Silk Road International Blog

So, what’s really up with China and the Global Economy?

Are they immune, hurting like everyone else, headed for collapse or what?  Options include:

1.    They are fine and will see few if any affects from the world’s economic slow down.

2.    They are not only fine but should help the rest of the world out.

3.    They may have some problems, but they’ll manage.

4.    They are going to be hurting just like the rest of us, just for different reasons.

5.    They are already hurting, we’re just not seeing it.

At least they aren’t at war with their neighbors, themselves and their own army.  So much for my dream of retiring in peaceful, quiet, Thailand.

So what’s the answer? What’s the situation in China?  I think that they will weather the storm but be hurt by the surrounding slowdown, no shocker there.  But, it’s also going to be worse than official figures will ever let on and it’s going to be difficult for SME’s throughout.

First, they have the capital to survive and the security in the banking markets that the US didn’t have to carry them through tough times.   The banks are relatively stronger than the US, but only because a highly capitalized and motivated govt will not allow them to fail. (For more on this read: The coming collapse of China.)

Second, they have the ability and willingness to sink billions into public works which not only employ people and infuse cash it builds the infrastructure for future growth (it also lines the pockets of government officials which also helps the high-end economy).

But there will be serious bumps.

There are 10’s of thousands of factories in the toy and furniture industries alone that have gone out of business in Southern China in the last year alone.  This has nothing to do with the economy, but rather higher taxes and the lead paint scandal respectively.  When you combine the closure of these thousands with the thousands more that are shuttering as the economy drops to a two-decade low of 8.5% growth and you have a serious situation on your hands.

The really interesting part is that we’ll never know exactly what the numbers in China mean because we’ll probably never know the exact numbers.  Why?  Because once the growth rather starts to reach the “politically sensitive” point, about 8.5%, the interests of the State will kick in to keep bad news out of general public consumption.

This is similar to the temperature in Chongqing.  When I was working at a university as a teacher in the summer of ’95 the temperature in Chongqing was sweltering.  The law was that if the gauge got over 40 degrees school and government offices closed down until it cooled down.  So we were stuck at an official 39.5 degrees for more than two weeks before, in an incredible atmospheric inversion in mid August, the official daily temp jumped to 44 degrees every day for the next week and a half and school mercifully closed.  Of course everyone’s personal thermometer had already been at 44 degrees for the last month.

Back to 2008 not much is different.  The fact that China took an 0lympic ego break from bad news for the first three quarters of this year does not mean that there weren’t problems; it’s just that no one was able to talk about them publicly.  Now, milk, Skype, mudslides, they are all coming roaring back into the public spotlight.  I dare you to run the same public confidence polls (Pew) that were run earlier this year again now.  Instead of 83% of Chinese being proud of their country, I’d be willing to bet you get half that number now.  If you think that this is the last problem we’ll hear about, that manufactures have learned their lessons, think again.  I’ve said before that with the economic squeeze on, there will be more, not less, likelihood of problems with inferior (cheaper) materials being used in production.

To understand the levels of, um…complexity involved in doing business in China, read this article about the lack of any legal action against Sanlun (the tainted milk supplier).

What do SME’s do?

The big guys are going to be more secure in their developed supply chains and supplier relationships. The domestic markets are also going to be getting some federal help.  So what about the impact on small to medium sized foreign buyers coming to China?  That’s where the pinch will be felt.  Smaller buyers are going to be fighting through the remnants of the closing down and the gone but still not closed and the suppliers that are still in business.  This group of active suppliers will continue to shrink.  The good news is that as large buyers buy less, there maybe room at larger suppliers for smaller orders.

You’re going to need to really do more due diligence in vetting suppliers than before.  Testing of samples and QC are also going to be even more important too.

Starting out in China for the first time, or even having been in China for years and starting a project with a new supplier, the reality is you can’t trust what’s in your product without doing independent testing.  This isn’t Sun Tze and it ain’t brain surgery either.  It’s just common sense.  If the people who are making your product are not invested in your relationship or the quality of the products then they will never be independently accountable for the results.

