Thursday, 5 January 2017

A Cautionary Tale

Doing Business in China

Most of us make the mistake of thinking that other nations and their respective regimes are pretty much like our own.  Some times this is substantially that case--but only when two nations share a common cultural, intellectual, and religious heritage.

We were struck once again about how nations can be so fundamentally different and unalike.  In this case, we were reading a piece about China, and how business "works" there.
The contemporary practice of business in China is less confusing than the theory.  The essence of that practice is the proliferation of ways in which individuals manage to exercise some of what we call property rights.  All these ways, however, have one thing in common: they all involve either direct ownership by a part of the government or Communist Party--a unit of the police or the army; a local government (township or village enterprises accounted for 30 percent of industrial production) or a branch thereof.
Specifically, property rights can be exercised by officials and by those somehow connected to officials.  In sum the regime acknowledges its own great and growing pluralism and permits is various members to enrich themselves subject only to respect for the regime itself and the hierarchy within it.  [Angelo Codevilla, The Character of Nations: How Politics Makes and Breaks Prosperity, Family, and Civility (New York: Basic Books, 1997), p.114.] 

What this means is that "property rights" in China are not what we in the West know or understand.  As the crew of the Enterprise would have put it, "It is property, Jim, but not as we know it".  Nobody really owns anything in principle.
 All ownership is at the concession and grace of the State.  As such Western property rights do not really exist.  Some have said that ownership is really more like a "loyalty right".  One observer has observed,
The price of capital . . . in China isn't interest. It's a bribe. Or it's the work that has gone into cultivating guanxi, or connections with the bankers and local officials.  [Ibid.]
Doing business in China means that one must proceed as if one is in the midst of a cautionary tale.  If the connections with the local officials change, or rules or conditions are adjusted due to internal Chinese rules and reasons, things may go downhill in a hurry.
. . . What is evolving in China is not an economic civil society, because there is no such thing as business unconnected with some kind of official power.   Moreover, one of the reasons that so many Chinese are in a hurry is that they have reason to fear that their own special deals will not last.  [Ibid., p. 115.]

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