BUSINESS ETHICS IN CHINA

 The pre-Republican era (till the beginning of

the 20th century)

The Republican era (early 20th century till

around 1948)

The Communist era (1948-1976) The Reform era (1976 onwards)

HISTORY
China has the world's oldest living civilization. Its written history goes back about 3,500 years. The Chinese people take great pride in their nation, its long history, and its influence on other countries. The Chinese were the first people to develop the compass, paper, and silk cloth.
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 About a fifth of the world's people live in China. 74 per cent of live in villages and small towns. Most are in densely populated eastern China. Western China has less than 10 per cent of the total population. By law, men marry not until 22 years old, and women until 20. Late marriage is encouraged not more than one child is allowed.
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PEOPLE

Family is Important
Before 1949, some Chinese lived in family units with more than 100 relatives under oldest male. The ideal was "five generations under one roof." (mainly the families of rich rural landowners, wealthy merchants, and government officials). Among the poorer people, households consisted of parents and children, but some also included grandparents and uncles. Today, the Chinese live in smaller types of family units.
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Family dynamics
In the past, only men were expected to work outside home. But today, almost all adults have a job. Relationships are less formal and more democratic. Parents no longer expect children to show unquestioning obedience. In the past, father could legally kill his children if they disobeyed him. Young people today generally choose their own marriage partners.

 Traditionally sons are preferred more than daughters. A husband could divorce his wife if she failed to give birth to sons. In some cases, daughters were killed at birth. Today, social policy in China values girls as well as boys. The Communist government strongly supports that women should contribute to the family income and participate in social and political activities. Equality between the sexes is more widely accepted in Chinese cities than in countryside.

Gender Relations

ECONOMY
The national government has tremendous control over China's economy. It owns and operates most important industrial plants and directly controls most nonagricultural employment and wages. The government also controls and operates the banking system, transportation, and foreign trade. It rations some foods, clothing, and necessities.Sets the prices of many goods and services.
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Economy
In early 1980's, the Chinese government began series of economic reforms that led to less government control over some business activities.

Since then, number of privately owned businesses has increased dramatically. Many experts believe the increased ownership of business has contributed significantly to China's economic health.
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Economy
The government receives most of its income from taxes paid out of the profits of stateowned businesses. Government planners invest heavily in development of China's manufacturing industries. Worker is expected to produce.

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MANAGEMENT IN CHINA; STAGE -I (1949-56) Transformation from a semi-feudal, semi-capitalist China to a socialist China. When communist party took over the control of the major industries, administrative personnel were either appointed from within or transferred to state owned enterprises. By 1956 manufacturing and service enterprises that were privately owned were merged into state ; soon private cooperatives were converted into state run enterprises. The former capitalist managers lost their powers and independence, but remained in the enterprises to perform technical consulting functions.
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MANAGEMENT IN CHINA; STAGE- II (1957-66)

Overall implementation of the Soviet model of oneman management, which implied rigid central control and left little autonomy for local enterprises. Enterprises managers had virtually no direct voice in the economic, social, humanistic, or political goals of their enterprises. All decisions made at the top level and little autonomy was assigned to lower levels of management and participative management was not encouraged.

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MANAGEMENT IN CHINA; STAGE -III (1967-79) The stage of Cultural Revolution when enterprise management was again centralized; many managers were replaced by radical revolutionaries. Operational efficiency was neglected, and profits suffered dramatically. Criticism was directed at those who remained in privately owned enterprises and were going capitalist. Their numbers were reduced to the lowest level since 1949.

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 Between 1976 and 1979, the economy of China experienced some recovery and development. However, since the economic reforms started in rural areas, changes in enterprise management in urban areas were not yet considered a high priority target for the government

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MANAGEMENT IN CHINA; STAGE- IV (1980-86)

Management reforms, which were instituted to cope with the economic reforms spread to urban areas. Decentralization was once again emphasized, and more autonomy was granted to enterprises and their managers. A new phenomenon seemed to emerge: managers of both state and collective enterprises were younger and better educated. At the same time , individual enterprise was officially sanctioned and encouraged.
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MANAGEMENT IN CHINA; STAGE- V (1987-2003)

In Nov 1987, the Communist Party General Secretary Mr. Zhao

Ziyang accepted China to be at the primary stage of socialism and three messages were released:
1. China should develop a new economic system in which the state makes adjustments to the market and the market provides directions to the enterprises. China allows the existence of private enterprises

2.

