When a Chinese court fined GlaxoSmithKline (GSK) US$490 million last year for bribing Chinese physicians and hospital administrators, Western firms doing business in China snapped to attention. Indeed, the GSK action is likely only the tip of the iceberg, particularly given a December 2012 official legal interpretation of the Chinese Criminal Law by the Supreme People’s Court and the Supreme People’s Procuratorate that departed from the prior emphasis on bribe recipients and redirected attention to bribe payers. Thus far, multinational corporations – including GSK, Danone, and Volkswagen – have figured prominently in President Xi Jinping’s anticorruption campaign, leading many commentators to argue that protectionism is at play (see here and here). To put the point bluntly, the worry is that Chinese enforcers will go after foreign firms for conduct that is equally if not more common among domestic Chinese firms, and will do so largely to protect those domestic firms from foreign competition.
I have to admit, when I sat down to investigate the claims of protectionist bias, I more or less assumed the ulterior motives in Chinese enforcement. The typical refrain among my American friends who have lived and worked in China is: “Of course enforcers intentionally favor domestic companies. Everything is politically motivated.” That may be true. But what I found – or didn’t find – actually caused me to lean in the opposite direction: We don’t have enough evidence to substantiate claims of biased anticorruption enforcement in China.
The best evidence for the claim that China’s anticorruption enforcement might have protectionist motivations is China’s apparent willingness to engage in this sort of implicit protectionism in other contexts, particularly competition law (antitrust). Over the past few years, the Chinese government has received sustained complaints about its use of the Anti-Monopoly Law to target foreign firms and bolster domestic companies. Recently, the EU Chamber of Commerce issued a statement alleging discriminatory antitrust enforcement, and the US Chamber of Commerce broached the possibility of filing a complaint in the World Trade Organization. Yet even the nascent case for protectionism in antitrust enforcement is more developed than that for protectionism in the realm of anticorruption investigation and prosecution. And this parallel scenario provides tangential evidence at best.
It is certainly true that the Chinese authorities have targeted many foreign firms in anticorruption investigations, and it may even be true (though this is not solidly established) that foreign firms are targeted at a higher rate than the domestic firms. But that is not by itself evidence of implicit domestic favoritism or anti-foreign bias. Even if foreign firms are disproportionately targeted, there are a number of potentially benign explanations. Perhaps, for example, domestic Chinese firms are better at avoiding detection. With headquarters abroad and heavy dependence on joint ventures and agents, foreign firms are plausibly less adept at navigating China’s anticorruption landscape, and may leave more extensive paper trails. Or perhaps foreign firms pay bribes at higher rates, possibly because long chains of command and make oversight difficult, or possibly to compensate for the fact that they lack the deep, personal connections and relationships (guanxi) that domestic Chinese counterparts can exploit. Or maybe foreign companies make for more appealing targets because of their deep pockets, not because they are foreign per se.
And if all this sounds like a stretch, or like an apologia for the Chinese government, perhaps it’s worth recalling that some analysts have leveled a similar accusation of potential anti-foreign bias in US enforcement of the Foreign Corrupt Practices Act–after all, 8 of the 10 largest FCPA settlements have been levied against foreign companies. Many defenders of US FCPA enforcement would be quick to point out that there are a range of entirely legitimate reasons why non-US companies are apparently over-represented on that top-ten list. Indeed there are, which is precisely the point.
Additionally, before leaping to the conclusion that China is using anticorruption enforcement as a protectionist instrument, keep in mind that there’s a natural constraint on China’s willingness to engage in such conduct: China still wants to attract foreign investment and has little to gain from sowing panic among Western businesses. (Indeed, many commentators have noted that the GSK fine was more lenient than expected, perhaps for that reason.)
I am not absolving the Chinese government, but I am saying we need more evidence before we condemn it. Observers have pointed out that the GSK case could represent a sea-change in a global anticorruption enforcement regime that has come under fire for putting supply-side companies at a competitive disadvantage due to under-enforcement in demand-side jurisdictions. Protectionist or not, Chinese enforcement is rooting out misconduct. We ought to think carefully about whether we can attack those efforts as biased.
To be sure, there are legitimate complaints against China’s anticorruption campaign – such as the lack of transparency and due process protections – that highlight the real need for systemic improvements. But making unsubstantiated accusations against the Chinese authorities only serves to dilute more developed calls for reform.