Business Ethics in China

Georges Enderle
Published in: Werhane, P. H., Feeman, R. E. (eds.) 2005. The Blackwell Encyclopedia of Management.
Volume II: Business Ethics. Second edition. Oxford: Blackwell, 76-80.

Business ethics faces a vast array of daunting challenges in China. Many observers of Chinas
development, particularly from outside the country, see an urgent need to address these ethical
challenges while others believe that the time for business ethics has not yet come. Because of the
size of the country, with its 1.3 billion people, and the pace of change, developing business ethics
in China is a highly complex task. Thus the approach must be comprehensive as well as differentiated (see Enderle 2003). To focus solely on what individuals and organizations can and should
do (which is a tendency of business ethics in the USA) does not suffice; and to deal only with
questions of the economic system or economic order (as many Europeans tend to understand
business ethics) is not sufficient either. Instead, business ethics in China has to come to grips
with all three levels, the individual, organizational and systemic. It is best expressed in Chinese
by the now commonly used term jingj lnli, that is, ethics in the economic sphere of life, including and going beyond business ethics as corporate ethics or management ethics.
Although it appears premature to assess the emergence of business ethics in China in the last 10plus years, four important features already have become unmistakably clear.
(1) Contrary to a belief widely held in western countries, there is no ethical vacuum in China.
Confucian ethics, with its 2500 year history, socialist ethics promulgated since 1949 and many
western and other influences have combined to create a kind of ethical awareness that sharply
contrasts with a value-free view of business. This does not mean that China has a unified and
consistent ethical understanding. Indeed, one can observe not only moral pluralism but also
much moral confusion (which, by the way, also characterizes other countries in varying degrees).
To put it simply, the question is less whether or not ethics matters and more what kind of ethics
should be applied.
(2) Given the extremely complex and dynamic transformation process being experienced by
China, there is an urgent need to build up formal institutions that are effective, stable, and fair.
Of course, institution building is a difficult and lengthy process and cannot succeed without numerous trials and errors. Yet, such a buildup is essential from the ethical perspective because
institutions and the lack thereof shape, for better or worse, the behavior of individuals and organizations. Those who conceive ethics in only personal terms have difficulty recognizing the
crucial importance of institutional ethics. Well understood, it does not diminish in any way the
indispensability of personal ethics.
(3) With the national economic reform the world of enterprises in China has changed dramatically. Not only have business organizations multiplied and taken on a wide variety of forms.
More importantly, they have gradually gained more autonomy and bigger spaces of freedom.
1

Accordingly, the presuppositions for corporate ethics have been established. There is no doubt
that, for the development of business ethics in China, the roles and responsibilities of business
organizations, be they Chinese, joint-ventures or foreign companies, are becoming increasingly
important. If, as stated above, a kind of ethical awareness exists in China today, it will be interesting to observe how this impacts the shape of business organizations.
(4) Talking about business ethics in China evokes many questions in the West as to whether or
not the cultural differences between the two prevent a genuine mutual understanding. Such questioning is part of a necessary and healthy process to neutralize naive assumptions about Chinese
attitudes and behavior and to identify real cultural differences. At the same time, to take all cultural differences as insurmountable seems equally naive and unacceptable. Continuous and open
communication can certainly reduce the cultural obstacles significantly, and cultural diversity
does not necessarily mean ethical relativism. The development of business ethics in China needs
to address cultural differences and to find a common ethical ground supported by a majority of
Chinese and in accord with international standards.
These four essential features form the backdrop against which the following challenges gain a
clearer profile.
Sustainable human development
The overall challenge for China (as for other developing and developed countries as well) is
striving for sustainable human development. This means, in a nutshell, a process of enlarging
peoples choices, as proposed by the United Nations Development Programme in its Human
Development Reports since 1990 (see, particularly, the report on China, UNDP 1999). It involves
the long-term perspective of sustainability, defined by the World Commission on Development
and Environment in 1987 as follows: to meet the needs of the present without compromising the
ability of the future generations to meet their own needs. China faces enormous environmental
challenges, to a considerable extent because of rampant economic growth and despite fairly advanced environmental laws and regulations. Among the most important problems, one should
mention the widespread reliance on polluting coal energy, the effects of acid rain, the pollution
of Chinese cities, and the waste of energy sources in the building and transportation sectors.
Moreover, the concept of human development has been enriched by Amartya Sen with five types
of real freedoms that people enjoy, namely political freedoms, economic facilities, social opportunities, transparency guarantees, and protective security (Sen 1999). Bench marked against
these freedoms, China shows a mixed record. In terms of economic facilities and social opportunities (providing basic health care and education to all citizens), China has been widely successful. With regard to political freedoms and transparency guarantees, the record indicates that the
country has much catching up to do. This matters not only because these freedoms are important
in themselves, but also because they are instrumental to achieving other types of freedom as
well. Protective security also presents a big challenge for China, as the country steadily moves
from a centrally planned economy (guaranteeing an iron bowl to everybody) to a market economy that needs to be complemented with a social security system. Regarding economic facilities
in the future, China has to pursue a policy of sustainable economic growth with equity. It would
2

