A Mirage of International Business Prosperity: How China hacks your pragmatic CEOs & politicians without TRUST or EQUAL partnership

Having an opinion on pressing current global issues (or not) is going to change your economic life

Your CEOs and politicians tell you that the Chinese market is so large that your company’s survival and your salary/wages depend on business with China. Do you take their claim as a fact? Or do you question, conduct some research, and start a discussion with people?

The expectation was that China would cooperate with the West to preserve the present liberal order of global politics. This approach was a profound mistake... Perhaps a positive outcome of the coronavirus pandemic is that it has opened Western eyes to these dangers — and it is not too late for the West act.

— Bradley A. Thayer and Lianchao Han, ‘Kissinger’s folly: The threat to world order is China’, 2020–04–19

Meanwhile, diplomatic tensions have increased between France and China recently, as the two sides have traded barbs over their responses to COVID-19. And while German Chancellor Angela Merkel has invested heavily in the relationship with China, members of Merkel’s party, the Christian Democratic Union, are growing more concerned about China’s economic presence in Germany, and most Germans do not condone China’s human rights abuses… Germany’s economic recovery after the pandemic depends on its exports, particularly cars, with China being its most important market.

— Heather A. Conley, ‘From Naive to Realist? The EU’s Struggles with China’, 2020–05–28

Kissinger's folly: The threat to world order is China

US Customs Seizes Counterfeit Money Originating From China

From Naive to Realist? The EU's Struggles With China

U.S., Britain raise Hong Kong at U.N. Security Council, angers China

Here is a country whose story might resonate with you:

Taiwan is an island across China with a vibrant democracy and civil activism — formerly known as Formosa before WWII in the West. It was a war ally against Communism up until the 80s, when Deng Xiaoping opened up China to the world trade to save its (failing communist) economy and agreed to fight against the USSR along with the US and the rest of the free world in the early 80s. Since then, Taiwan has seen manufacturing moving assembly lines and production to China. With it came the worst job loss for people with a high school diploma starting in the 90s. Taiwan has also experienced deep political and economic infiltration from the Chinese Communist Party (CCP): businessmen who are friendly to CCP bought out a major newspaper and another one that has better presence online and in cable TV, a famous gangster registered a political party that never has any suggestion on domestic issues. Finally last year, almost all Taiwanese manufacturers who were still in China finished moving factories out of China back to Taiwan or another part of the world, e.g. Southeast Asia or Latin America.

Five relevant stories to start our discussion

Today’s business people like to crunch numbers in Excel and look at BI dash boards. They no longer take the time to revisit basic economics theories and political economy philosophies. I want to show you in this article what cannot be easily detected in these data and dash boards, and that businesses might be ignoring the greatest and most fundamental risks — politics and corruptions.

Let me name some relevant, actual, and common offers and stories about non-Chinese businesses whom I’ve talked to:

