Crossing the Line in Chinese Business
Rarely in the US does a person get ‘removed’ from a political party. Sometimes however government officials do things that violate the rules of conduct under which the government is supposed to operate, and if such violations become public, they are usually pressured into resigning, usually to “spend more time with the family”. It has not been unusual to see such malfeasance flash across the screen on CNN, and likely barely noticed by most regular folk, who believe that the government is ‘corrupt and rigged’ according to a recent University of Chicago poll, and the government, regardless of the administration, barely bats an eye during such events, but it is different in China.
The Communist party maintains a stolid face in order not to acknowledge any deviation from the rules the party constructs for the general population, and when there is some visible excursion outside of the norms, there is usually a strong and forceful reaction with arrests, incarceration (aka ‘retraining’), or just disappearance. The rules in business however are a bit different, both in the US and in China. In the US corporate malfeasance can bring down the ire of the SEC, who typically fines the evil-doers and perhaps forbids them from ever being able to hold a C-level position at a public company. Worse yet would be the IRS, who can actually take away the Florida, Montana, NYC, and Tuscany retreats where shamed corporate heads go to ‘retire’.
In China, especially if a business is state financed, state owned, or receiving state or local government subsidies, poor business acumen, the lesser of business ‘crimes’ is usually taken care of quietly, with the operator moved to a new location and given a far more menial task for the ‘glorious’ CCP. However, when things at big companies go awry due to the discovery of obvious corruption, the government tends to make a statement that indicates their displeasure and serves as a warning to others that might be doing or contemplating something that will make the party look like it does not have control. Of course, this is not to say that the CEO’s of state-owned or subsidized companies do not get perks, quite the opposite, as many live as well or better than their US equivalents, but should they step over the line, or more so, get caught stepping over the line, they are met with the hardness that totalitarian governments are known for.
Just recently China’s Central Commission for Discipline & Inspection, and the State Supervision Commission, with the approval of the Central Committee of the Communist Party, conducted an investigation into the potential violations of discipline and law of Li Guohua, the former deputy secretary of the party and the general manager and director of China United Network Communication Group, otherwise known as China Unicom (800050.CH), one of the three state-run major carriers in China, the Chairman of the Postal Savings Bank of China (601658.CH), and the general manager of China Post (state)..
According to the review and investigation, which stated that “Li Guohua lost his ideals and beliefs, betrayed his original mission, was disloyal and dishonest to the party, disagreed with the party, violated the yang and yin, did not implement the central inspection and rectification requirements, and deliberately resisted the organization’s review. Further, he violated the spirit of (the) eight central regulations, illegally traveled and received public funds and gifts, accepted banquets that may have affected the impartial performance of official duties, failed to report personal matters in accordance with regulations, failed to truthfully explain problems when organizing conversations and practiced nepotism and favoritism, and seriously damaged the atmosphere of selecting and employing people during their tenure.
One would think that those accusations would be enough but the statements continue, pointing out that Li Guohua used relatives to influence his position and to seek personal gain, illegally lent money to management and service objects (providers) to obtain large returns, was morally corrupt, had an unhealthy family style, disregarded his family, made it possible for others (we assume relatives) to make profits in project contracting and business operations, and illegally accepted huge amounts of property, abused his power, and caused heavy losses of state-owned assets, with that last item likely the most important of all.
All things considered, while the statement of violations dug a bit deep when they touted his ‘unhealthy family style’, such violations here in the US would make headlines for a few days after a perp walk and the usual, ‘We will defend our client’s rights and prove that these politically motivated accusations are false and are using our client for publicity during an election year’, with the well-dressed violator making a deal that lets him keep the Montana ranch and Tuscany winery after a lengthy trial. It was different for Li Guohua, as according to a party statement, he ‘seriously violated the party's political discipline, organizational discipline, integrity discipline and life discipline, which constituted a serious violation of the law’. His punishment was expulsion from the party, which meant that all the perks he enjoyed as a ranking member would be cancelled, the illegal gains would be ‘collected’, the property involved would be transferred, and then his suspected crimes would be transferred to proper authorities for examination and prosecution, with a less-than-Otisville-like prison where he would serve out his sentence.
While China has been described as ‘the Wild West’ when it comes to business, we note that we have met a number of CEOs that seem to have an aura of ‘I can do whatever I want’, and a quick run-through of streaming services will document how that attitude destroyed the careers of unicorn founders and high profile executives. In China, it seems that while the party tacitly controls much of China’s major businesses, it can be easy to gain favor in the party and use that influence and power to amass considerable wealth. That said human nature is the same everywhere and some will become greedy and take that step over the line without the thought that they are putting everything at risk. Because of the strict doctrine and face-saving attitude of the party, violations that become public must be severely punished, which we expect will be the result of the investigation above. Less building birdhouses and more eating on the floor.