be myopic to concentrate all economic efforts on production and efficiency while disregarding
the distributional side of this process. The reduction of poverty, the containment of income inequality, and the creation of employment on a large scale are imperatives for the survival of the
nation. Suffice to mention that China needs to create approximately 40 million new jobs per year
in 2000-2020 in order to employ the surplus labor from the agricultural sector (a staggering
number compared to the 5-9 million jobs created annually by the modern sector in recent years,
with the economy growing at an annual rate of not less than 7 percent; see Pastor et al. forthcoming).
A modern system of relatively autonomous social institutions
In China, personal relations (guanxi) have traditionally played a pivotal role in business and
other spheres of life. However, with the introduction of the rule of law and a modern market
economy that heavily rely on anonymous rules and transactions, the importance of personal relations has been reduced considerably, and respecting institutional requirements without undue
influence of personal relations has been a continuous struggle. Moreover, the transition from a
centrally planned economy to a market economy involves multiple trends of separation or
disentanglement: The political sphere and the economic sphere become more distinct entities. A
civil sphere with a certain independence from the political and economic sphere is emerging.
Within the economic sphere, many different forms of companies have developed. State-owned
enterprises as state agencies have changed into legal persons and independent enterprises. And
ownership rights and management rights are split up. This process of disentanglement, characteristic of modernization, allows for more autonomy of different social institutions, a better focus
on their specific roles, agents, and objectives, and more efficiency and effectiveness in pursuing
these multiple purposes. But it also threatens the existing power structure and administrative
monopoly, and calls for a common ethical ground and a strong legal framework in order to hold
the Chinese society in this process of disentanglement together.
It goes without saying that such a transition creates considerable uncertainties and conflicts.
What is the proper role of personal relations in modern business? How far can and should the
process of institutional disentanglement go? As a matter of fact, as long as personal relations are
the decisive factor of decision making in government and business, the public suffers from a
bewildering lack of transparency and understandably becomes more suspicious and distrustful.
And as long as social institutions keep being closely entangled (particularly through the government approval system), the already rampant problem of corruption expands even further.
What kind of common ethical ground?
For these (and other) reasons, the quest for a common ethical ground is imperative for the survival and flourishing of business and society in China. As mentioned earlier, China can tap powerful ethical resources (such as Confucianism, socialist ethics, and many western and other ethical traditions), which should be considered assets rather than liabilities. Moreover, despite the
frenzy of searching for a quick profit and worshiping money, there is still a widespread desire for
a long-term and balanced perspective, and the five types of real freedoms that people enjoy (A.
Sen) can enlighten this quest substantially.
3