1. One porcelain designer and manufacturer (the owner is a wealthy 2nd generation businessman) received an offer around 2008 for free land and water use for an indefinite time — meaning until the local government changes its mind. Not only the company gladly accepted the offer but it expanded to 3 factories in China. However, his products were not well received in the West — the market he was familiar with for the last 4 decades. So he turned his sales into China inland where his products were more than twice as well received, and was even able to produce for the Chinese president Hu Jintao in 2009 G20 London summit. Soon, the environment changed in China as a new policy called 禁奢令 or ‘extravagance ban’ went into effect in 2013. In 2016, he had to lay off 25% of his employees. In an interview with a business magazine 《商業周刊》that year, he said:「都是我的錯…我以為對共產社會很了解」(literally “It’s all my fault… I thought I understood Communist societies enough”), referring to his previous experience operating in USSR.
2. A Chinese colleague in Siemens whose job was purchasing raw materials and components for production once had an exchange year at my factory in Germany. She commented on how the German colleagues were unrealistic about purchasing in her opinion:「價格跟供應商壓得那麼低還要質量達標」(literally ‘they wanted such a low price from Chinese suppliers AND that these products have to meet the European quality standard’). According to her, in China she as an employee of the purchasing dept. had to count the number of non-broken items that arrived with the suppliers’ trucks to make sure that suppliers were not cheating.
3. In fact, Siemens’ e-training course on doing business with China suggests engineering managers who are interested in a Chinese supplier to stop looking at certificates of quality in Chinese because the acquisition of these certificates can be very dubious. Instead, it strongly advices that managers fly to China and — again, stop looking at these certificates when the Chinese factories present them — inspect the production line and take notes of suspicious details. This reminded me of how my dad used to explain to me what he did as a loan manager in a bank: go into the factory’s production line, check their accounting books, and inspect details. He was really bad at natural science and math and he pulled it off. So can you!
4. Terry Guo (Chairman of Foxconn Group) talked about hiring engineers in Japan and fully automating all Chinese factories in his 2016 New Year’s speech to employees. (By that time he had already fully automated 1 factory in China that did not need any production line workers.) He gave his reasons for hiring from Japan, 「日本員工負責勤勞有效率，請一個日本人抵過三個中國人」(literally ‘Japanese employees are responsible, hard-working and efficient. Hiring one Japanese gives the output of 3 Chinese’) Obviously, he was not talking about output in terms of number of items produced but those that meet the quality standard of the international market. (P.s. Foxconn also received free land & water use offers for some of his factories in China)
5. Once I was talking to a designer and manufacturer of electronic devices in Taiwan, whose parents came from China but did not want to have a factory in China. He has to compete with Chinese manufacturers, and he had won some battles before. For example, he was a major supplier for Beijing’s 2008 Olympics stadium, the Bird’s Nest 鳥巢. When I asked him about his intellectual property (IP) strategy (because I was working for a patent and copyright lawyer), he answered that patents do nothing against his Chinese competitors partially because the Chinese Patent Office favours their own manufacturers and is hostile against foreign competitors (my boss also told me the same thing). So his IP strategy is to have inventions or products whose market life cycles are as short as possible so that his Chinese competitors cannot catch up with the speed. This is not easy or healthy and consequently his company is still struggling.

In just 5 examples touching different but not all aspects of doing business with the Chinese, I hope you have developed an intuition about what trust and equal partnership mean without any abstract academic or dictionary definition. There are many more stories about all the restrictions that a Chinese citizen faces living in China or Hong Kong that distracts them from realising their dream jobs there. Unfortunately, I don’t have the space to share them here.

Now ask yourself again: Do you believe what your CEOs or politicians say about doing business with China is good for your company’s business or our economic life?

Do you have stories? What are your take-aways? Please do share them with me.

How important are trust & equal partnership for international business? What happened to them in the last 30 years?

For most of the last 200 years, businesses and people in general were very aware of international politics. They were forced to or would orient themselves accordingly. It was a very bloody time full of political propaganda from all sides. And thus – now that the Cold War ended — understandably and not to our surprise, people in the free world have grown tired of international politics and condemned wars. In addition, recovery from WWII gave a booming economy in the free world, and naturally people decided to focus on earning money and enjoying life and good products. International commerce, free trade, and dropping tariffs became the right things to do in the free world. I need to remind you though that, until today, many countries including China do not share the same policy for commerce as in the free world. For instance, do you know that countries like North Korea and China have been printing fake US Dollar bills and circulating them around the world?

What is perhaps most surprising is that the free world still decided to trust — take international affairs as granted and avoid wars at all cost — and I really mean at ALL costs, as if being bodily controlled or censored is still better than fighting a war. Ideals and concepts such as:

• ‘assume everyone has good intentions’
• ‘every problem can be solved without violence’ and
• ‘make love, not war’

have dominated. As a result, many Euro-Asians from the Middle-East to the Far East have laughed at us for being weak-minded, naive or stupid behind our back. These Euro-Asians, on the other hand, have become more violent than ever — developing nuclear weapons and borrowing money to wage wars against their ‘enemies’ and against the free world. They argue that they are only being pragmatic and smart about putting their ‘interests’ first. China and Russia are often their financial and military supporters but have chosen to stay in the background so they don’t have to take responsibility for supporting wars.

You can choose to condemn these people’s behaviour on moral grounds, but it is much more effective to implement a realistic business strategy that takes political risks and trustworthiness into account — whether you are a profit or non-profit organisation. And if you’re not in the position to participate in your organisation’s strategy, I would recommend you to be brave, namely take responsibility for your own actions, or the lack thereof, as well as your impact. That’s right, be brave — because it is ‘no pain, no gain’ when you face a trickster who seeks to become a bully.

