The Dark Side Of Doing Business In China.

Hantu Laut

China is the fastest economic growth centre in the world and many companies and individuals have gone there in the hope of getting into the actions.It is also a huge source of cheap manufactured goods and cheap contract manufacturing.

There is a dark side of doing business in booming China where government enterprise is often your partner.

In Malaysia failure to pay your creditors can get you sued, in China it can get you arrested and thrown in jailed for months without any charges being filed against you as in the case of David Ji, a China born US citizen who built a billion dollar business selling cheap DVD player to the US. Ji eventually was forced to sign over his company to his Chinese supplier in China.

There are many horror stories of doing business in China.Kidnapping, unlawful detention and using government enforcement agencies to arrest foreigners as bargaining chips to get the best deal is not unheard of.

Rio Tinto, the mining giant,experienced the harsh reality of doing business with China.In July this year it was trying to secure the release of four Chinese staff, including Stern Hu, an Australian of Chinese origin who is their chief iron ore negotiator. All are accused of paying bribes for “state secrets”. They were arrested during tense negotiations over iron ore pricing with China’s steel mills.The four are still in detention

In 1996 a Chinese employee of Shell working in government relation was arrested for spying, thrown in jail for a year and later released.She has since left China.

China is also a haven for contract manufacturing where many international companies get their products made cheaply.The danger face by these companies are strict quality compliance where they have to be constantly on the alert to ensure the contractor manufactures strictly according to specifications and quality set by them.Any slack in the monitoring could spell disaster. Chinese contract manufacturers are also well known for short-changing.A number of US firms have suffered product recalls due to dangerous materials used in the manufacturing process.In 2004 the death of 13 babies in China from drinking adulterated milk that contained excessive melamine touched off an international scare.

Below is another story of the dangers of doing business in China for those who are less vigilant.

A Corporate Drama of Perfidy

Written by Alice Poon

Tuesday, 04 August 2009

A story of deceit and perfidy in the business world of China, as experienced by the German boss of an advertising and exhibition company called Business Media China. A friend pointed me to a real-life story reported in the Financial Times by Jamil Anderlini entitled "A Cautionary Tale from China". Here is a recap of the article:- It is a story about how a Mr. Klaus Hilligardt, founder of German-based Business Media China (‘BMC’), had his trust betrayed by his secretary and her husband, both native mainlanders. His erroneous belief - that putting local Chinese in charge of his business would let him reap the benefit of utilizing Chinese drive and knowledge of the market – almost cost him his entire company that he had built up from scratch. Hilligardt hired his secretary Teresa Tu in 2001, who has been looking after his business dealings, his personal finances and investments and other details. In 2003 he recruited a young executive named Li Yangyang whom he meant to groom as his successor. Then in 2006, the two employees got married. As Hilligardt continued to put his trust in the couple, Li began to hire his former university classmates into the company. Everything looked fine until after the Olympics. It was then that Hilligardt was beginning to suspect something fishy was going on. He found out that Li had set up a shadow company to bucket the most lucrative advertising contracts of BMC. Li and his former classmates even found a way to getting BMC to pay for all the operating expenses of the shadow company while swallowing all the profits made. Meanwhile, the couple arranged for Hilligardt to meet with an attractive, middle-aged former model to keep him under the “spell”. When the German board of BMC started to get suspicious, it forced Hilligardt and Li to resign from the board and brought in a veteran Swiss entrepreneur with extensive Asian experience as the chief executive to deal with the mess created. With the tip-off from an employee pointing to Li’s shadow company stealing BMC’s clients, the CE was able to plan a raid on the company. One day in early June, accompanied by lawyers and a police escort, the CE raided the Beijing headquarters of BMC and retrieved paperwork from the finance department that provided evidence of the ongoing fraud.

I have personal experience of doing business in China in the eighties when its doors were not fully opened yet.My company got a fairly substantial contract to supply railway sleepers to them.Unfortunately, there were some delays in our shipments due to monsoon and flooding in Malaysia at that time that caused logistic problems.I went to Beijing to negotiate with them to accept the slight delay.The first meeting we couldn't reach an agreement.I asked for another meeting the next day but was utterly shocked on being told that the next meeting would be next week, same time, same day.I eventually have to stay in Beijing for almost one month and had three meetings and no resolution.Only on my second visit a month later and after two weeks in Beijing we managed to resolve the problem. We had to pay a hefty penalty for the delay.

I have seen the Great Wall twice, Forbidden City three times, Ming Tomb and Summer Palace once each during my sojourn in Beijing.There were only two prominent hotels back then,The Great Wall Sheraton and Shangrila.

The Shangrila and World Trade Centre was built by Malaysian tycoon Robert Kuok.