The current global crisis means that suppliers in China (and everywhere), no matter how insulated from the banking mess, are sill being negatively affected.  Orders from overseas are down and domestic demand, the mythical panacea for any of the ills of “capitalism” in “socialist” China, has yet to take up the slack.  What this means is that more than ever before your suppliers is being squeezed to get as much profit as possible from each piece that comes off the line.  As I’ve been warned by many many Chinese friends, there are not yet deeply ingrained ethical standards in China as you may be used to doing business elsewhere.  This means that when business is tight, and you’re not here watching the line, there is a great chance you will not be getting exactly what you are contracting for.

Even in, or maybe especially in, overly/closely regulated industries people that are willing to do the (western) “right” thing when push comes to shove with local officials are hard to find.  There is no recognized financial incentive to be transparent in China—so don’t expect it.  Ever.  The unfortunate reality of amoral capitalism is that profit is the ultimate end goal.  That can be good if there is a long-term mentality that weighs the costs and balances of the current order’s profit potential with the long term client relationship.  But in China, whose history is long but experience with capitalism is short, the attitude is often very short term.

To help create participation and responsibility in the processes work with your suppliers to build systems and infrastructure for the future that ensure people understand quality standards and are rewarded for achieving quality rather than achieving savings goals.

Random thoughts on recent related news articles that maybe of interest/help to you:

Continued news cover ups.  The question that I asked a few weeks ago, “is corruption endemic?” is only half of the question.  The full question should have been: “is corruption and the subsequent cover up endemic in China?”

More than the actual milk scandal, the cover up is what hurts China’s soft power and reputation.  This James Fallows article says the same thing.  Everyone has problems, but China kills itself because it just doesn’t manage the fall out from the problems well.

Call me crazy, but I always thought that to ruin one’s reputation you had to have a good reputation in the first place!!  When was China’s track record on product quality good?  Isn’t this the country that went from socialized mass production of crap to capitalized mass production of crap?  I, and thousands of others like me, indeed entire industries (3PQ), are in business because of how consistently bad quality control in China has been, is now and will continue to be.

My friend Mike was telling me about how factories get all their R&D for free from foreigners at shows and I commented that that’s the real economic miracle of China—FDI combined with free R&D would make anyone competitive!  So, where does the US still lead the world?  Even China knows that it’s in R&D.  Which makes Mike’s story about stealing at trade shows that much scarier.

Finally, be wary of anyone that claims that moving to Vietnam or Guiyang or Timbuktu will be better for your business simply because “labor is so cheap” or “there is so much potential” there.   Good article on Vietnam here.   If you can fit these production centers into your larger supply chain, that’s great.  We do, and there are real values out there if you already have a developed supply chain.  But don’t count on them replacing the Pearl or Yangzi river delta’s as your major supply centers just yet.

Tags: Business, China, Thailand by david
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Show Questions:

1. Q: “How do you tie QC to payments to your supplier?”

A: First, any 3PQC needs to be paid for by you, not your supplier.  We’ve had people that have told us proudly that they negotiated the 3PQ be paid for by their supplier.  Bad idea.  You want your QC to be completely beholden to you.  Understand that suppliers often have no qualms about paying a few hundred dollars to a 3PQC inspector to get a $100K order “approved.”  3PQC inspectors that make only a few hundred to a thousand a month have a hard time not taking the payments too.

Having said that, you can certainly charge back to the factory the costs of extra QC necessary to reinspect rejected product.

True story: We have a supplier that complains that the QC for one of the world’s largest box stores are so corrupt, top to bottom, that they almost can’t afford to work with them even though their volume is huge.  Huge, I tell you.  The QC are so secure in their ability to extort money from suppliers to pass already good quality product that they basically dare the supplier to expose their corruption.  The QC can make thousand of dollars a month on top of their individual salaries and if they get fired they can still use their employer’s name and experience to get a good job in the future.

Second, you need to be very clear in your contract that while you may pay for the balance of the order before the goods are released to port you will not make any payments until 3PQC has confirmed with both you and the supplier that the goods meet spec.

