the reality on the ground where, in general, the so-called golden opportunities of the China market are tainted with dollops of rust at the edges.

Stephen Vines runs companies in the food sector and moonlights as a journalist and broadcaster