West is Naïve in Business With China, Say Experts
West is Naïve in Business With China, Say Experts

HEALTH CRISIS: Parents play with a baby who suffers from kidney stones after drinking tainted milk powder, while another family waits at the Chengdu Children's Hospital in Chengdu of Sichuan Province, China. (China Photos/Getty Images)
HEALTH CRISIS: Parents play with a baby who suffers from kidney stones after drinking tainted milk powder, while another family waits at the Chengdu Children's Hospital in Chengdu of Sichuan Province, China. (China Photos/Getty Images)

Chinese ex-pats are saying Westerners are naïve about doing business in China and do not understand the long reach of the communist party and its presence behind everything.

“They only see the huge market of 1.3 billion people without knowing about the danger of Chinese markets,” said Jia Jia, a former General Secretary of the Shanxi Provincial Association of Scientists and Technology Experts, who was granted asylum in New Zealand this year.

He said the Sanlu/Fonterra milk powder issue stems back to the Chinese Communist Party (CCP).

“New Zealand is a democratic country, and China is a totalitarian communist country. All the enterprises in China are under the leadership of the Party, they are actually Party-operated … in China, everything is under the control of the Party,” Mr Jia said.

He warned enterprises to learn about the real circumstances in China before embarking on a business venture there.

Chief executive of Auckland's Chamber of Commerce Michael Barnett said the learning from the poisoned milk incident is that the Chinese have shown disregard for the sorts of ideals that most New Zealand firms hold dear.

“And that's a signal that others need to be careful … you need to be able to assess the risk of going into a relationship with anybody … to have the same values that you do,” he said.

“The reality is that if people are going to be dishonest about the contents of the product, they're going to be dishonest about the chain of evidence that is associated.”

He said firms doing business in China need to pick their partners well and have absolute control over their brand—something Mr Jia suggests is impossible under the regime.

“They [Fonterra] should have known that the poisoned foods, faked goods … all these are political problems and are caused by the Chinese ruling systems,” Mr Jia said.

“I think that this is a warning to all financial groups that are investing China … through this matter, they should have a clearer understanding on the Chinese Communist Party.”

Chen Weijian, human rights activist and chief editor of the New Times Weekly, echoed Mr Jia's warning: “If a New Zealand company goes to China to do business, they have to be aware of the corruption and dark side of the business world under the ruling of a dictatorial Chinese Communist Party.

“If the New Zealand company cannot uphold the value of honesty to its customers, but surrender to a bad business culture created by the communist party, then they will get into trouble, like Fonterra,” he said.

Worker Reveals Corruption

A Chinese website posting from a former dairy worker in China said he wasn't surprised by the Sanlu/Fonterra incident.

“Melamine is only a corner of the mountain,” he said on the newstin.cn site.

He said he used to be in charge of collecting milk from the private collecting stations and that they never refused any kind of milk.
 
“Because we know how to maximally take the greatest value and profit from things we have.”

The only tests undertaken were for pH value, protein percentage, and dried content, he said, and that the volume could be increased by adding water and melamine to the milk. If the product expires, they could just print a date one month prior to the production date.

“If someone knows the truth but is not telling others, while watching them to be hurt, he or she must be someone morally bad.”

Fonterra's Silence Criticized

Green Party Health spokesperson Sue Kedgely said Fonterra were out of their depth in the scandal that has seen four infants die and more than 50,000 fall ill.

“But what I think they are saying, which is actually worse, they seem to be saying that they have different standards when they operate in a repressive regime. Because they have acknowledged that anywhere else in the world they would have instantly called for a nationwide enquiry and they would have gone public.”

She said Fonterra's silence during the 40 days they knew of the contamination was “incomprehensible”.
“They have a moral and ethical social responsibility to go public and issue an international recall and go to the top in China the moment that they heard.”

Fonterra's chairman Henry van der Heyden said at a news conference Sept. 24 that he would be “absolutely disgusted and appalled” if information was held back from the public about tainted milk. He was referring to questions that Sanlu had possibly known there was a problem from as early as December last year.

“One of the risks, the highest risks that we identified were around milk quality. And that’s why Sanlu for us, an investment in Sanlu for us, was a first step in this process.”

CEO Andrew Ferrier said: “Of course if we had been able to pick this up and stop it… We are just deeply saddened that this has happened and we wish there is something we could do.”

He said Sanlu had the same testing that can be seen in New Zealand and in other countries around the world. The company has been written down (devalued) by $139 million.

Ms Kedgely said Fonterra should be conducting their own investigation into the contaminated products, and that the New Zealand government should be looking at the 25-day delay from when their embassy in China knew of the tainted milk formula, to when Prime Minister Helen Clark was alerted.

Tip of the Iceberg

The melamine issue is just the tip of the iceberg, Ms Kedgley said, and New Zealand's free trade deal with China could be a precursor to more tainted products entering the food chain in New Zealand.

“What they have done is effectively give preferential treatment to China. In the free-trade agreement there was a provision there to fast forward products from China into New Zealand within 48 hours … [which] potentially means that more contaminated products can slip through the borders.”

New Zealand's Trade Minister Phil Goff has yet to reply to an email on this question.

Professor Robert Gregory from Victoria University's Political Science department in the School of Government, referred to a book written by two American academics. J. Collins and J. Porras looked at what made the difference between “good” and “great” corporations in their book, Built to Last: Successful Habits of Visionary Companies.

“One of the things they found,” Prof. Gregory said, “was that the very top companies are invariably willing to put their money where their mouth is, when it comes to actually living up to their professed key values. For example, if profits are likely to be compromised by having to withdraw a faulty product, etc., then the issue of public safety and integrity will override that of profit-maintenance.”

‘New Capitalists’

Manyan Ng, a 25-year veteran of doing business in China and Executive Director of the German-based International Society for Human Rights, is concerned that people are impressed with China's economic growth without looking at the history behind it.

“They think it grows very fast but they don’t realize that it started from a very low level. People don’t know what happened to the Chinese economy during the first 30 years of the communist party,” he said.

“If you look from 1949 to 1978, the economy basically went down from 12 percent to 3 percent of the world’s economy.”

Mr Ng said that during this period the Chinese Communist Party persecuted the industrialists, the business people, and the rich bourgeoisie through the Cultural Revolution and the Anti-Rightest Movement, causing the rapid decline of the economy.

“At that time they saw business as something evil. [Then] after 30 years, the communist party became the new capitalists, and the money ended up in their pockets.”

He said it is important for business people to understand that the ruling regime's only principle is that the end justifies the means.
 
“Businessmen in democratic countries have to be aware that all big business is controlled by the Party, and they follow this principle. If they need to smile at you because it’s good for them to do so, they do; if its good for them to kill you, they do. Too many people are just naïve.”

Mr Ng pointed to a Chinese-Japanese joint venture some years ago, where Japanese car maker Toyota sued the Chinese company for breach of contract because the Chinese had given all the technical information to their parent company and that parent company made an exact copy of the car that was meant to be made by the joint venture and it came out first.

The Japanese company sued, but it was during a time when the communist regime had created a lot of anti-Japanese nationalism in China.

After around eight months of processing, the Chinese Communist Party came out saying that Toyota had been slandering the Chinese company and so Toyota had to pay a fine.

Mr Ng said the court system in China is not independent and for big cases the judge makes a decision based on what the Party says. For small cases it is a matter of who bribes who more.

“There is nothing more important than doing business with trust; you cannot solve all problems with a contract, so you need this kind of security.”

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