One of the best ways to do this is to do multiple QC visits.  If you are only visiting the day before product is scheduled to leave and you find problems it may be too late to fix the problems and still hit delivery dates.  At the very least unpacking items, reworking them and repackaging them are going to damage the retail packaging and increase the number of returns you get from your domestic clients.

Finally, with every QC visit you need to have the report signed, stamped, dated by both a manager in the factory and the QC inspector.  Then you leave a copy with the factory, have the original return with the QC inspector and you get a faxed or emailed copy too.  This makes sure that everyone is on the same quality page from the very beginning.  Make these QC reports part of your contracts too–that repairs, replacements, etc must be completed and reinspected prior to final payment.

2. Q: “Ok, so we need to do product testing, how do we make sure that we don’t test “golden samples” but test actual product?”

First, you have to have someone you trust pull the samples from the production line.  DO NOT TRUST THE SUPPLIER TO DO THIS FOR YOU.  Remember they have no incentive to give you the real thing.  Their incentive is to submit something that passes the tests since they’ve already bought the raw materials and started production.  If you don’t have anyone that is on the ground representing you directly you can hire someone like SRI or any other 3P service provider to go to the factory, pick the samples themselves and then take it to their own (or contracted) lab and test it and send the results back to you.

True Story: We had a supplier that created inks for one of their client’s tests that were completely different from the inks that they supplied the client in their products.  They did this with the complete knowledge and consent of the client!!!  The client bought the cheapest inks possible and requested the supplier provide better quality inks to the testing companies.  The supplier had no issues with this blatantly dishonest request from their client.  If you do, and you should, you need to take appropriate steps to secure actual products for testing.

Second, you need to consider testing at multiple times in the process.  Depending on the size of your order (and the size of your liability!!) you should test materials before they are used, test samples before production starts, test in-line samples as production is on going and then test final product before it ships.  Remember, liability is ultimately your responsibility.

3. Q: “Condisering the language barriers between me and my potential suppliers, how do I communicate the technical information that is necessary to manufacture my product correctly?”

A: Keep it simple, stupid.  Use the same format and processes as much as possible.  Let you suppliers know how you expect to communicate and ask them what they expect and what they are used to.  Often there are types of software (or the newest versions of software) that may not be in China yet.  Talk with your supplier about what you are using before you send them documents they can’t open.

Also keep records of EVERYTHING.  Copy and past Skype, QQ, MSN or other chats into word documents and email them to your suppliers after the conversation is completed.  Type instructions in bullet-point formats so that they can be easly read and more easily understood.  Confirm and reconfirm each of the specific/important technical points involved in your product’s production.

True Story: I was hired part time as a Thai speaker to sit in on meetings and make sure that each side is talking about the same things.  I did this while I was in grad school for a couple of companies that were working in Thailand and needed someone that could speak Thai.  The company would prep me on the technical details and I’d look up the specific translations before the meeting.  Then I just listened in to all their calls and made corrections to each party’s understandings as needed.  It worked out great from the companies (one of whom I later worked with) and I got some much needed cash to supplement my student income.

4. Q: “How do I know that my factory is certified to meet the standards of my home country?”

A:  You don’t!!  Know this: Factory certification does not mean actual compliance.  Your factory may have the ability to be compliant but may not know how to exactly achieve it.  They may have been “certified” but may not be updating that certification.  They may be meeting all that they are asked to do and while that technically gets them the certification certificate but doesn’t really meet standards that you require. So what to you do?  You hire third party testing and engineers to work with the factory to do QC at all points of the production process.

True story: We were supplying a client that needed to ultimately deliver product to one of the large entertainment companies in the US. This company had a factory audit standard that required all suppliers be audited before the PO was issued.  We were using at least 11 different suppliers and called and told the entertainment company’s audit company that they’d need to spend at least a week auditing all the suppliers.   They told us straight out that they don’t want to know about 10 of the suppliers and we should pick the best factory, prep them for the visit, and they’ll come out for a single visit and leave.

Charles Kirmuss of infinity tells the story of a factory that he worked with that was technically ISO certified but had no clue how to actually be compliant.  He wrote the ISO compliance manual for them!  He helped them implement all the necessary procedures to make sure that (at least) his product was both certified and compliant.

