July 20th, 2009
06:00 PM GMT
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July 20th, 2009
03:42 AM GMT
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To get by in China, it’s all about relationships. In business there may be rules and regulations, but long-time China hands will tell you it can be a complicated and often frustrating experience. So to get anything done, you need to find the right person – either in government or the private sector – and you need that person to like you.

So, a little wining and dining, spending some time getting to know each other, doesn’t seem unreasonable.  How about entertaining a senior member of the Chinese team which negotiates the price of iron at a luxury box during the Olympics, as BHP did last year? It’s not illegal, but a grey area of the law, says Xianfang Ren, a senior analyst with Global Insight.

“The line between entertainment, public relations, and government relations and bribery, commercial bribery it’s kind of blurred here in China,” he said. “Especially in a country that good government relationships are important in getting deals and contracts.”

But China is accusing the mining giant Rio Tinto, and its Chinese born Australian national executive Stern Hu, of paying bribes for crucial information. At the time, Rio Tinto was involved in tense and often acrimonious negotiations over the annual price of iron ore. They are accused of stealing state secrets.

“What’s happened here, the stakes have gotten so high that they’ve trotted out their heavy artillery: ‘You’ve taken state secrets’. It’s a very vague charge and it can mean anything the party wants,” says Derek Scissors, a research fellow for Asia Economic Policy at The Heritage Foundation's Asian Studies Center.

Many within China’s iron and steel industry will say privately it is fraught with corruption. Hu is the only foreigner being detained, the rest – a small but unconfirmed number – are Chinese. The investigation may be an indication that Beijing is moving to clean up the industry, analysts say.

But with one foreign national behind bars, the Australian Prime Minister warned the world is watching. On the same day, U.S. Secretary of Commerce Gary Locke told CNN: “We need assurances and confidences that people working for multinational companies, international companies, American companies will be treated fairly.”

Derek Scissors from Heritage warns the situation can suddenly change, especially during some high-level iron ore negotiations where billions of dollars are at stake.

“The international message they’re sending is, if things get ugly enough and important enough we’re going to break the rules. We’ll follow our rules not international rules; we’re not going to respect the rights of multinational executives’,” Scissors says.

Where does this all leave the expatriate businessman or woman living in China? Many Western companies spend big on commercial research for strategic planning and marketing in China. And every business person on the ground here knows the cultural importance of guanxi – or “developing good long-term relationships” – with government officials and local Chinese business partners. Has the line of acceptable behavior in China been redrawn?

Perhaps the best advice for foreign workers in China comes from Xianfang Ren from Global Insight, “I think it is always safe for them to stick to the higher standards, the stricter standards because some multinational companies, I understand they have much stricter standards overseas.”

In other words, don’t do in China what you wouldn’t do back home – even if it seems everyone else is doing it.

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