3.

There has been debate whether China should allow the issuing of stocks and bonds i.e. whether to adopt Western management practices.
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PHILOSOPHY
Taoism Confucianism Buddhism Modern Thought

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TAOISM
The Taoist Sage learns from observing the way of nature (flowing water, wind) and letting nature guide the way through life.

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Origins & Texts

Legendary founder: Lao Tzu (6Th Century BCE) Primary text: Tao Te Ching (Book of the Way and the Power) Chuang Tzu (4th Century BCE)

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Tao Concepts
The Tao (path or way) The nameless The uncarved block All pervading within and beyond nature

Te ( power or virtue) Ones natural ability brought to peak potential through following the way

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Tao Concepts
Wei-wu-wei: active non-action
Passive non resistance to the natural forces of life Natural way to get things done with the least effort and greatest successes Go with the flow, yield to the natural way of things Applied in all walks of life

Relativity: Good and Bad as a matter of perspective

The Taoist stage is non-judgmental

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Wu Chi & Tai Chi

Born in Wu Chi (wholeness), its then divided and goes to Tai Chi and at death back into Wu Chi

Wu Chi
Union of opposites Yin-female, soul, dark Yang- male, spirit, light Androgyny is balance of yin &
yang

Tai Chi

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LAW OF POLAR REVERSAL

Balance Anima (feminine part of psyche), animus (masculine part of psyche) Basis of integration. Transcend & transform opposites into wholeness Androgyny- Healthiest emotional state is to have both (feminine & masculine)
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Taoist Way
Seeking Health and Longevity: through diet, meditation, exercise and stress free life Alchemy: seeking the chemical elixir of life to achieve immortality Meditation: Inner Alchemy Meditationseeking spiritual rather than chemical transformation Natural/ Holistic Healing: Herbal medicine, acupressure, acupuncture ,exercise
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Taoist Ethics
1. Not emphasize status, intelligence, or possessions. 2. Govern with least visibility and with a serving attitude. 3. Reduce laws and govern lightly. 4. Treat other countries non-aggressively.

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CONFUCIANISM
A political and social philosophy seeking harmony at all levels:
Within the self The family The community The state The nation The world The cosmos

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Goal of Confucianism
To develop ones Jen: Human heartedness- the innate goodness of humanity and becoming a Chun Tzu: The Great Man

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The Five Classics (Wu Jing)

1. 2. 3. 4. 5.

The I Jing (Book of Changes) The Shu Jing (Book of History) The Shih Jing (Book of Odes *poetry+) The Li Ji (Book of Rites) The Chun-chiu (Spring & Autumn Annals)
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The Four Books:

1. The Analects 2. The Great Learning 3. The Doctrine of the Mean 4. The Works of Mencius

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Teachings- About Man

Like Taoists ,Confucius held the traditional view that all men are born good. ( unlike Western view) People are spoiled by bad influences, bad environment, evil examples and yielding to evil appetites. Each person has the ability to fulfill duty as listed in the rules of conduct. Greatest concern was for conduct in a social context

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1.Jen/Ren- Love/Benevolence
The ideal is not the individual but the person in relationship-welfare of others and readiness to help

The Golden Rule is What you do not want done to yourself, do not do to others".

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2.Righteousness- Vi

Duty is based on reciprocity

Since your mother and father took care of you for the first three years of your life you must reciprocate by living in mourning for three years after their death.

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3.Propriety-Li
The relationship is hierarchical -Respect and obedience in return of benevolence and support
Ruler and subject Husband and wife Father and son Elder and younger brothers Older and younger friends

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4.Wisdom-Zhi
The innate knowledge of what is right and wrong.

Confucius:The wise are free from perplexities. Know-how rather than know-that.
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5.Fidelity/Trust-Xin
Be truthful and straightforward in speech and faithful to promises

Be conscientious in the discharge of duties Observe the rules of right conduct in both heart and action
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Taoism versus Confucianism

Confucianism stresses moral goodness of human beings [i.e. jen] the Taoists stressed the harmony and perfection of nature. Taoists are critical of human institutions used by Confucians (and others) to regulate human behavior. Lao Tzu commends a simple life with few duties lived in harmony with the Tao, in contrast to the Confucian view that the good life requires a conformity to li (i.e. a complex system of rules of propriety), with the aim of developing or cultivating our full humanity

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Sun Yat-Sen
November 12, 1866March 12, 1925

Born to a Cantonese peasant family in Cuiheng.