If you are willing to work with your factories you can both get what you want and develop a lasting relationship that is good for both parties.

5. Q: “How do I find somebody that I can trust?”

A: Here’s my business card.

Nobody cares about your product as much as you do—so make the outward commitments to your product quality and factory relationship that will teach your supplier that you really care and expect them to care also.  This means you need to participate with your supplier in training and education.  My personal theory on QC in China is that there is a direct relationship between the amount of time you personally spend with(in) your factory and the level of quality you will get shipped to you in the end.

Finally, best story of the show, courtesy of Mike Bellamy (Passagemaker).  Mike asked a group of factory owners/managers how they can produce new designs each year when they have absolutely no R&D budget or department.  Their answer?  “From foreigners at tradeshows!!”  Yup, that info that you’re passing out as info to get bids is being used by the factories that don’t get your orders to create their “own” new line of products.  This, my friends, is the real Chinese economic miracle.

Tags: Business, China by david
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October 12, 2008

Once again, I’m speaking to new buyers at the Global Sources Electronics Show in Hong Kong.  If I may, I’m speaking at the good show, out by the airport, not the other one downtown.  This is not just my own (biased) opinion, but rather the general consensus from a number of buyers I talked with.  With that out of the way, here are the “new” takeaways from the show speakers.  Besides myself, speakers included Mike Bellamy from Passagemaker, Charles Kirmuss from Infinity and a representative from Bureau Veritas.  This presentation will be repeated on Tuesday at 12 noon at the same show location.

First, set appropriate expectations.  This includes time, communications, price, professional experience, etc.  I know that I’ve joked more than once that low expectations are the key to happiness but coming to China probably no general theme could be more true.  China is honestly amazing, you’ll be overwhelmed, but not always for good reasons.  So manage your expectations and the expectations of those that are paying for your trip (if it’s not you personally).

First, you need to understand that you will most likely not be working in factories on an architectural par with the Bird’s Nest or Water Cube. Yes, we all saw those on TV and yes those are in China too—but so are 800 million peasants living in cement houses or huts they built with their own hands.  The Bund (Shanghai) is not China, just like Times Square is not America.  But if you think of China more like the US than like Singapore you’ll be better prepared for what you really encounter.  While you’ve seen the Chinese equivalents of Washington DC, Rodeo Dr. and Michigan Avenue most Chinese and most of your factories are more likely to be in the Chinese equivalents of Corona California, Price Utah, Lander Wyoming, and DeKalb Illinois (all places I’ve lived)—in other words, small towns a ways outside of larger city centers with infrastructure and factory capabilities that are nowhere nearly as nice or modern as you’d think if you’ve only seen China from the MSM.

Second, Chinese factories are not going to be nearly as good with design as they are working with counter samples.  Know this before you ask them to start working on design for you.  In fact, I would go so far as to say that unless you have invested in the design department of your supplier you most like do not want your supplier’s engineers or designers creating/working on anything of yours.  China’s value is still in copying, mass producing and finishing things that are designed elsewhere.  Are their exceptions to this?  Certainly, but exceptions do not make the rule.

On a related note, to help you secure your IP, spread the components of your products around to various suppliers.  Don’t disclose your end use and requirements rather than the market.  And don’t share all your IP/design/ideas with every booth you visit at Chinese shows.

Third, don’t assume anything is “just industry standard” or “everyone knows this.”  This goes for everything from component parts to color standards to testing requirements to packaging.   When you are working across cultures there is no such thing as “common knowledge.”

Since this was an electronics show, it’s probably appropriate that most of the audience questions were centered around IP and protection.  So here are some issues that you should be aware of in China.

First, what kind of IP rights are recognized in China? China has a First To Register (FTR) not a First To Market (FTM) legal system for IP.  This means that if you share all your own IP with a supplier and they run out and resister it before you do then legally it’s theirs.  For this simple reason you need to put all of your legal ducks in a row BEFORE you start sharing all your sensitive information with potential (or even final) suppliers.

