In China - bonding gone bad?

A tradition of relationships and networking, called guanxi, facilitates widespread corruption.

The lunar "Year of the Golden Dragon," which ends Jan. 23, was supposed to be an especially auspicious one according to Chinese lore. But in one of the largest-ever crackdowns on corruption in post-Mao China, the past year has been decidedly hostile to a whole range of upper-echelon officials found guilty of tax evasion, money laundering, customs fixing, and accepting bribes. In the past year, nearly 20 officials have been executed - including a vice governor, a National People's Congress vice chairman, and the customs chief and a director of public security in southern Fujian province.

Last week Beijing's top tax minister, Jin Renqing, confirmed a probe into an alleged $21 billion tax scandal in Guangdong province, the biggest single fraud case in Chinese history.

Beijing is preparing for accession to the World Trade Organization (WTO) later this spring, and the anticorruption juggernaut is engineered by reformers in the Communist Party who wish to habituate China to new legal standards, observers say. The crackdown is also due to worry over growing centers of illegal power and wealth outside state control. Some attribute most of the campaign to a power struggle between a "Shanghai faction" led by Premier Jiang Zemin, and a "Sichuan faction" centering around now retired but reportedly influential Army chief Liu Huaqing.

Yet at bottom, say many China watchers, the anticorruption efforts are an attempt to contain one of the most deeply embedded and common mindsets - something called guanxi.

At a basic level, guanxi is simply the hold one has on a matrix of influential relationships required to live and operate daily. It stems from family, old-boy networks, favor-currying, and one's skill at helping others. Chinese speak of those who "have guanxi" and of those who don't.

Officially, guanxi is frowned upon. As China has opened and modernized, particularly in the 1990s, such concepts seem slightly feudal and smack of business outside the "rule of law" that Beijing reformers are trying to establish.

Unofficially, however, guanxi is a way of life at every level. During much of the '90s, foreign investors were met here by young "princelings" - children of influential party officials - who carried only cards and briefcases, but who promised and often delivered on quick deals due to their guanxi and proximity to power.

If you want a coveted residency permit in a big city, if you need windows installed in your apartment right away, if you fail a driving exam but need a license anyway, if you want a better job - you need the guanxi. Or to know someone who has it, and can wield it for you.

"If someone tells you they have no guanxi, they are probably, in Chinese circles, without influence," says a Beijing-based Western researcher. "It is the guanxi relationship that rules everything here."

"Look, if you don't have guanxi, you can't pay a big money bribe," says a Beijing consultant. "Not just anyone can bribe a customs official. You have to have the guanxi."

In this sense, the anticorruption crackdown is seen by some China hands in the West as a test of how deeply the guanxi networks have developed.

The tax evasion scandal story, confirmed last week by The Straits Times of Singapore, for example, centers on a tax-rebate fraud in the Shantou area of Guangdong - where the value of exports as declared at up to 20 times their value. Goods worth $1 million might be estimated and exported at $20 million - with a host of officials and private firms pocketing huge tax rebates. Sources say the mayors of two cities, Chaoyang and Puning, have been arrested.

An 80-member team from the Central Discipline Inspection Commission is headed by a formidable investigator, Liu Liying. Ms. Liu says the problem likely extends even more deeply into local government.

"The big question for the anticorruption movement is: How deeply does the 'bad guanxi' go?" says Thomas Gold at the University of California, Berkeley. "And how much of the guanxi is just the natural management of business relations in an opening society?"

Indeed, the guanxi issue cuts both ways, experts say. For two decades, China has been diversifying ownership in a system where the government had largely owned the means of production. Guanxi was often necessary to navigate effectively around stultifying party bureaucracy and totalitarian attitudes.

In the late 1970s and 1980s, the period of Deng Xiaoping's liberalization, guanxi was seen as a positive practice. Chinese society was still deeply traumatized by the effects of Maoist ideology and the Cultural Revolution. One of Chairman Mao's earliest programs, in fact, was the eradication of the old class and personal ties of traditional feudal China. A 1963 essay by Harvard Sinologist Ezra Vogel, titled "From Friendship to Comradeship," details how Mao directed Chinese to abandon the "bourgeois" idea of friendship - to be replaced by the impersonal, universal, and theoretically loftier ideal of "comradeship."

