As Xi Jingping became the leader of China , the outside world read the words and sensed a significant change was about to occur.
Peter Humphreys was, at that time, engaged in trying to find a whistle blower. GSK and other pharmaceutical companies were continuing a 20 year custom of their trade in China, paying the doctors for prescribing their drugs. RTZ and BAT were contemplating how to extract themselves from initiatives which attempted to manage China their way. Hosts of foreigners lived on the edge of inappropriate behaviour as Chinese generally excluded them from being covered by Chinese law.
Much was to change and most were and still are surprised.
Firstly Xi has started an economic change which might be described as revolutionary but for the fact that its implementation is slow and gradual. The market economy managed by a macro-focused state , informed by a deep thinking and profound, experiment and research based Party, is just beginning to become apparent to foreigners.
It is going to treat foreigners and Chinese alike – the flat playing fields Western business has called for for years , is here , and some of it does not feel so comfortable. It includes accepting Chinese law and accepting the consequences if you break it. It involves a root and branch attack on corruption and Western business has played the contacts and discreet pay-offs too long. It is all over. The Rule of Law is coming, in fact is here. Even if business feels it does not get the law.
Chinese Law will feel different. It is different because it is based upon 5000 years of Chinese history and culture blending with global norms, which are felt to be based on fair ways of conducting business, not just geared to dominant forces.
We have been through it for decades in different countries and we are well used to having to adjust to innovated laws and practices. Just listen to the cries of protest at American fines. However just or unjust they are clear for all to know and expect. Many expected it not to be retrospective or to get a smack and then they would behave. Chinese Law will feel similar and different to Westerners. But it is not very difficult to predict. As Westerners feel it is more easily understood by Chinese , so they will feel the modern elements are more easily understood by the Westerners. But it will be Chinese Law.
China is different and has different laws and practices and woe betide the foreign company that does not take the time to comprehend the environment they are working in.
Chinese laws and the mechanisms of implementation are both different from Western forms, and less clear as they are still in the process of being created and enforced. But ignoring them is no excuse now.
And nor is the complaint that it is just the foreigners that are being hurt true. Chinese companies and behaviour are as much a victim of the new rule of law, although many do not report to the media or have routes to the media. But the papers are full every day of Chinese arrested for corruption and other offences.
A major clean up is under way , and yes it does seem to include managing the policy differences, but that reflects the fundamental aim of Xi to clean up China, and was opposed by those with vested interests in the old ways. It is those who wanted the old way that are being challenged by this change to a rule of law environment.
It is perverse for foreigners to complain that China does not use the Rule of Law and then complain it is only used against them, when the media is full of stories and reports to the contrary.
It is deeper than that. One top executive bemoaned the impact of regulation from the U.S.A. and from Europe on their industry, and his company – not a small one. It is not for me to judge the intensity and longevity of Western regulation but it looks like a long term trend.
China is also developing Regulation way beyond its initial 10 year experiment with four financial regulators. Now they are expanding it much wider and applying it to foreigners. First felt in the area of baby foods, it has spread to car manufacturers and global acquisitions. It is the tip of the iceberg as China will use Regulation to manage the market economy.
The Chinese approach and the Western approach , different in detail, were all predicted by Adam Smith in the Wealth of Nations and The Theory of Moral Sentiments.
He wrote about the need to manage Capitalism’s unique capacity to innovate and advance economies. He wrote about the greed that needed managing, the tendency towards controlling markets to secure profits, and the need for the beneficiaries to exercise benevolence, and behave morally.
He did not write about Regulators but they are the consequence or the method that is predictably an outcome of his thinking. A consequence of crises like the Western Financial Crisis.
The West , after experiencing a huge financial crisis, and China, as it accepted the need for a market economy, both value Regulation to manage the systems.
It is counter-intuitive to business which prefers no regulation and free markets. But the playing fields are going to be regulated and referees will be there. Some will be soft and some pedantic. But , as time goes on, they will only work if they are realistic and recognise their task is refereeing the rules, not making them and blocking the fundamental purpose of the market. It will not be a simple balance to achieve.
Now we can debate the word market and its various meanings in various sectors, but the referees are only going to grow in number and impact.
They are going to grow in China.
If you follow the rules you will be fine. Don’t expect your Chinese partner to be your guide . Develop in-house knowledge and experience. Make sure your strategies are sensible and complementary to China’s thinking, and think big , think global, think about new ways to work with new China.
China is very different from the West but it is going to be affected by change and so are we.
Business needs to accept the West has changed for ever , and so has China.
The Rule of Law will develop in China, and so will accountability.
The Western business community might benefit from asking for lectures and talks on the laws and the behaviour expected from foreigners. It is a legitimate question as China transitions and its Rule of Law is developed.
Xi is leading another huge experimental step in China’s march to the future – the 2049 target. He is backed by a huge and resourceful set of policymakers who are rich in experience, non-ideological in their research and assessments , but committed to the philosophy of economic growth with social justice. They are leading the change to a laws based economy and society but with Chinese characteristics.