Second, can you be successful in a lawsuit in China against a manufacture that has violated your IP?  Simple answer, yes.  All of us speakers on the panel have had successful experiences with lawsuits in China.  But the real question isn’t can you win in court in China but have you set yourself up for success in court or to be taken advantage of.  To know the answer to this question you most likely need professional help.  I’ve used Harris & Moure before—they know China.

Last, what’s the best way to coordinate your shipping?  Don’t do it yourself.  There is really no reason why you should be doing anything but paying for your shipping.  International shipping can involve up to 15 different entities for a single shipment and there are professionals that can handle all of it for you, door to door, for very manageable fees.

Tags: Business, China by david
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UPDATE. Like many in China, I was on vacation this weekend when the Skype story broke.  I’m a bit late to the party, but here are some additional links and great analysis at Rconversation and Imagethief.

All I remember from the old G.I. Joe cartoons of the early 80’s is this one line.  No character names, villains, stories or the “lessons” that each episode ended with.  But this one line, I’m sure everyone in my generation remembers.

Well, today I thought of it again.  I read these two articles and realized that foreigners are coming to China with way too much trust, to many assumptions based on “western” experience.  What I’m not saying is: you can’t trust people/businesses in China.  What I am saying is: you’d better know who you are dealing with, because they certainly know you.

Article number 1.  Americans don’t know Jack (or Zhou, or Zhang) about China.  No real surprise here.  But the fact that so many thought Singapore, Buddha, Toyota and Nike were “Chinese” is flat out scary.  (Fortune cookies, which are from San Francisco, also made this list.)  Nike?!  More than the war, the economy or the current pres and the two buffoons running for election, this exposing of collective ignorance has to be one of the most embarrassing things to ever be said about Americans.  Are we really that dumb?  Don’t answer that.

On a lighter note, over 40 percent of Americans couldn’t name a single Chinese brand name, which to me says more about Chinese companies than Americans.  Worried about China taking over the world soon?  Don’t hold your breath.

But this does speak to one of the most important causes of foreigners’ failures (or at least bad, money losing experiences) in China.  As most of my posts on this blog insist, if you know who your working with, what they really can do and what they really expect from you, then your Chinese manufacturing experience has a much better chance of being successful.

Article number 2. China knows alot more about you than you think they do.  That’s right.  They are monitoring VOIP calls and text messages sent via computer by anyone that downloaded the Chinese version of Skype-i.e. your supplier, your trading company, your rep in China.  This isn’t the same as the ability to wiretap that is mandatory in the US.  This is a Trojan horse installed in the downloaded Chinese software that is triggered by keyword usage.  Conversations as well as individual computer and usage date are not just filtered, but also saved by net nanny.  For more on the media see this link.

If you’re like me this could be very scary. I’ve used Skype for more than 4 years now–since Feb of 2003. It probably saves me $1000 a month in international phone bills. I use it for chat with factories, QC, clients, and the office staff when I’m out. At first glance, maybe this is not big deal to many people outside of China.  But more than the time and money it saves little old me, the fact that everyone else in China uses Skype too make this a really big deal for anyone communicating with people/factories in China.  In the past couple years I’ll wager that almost every factory I’ve been too uses Skype–and that would be almost 1000 factories in 11 provinces and Taiwan.  Ditto for all the trading companies, project managers, sourcing companies and all the expats I know here. It’s scary, but hardly surprising (remember the reality of the Chinese environment: all the phone (land and cell) carriers are nationalized and search engines filter content (Google, Baidu, Yahoo) and Media, email and websites are censored).

In addition to G.I. Joe, these two articles also reminded me of James McGregor’s “Little Red Book of Business.” This “book” is actually a list at the end of each chapter in his still VERY GOOD book, One Billion Customers.  His list at the end of chapter one is particularly applicable to this story.  Here are a couple of his points (p.56-57):

The Chinese now understand the outside world much better than the outside world understands them.

You will never be successful walking into an meeting cold.  Know who you are dealing with and what they really want and need.

Foreign businesspeople who come to China often have too much goodwill, too much trust and too little patience.

