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We all know the conventional wisdom about Western businesses in China. They’re highly respected, Western businessmen are welcomed with open arms, and so on. But the reality is far different.
The past few months have been hard for Western companies in China. Surprise early morning raids, investigations, fines—Western companies are becoming victims of a growing anti-monopoly campaign by the Xi Jinping regime.
At least 30 foreign firms have been hit. Some of the bigger ones include Microsoft, JP Morgan Chase, and British pharmaceutical company GlaxoSmithKline. The Chinese regulators said they’re invoking a 2008 anti-monopoly law, but the general feeling among these companies, and with business groups like the U.S. Chamber of Commerce in China, is that these investigations don’t have much to do with the law.
It’s All About Guanxi
So why is this happening to Western companies now? It has to do with a very important concept that most Westerners fail to truly grasp: guanxi. Just like Chinese politics, Chinese business is controlled by the Big G. Guanxi describes the personal relationships you have. When it comes to doing business, it’s your personal network. The people you’ve done stuff for, or who you can call on to do you a favor.
If you have good guanxi, you have it all. Sure, for the best guanxi, you might have to grease the wheels with bribes every now and then, take a few kickbacks, look the other way from time to time, but that’s just how business gets done in China.
So are these Western businesses getting in trouble for bribery and corruption? Actually, no, which is the interesting part. They’re getting in trouble for things like pricing violations and market dominance.
There are all kinds of theories out there about why this is happening: to protect domestic Chinese firms, or for price control in politically sensitive industries. There’s speculation that Chinese officials will increasingly use these regulatory tools that are common in other countries to control markets to their advantage in China. The U.S. Chamber of Commerce released a report saying the anti-monopoly investigators operate “in ways that are highly opaque and difficult for local managers to anticipate or adapt to.” In other words, they have no idea what is going on.
There probably is an element of truth to all those theories. But they’re missing the bigger picture. Here’s the missing piece of the puzzle: many of the foreign companies being targeted had close ties to Jiang Zemin, the former leader of China and head of a political faction embroiled in a life or death struggle with Xi Jinping.
Xi’s made his mark in an anti-corruption campaign that just so happens to have targeted the most elite of Jiang’s faction. The most recent to fall were the former head of China’s internal security network, Zhou Yongkang, and China’s spy master, Ma Jian. This anti-monopoly campaign is just another front in Xi’s war against Jiang Zemin and his political allies. It aims at taking out their financial backing, and Western companies are unknowingly caught in the middle of it.
Views expressed in this article are the opinions of the author(s) and do not necessarily reflect the views of Epoch Times.