Moral values are important, but…

they don’t usually convince others, because most people agree that moral values should be flexible sometimes. By no means am I indicating that being flexible with moral values is always bad. But we need to be careful if someone decides to be flexible because he/she receives promises of short-term or long-term benefits that have strings attached. Go gather information about what they do, instead of reacting to what they say they will do!

People — especially the powerful ones — are not inherently stupid but are often blinded and driven by greed and wants, as opposed to basic needs. China or Russia alike take advantages of this knowledge about you and me and successfully hacks many talented people in the free world.

What the CCP offers & what strings are attached

Since 2013, the CCP had been implementing a strategy called One Belt One Road Initiative, which focuses on infrastructure projects such as bridges and 5G network. The CCP’s practice of debt trap diplomacy has been much criticised in the news. Also, these Chinese construction firms abroad imported Chinese workers, who often run away, and so they continued importing more Chinese instead of providing job opportunities to the locals. This causes anger and anti-Chinese sentiment among local African or Euro-Asian citizens. Then, the Coronavirus broke out and limited the development of One Belt One Road. So now, the CCP has quickly turned to offer health products. We all know how that goes with their quality and prices… but the history of their dubious offers to the free world really began in the 80s.

Book Review: Belt and Road: A Chinese World Order by Bruno Maçães

A. Offers that you cannot refuse

It is well known in Asia that the CCP has deployed a so-called ‘blue, gold, and yellow plan’「藍金黃計畫」for over 20 years to infiltrate foreign nations. The target group of this plan are the elites. Here are the aspects of the plan:

(1) Blue — corrupt organisations and their data by gaining control of institutions such as banks, ore mines, sea ports, research institutes, and even online forums

(2) Gold — corrupt individuals with monetary incentives, or the common type of bribery

(3) Yellow — corrupt individuals with sexual incentives, or another kind of bribery

My parents’ homeland Taiwan was their 1st target, and the Taiwanese are very familiar with CCP’s tactics after years of interactions. Still, they are not immune to the tactics, exactly because the appeal to desires and greed can be too tempting. And the cost of being a political dissident is very high. The CCP often sets up a blackmailing trap or frames a dissident. Alternatively, it plays with its domestic ‘laws’ to restrict dissidents’ freedom and rights in different aspects.

From the 5 examples above, we saw several cases of the gold aspect of the infiltration plan. Point 3 is pretty self-explanatory. So let us talk about Point 1 and other common offers. Typically, the CCP also promises the following short-term and long-term benefits to elites:

• Prestige, or special treatment in public/state systems — manifesting itself in areas such as priority in medical care, dedicated public relations managers and accountants, family prosperity over generations, licenses to highly restricted businesses, business contracts with governments, and a rich business network within the Party.
• Social status, aka being feared/admired — manifesting itself in the job title, income, and influence in your organisation and on others in your societies.

Elites who accepts these offers usually will be PLEASANTLY surprised — at least at first — by the speed, efficiency and effectiveness of the CCP's delivery. The CCP will force other stakeholders to sacrifice their interests if necessary to deliver its promises to new foreign elites. This is why so many of your politicians and CEOs love working with the CCP. However, notice that the CCP rarely deliver its promises in the UN or its sub-organisations, nor does it really deliver its promises to the countries of these elites. (Remember the blue aspect of their infiltration plan?)

When the CCP makes an offer to a foreign elite though, it will never mention an expiration date, which does not mean that the offer does not have an expiration date. Contrary to your common sense — and also the common sense of your politicians and CEOs, the expiration is whenever the CCP doesn’t want to or cannot afford to make the offer to this particular elite anymore.

B. Obligations that left no trace on paper

Anyone who has ever accepted a bribe from the Chinese knows that he/she also has to deliver what the Chinese asks for— whether that be spreading propaganda in the media, lobbying in your parliament, or actually gathering more pro-China voters and business people in his/her own country. This is the infiltration plan.

On top of that, accepting offers from China means one has to return bribes to Chinese officials. Yes, it does not make any sense, but the Chinese will tell you foreigners that it’s their culture to ‘be polite or thankful to the others for their services’. Hell, the Chinese even bribe their doctors and bosses on a daily basis:

• A student in the London School of Economics did her dissertation on bribing doctors because she was so amazed that we don’t bribe doctors here. The mother of an older colleague of mine was a doctor and he confirmed this. During the Cultural Revolution, when there was not much to eat, they lived off gifts from the patients.
• My former flatmate worked for a Chinese publishing company funded by the Chinese Communist government in London. In those after-work coffee meetings, her supervisor would walk around in the city a bit with employees and ‘mention’ to everyone that he liked this and that, and the employees would take turns buying gifts for him on the spot. Needless to say, my flatmate was also bombarded by their questions about when she would become an official CCP party member. She quit her job after a few months.