Tags: Business, China, Culture by david
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Update 30/09/08: others are noticing the contradiction between walking in space and the disasters on the ground in China.  Many are saying that the solution is increased accountability within the system.

____________

I’ve said more than once that much of what you see here in China is scripted.  The 0lympics should have convinced you of that.  But, if you still don’t believe it, read this report about recent Chinese astronauts first night in space–published BEFORE their rocket even left the ground!!!

Foreigners going into factories for audits, inspections, first visits, etc. need to be very aware of this–I promise you, your Chinese partner is actively “putting their best foot forward” even if that foot is not theirs.

Since this is just “business as usuall” from the government down to the smallest factory, from accounting to business dinners, is it any wonder that locals have very little faith that there is someone, be it in government, business or society, which is looking out for the little guy?  People here are dependent on themselves and their immediate families and that’s honestly about it.

About 2 weeks ago there was a great article (in the Times Online, I think) about the difference between the Chinese perception of a “successful” 0lympics and what the West will expect from London.  The difference lies in the importance placed on presentation vs “reality.”  The best take away from the is the concept that China values clean, smooth (face-saving) presentations while “the west” likes to see raw emotion and “real” human interactions rather than fantastic stage productions.  The corollary is that any public presentation in China is known, or at least assumed, to be completely scripted (e.g. fake).

What my experience in China and these issues speak to is a systemic lack of trust outside of any given individuals’ inner circle of friends, family and close business associates.

Here are a few more examples from the news and just this last one week of work in China.

We know of a factory that will not keep the contractual agreements with the client for shipping/payment terms.  The factory has repeatedly held product hostage to price increases and shipping delays.  Now that everything is done and finally ready to ship, there is an argument over retention of the molds.  The factory will not honor the contract payment terms (balance after FOB) because they think that the client will, as they have done, play games with the payment to gain the upper hand in the mold argument.  The client, of course, says that the factory has proven to be untrustworthy and will not pay until the truck is secure in the port.  The stalemate requires someone (SRI in this case) to step in and act as an acceptable third party.

Next example: Talking with the owner of a small print factory today I was reminded how “normal” this kind of thing is (product held hostage and the milk scandal).  I was trying to empathize that on a day that Chinese people should be proud (because of the space walk) there are still thousands (hundreds of thousands?) of people affected by contaminated milk.  My point was if you can’t trust people making baby food and the government inspectors then whom can you trust?!  The factory owner just shrugged and commented that this is how things work here.  If you have connections you can stay away from the contaminated milk, or make a lot of money, or just not have to pay as much to get the things done you need.  He listed a couple of example of social and business policies that “everyone knows you just pay officials” and you can get around the law.  He was much more resigned than angry.

Next example, from the media: the melamine scandal is no longer linked only to milk powder—and it’s still growing.  Milk powder, fresh milk, yoghurt, ice-cream and other milk products, Pizza Hut pizza (cheese), cookies (Lotte Koala bears and others), White Rabbit candies, coffee (fresh and canned), bread, protein bars and drinks, cake mixes and “anything that should have protein in it.” Let me repeat that: anything that should have protein in it is now suspect!!! In Thailand, for example, that includes: “Oreo wafer sticks, Dove milk chocolate bars, M&M chocolate candies, Snickers caramel peanut bars and nougat, Mentos yoghurt candies, and Mao Huad coffee and oatmeal crackers.”  The EU has now banned ALL children’s food imports from China.

(Angry side note: do you know that they are stopping any Chinese crossing the SZ/HK boarder with more than 4 cans of milk powder?!  Can you believe that?  How many times can the average Chinese cross the border in a week/month to buy milk for their children, family members or neighbors?  If you don’t have a HK ID it can be a few hour process and most people only have one day off a week.  I find this maddeningly insensitive—since the government is at least partially responsible!  Sure there will be some abuse of the crisis by people trying to make a buck off the situation.  But to limit people who really need it is really pretty cold hearted, I think.  Of course, (white) foreigners with more than 4 cans can cross with nary a question asked.  Now back to the trust story.)

And then, just this morning, the NYT is reporting that eyewitness accounts and photos of the bus attack on the Chinese officers in Kashgar, China last month differ GREATLY from the official report.