Confucianism, an ethics of virtue (see Cao 2001), guided by the ethical ideal of a good human
life as a whole (dao), stresses character formation or personal cultivation of virtues (de); first the
basic, interdependent virtues of ren (love and care for ones fellows), li (a set of rules of proper
conduct), and yi (reasoned judgment concerning the right thing to do); then the dependent virtues
of filiality, respectfulness, trustworthiness, and others. It emphasizes the Golden Rule (What I
dont want others to do to me, I do not want to do to others. Confucius, Analects 5:12) Like
other traditional Chinese approaches to ethics, Confucian ethics is of communitarian nature. It
aims for a well-ordered society based on good government that is responsive to the needs of the
people, to issues of wise management of natural resources, and to just distribution of burdens and
benefits. Contemporary challenges are to come to grips with gender equality, to apply of this
virtue ethics to economic and political institutions, and to fully recognize the importance of the
law.
Characteristic of socialist ethics is a strong concern for the interests of society including social
stability that has been urged by the Chinese government over the last 20-plus years. Compared
to Confucianism, an important socialist objective has been the advancement of the role of
women and gender equality. In order to clarify and promote socialist ethics, the Central Committee of the Communist Party of China issued various key documents on the reform of the economic system (October 1984, November 1993, October 2003) and on ethical and spiritual civilization (October 1996, November 2001). As a case in point, the resolutions of October 1996 vigorously and directly emphasize the crucial role of ethical and cultural progress. But they do not
speak of individual rights but rather of the personal legitimate interests of the citizens which
should be fully respected. Since then, it is noteworthy that the discussion about individual rights
has intensified in academic and business circles, and there are Chinese companies (though not
many) that are committed to respect and promote the human rights of their employees.
The third set of ethical resources available to the Chinese are derived from other cultures, and an
overview, limited to western resources, will be even sketchier than the previous discussion of
Chinas internal resources, since it cannot account for the ethical thoughts offered by Japan, India, and other countries. A major contribution of the West is certainly the notion of basic individual freedoms and rights, which embody an essential part of human dignity and should be incorporated in and respected by any social institution. Another important value is transparency
based on a modern system of relatively autonomous social institutions. It is an indispensable
condition for building and maintaining the confidence needed for the well-functioning of any
complex society. In addition, there is a basic assumption, though often ignored, that ethical responsibility presupposes freedom, and the bigger the space of freedom of the moral actor, the
greater is his or her ethical responsibility. If the market economy is not just a mechanism, but a
place in which human freedom is at stake, ethics, epitomized in responsibility, must play a central role in the market economy. Similar to other resources, caveats are in order. The emphasis on
individual rights does not necessarily imply an individualistic philosophy, but can be supported
by a communitarian view as well. And the value-free view of business and economics, widely
advocated in the West, avoids addressing tough questions about a common ethical ground and
appears unable to take up this crucial challenge for business ethics in China.

More specific challenges

As China is becoming the manufacturing powerhouse of the world, not only the quality of the
goods but also the quality of the working conditions is increasingly coming under scrutiny (see,
e.g., Santoro 2000) and the treatment of employees including recruitment, training, promotion,
and layoffs needs serious ethical examination. The reform of the banking and financial sector is a
top priority. It can learn from recent developments in the USA and should promote, as an important objective, professional ethics in accountancy and financial services. As they gain more
autonomy and freedom, the companies in China (including state-owned enterprises) must bear
more moral responsibility. Increasingly exposed to public criticism, they have to establish and
live up to high standards of corporate governance and improve their cultures in ethical terms as
well. Multiple experiences with business leaders, ranging from the scandalous to the exemplary,
have made the question of ethical leadership a hotly debated issue. On top of these and other
challenges, China faces globalization. It has to speed up and strengthen its reform to adjust itself
to international technical, legal, and ethical standards. At the same time, as a major economic
power, it is expected to play a constructive and responsible part in shaping globalization. (For an
early report on business ethics in China, see Lu 1997; for a recent discussion on major issues, see
Lu and Enderle 2006.)

References
Cua, A. S. 2001. Confucian Ethics. In Becker, L. C., Becker, C. B. (eds.). 2001. Encyclopedia of
Ethics. Second edition. New York: Routledge, 287-295.
Enderle, G. 2003. Business Ethics. In Bunnin, N., Tsui-James, E. P. 2003. The Blackwell Companion to Philosophy. Second edition. Oxford: Blackwell Publishers, 531-551.
Lu Xiaohe. 1997. Business Ethics in China. Journal of Business Ethics, October, 1509-1518.
Lu Xiaohe, Enderle, G. 2006. Developing Business Ethics in China. New York: Palgrave Macmillan. [In Chinese: Shanghai Academy of Social Sciences Press, Shanghai 2003.]
Pastor, A., Videla, P., He, W. China and the WTO: How Much Truth Is There in the Threat Theory? Forthcoming.
Santoro, M. 2000. Profits and Principles. Global Capitalism and Human Rights in China. New
York: Cornell University Press.
Sen, A. 1999. Development as Freedom. New York: Knopf.
UNDP. 1999. The China Human Development Report. United Nations Development Programme,
China. New York: Oxford University Press.