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CHINA flag

Michael Green is a pseudonym. The author is a specialist in risk and compliance in international business

I visited China on business recently as a senior corporate governance specialist. At one point, there was a real possibility I could be detained or questioned by authorities there. I had naively and honestly answered a question from one of the local senior managers regarding hacking risks by the Chinese government and state-owned enterprises. As common knowledge as this is outside of China, state propaganda does not mention this to its population at all, and discussing it openly was a foolish mistake, particularly when I have experience the region.

China is a country with abundant prospects for companies – access to its 1.3 billion potential consumers is a huge opportunity for British business, especially as our skills and creativity are in great demand and the potential economies of scale immense.

However, the reality is that China is a country replete with huge burdens and risks. These risks are partly economic (a huge public sector investment and construction debt that is not transparently reported), but mainly legal and political.

The Chinese Communist Party is determined to retain control of the country at any cost. To fuel growth for their huge population, they continue to turn a blind eye to business practices that are illegal in the West: theft of company and private intellectual property, bribery, breach of antitrust and competition principles, wide-scale copyright infringement – the list goes on. The Government’s recent “Anti-Corruption” drive is widely seen as a smokescreen to remove political opponents – Transparency International reported that China’s corruption score actually dropped in 2014, despite the headlines. Global Financial Integrity has reported that the estimated illicit outflows of money from the economy (money laundering, proceeds from bribery etc.) between 2003-12 was a staggering $1,252,519,000,000, the highest in the world. Those who can afford to are leaving China in droves.

State-owned companies use privacy and secrecy laws to try and force other (foreign) companies not to disclose routine information about them to journalists and industry analysts. Laws are being applied unequally and foreign companies bear the brunt. The Qualcomm, P&G (this week) and GSK compliance cases are frightening foreign businesses and people, with individuals being spied on by (or with the approval of) the state. Foreign firms often require special “licenses” whose application processes are opaque at best.

After some modest reforms under the previous President, Xi Jinping has brought back “The Great Firewall” – there is no access to Facebook, Google and Google Maps, for example. Foreign TV programming and films are heavily censored or banned.

The Chinese banking regulator is proposing a new law to force foreign companies to hand over the source code for their systems. This is in tandem with the new proposed anti-terror law that will make the US Patriot Act look mild in comparison. The Chinese state will be able to intervene in the activities of foreign corporations and potentially force businesses to hand over commercially sensitive information, no doubt benefiting local state-owned enterprises.

The proposed Asian Infrastructure Investment Bank is causing friction between the UK and the US. George Osborne is right to see the massive potential benefits of the bank for UK plc, but the Americans are also correct in sounding alarm bells regarding the governance of such an institution, especially if it is controlled and bankrolled by Beijing. If such a bank were to operate without the rigorous anti-money laundering processes that are a requirement for Western commercial banks, there is a real risk that any British taxpayer money invested could be misused.

Despite all of this, Britain needs the Chinese economy to be successful. When they buy British goods and services, we prosper, our pension pots prosper and our public sector prospers. Remember that on some measures, China now has the world’s largest economy, overtaking the US.

However, there is a potential danger. We have freedoms in the UK that have been long-fought and hard-earned. It can be very easy to forget that in the entire world, there are only about 20 countries that are considered “free”, with transparent judicial systems and public sector, free press and low corruption levels. The overwhelming majority of those countries are in Northern Europe, North America or Australasia. We are extremely fortunate to have the systems we have, which are the exceptions rather than the norms.

Once any body, private or state, becomes too powerful, it corrupts absolutely. It is therefore vital to have as much transparency, competition and constitutional protection of real civil liberties (speech, movement, life, rather than politically-correct entrenched vested interests dressed up as human rights). Today’s government “protection” of people becomes tomorrow’s tyranny.

When, as in China, people fear their Governments, then it is the government that is wrong.

18 comments for: Michael Green: Doing business in China can be dangerous

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