So as all of this is happening, I’m about half way through with a GREAT book, Will Hutton’s: The Writing on the Wall: China and The West in the 21st Century.  It’s well written, well researched, and timely.  Read it.  I’ll review it next week when I’m finished reading it.  Anyway, as I was reading this book and the milk crisis broke out I found myself thinking that everyone should read at least this section of his book (p.130-132)—so here it is!  Timely and appropriate section title:

Is Corruption Endemic?

Lu Xiaobo, director of the East Asian Institute at Columbia University, take the analysis even farther.  IN Cadres and Corruption, he argues that a post-revolutionary party is trapped between its need to become a bureaucracy bound by rules, and its revolutionary purpose—to break rules and bureaucracies.  As judge and jury for its own cases, abjuring any external scrutiny, communism cannot easily police its own deviant party members.  But that is not the only reason corruption is difficult to eradicate.  The organization itself is driven into deviance because, one the revolution is over, there is an unbridgeable inconsistency between revolutionary rhetoric and the compromises of non-revolutionary practice.  The morality of revolution—that the ends justify the means—becomes a morality that justifies corruption.  And when as many as 40 per cent of officials are not paid regularly they seek self-preservation in a morally ambiguous political climate.  This reality, coupled with the growing opportunity for corruption, has characterized China’s development.  The deviant officials of the deviant part-state can prey on wealth with no ideological discomfort because of the ambiguity over where the state ends and private life begins.

Lu’s argument is similar to my own.  China has a well developed concept of the state, but communism cannot permit the conception of an intermediate public domain between state and civil society.  In this respect it is the faithful heir to the Confucian tradition of governance with systemic corruption.  Absolute power, along with moral exhortation to its official class to refrain from plundering the people, is preferred to offering institutional, legal or ideological protection in authoritarian states; but, founded on the doctrines of communist revolution, official are more powerful and more psychologically predisposed to corruption in a communist one-party state than in any other.  I have argued in earlier articles that corruption flourishes where social norms that might induce a sense of shame are weak, where there is a widespread belief that a high income results not from effort or merit butt from effectively working the system and were there is a belief that corruption is victimless—crime involves someone else’s money.  In China all three inducements to corruption exists in spades.  Add the peculiarities of communism and it is not difficult to understand why corruption is so dominant and so hard to root out.

James Kynge, a former Beijing bureau chief of the Financial Times, writes in China Shakes the World that in China ‘trust is a commodity constantly under siege.  Poverty and competition for scares resources impinge upon it.  The ideological vacuum that replaced communism undermines it.  The daily diet of propaganda disorientates it.  The venality of officials devalues it.  The ascendancy of a value system dominated by money hollows it out.  What is left is a society in which describing someone as “honest” can jus as easily be a gentle criticism as a compliment.’

The costs of this mistrustful, corrupt environment can be very high.  Kynge describes a crooked blood bank scheme in Henan in the 1980s that was run with the full knowledge of corrupt local officials.  Donors received blood back, minus its plasma, from a general blood pool that had been infected by HIV-positive blood.  The scheme seems to have left as many as one hundred thousand children orphaned.  Yet the enriched officials have arrested Aids activists, shut down orphanages and harassed journalists.  In another scandal, officials allowed companies to sell fake and poisonous milk powder that caused disfigurement and even deaths; even though officials have been imprisoned, the production has reappeared on the market.

Corruption is part of the system’s DNA.  Jiang and his successor Hu Jintao have thus been disabled, despite their rhetoric and their attempted actions.  Legislative injunctions have to be implemented and policed by the very system which is corrupt and which disallows any external independent agencies because they would challenge the party’s political independent agencies because they would challenge the party’s political hegemony.  The party begins successive ‘rectification’ campaigns and inquiries, but these are compromised by the fact that the investigators are themselves corrupt and becoming more so.  The climate of psychological warfare creates an atmosphere of fear and uncertainty: corrupt individuals demand even higher bribes because the risks are higher.

The full book can be purchased online at Amazon here.

Tags: Business, China, Politics, Thailand by david
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