Selling Out? A Defense of Commercial Engagement in China

After a recent posting in which I argued against an Olympic boycott, the anti-China blogosphere let out a primal scream, accusing me, and other expatriates within the China-based business community, of "coddling dictators" and "selling out to totalitarianism." One hot-tempered netizen went so far as to suggest we were "worse than terrorists," earning a cheap buck while supporting the whims of an amoral Communist party, one willing to do anything to maintain power -- from the crushing of domestic dissent to propping up illegitimate regimes around the globe.

The anti-China, anti-business faction is misguided.

Guns and Monks: A Public Relations Fiasco

This article will not attempt to justify the recent actions of the Chinese government. In fact, while no (Han) PRC citizen supports a "free" Tibet, its recent handling of the Tibetan protests has been antediluvian and ham handed, a public relations disaster that embarrasses even Shanghai taxi drivers. But Western observers should take a deep breathe and ask a simple question: What in heaven's name could have motivated such a diplomatic strategic misfire?

There are only three and a half months until the Beijing Olympics. The entire nation wants nothing more than to impress the world with its industrial modernity, social progress and international outlook. The Games have been built up here as a Second Coming, an economic and cultural inflection point that announces China's arrival as a new superpower, shoulder-to-shoulder with the United States, a proud declaration that the Han worldview is not only legitimate but also more enduring than any other culture's value system. At the dawn of a "Pacific century," one during which both West and East can each, at last, hold up half the sky, why on earth would the apparatchiks clash with sympathy-inspiring monks and then, archaically and hysterically, blame the whole thing on the machinations of the "splittist" Dalai Lama, a figure beloved through the world? What were they thinking? How could they be so, well, irrational?

Tibet and "Unity": Sacred Ambition

A simple question deserves a simple answer. The government is scared of chaos.

So, too, is the entire population. In Han eyes, stability is the lynchpin of progress. In the Chinese universe, change is constant and absolutes, moral or otherwise, do not exist. Man's inherent state is precarious but he can move forward if unpredictability is minimized. As a result, religious, political, and philosophical forces are geared toward propagating order. Chinese were, and continue to be, obsessive about balance and predictability. Daoism's yin and yang (i.e., feminine versus masculine forces) are an integration of the "ba gua," or eight natural elements evenly divided between feminine and masculine forces that can be combined in only sixty-four pre-set ways. The lunar calendar is cyclical, always morphing from yin to yang, with each "animal" corresponding to one of twelve "earthly branches." Lucky dates for marriage, auspicious office openings, and astrological license plates are all structure-obsessed manifestations of a preordained temporal rotation that must be both understood, critically, managed.

In this context, the sacred goal of strengthening China's "unity" is more than a nationalistic impulse after decades of colonial degradation and economic humiliation. A cohesive China, void of secessionist elements, implies no less than the unification of heaven and earth, harmony that underpins the nation's continued economic rise and geo-political ascent. True or not, rational or not, it's what 100% of Chinese believe. When chaos erupts, fear strikes the deepest corner of the Han heart. Disorder presages decline and decay. And, today more than ever, Chinese are "optimistically anxious," dazed by country's economic miracle yet on the qui vive about the bottom falling out.

Capitalistic Institutions: Civil Society's Lynchpin

Contrary to the perceptions of some, Western capitalism is not about maximizing profit at the expense of civil society, rule of law and human rights. Quite the contrary, it is founded on the assumption that the individual, not the clan, represents that basic productive unit of society so his economic -- and, by extension, political -- interests must be protected. It is institution-based.

Efficient allocation of capital is lubricated by impartial institutions such as: a) banks that make lending decisions based on quantified risk and return, b) the wide available of credit, and c) corporate governance structure that rewards transparency and long-term shareholder gain. (Chinese businesses have been traditionally fueled by guanxi, personal relationships rooted in mutual obligation.)

The rationalism inherent in on-the-ground commercial engagement is appreciated in China -- so, too, is the American system of checks and balances -- for it makes the Chinese feel safe. Sermons about human rights elicit, at best, yawns and, more often, accusations of cultural tone deafness. The business community, yes, has a moral obligation advance the cause of liberty but, to be effective, their arguments must be couched in terms of "efficiency," not idealistic abstractions or dewy pleas for universal brotherhood.

Western Business and Reform

And, lo! Modern capitalism -- again, anchored in an assumption that individual interests must be protected -- has already altered China's economic, corporate and social landscape. It is the "bridge" on which the PRC connects to a world that is infinitely dissected but rarely understood.

On a deeper but unarticulated level, the presence of American and European businesses in China's midst challenges traditional assumptions that the outside world -- the Western world -- is inherently unfriendly. China's "dark side" emerges when it feels threatened. Heels are dug in. Shields are raised. From the robotic blankness of the sales girl who does not understand the competitive advantages of her product line to old world factionalism encouraged by bosses who fear their underlings, insecurity breeds dysfunction. On the other hand, when the Chinese feel protected, they look up and out, productively, non-belligerently and non-passive aggressively, eager to connect with a broader world and bigger opportunity.

