Businesses worldwide are clamouring for a slice of the mammoth Chinese market, but doing business in the "New China" may not be quite as simple or lucrative as the hype suggests, says author Ethan Gutmann in a series of talks this month. Gutmann spent three years in China as a business consultant, during which time he became privy to the inner workings of how commerce is conducted in the Middle Kingdom. His book, Losing the New China: A Story of American Commerce, Desire and Betrayal , chronicles his transformation from starry-eyed entrepreneur to hardened insider.
An underlying assumption of many Western companies' engagement with China is that the market forces unleashed by international trade will promote social and political change, eventually loosening the totalitarian grip of the Communist Party. But, Gutmann says, the exact opposite has occurred: businesses have ended up compromising their own standards to meet those set up by the ruling elite.
"Companies thought they'd change China, but China has changed them."
Western Businesses Toe the Line
Yahoo drew fire in 2005 for providing mainland Chinese police with information that identified dissident journalist Shi Tao. Charged with "divulging state secrets," Shi was sentenced to 10 years in prison. The company has also "signed a voluntary pledge not to post information that would jeopardize state security and disrupt social stability in China," according to a BBC report from September 2002.
Google also employs self-censorship in exchange for access to the Chinese market, while Microsoft's blogging service censors words like "democracy" and "freedom." Microsoft also incurred the ire of human rights activists last December when it blocked a popular blog written by Zhao Jing, a writer critical of the communist regime.
Meanwhile, Cisco's nationwide "Policenet" allows the regime more extensive ability to identify Christians, Tibetans, Falun Gong, and democracy activists, Gutmann says. It is unknown how many have been imprisoned, tortured, or killed as a result.
"The casualties of Cisco's surveillance may be in the thousands or higher," says Gutmann.
Other big names like Nortel Networks, Sun Microsystems, Nokia, and Motorola are also among those that Gutmann singles out as having compromised their business ethics to please Beijing.
Microsoft Stands Up
But there has been the odd exception. In the year 2000, Gutmann says, "Microsoft fought the Chinese state and won."
Beijing wanted access to Microsoft source code and control of foreign encryption software. Believing business would grind to a halt if encryption systems were compromised, Microsoft formed a coalition with the American Chamber of Commerce and the Japanese Chamber of Commerce; the French, British, Australians, and Canadians also got involved. Then, "Microsoft quietly let it be known that if the Chinese government did not back down they were prepared to leave China forever." Faced with this unified resolve, the regime surrendered.
"American internet companies … have to be really firm," Gutmann says. "… Will the Chinese police scream and threaten? Yes, of course they will—but eventually, after six months or so, they'll stop."
Gutmann urges Western businesses to think ahead as to who may be in power in China in the next few decades, and to consider who they'd rather have as their customer base: the Communist Party or the Chinese people. He also suggests that the Internet giants already in China silently fund the several small companies that have designed "surprisingly successful systems" to break through the Chinese national firewall.
"Words that come straight out of the Chinese constitution—democracy, freedom of speech, words like that cannot be censored. We can't do it."
'All About What You Don't See'
While exporting from China can be very profitable, investing there may not be the El Dorado people are led to expect. There are many government restrictions, much pressure on business representatives, and widespread corruption. Gutmann says bribery at every level of government is the order of the day for businesses, be they large or small. He says Motorola paid millions of dollars in bribes in the early '90s.
"Let's just say that Beijing today is all about what you don't see."
While Gutmann had a positive relationship with Western business representatives living in Beijing, he says the expatriate community has been instrumental in sustaining false perceptions about China and that they tend to gloss over the pitfalls of doing business there. Calling China "a fascinating land of contradictions," Gutmann says the expats enjoy a certain elevated status and are free of the draconian restraints that govern ordinary Chinese citizens.
And when it comes to toadying to the regime—a common requirement for maintaining business interests in China—Gutmann says Canadians have the dubious distinction in the expat community for their ability to kowtow bigger and better than anyone else. Even News Corp. chief Rupert Murdoch has "performed a series of abject kowtows" to Beijing, according to a report in The Economist last September.
But Gutmann insists that in order to do business in China it's not necessary to "sell your soul and get rich doing it." He believes corporations can effect change if they maintain solid business ethics—but they must be prepared to lose the transaction. Companies have to educate themselves well so that they know whom they're dealing with, and they should consider beforehand how far they're willing to go.
"It's not just a question of business failure," says Gutmann; "there's a moral outcome as well."
Additional reporting by Andrea Hayley and Matthew Hildebrand.