Tuesday, October 1, 2013

Making Sense of Corruption


It should be no surprise that North Korea regularly tops the list of corrupt countries in Transparency International’s annual surveys.  It is a one-party state run by a third generation despot.  But China is also a one-party state that lacks an independent legal system and it comes out at halfway down the list, i.e. at number 80.  I find that interesting because I believe that China is extremely corrupt and I wonder if there is some bias in the survey methodology – and it is pretty hard to imagine an effective way to measure a practice that officially doesn’t exist.  It is, however, fair to say that there are worse places than China because here, in day-to-day living and in mundane transactions like buying phone credit or paying bills, there are no extras to pay.  This sort of stuff goes quite smoothly and there are no obvious irregularities.   On the surface at least, China looks clean.

For anyone doing business here or simply following the news, it quickly becomes clear that corruption is pervasive.  Frequent arrests and the trial of officials at all levels, most recently that of Bo Xi Lai, clearly reveal this.  At the same time, to an outsider, the same arrests and trials appear to show how the Party assiduously works to root cooruption out, even at the highest levels.  The Chinese press dutifully echoes the Party line, explaining that no matter how powerful these corrupt officials may be, the Party will show no fear or favour in bringing them to justice.

If only it were true.  You only have to ask yourself how it is that so many Chinese leaders and officials all the way down to my local customs chief can afford to send their kids to foreign universities, to realize that something is not quite what it seems.  Could it be that the very officials leading the anti-corruption campaign are themselves corrupt?  Short answer: emphatically “yes”.

It all comes back to the one-party state.  In a land where there are no checks and balances; no independent parliament, media, courts, education system and no meaningful plurality of opinion tolerated, there is no way to systematically attack corruption.  Every intelligent person recognizes this and laments it, but what can he or she do?  Nobody really believes in the ideology any more. It is all hollow theatre, a church of non-believers going through the motions to avoid dangerous accusations of heresy by cynical rivals.  Add to this that, while the country’s economic boom continues to pump out new millionaires every day, the salaries of ordinary officials are barely sufficient to feed a family.  Even at the pinnacle of the Party, the monthly salary is just a few thousand dollars a month.   Finally, there is tradition.  Before the one-party state, was, except for a brief interlude, the no-party state.  The imperial system was much the same as the current system in that the imperial court dictated everything of importance.  There was no system of independent checks and balances.  It is true to say that the Party is, in fact, the heir to the imperial system and that, as has been pointed out before, Mao was the Red Emperor.  So this tradition of corruption has its roots very deep in Chinese culture. 

Now put yourself in the position of a mid-level official in any section of the bureaucracy.  You know the rules; don’t get too greedy and keep your nose out of Party business.  Are you going to be the only person in the office who does not except the gift vouchers, the fancy dinners, the offer of cheap rent or the use of your friend’s villa on the occasional weekend?  If you decide to stay poor and scrupulously honest, remember that you are going to be seen as a threat to your colleagues, and you must accept also that you will never be promoted.   Unless everyone has his snout in the trough, no one can feel safe.  And, after all, a few perks do not make you rotten to the core.  You can tell yourself that it is the system that is rotten to the core, not the individual.  Why should your family suffer when there is plenty to go around anyway?  How can you tell your wife that she can never have the things that departmental colleagues wives have.  How can we not have a car, when everyone else has one?  Why can our little emperor not go to Canada like his friends do?

One of my friends in a government office told me that he was resigned to staying at his current level because he could not afford the next promotion.  What?  Yes, it would cost about $40,000 to get up to the next level and he did not have the money.  I do not know how widespread this is, but I know that it is not uncommon.  Sinecures are dispensed for cash by the upper echelons of the agencies based on the value of the positions, which means the amount that can be “earned” in the respective jobs.

How is it that this apparent house of cards does not come tumbling down when the Party is constantly running fierce anti-corruption campaigns?   I always save the best part till last.  Well fellow Sinophytes, if everyone is guilty all of the time, then the Party reigns supreme.  When everyone has been given plenty of rope, the Party can decide at will who is to be hanged.  With the wisdom of hindsight you can go back and re-read the entire Bo Xi Lai drama and figure out what that was about.  The apparent paradox of former Premier Wen Jiao Bao’s ill-gotten billions should also now be somewhat less of a paradox.