As a result, Western business has helped push China to "our side" in important ways:

Meritocratic Advancement. In a land laden with stultifying basso profundo propaganda and soul crushing political correctness, foreign companies have instilled China's middle class with a new truth: capability, not connections, leads to professional advancement. JWT, for example, boasts more than 1,000 mainland staff, with each receiving formal performance evaluations that determine promotions and raises; furthermore, 50% of our senior management is local. Western organizations reward true "leadership" -- i.e., the courage to persuade others to accept a new point of view -- and reject mumbling yes-men. Although most Chinese are still uncomfortable with non-quantifiable performance benchmarks, a new generation of self-possessed, innovation-driven, confident MNC-trained leadership is slowly-but-surely emerging.

Transparent Corporate Governance. As suggested above, the Chinese revere efficiency. One of the country's most inspiring characteristics remains an uncanny ability to dispassionately assess current strengths and weakness and then, meticulously and incrementally, identify steps toward a higher plane of performance. In the PRC, the success of multinational corporations -- they beat domestic companies across a broad swathe of categories from cars (GM) and shampoo (P&G) to camcorders (Sony) and ice cream parlors (Haagen Dazs) -- has persuaded leaders to acknowledge the linkages between: a) transparent information flow and stock price gains, b) board structure/shareholder rights and long-term profit and c) consistent accounting standards and access to capital. (The central government also recognizes the dysfunction of old-style shadows and darkness, hence its eagerness to join the World Trade Organization while subjecting itself to the harsh glare of membership. Since accession in 2001, the gradual opening of several sectors, notwithstanding "sensitive" industries such as media or telecommunications, has impressed many Western observers.)

Is Shanghai's opaque stock market any more rational than a Las Vegas gambling binge? Not yet. Are state-owned enterprises still encouraged to fritter away "excess" profit in the form of Cartier watches and corporate "team building" trips to Macau? Yes. But, make no mistake: global accounting companies such as KPMG and Price Waterhouse Coopers are doing gangbuster business on the mainland, and not only by policing MNCs. They have penetrated Chinese C-Suites by prying open books, one ledger at a time. Another example: HSBC's small and medium enterprise (SME) client base is exploding; the bank lends RMB to thousands of start ups that know securing a loan depends on reporting normalized profit.

It's the Consumer, Stupid! Consumers have finally begun assert their rights as buyers, an impulse that barely existed ten years ago. Ironically, the multinational corporations that first introduced the concept of "shopper satisfaction" are frequent targets of ire. Procter & Gamble's SK-II elicited howls of indignation for "hurting the feelings of Chinese" because it failed to offer a refund when a "suspicious" chemical showed up in its skin cream. Nestle's "arrogant" handling of "tainted" baby formula, fodder for indignant internet attacks in chat rooms across the country, made the nation seethe. But, at long last, the patriarchical Communist party, the self-appointed protector of national welfare, has been cut by its own double-edged sword. In 2007, the Shanghai municipal government was forced to cancel plans to extend a high-speed railway into the downtown area due to middle class property price concerns. And a scandal which has seen half of China's mobile phone users spammed with unwanted text messages, many from state-owned telcos, has "drawn the ire of the government which has vowed to fight against offending texters."

Rome: Not Built in a Day

Am I naïve enough to suggest that Communist China has miraculously morphed into a society in which the needs of the "little guy" are always addressed? No. Property rights still do not extend to land ownership (all real estate is leased). The judiciary is still light years away from impartiality, with many judges either poorly trained or still beholden to local power brokers. The banking system, all too often, is rigged against the interests of the entrepreneur; raising capital for non-state-owned entities can be an exercise in extreme frustration. But China is, step by step, evolving into a more rational and fair environment in which policy makers pragmatically acknowledge the relationship between civil (and human) rights and sustained growth. Whether we like to admit it or not, the People Republic is becoming a quasi-"normal" environment, business and otherwise. It is only a matter of time before more a modern (albeit not Western) political structure emerges to address 21st century capitalistic imperatives.

Many "advanced" Chinese societies -- Singapore and, yes, Hong Kong -- still regard strong central authority as a bulwark against disorder. Therefore, representative democracy, an inalienable right in Western society, will not take root any time soon in China, a country burdened with crushing poverty and urgent infrastructural demands, not to mention a radically-different world view. But Americans and Europeans who rail against a "red menace" and are blind to the progress that has been made, help neither the Chinese nor the world.

The road to Rome is long and the Chinese have only just started on their journey. And we expatriate businessmen (and women) are certainly not saints; Yahoo's sell out to the Communist censors reminds us of our fallibility. Nonetheless, we can be proud of our contribution to a more prosperous, stable nation and world order.