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The hard graft of business in China

SAFELY back in Hongkong after his first foray into China on business, the young American executive looked exhausted.

''I can't believe the amount of corruption that goes on in that place,'' he said. ''It is impossible to get anything done unless you bribe someone . . . simply impossible.'' Last week China's state-run television reported the biggest crackdown on corruption since the communists came to power in 1949: four businessmen from Haikou, the capital of Hainan province, were arrested and charged with the misappropriation of $35 million between January and August last year.

And widespread fraud was behind the riots last August when share lottery tickets went on sale in Shenzhen, according to the first official report into the riots.

The report, released last month by the Shenzhen authorities, said nine cadres had been ''punished for irregularities''. But the nine, including two department level officials, six section level officials and a low-ranking employee were given nominal punishments.

Reports at the time said that although they were required to surrender the lottery tickets taken up during the sale, only four lost their jobs.

Riots broke out in the Special Economic Zone when more than one million people flocked to the city to buy application forms for $3.94 billion worth of new stocks, only to find their ambitions of making it rich thwarted by widespread cheating by officialsand bank employees.

According to a Hongkong China News Agency report last month, 95 of the 300 distribution points were accused of fraud involving a total of 4,180 officials and staff in the finance institutions.

Talk to anyone who has done business in China and you will be told a dozen stories about corruption. To many mainlanders, however, it is not corruption but simple business etiquette. It is not a bribe but a ''gift'' or a ''favour''.

When it comes to corruption or ''favours'', foreign businessmen agree it is worse in the south of China than in the north.

Veteran China traders point out living standards in China have outpaced income by so much in recent years that more people are soliciting ''favours'' from foreigners.

China has admitted officials accepted more than 370 million yuan in bribes during the first 10 months of last year.

A national crackdown on official corruption earlier in the year netted 64,000 offenders throughout the country. But one businessman with many years of doing business in China said: ''That is just a drop in the bucket.'' Whether it be a senior government official or factory worker, corruption has become an ingrained part of China's business ethic.

One businessman said: ''If you don't play the game you don't stand to gain. Only a fool refuses to play the game. Who would turn his back on such a market?'' Another businessman said: ''Doing business anywhere in the world costs you something . . . only in China it costs you a bit more.

''I will never understand why foreign businessmen take such a sanctimonious stand towards China. You mean to tell me there isn't corruption in Australia, the UK or the United States? ''Try dealing with the Teamsters union in America or Australia's trade unions.'' When the communists gained power in China in 1949 they tried to put an end to the practice while they set about trying to build the great socialist utopia where everyone was on an equal footing.

The giving of gifts was stamped out but then the communist elite quickly saw much could be gained from positions of power. They and their families became the privileged class.

''Nothing really changed . . . and officials, more often than not, looked the other way when gifts were given,'' a Hongkong Chinese businessman said.

With the opening up of China's vast economy in the late 1970s, the giving of gifts came back. Gifts such as ties, books, pens and cigarettes were common and the higher up the official ladder you went the more expensive the gifts became - XO cognac, wine,gold and watches. Cash was seldom given, although this is changing.

One businessman explained the process.

''When you arrive you give the family gifts, obviously the more important the official or businessman the more expensive the gifts. But you give him nothing because that would be corruption. There is nothing wrong, however, with giving gifts to his family . . .

''But there is no guarantee a deal will be struck. That is something foreigners don't quite understand.'' Recently the governor of Boaan committed suicide after he came under investigation for corruption by the Public Security Bureau.

One businessman who knew him well said: ''The governor had an expensive lifestyle and a house full of magnificent antiques. The problem was that on his salary, which was probably somewhere between 450 yuan to 600 yuan a month, he could not explain how heacquired such wealth.

''He took his life because that way it saved him having to give the names of his friends who were also recipients of gifts . . . OK, bribes if you are a foreigner.'' Businessmen with many years' experience in doing business in China say it does not pay to be up-front with a ''favour''.

One recent example of a botched ''favour'' was when a Hongkong broker tried to get a licence to sell B-shares in Shenzhen.

The Canadian Chinese broker, who had little experience in doing business in China, was told to bribe an official to get the licence.

Putting $100,000 into a brown envelope, the young broker took the train to Shenzhen and his designated meeting with a senior official at the People's Bank of China.

Fifteen minutes later, the young broker handed over the envelope and grasped the banker's hand saying, ''I can leave this in your capable hands''. The banker threw the broker out of his office along with the $100,000.

''He should have suggested meeting him at home and taken a few expensive gifts with him for the family. I know many Chinese officials are starting to get very concerned about the level of up-front favours. The government says it is cracking down but it is the government which houses the worst offenders,'' one Hongkong businessman said.

''The point is, no matter how expensive the gift, it is no guarantee that you will sign a contract.'' What has become popular among Chinese businessmen and officials is the invitation by their counterparts in Hongkong to visit the territory on ''business''.

''A must for any visit is a good meal and a night out at the China City night club in Tsim Sha Tsui,'' one local businessman said.

''When they arrive it is important to give them 'pocket money' which can be anything from $2,000 upwards depending on how important the person is.'' A Hongkong industrialist said: ''Also, you are required to cover air fares, hotel accommodation and meals. That is considered the polite thing to do.

''I remember an official once asked me how much it would cost to buy a diamond ring because it was his wedding anniversary.

''What he had been looking at was a ring worth $100,000 and I wasn't prepared to go that high,'' he said.

''I managed to avoid him for two days and by that time he had realised he had overstepped his mark . . . He settled for something less expensive.

''We call it corruption and it comes out of our marketing budget. In China, it is part of legitimate business practice.''