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Coping with Corruption in Trading with China

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Coping with Corruption in Trading with China

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  • November 2012
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CASE 2-5 Coping with Corruption in Trading
with China
Corruption is on the rise in China, where the country’s press frequently has detailed cases of corruption and of campaigns to crack down on it. The articles primarily have focused on domestic economic crimes among Chinese citizens, and on local officials who have been fired or assessed other penalties. Indeed, China has been rated by Transparency International as number 59 of the 102 countries the German organization rates on its “Corruption Perception Index.”1 Finland is rated the least corrupt at number 1, the United States at 16, and Bangladesh the most corrupt at number 102. Corruption’s long arm now is reaching out to touch China’s foreign business community. Traders, trade consultants, and analysts have said that foreign firms are vulnerable to a variety of corrupt practices. Although some of these firms said they had no experience with corruption in the People’s Republic of China (PRC), the majority said they increasingly were asked to make payments to improve business, engage in black-market trade of import and export licenses, bribe officials to push goods through customs or the Commodity Inspection Bureau, or engage in collusion to beat the system. The Hong Kong Independent Commission Against Corruption reports that outright bribes as well as gifts or payment to establish guanxi, or “connections,” average 3 to 5 percent of operating costs in the PRC, or $3 billion to $5 billion of the $100 billion of foreign investments that have been made there. The most common corrupt practices confronting foreign companies in China are examined here.

ANGLING FOR CASH
MNCs also are asked sometimes to sponsor overseas education for children of trading officials. One person told a Chinese source that an MNC paid for that individual’s U.S. $1,500-a-month apartment, as well as a car, university education, and expenses. Firms find direct requests for cash payments—undeniably illegal—the most difficult. One well-placed...