By the late 1970s, after Mao, and in the wake of the Cultural Revolution, social relations were chaotic. What seemed to bring some order and stability to society was a fallback to the traditional patterns of relations - meaning the guanxi networks.

"In its best sense, guanxi is not just something mechanical, not simply a Western version of networking," argues Dr. Gold, who is working on a manuscript on the subject. "Guanxi is more than just card swapping over shared interests. It's about 'affectual relations' among people. Guanxi is an emotional bond. It isn't always crass; it is something that requires cultivation over time.

"It is often a big mistake for Western CEOs, for example, to parachute in and cut a quick deal; it is seen as silly and superficial to sign something without a relationship that goes past business."

What Chinese value, says Michael Primont, managing director of Cherry Lane Music in Beijing, a New York firm, are relations that mirror those inside the family, which are often warm, nurturing, and "very affectionate."

"Once you have that relationship, there is no law - you can always work things out," says Mr. Primont. The standard boilerplate contract for Cherry Lane Music in New York is 27 pages long. In Beijing, it is a page and a half. "And the contract is not worth the paper it is printed on if you haven't established a relationship. There is no tradition of litigation in China. My Chinese colleagues tell me, 'You spend money on lawyers, we spend money on restaurants,' " Primont adds.

Still, the question remains - has guanxi become a force too unmanageable?

Chinese reformers are quite aware that large multinational company executives do not want to rely wholly on the back-slapping and intimate confessional experiences gained while emotionally bonding with Chinese officials during long dinners and many toasts.

Indeed, in recent years, some foreign investors and firms relying on guanxi have still had problems, according to Stanley Lubman, a Stanford law professor who has been an adviser to US and European companies in China since 1972. "Investors who relied on guanxi excessively, without assessing proposed projects in a businesslike manner, have been disappointed," he says. Guanxi networks themselves are often at war or are clashing within the Chinese system.

For example, last month China's No. 1 lawman, Minister of Justice Gao Changli, was replaced, ostensibly for health reasons. Yet some observers feel Minister Gao, known for prosecutorial zeal and a forceful will in combatting corruption, was replaced precisely because he did his job too well. "Ironically, the minister may not have had enough guanxi," says one insider. "There were a lot bigger players than he."

Official media here, sometimes accused of presenting a chimerical picture of China, daily urge ordinary Chinese to report on official fraud and abuse. "Control Yourself, Control Those Around You," "Take Action Against [Chinese New Year] Holiday Corruption," read respective front page headlines in Beijing Youth Daily on Jan. 4 and 5.

Perhaps the biggest test of the guanxi system's reach is the current case of Lai Changxing. Mr. Lai, detained on Nov. 23 in Canada, is accused of running a multi-billion-dollar oil, arms, and car-parts smuggling operation off the coast of Fujian, where he is something of a folk hero. The vast operation's cheap oil actually cut the price of gas throughout China. Lai was allegedly behind a well-known club in Xiamen called the Red Mansion, where officials and military figures were wined, dined, and more.

After investigation into the Lai case, the head of Chinese military intelligence, Maj.-Gen. Ji Shengde, was sentenced to 15 years in prison. Dozens of other large and small officials, many with high connections to Beijing, have been detained or sentenced.

Lai insisted in an interview with the South China Morning Post last week he is the "scapegoat" in a political struggle in Beijing. Though few official here doubt Lai's central involvement, reports have surfaced in the Beijing Review that Lai's operation may have had close ties to elements in the Army - which in 1998 was forbidden to conduct its own commercial business operations.

China is seeking Mr. Lai's extradition. Once in China, experts say Lai might be persuaded to reveal his main guanxi connections. His detention hearing in Canada comes up on Jan. 23, the day before the next Chinese New Year.

(c) Copyright 2001. The Christian Science Publishing Society

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