Background: When President Xi Jinping was inaugurated, he vowed to crack down on corruption in the communist party which was seen as a threat to stability in China. In several speeches since he took over the reins of the Communist Party last November, the President has warned that corruption could lead to "the collapse of the Party and the downfall of the state". A massive anti-corruption campaign has since followed suit. This is only expected to be stepped up in 2014, as Xi Jinping continue to wage what he calls the "war on corruption".
The war has already been waged to some effect, as it has led to countless arrests of low- and high level officials alike during last year. Also, the new measures has started to change the culture of gift giving and lavish banquets usually associated with communist party officials. Per Linden, CEO of Scandic Sourcing, has operated in China for over 11 years and has seen the changes first hand:
So much of doing business in China is about building relationships, or "Guanxi", with decision makers, local officials and such. Much of that has traditionally been through giving gifts and indulging in lavish dinners. How has this been affected by Xi Jinpings anti-corruption campaign?
Per Linden: There has been a revolution in the approach to gift giving and entertainment. For us who have spent many years doing business in China and having endured endless lunches and dinners drinking the kerosene like Chinese "bajiu" in smoke filled rooms, the change is remarkable, and very welcomed.
Much has happened in the last year but it started earlier than that. Already 2 years ago you started to see a trend were the senior government host at a dinner table did not drink alcohol. It was often the younger ambitious officials who set this example. Drinking with the guest was left to the underlings. In the last few months government employees have stopped offering "Baijiu" for lunch. Wine and beer is still allowed. We are also happy to also see much more restraint when it comes to smoking.
Western media is searching for a crisis in china, but few have noticed this crisis in the entertainment industry. The stock price of Gweichou Moutai, the premium brand in Chinese "Bajiu" liquor has dropped in nearly half, causing losses in the range of tens of billions RMB. There was also a recent announcement that Chinese government officials will not be allowed to spend government money on Chinese new year gifts this year. This is a multi billion dollar industry in China.
The government has also allowed social media to expose government officials who spent too much. While before officials often parked their cars outside the front door of expensive restaurants, they now park around the corner some with their number plates covered, if they dare to visit such a place at all.
How have you traditionally handled gift giving in China (i.e before Xi Jinping's anti corruption measures)? Can you give some background with examples of how that worked practically as you were building Guanxi and doing business here?
Per Linden: You have to give gifts in China. It is a way to show respect. You will for sure break your domestic corruption rules. You have to adapt to the local culture to some extent, but you need to draw the line somewhere and you need very clear policies for your organization. I have always worked with the policy to give gifts with a company logo or if I need to give something more expensive, something that represent Swedish culture and art.
What is currently the best approach for building Guanxi under the Xi Jinping regime?
Per Linden: Building Guanxi is a process. It cannot be achieved with a single gift or dinner. Like in other places in the world and in any relationship, it is important to spend the time, to communicate and show respect and reciprocal politeness. At the same time, we have to realize that if you are not Chinese and don't speak Chinese there is only so much you can achieve regarding Guanxi in China.
The really good news is that the new policy to some extent level the playing field for foreign companies when it comes to dealing with pure corruption such as direct request for cash.
It is much easier for businesses to say no due to Chinese government policy than the internal polices of a foreign company.