Monday, September 30, 2013

Rule No.1: There are no Rules


Chinese roads are very chaotic and dangerous.  I am writing this as I wait for my car to be serviced, something that normally takes an hour, which is just enough time for me to get a bite to eat, pickup the car and return to the office.  This time, however, they tell me it is a major service because I have clocked up 250,000km.  So I am in the waiting lounge with the TV blaring and people yelling into their mobile phones.  It seems an opportune time to say something about driving in China and how it relates to doing business.

I have many decades of driving experience in all sorts of conditions and I like to think that I know the rules.  That may be true, but the rules here are certainly not the ones in the book; strict adherence to those will see you dead within minutes.  Given time, the traffic is readable.  Behavior falls into patterns and after a while it all becomes second nature, but alertness and caution are essential.  Any lapse will likely have disastrous consequences.

After years running a business here, I have realized that the situation on the roads is analogous to the situation in business.  Looking at the statute books it is not all that different from home, but in terms of understanding how business is actually done, the rulebook is not much help.  Chinese business people have a general understanding of the rules, but they honour them in the breach more often than in the observance.  They know what they can get away with and, in order to remain competitive, they go around the roadblocks, run the red lights and take short cuts wherever they can.  If they have the connections and can get away with it, then that is what most people will do. 

The accounting and taxation rules are not unlike those at home.  From a lawyer’s perspective the landscape is much the same.  But just like the roads, there is the law and there is practice, and strict adherence to law without taking into account how things are actually done will send you broke fast.  For example, in order to deduct business expenses, it is necessary to get VAT receipts.  The problem is that many businesses that provide services essential to running a factory are not even registered, let alone operating according to the taxation laws.  They do not issue tax receipts.  Because un-receipted expenditure cannot be deducted from income, this creates phantom profits that are, naturally, subject to taxation.  One must have a good taxation accountant to manage this.  It probably does not do to look too closely at how this is done, but the fact that our accountant controls an auditing firm no doubt helps.  

Sunday, September 29, 2013

Introduction

My first blog post.  It seems a little self indulgent to blog, so why am I starting?
It is out of a desire to leave some record of an adventure that started more than seven years ago in China.  I will probably never write a book or other traditional published record for my young adult kids to look at when they get to a more reflective age.   There is also the desire to share with a wider audience some of our experiences in the Middle Kingdom.   I am running a business here with my wife.  We are both fully engaged in the day-to-day running of the show.  Our perspective and our experiences here are unique, not just because we are both foreigners, but because I am Australian and my wife is Japanese and because we do not live in an expatriate community or have the support of a head office.  We are independent and small entrepreneurs.  We both came here not knowing a word of Chinese, but both being able to read quite a lot and being able to see similarities and differences at various levels with Japan, which makes for a pastiche of sharp insights, baffling mysteries and near-constant frustration.  How can these neighbours who look so similar and share so much be so utterly different, even opposites, or are they?

My wife is an accountant and the first Japanese woman to qualify as a CPA in Australia.  I have a very diverse background that started on a wheat and sheep farm in Western Australia.  See more about us here:  

Sonoe:
http://www.linkedin.com/profile/view?id=101186118

Terry:
http://www.linkedin.com/profile/view?id=35251787



Our fist shipment,  December 2008.
Sonoe is holding Sammy, the mastiff.
The topics if this blog will be various.  I will use the early ones to describe our adventures to date and then I will post in reaction to whatever pulls my chain.  That is likely to be some new misadventure, such as a run in with customs or tax departments, or some uniquely Chinese business frustration.  I will avoid the temptation to use this forum to carp about all that is wrong with China.  There are enough people doing that.  If I offer anything in this vein it will be an attempt to explain rather than complain.  I hope that this blog might be useful or give succour to some other adventurous souls battling it out here on their lonesome.  I will also include just a few links to other blogs and sources of information that I have found especially useful, because sometimes less is more.  The ones you find here are, for me, only the gold.

So that is it for today.  And I am not sure how much time I will find to add more posts, but let's say once a week and see how it goes.
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