So bribery is obviously a Chinese culture thing, right? Think hard again if this way of life is economical for you. Think how much you will need to save for bribing your doctors and your supervisors, because it can come to your country sooner than you think.

You need to bribe powerful officials on their birthday parties and almost everyone in the authority such as local law enforcement officers who come knocking on your door. For instance, local law enforcers would drive a small truck to my uncle’s diamond factory and demand to have it filled with small diamonds once every few months. My uncle’s CEO in France understood this was part of the business, and so employees like my uncle did not get into any trouble with the CEO. So you see, doing business in China means to maintain unequal power relationships with almost everyone in the Chinese authority besides your Chinese business partners. None of this is in your contract but was negotiated and agreed.

International companies like Siemens tell their employees to follow EU guidelines on anti-corruption in countries like China, but rest assure that your CEO most likely expected corruption and personally benefited from a deal with the CCP to build a factory in China. The question is ‘Do you benefit from this?’ Surely bribes can’t go into your accounting books, but what your company didn’t tell you was that a local accountant can solve this problem easily.

By the way, the EU estimates the economic cost of corruption in Euro to discourage people from bribery in an international business setting. However, its data shows that China’s Corruption Perceptions Index (CPI) in 2019 was better than average (in colour blue as the rest of the EU countries). Recall the blue aspect of the infiltration plan? Try showing it to any Asian (even the Chinese) and see how many people trust the integrity of this data.

What can we do as citizens in the free world?

There are many things to do, believe it or not. I will give an example from Taiwan.

Terry Guo, whose business manufactures for brands from Apple to Sony and Samsung, had been closing or selling factories in China quietly but it was not fast enough because China would not let him. In 2019, he decided to run for the primary presidential election in his party in Taiwan, and it hit the national headline. When journalists asked how he could explain to the voters about his close ties with CCP leaders like President Xi Jinping and regional leaders that helped him build his factories, he gave 3 arguments:

• He had quit the role of Foxconn’s Chairman and would put his property in a trust.
• In his relationship with Chinese leaders, he had more bargaining power than they did, because (a) his company supplied more than 800K jobs in China and (b) his business was not directly dependent on the Chinese market. Chinese leaders would beg him not to close factories and listen to him more if he became the president of Taiwan.
• His goal was to fully automate factories in China so that the factories would only need very few employees.

Would his arguments convince you? It did not convince the Taiwanese and he did not pass the primary presidential election in his party.

If you want to remain free in the free world, your challenges in the 21st century would include:

1. Understanding your fears, dark wants, and greed.
2. Accept that you have them, learn to reduce them, and learn to detect false promises that appeal to them.
3. Read and do your own research on pressing international commercial issues on a weekly basis.
4. Choose your business partners (including your employer) and friends wisely.
5. Participate actively in a political party or in votings to put pressures on politicians and CEOs.
6. Encourage your family and friends to do the same and discuss with you AND learn not to get angry at each other.

Conclusion

Doing business with the Chinese is not about what is written in the contract. And their culture of extensive bribery in daily life is not economical or desirable for most citizens in the free world. So next time, be alert when someone promises you that doing business with the Chinese will bring economic benefits to your country and financial benefits to you and your family — they only mean that they are personally benefiting from it, not you. And you can do a lot more to stop these elites who are helping the CCP to infiltrate your country, because there are a lot of you if you all demand your politicians and CEOs to be transparent about their choices of business partners and demand only trustworthy and equal partnerships that will truly lead your country to economic prosperity.

This article draws from my family & friends’ experiences as well as from mine, as usual.

My uncle worked in a diamond factory owned by a Frenchman in China in the early 90s for about 5 years when he would only get food vouchers for meals. I grew up in the US and moved to Germany to work for both Bosch and Siemens over a period of 7 years. Many friends of mine had first-hand experience and catastrophic life stories with Communist governments such as China, Russia, Vietnam, and Cuba.

Please let me know if you would like to hear about their personal stories on my blog.