In this episode of China Money Podcast, guest Steven P. Feldman, professor of business ethics at Case Western Reserve University in Cleveland, Ohio, talks to our host Nina Xiang about the latest revelation of a sex tape with the investigation of British drug-maker GlaxoSmithKline in China, the danger of electronic eavesdropping while doing business in China, and how China's current anti-corruption campaign is different from those of the past.
Read an excerpt below, but be sure to listen to the full episode in audio. Don't forget to subscribe to the podcast for free in the iTunes store.
Q: Just earlier this week, it was revealed that a secretly filmed sex tape of the former head of GlaxoSmithKline PLC (GSK) and his girlfriend was sent to GSK's senior executives. What does this new revelation say about the risks of doing business in China, both on a business and personal level?
A: (We know that) sexual favors are sometimes used to pay bribes in China. There is not enough information to tell if that's the case here. It's also unclear who made this tape. China is certainly a place where you have to be careful about your relationships and activities.
Q: Do you think this type of hidden surveillance happens much more than people realize?
A: I think so. A number of companies that I have worked with had similar issues. One major American company had an office in Shanghai. The board of directors of the company wanted to come over to Shanghai to have a board meeting. But the company's China head was unable to get the electronic bugs out from his boardroom, because it's illegal to own the equipment to search for electronic eavesdropping in China.
Another company said that they had to be very careful when buying new buildings because a lot of the office buildings are filled with electronic eavesdropping bugs.
Also, an executive of an American company sent a fax from his hotel in China to the U.S. to get advice on a business deal. Later, when he talked to his Chinese counterpart, the Chinese already knew the content of the fax.
Of course, the U.S. government does a lot of eavesdropping as well, but they seem to do it for political intelligence. The Chinese government, however, is involved with companies for industrial and business reasons.
Q: What can companies do to deal with this?
A: They need to be very careful guarding their information. In the first example I gave, the company went ahead to have the board meeting with the knowledge that the meeting wasn't private. They had side meetings with small groups of people later, where they would discuss (potentially sensitive) issues walking down the street or somewhere else.
Q: Another change in China's business environment lately is the anti-corruption campaign led by President Xi Jinping. How is this campaign different compared to others in China's history?
A: Since the 1980s, anti-corruption campaigns have been on again, and off again. Is this time different? Some people tend to think it is. I think we will only know in hindsight.
The bigger issue is that China's corruption problem is so massive that President Xi can't really solve it in a short period of time.
When you talk to Chinese executives, their sense is that the campaign is more political than legal. The government is arresting competitors, or people who are threats to them. Some more cynical executives would say, government officials are all corrupt, why are some of them being arrested? The answer is that it's perhaps more based on politics.
Q: But we are in the middle of this anti-corruption campaign that seems to be going strong. What should foreign companies take precautions against?
A: The American companies that I talk to seem to be more worried about the American government in terms of the Foreign Corrupt Practices Act of 1977, and the (persecution of the) U.S. justice department.
For example, one American company acquired a Chinese company,
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