Last night I had dinner with someone from the Trade and Industry Dept. here in Shenzhen, China. A very nice individual, who studied and traveled in the West. I was asking questions about the foreign investors, and he confirmed that many were delaying or canceling their projects, because of the crisis. We were discussing the way people do business here in China, and straight away he told me there was an “ethical problem”. But is there, really? Why?

Tax evasion

I thought about it for a while. Sure, nobody really cares about rules here. When I walk down certain roads I am offered fake invoices (they would shout “fapiao.. fapiao… fapiao…”). It is a convenient way to pay less taxes. And, at the end of our dinner, the restaurant waitress told us it was 5% cheaper if we didn’t ask for an invoice… You get the picture: about 80-90% of businesses escape taxes.

But imagine if it were the same in a Western country. If you know your neighbor isn’t paying taxes, will you declare all your profits? No way. You only pay if it seems fair, if everybody equally contributes. So I don’t blame Chinese businesspeople for that.

Unethical behaviour

It also seems like ethical standards are lower here. I can say firsthand that bribery is quite common. Last week I was doing an inspection in Guangzhou, and the salesperson kept asking me “so, is there anything we can do to get a passed report?”, “why don’t you stay here tonight, and my boss would like to enjoy the night with you”, etc. It seemed to be quite natural, in his mouth…

It reminds me of a very good post (“Ancient Chinese Secret: Don’t Lie (to foreigners), it’s just not worth it.“) on the SRI blog. I pasted below the sentences I enjoyed most (the author compares the behavior of his Chinese suppliers with that of his US clients):

I have never had a US client lie to me about the source of a sample, or withhold delivery in violation of contracted terms, or retain molds despite payment because they knew I couldn’t physically pull them from the factory, or substitute sub standard paint for approved, or claim that we hadn’t paid until I personally produced bank records to the contrary, or move my product to a third party sub-supplier after I’d already audited another factory location, or physically hold my QC personnel hostage until I make early payments, or been told one thing in English only to have the exact opposite be told to my staff in Chinese…you get the point.

I don’t doubt that all of this is true. Actually, many foreigners here would say “yes, that’s very Chinese.” HOWEVER, I don’t think Western people would act in a better way in the same business environment.

Do Westerners behave better?

I saw many Western buyers behaving in a really bad manner after being in extended contact with Chinese suppliers. I saw Western agents/traders based in Hong Kong or China doing really unethical things, just to get business. And don’t Chinese students in the US have a reputation for hard work and high standards?

But there is more. I believe the business environment shapes the behavior of economic agents. In China no one cares about what you do, unless everybody gets to know about it (it is the concept of losing face). In the West, everything is much more transparent, and people know that information might leak one day… that’s what keeps them in line.

I want to back this up with a scientific experiment. In 1971 at Stanford University, the so-called Stanford Prison Experiment showed that regular students could become sadistic prison guards in a matter of days. The conclusion is that prisons are places that make people really nasty, rather than places where nasty people are gathered.

And my conclusion is that ethical standards are not different because of cultural elements… The business environment is different, and that makes a huge difference.