The Communist party maintains a stolid face in order not to acknowledge any deviation from the rules the party constructs for the general population, and when there is some visible excursion outside of the norms, there is usually a strong and forceful reaction with arrests, incarceration (aka ‘retraining’), or just disappearance. The rules in business however are a bit different, both in the US and in China. In the US corporate malfeasance can bring down the ire of the SEC, who typically fines the evil-doers and perhaps forbids them from ever being able to hold a C-level position at a public company. Worse yet would be the IRS, who can actually take away the Florida, Montana, NYC, and Tuscany retreats where shamed corporate heads go to ‘retire’.
In China, especially if a business is state financed, state owned, or receiving state or local government subsidies, poor business acumen, the lesser of business ‘crimes’ is usually taken care of quietly, with the operator moved to a new location and given a far more menial task for the ‘glorious’ CCP. However, when things at big companies go awry due to the discovery of obvious corruption, the government tends to make a statement that indicates their displeasure and serves as a warning to others that might be doing or contemplating something that will make the party look like it does not have control. Of course, this is not to say that the CEO’s of state-owned or subsidized companies do not get perks, quite the opposite, as many live as well or better than their US equivalents, but should they step over the line, or more so, get caught stepping over the line, they are met with the hardness that totalitarian governments are known for.
Just recently China’s Central Commission for Discipline & Inspection, and the State Supervision Commission, with the approval of the Central Committee of the Communist Party, conducted an investigation into the potential violations of discipline and law of Li Guohua, the former deputy secretary of the party and the general manager and director of China United Network Communication Group, otherwise known as China Unicom (800050.CH), one of the three state-run major carriers in China, the Chairman of the Postal Savings Bank of China (601658.CH), and the general manager of China Post (state)..
According to the review and investigation, which stated that “Li Guohua lost his ideals and beliefs, betrayed his original mission, was disloyal and dishonest to the party, disagreed with the party, violated the yang and yin, did not implement the central inspection and rectification requirements, and deliberately resisted the organization’s review. Further, he violated the spirit of (the) eight central regulations, illegally traveled and received public funds and gifts, accepted banquets that may have affected the impartial performance of official duties, failed to report personal matters in accordance with regulations, failed to truthfully explain problems when organizing conversations and practiced nepotism and favoritism, and seriously damaged the atmosphere of selecting and employing people during their tenure.
One would think that those accusations would be enough but the statements continue, pointing out that Li Guohua used relatives to influence his position and to seek personal gain, illegally lent money to management and service objects (providers) to obtain large returns, was morally corrupt, had an unhealthy family style, disregarded his family, made it possible for others (we assume relatives) to make profits in project contracting and business operations, and illegally accepted huge amounts of property, abused his power, and caused heavy losses of state-owned assets, with that last item likely the most important of all.
All things considered, while the statement of violations dug a bit deep when they touted his ‘unhealthy family style’, such violations here in the US would make headlines for a few days after a perp walk and the usual, ‘We will defend our client’s rights and prove that these politically motivated accusations are false and are using our client for publicity during an election year’, with the well-dressed violator making a deal that lets him keep the Montana ranch and Tuscany winery after a lengthy trial. It was different for Li Guohua, as according to a party statement, he ‘seriously violated the party's political discipline, organizational discipline, integrity discipline and life discipline, which constituted a serious violation of the law’. His punishment was expulsion from the party, which meant that all the perks he enjoyed as a ranking member would be cancelled, the illegal gains would be ‘collected’, the property involved would be transferred, and then his suspected crimes would be transferred to proper authorities for examination and prosecution, with a less-than-Otisville-like prison where he would serve out his sentence.
While China has been described as ‘the Wild West’ when it comes to business, we note that we have met a number of CEOs that seem to have an aura of ‘I can do whatever I want’, and a quick run-through of streaming services will document how that attitude destroyed the careers of unicorn founders and high profile executives. In China, it seems that while the party tacitly controls much of China’s major businesses, it can be easy to gain favor in the party and use that influence and power to amass considerable wealth. That said human nature is the same everywhere and some will become greedy and take that step over the line without the thought that they are putting everything at risk. Because of the strict doctrine and face-saving attitude of the party, violations that become public must be severely punished, which we expect will be the result of the investigation above. Less building birdhouses and more eating on the floor.
Prisoner built- bird houses at Otisville Correctional Facility - Source: USDC
Unnamed prison in China - Source: reddit
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