First provisional president when the Republic of China was founded in 1912. Developed a political philosophy known as the Three Principles of the People which still heavily influences Chinese governments

Sun Yat-Sen: Three principles

The Principle of Mnz : Nationalism The Principle of Mnqun : Democracy The Principle of Mnshng : Socialism

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Maoism- Communism
Blend of Modern and Confucian thought The Cultural Revolution (1964)demolished imperialism completely The obedience of masses to socialist party was a significant shift .

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ESSENCE OF CHINESE ETHICAL VALUES

Inner harmony Social harmony Structural harmony

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Inner Harmony
1. 2. 3. 4. The middle way Moderation Self control The five constant virtues righteousness, wisdom, fidelity, filial piety and considered appropriateness 5. Paternalism 6. Education & Self development
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Social Harmony
Jen- human heartedness Li cultivation of appropriateness in every situation Collectivism/relationship oriented Familism Reciprocity Face Guanxi
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Structural Harmony
Wu Lun firm hierarchical relationship between princeminister, father-son, husband-wife, older brotheryounger brother, friend-friend

Hierarchy Respect for authority Patriarchy Limited and bounded trust

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Chinese values that determine notions of right & wrong ; appropriateness & inappropriateness.

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FACE
Lien:Lien refers to ones moral character and is a persons most precious possession. Without it, one cannot function in society. It is earned by fulfilling ones duties and other obligations.

Mien-tzu:- Mien-tzu refers to a persons reputation or prestige and is based on accomplishments, political status or bureaucratic power. It also refers to ones ability to deal smoothly with people face-toface. Face enhancement can be attained by acts of generosity in terms of time of gifts, or praise of others.
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What is Face
Face is the cooperative manner in which people behave towards one another in order to avoid loss of self respect or prestige by either party. Another aspect is saving of face, similar to the Western concept of being a good sport, or being a good winner. Modesty over ones own achievement and appreciation of the losers skill and effort are central to saving face. Face requires little effort and is attention to courtesy in relationships with others. This has a great positive effect upon the recipient and if lost, face will have a negative effect.

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Accommodation of the loser -FACE

Once face has been lost, the loser will prefer to avoid the winner and ignore the face-losing incident as though it never occurred. In circumstances where the two parties must continue a relationship, the loser will return to formal and polite etiquette, pretending that the incident had not occurred. The other party should accommodate the losers preference and not refer again to the incident. Face involves a high degree of self-control, social consciousness, and concern for others.
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FACE- Six types

Enhancing ones own face Giving face to another Losing ones own face Damaging anothers face Saving ones own face Saving the face of another
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GUANXI
Guanxi is a relationship between two people containing implicit mutual obligation, assurances and intimacy, and is the perceived value of an ongoing relationship and its future possibilities that typically govern Chinese attitudes toward long-term business. If a relationship of trust and mutual benefit is developed, an excellent foundation will be built for future business with the Chinese.

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GUANXI
The intricate, pervasive network of personal relations which every Chinese cultivates with energy, subtlety and imagination. Guanxi is the currency of getting things done and getting ahead in Chinese society.
Guanxi ties are helpful in dealing with the Chinese bureaucracy as personal interpretations are used in lieu of legal interpretations.
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 Due to cultural differences and language barriers, the visitors to China are not in a position to cultivate guanxi with the depth possible between two Chinese.
Regardless, guanxi is an important aspect of interrelations in China and deserves attention so that good friendly relations may be developed.
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GUANXI
Guanxi is governed by the unwritten law of reciprocity which is to be kept in constant maintenance and long-term balance. Guanxi is often interpreted as connections by foreigners, Notion of old boys clubs, fraternities or peer group network is not guanxi
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Space and Privacy

Borders of personal space and concomitant requirements of individual privacy seem different for Chinese. The same is quite evident from the extract of the interview of the Chinese social scientist for the Chinese explanation for privacy :-

Hotel room is not a place for privacy; Those who need privacy have something to hide; Those who need privacy are anti-social for they avoid people: Those who need privacy are not cooperative; and The Chinese feel that they are all comrades and must be open to one another all the time.
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Chinese Business Model

The Chinese depend upon world-wide family and business links both for information and as havens for investment. The company is based on the immediate family. Business is conducted first with extended family members, then with members of the village, clan and then with ethnic group.

