Paul French, China editor, suggests that China is shifting the legal goalposts over where and when its corruption rules are enforced

It’s been a time of introspection and some general bemusement for the foreign business community in China over the last few months … or at least it should have been. The fracas over Google’s withdrawal from the Chinese market and spat with Beijing was followed closely by the culmination of the Rio Tinto bribery case in Shanghai.

In the Rio Tinto case, Stern Hu, an Australian national who led the company’s China iron ore unit, pleaded guilty to accepting bribes from steel mills and infringing commercial secrets. Hu was sentenced to ten years in prison.

His fellow accused Rio Tinto employees, Liu Caikui, Wang Yong and Ge Minqiang, were also found guilty and sentenced to between seven and 14 years each. Worryingly for those looking for improvements in legal due process in China, Rio Tinto’s arrested employees were kept incommunicado for some months and the trial was largely held in private.

For foreign businesses and business leaders in China the rumour mill has been going full tilt. Was this affair actually an unorthodox negotiating strategy by the Chinese, who are known to be unhappy over the high prices they are paying for iron ore? Were the four genuinely confessing or were they coerced when they pleaded guilty to taking bribes from steel mills? Both are possibilities, as anyone doing business in China should be well aware.

Additionally, many wonder if the Rio Tinto case suggests that China is cracking down especially hard on foreign companies. In March the administration for industry and commerce for Zhejiang province issued penalty decisions to several well-known international luxury brands, including Hermes, Hugo Boss, D&G, Paul & Shark and Versace. These penalties were based upon routine quality examinations that found goods sold in China to be substandard.

Posh poor

Those working in China’s manufacturing sector find it hard to believe that across Zhejiang, a major textiles manufacturing centre, it is only foreign upmarket brands that are substandard. Something else is clearly going on.

The “Rio Tinto 4” case has certainly given many foreign businesses and diplomats in China pause for thought. The rulings suggest that the Chinese authorities are looking less favourably on foreign companies caught violating China’s often selectively enforced corruption code.

One, until recently, unanswered question was simply: what constitutes state secrets and commercial secrets? As ever, Chinese law remained vague throughout the trial. But now we have an answer, which is that pretty much everything seems to be a secret.

According to a document released at the end of April (but circulated internally to senior party officials during the Rio Tinto trial) by the state-owned Assets Supervision and Administration Commission, the secret list includes the following:

“Management information such as strategic plans, management methods, business models, reform and stock market listing, M&A and restructuring, property transactions, financial information, investment decisions and financing, production plans, purchase and sale, resource reserves, client information, bidding information and technical information such designs, programmes, product specifications, production techniques, production methods, and technical know-how etc.”

The primary concern in the Rio Tinto case has really been the continuing opaque nature of the Chinese legal system. Journalists and diplomats were denied access to the crucial parts of the trial, and were unable to hear or examine the evidence or obtain formal clarification on the charges.

In the past when the opaque legal system has been a problem, many foreign businesses have believed that the best approach was to keep quiet and keep tapping into the vast China market. But some who have traditionally taken this “see no evil, hear no evil, speak no evil” approach are changing.

Primary among these is the American Chamber of Commerce in Beijing, which last month released its 2010 business climate survey, which found growing dissatisfaction among American firms in China from tougher requirements by the Chinese government, fiercer competition and unfair treatment. The European Union’s chamber in China has been reporting similar concerns.

A first step might be if we all knew what was and was not required of companies and what was and was not legal. It’s hard to behave lawfully and ethically when you don’t know where the goalposts are, let alone when they might move.

Based in China for more than 20 years, Paul French is a partner in the research publisher Access Asia.



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