China Business: Watch out for the tigers and the flies

By Fran O'Sullivan, Graham Skellern

Shanghai Maling chairman Shen Wei Ping avoided questions on corruption probes against former Bright Group personnel. Photo / Nick Reed
Shanghai Maling chairman Shen Wei Ping avoided questions on corruption probes against former Bright Group personnel. Photo / Nick Reed

Most Kiwi business people would not have blinked an eyelid when China revealed that a New Zealand citizen was ranked at number five on its Top 100 extradition list.

The Prime Minister let that titbit fly after meeting with President Xi Jinping at the Diaoyutai State Guesthouse in Beijing last month.

There are a few other Chinese nationals living in New Zealand that China also wants to extradite.

And it is likely that will occur once the NZ Government has sorted out the legal niceties so they first get a fair hearing in our justice system to ensure prima facie corruption cases do exist against them before any orders are made.

These are the headline issues. But there other areas that ought to concern prudent NZ business-people as they form new relationships in China.

First-up, there is no guarantee that simply because a potential partner is a well-known Chinese State-Owned Enterprise that it won't become embroiled in controversy.

This was brought home last year when Shanghai Maling chairman Shen Wei Ping visited Auckland to spruik his company's joint-venture proposal with Silver Fern Farms which is currently waiting approval in front of the Overseas Investment Office.

In an interview with the Herald, Shen sidestepped questions on corruption probes against former Bright Group personnel, which have seen a former chairman jailed for 18 years and the executive who led the acquisition of the Synlait Milk stake resign for "personal reasons".

The personable Guo Benheng had led Bright Dairy & Food's $82 million investment in Synlait Milk after the GFC scared off New Zealand investors. Guo's "profits, profits, profits" focus had become renowned at Synlait. He was photographed with visiting NZ Cabinet Ministers when they visited Bright's Shanghai offices. But he left in mid-2015 for personal reasons on suspicion of serious disciplinary violations.

Xi had vowed to go after powerful "tigers" as well as lowly "flies" in his efforts to crackdown on official graft.

Banquets are these days often perfunctory affairs and officials have been banned from using public funds to buy memberships of golf clubs.

These are factors that NZ business people should also have front of mind when entertaining Chinese guests.

And there are other rules that they should be aware of when setting up shop in China. Particularly, as DLA Piper Beijing partner Jack Choi observes, anti-bribery and anti-corruption compliance issues in China are showing no signs of cooling down.
Choi has authored a paper - Top tips for HR in building an enhanced compliance system in China - as part of a China Insights series.

He says multinational corporations are sparing no efforts in establishing and implementing an enhanced compliance system in China as the number of companies charged for corrupt activities in China continues to rise, and the probe into corrupt activities continues to spread into various industries and sectors.

He notes that since the beginning of 2015, the Chinese Communist Party's Central Commission for Discipline Inspection conducted two rounds of extensive inspections focusing on large state owned enterprises, many of them are among the world's top 500 companies.

Enforcement actions and investigations span different industries, including finance and banking, automobile, aviation, military, health, energy, telecommunications, transportation, and construction. At least 29 US listed companies have been involved in ongoing US Federal investigations under the Foreign Corrupt Practices Act in connection with their business activities in China.

Choi has particular guidance for HR professionals with responsibility over Chinese operations.

• Ensure appropriate employee consultation procedures have been carried out before implementing changes to code of ethics or anti-corruption policies.

• Include a comprehensive list of misconduct, and update it based on experience of past cases or cases that have been published in the media.

• Make compliance with code of ethics and anti-corruption policies a key element of bonus and promotion policies.

• Strengthen company policies, job descriptions and communications to emphasise manager responsibility over a team's compliance situation.

• Be mindful of labour law restrictions on disciplinary action imposed on employees, particularly with respect to summary dismissal, and advise business of relevant risks appropriately.

Choi also says that a number of companies have started to introduce policies requiring employees to disclose their relationship with government officials and stating that any violation of the disclosure obligation would be punishable by summary dismissal.

- NZ Herald

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