Despite the government's attempts to regulate consumer safety, corrupt business practices are deeply rooted in Chinese culture.
China lurches from one man-made catastrophe to another, despite the efforts of its government to improve laws and regulations to protect people and the environment. In the latest front-page scandal, baby girls have been developing breasts after consumption of milk powder allegedly laced with growth hormones.
This comes just two years after another milk formula scandal that killed six babies and saw nearly 300,000 others become ill with kidney ailments from powdered milk contaminated with a toxic chemical (melamine), which is used in the manufacture of plastics.
While it’s true that the West has its own problems,
China’s crises point to fundamental problems in its corporate culture. Problems in food and pharmaceutical products in the West are usually due to a breakdown in systems or processes, or sometimes to malicious sabotage or extortion. In most cases companies move quickly to protect consumers, thereby enhancing their own reputations.
In China, on the other hand, crises have been too often caused by greed: companies place profits ahead of people. Health and safety standards are ignored to obtain better bottom line returns. Many Chinese glibly explain that life is not worth much.
To a large extent, the problem in China is compounded by the incestuous relationships between the Communist Party, government and business. Indeed, they are often one and the same. Sanlu, the company at the centre of the 2008 melamine scandal, was part owned by the city government of Shijiazhuang where it was headquartered in Liaoning Province. Its chairwoman was a Party appointee and a member of the Chinese People’s Political Consultative Conference, a political advisory body to the Central Government.
Often, too, laws are not enforced if they reduce profits that go directly to government coffers. The worst example is China’s mining industry where the annual death toll is unimaginable by Western standards. The government admits that 2,631 coal miners died in 1,616 mine accidents in 2009, down 18 percent from the previous year.
Many mines that breach occupational health and safety regulations are at least partly owned by local governments. In many cases local officials do not enforce strict regulations.
But don’t rush to blame Mao Zedong and Communism. China is also a prisoner of its ancient culture. Two deep-seated aspects of Chinese culture – guanxi and mianzi – are also important.
The concept of guanxi or connections allows many business leaders to act with impunity. This dates back to the days of imperial rule and the Mandarins. Today it means weakened corporate governance as many companies are led by company directors with strong connections to members of the Party and politburo and can skirt laws and regulations.
The Sydney Morning Herald’s Beijing correspondent, John Garnaut, recently argued that Du Shuanghua, one of China’s richest entrepreneurs and the businessman at the heart of the Rio Tinto bribery scandal that landed three of its executives in prison, not only escaped censure but continues as a leading player in China because of his guanxi with the family of the nation’s president, Hu Jintao.
Mianzi or face is important when the government or companies seek to cover up a crisis. The melamine milk contamination crisis, for example, was covered up by Sanlu so that China would not lose face in 2008 when it was hosting the Olympics.
In some cases senior managers do not become aware of simmering issues until it is too late because subordinates either want to save face for themselves or for their bosses. Simply put, junior managers are averse to reporting problems up the line.
While China is unlikely to end its system of State-sponsored capitalism or implement major democratic reforms to address these problems, the country needs some political reform, however limited. At least it should unshackle its judicial system. As long as courts remain under government and Party control, justice cannot be served and the darker aspects of culture and politics will continue to thrive. A freer judiciary might also provide China’s seething underclass with an outlet for its frustrations – a point not lost on the Communist Party, which came to power on the back of proletariat and peasant disenchantment.
But even limited reform seems revolutionary and unlikely. A truly independent judiciary would undoubtedly threaten government connections and vested interests. Where’s the face in that?
By: Constance Kong is the pen name of a Shanghai-based business consultant.
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