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Family Networks foster business

Wherever promises the greatest safety; Wherever promises the highest profit. National barriers are often unimportant

However, the footloose quality of Chinese capital investment also has a negative aspect which does not promise well for the long-term development of the region.

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Chinese Model;
An entrepreneur employs his eldest son in the family shop in Hong Kong. He trades gems with his brothers and a cousin in Los Angeles and Singapore, and buys property from a clan member on Vancouver. He sends his younger sons to study in Canada and Australia, where they seek residence and set up their own companies; and a daughter is sent to work for a cousin in Amsterdam. Eventually, these children will be brought back in the flagship company or will establish their own network of family influence.
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Chinese Model; Employing Family Members

President: Tan Soo Sin (father)

Production Manager L K Tan (Son)

Marketing Manager John Tan (Son)

Finance Manager Amy Tan (Daughter)

Administrative Manager Henry Siew (Son-inlaw)

Purchasing Manager Lee Tan (Son)

N ON

F A M I

W O R K F O R

C E

Section Leader Wong

Section Leader Chung

Section Leader Oi

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Case -1
A German expat one asked his Chinese driver to take the passenger seat , while he drove the car himself. Next day when the German saw the car was not cleaned and asked the driver , he answered : The person who drives , also washes the car .The German wanted to charge the driver for insubordination. Is the German being ethical ?
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Case 1-German Manager and Chinese Driver

1. This is not a case of insubordination and insult; it is rather violation of the FACE of the driver .

2. Explain to the driver that it is common for a foreigner to take the wheel and this does not connote loss of confidence in the drivers ability. Hence there is no loss of face.

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3. The German has to be explained even though he is a foreigner there is FACE that gives him certain privileges along with obligations which includes respect that he should accord to other faces -both higher and lower. 4. Explain that the face is not mere face losing or face saving as westerners understand but is a factor of higher concern in Chinese minds which reflects ethical, professional and social standing of a person and to which are assigned status and defined roles

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Case -2
The German president on arriving to the China Germany Joint venture in Guanghzhao found a particular Liaison officer to be redundant even though he was highly respected and paid. He wanted to terminate the position much against the advice of locals . Is the German correct ?
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Case 2-Ambassador of the enterprise

The Chinese manager is not a liaison officer for the company and should be definitely retained as he is important for maintaining GUANXI In simple terms Guanxi is not trouble shooting or fire fighting as some foreigners are likely to think. Rather it is like a fire extinguisher and much more ;which should always be there to not only prevent fire but also open doors.The Chinese believe Guanxi should never be described as if you do its magic disappears
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Case -3
While doing the due diligence the Chinese were adamant that a certain price be attributed to a boiler that was functioning at low capacity being of an old technology but in use . The Germans could not understand why a value should be attached to it at all. Are the Chinese being unfair?
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QUALITY
The Chinese attribute a value to a product or a task if it still fulfills the purpose or intended function. Thus the boiler has some value as it is still functioning For Germans quality is evaluated by objective quasi absolute standards and norms that are largely independent of changing circumstances. Hence the boiler has no value. Notions of value , utility and quality derives from the deeper philosophical tenets of Taoism , Confucianism and spirituality.

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Case -4
Bill is Chinese born but educated in the west entrepreneur. He exports and imports globally objects of art and has a great a flair for this business. His father has a factory in China that employs more than 500 workers who live in cramped conditions and work long hours for which they are paid over time. They get only two holidays per month , but during Chinese New year they get a month off. The supervisor is a tough task master. And Bill resents the overall management style and wants to bring reforms

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Issues
Can Bill go against his fathers style of functioning? Are the workers exploited? Is the factory breaking rules with over utilization of capacity ? How will the Western markets feel about the treatment given to workers ?
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 Bill cannot violate the Confucian value of Filial Piety The face of the father cannot be lost People are not exploited but get a chance to work hard and earn.

The extra production is often seen by Chinese government as good for domestic economy
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