An Epidemic of Foreign Fraud in China
By LARRY
ROMANOFF – September 19, 2020
Commercial consumer fraud by foreign
multinationals in China has become so widespread that normal trust factors like
famous branding, high standards, or a successful reputation are no longer
reliable indicators for Chinese consumers. The many hundreds of foreign
consumer-goods companies in China have so consistently and repeatedly violated
not only a myriad of China's laws, but all norms and standards of morality and
ethics, of pride in product, and even of simple common decency, that a healthy
functioning of markets could soon become impossible. Most of these violations
are not minor; almost all are criminal and most would qualify as felonies in
the West. They include fraudulent advertising and consumer price frauds of
every nature, constant price-fixing and retail price manipulation, violations
of contract law, fraudulent JV conduct, tax evasion, consumer fraud, bribery,
espionage, visa violations, illegal transfer pricing, refusals of warranty
service, selling used or reconditioned products as new, serious environmental
pollution, physical abuse of staff, wages below legal levels, unpaid overtime,
knowingly selling diseased meat and contaminated food products, knowingly
shipping substandard foods and consumer goods to China, flagrant violations of
health regulations. The list is almost endless.
American
multi-nationals like Wal-Mart,
Coca-Cola, Pepsi, Nike, Apple, P&G exhibit not only an appalling lack
of social responsibility, but demonstrate a mocking open contempt for both the
consumers they defraud, and for the governments. They specialise in exploiting
cheap labor in developing countries, combined with a wide range of illegal and
criminal business strategies, then employ powerful PR tactics, lobbying and
bribery, to avoid accountability for their products or actions. And in each
instance, when another fraud is exposed or another violation discovered, these
firms respond with an arrogance that appears almost surreal, a kind of
crazy-making consisting of lies and denials, claims about 'core values' and
'high standards', inevitably followed by the standard Saatchi Brothers PR
tactic of a list of charitable donations. When Coca-Cola was discovered selling
products containing dangerous levels of pesticides and free chlorine, the
company simply denied the irrefutable evidence, airily claiming its products
were safe to consume, and refused a recall. When finally forced to destroy all
the contaminated product, the company issued an infuriatingly arrogant babble
of nonsense about high standards and core values, reminding the Chinese that
Coke had made contributions to local charities. I believe most Chinese would
happily forego Coca-Cola's charity, preferring that the company instead remove
the pesticides from its drinks and its dealers refrain from beating employees
unconscious when they ask to be paid.
American and European MNCs are
world-famous for pressuring local governments to avoid setting health, labor,
environmental or other standards that would interfere with their profitability, often drawing on the
political power of the State Department to bully local governments into
relaxing standards or avoiding prosecution of their executives. The management
lobby governments everywhere in attempts to prevent or derail labor and wage
legislation, as well as lobbying and interfering with environmental laws. These problems exist in every nation, but
undeveloped countries are hit the hardest because of inadequate legislation and
the lobbying power of these companies from political pressure and bribery.
There has been no shortage of reports that executives, as a regular business
practice, frequently intimidate and/or bribe local officials and politicians to
overlook violations and give them effective sanction to break laws. As well,
there have been many similar reports of company executives exercising their
power to influence media in many countries to suppress negative stories about
the company's products, Coca-Cola's gunpoint resignations in Mexico being one
example.
Coca-Cola, Wal-Mart, Pepsi, Dairy
Queen, Danone, Unilever, McDonald's and KFC fill China's stomachs with every
manner of toxic food ingredients from insecticides and pesticides to free
chlorine and banned growth hormones. They knowingly sell meat from diseased
animals. They sell beverages, ice cream and bottled water with astonishing
levels of bacterial contamination, then blithely claim their products are all
produced to Western standards and are safe to consume. We have seen no end of
toxic cosmetics, baby oil and lotion, and other seriously contaminated personal
care products by P & G, Johnson
& Johnson, and many others. Wal-Mart
have such a long criminal record of cheating and defrauding consumers in China,
they are in a class by themselves, having been heavily fined almost 30
times in the recent past, with executives finally arrested and stores ordered
closed. Wal-Mart were caught and fined eight times in one ten-month period for
fraudulently labeling ordinary pork as organic, and selling at twice the price.
As the government inspectors were leaving the stores, Wal-Mart managers were
busy again re-labeling all the ordinary pork as organic, and the game would
begin again. The French supermarket chain Carrefour
is almost as bad, regularly establishing new records in China for pricing
frauds. Danone has a reputation for being one of the dirtiest foreign companies
in China, renowned for their substandard and polluted products, and having been
in trouble with China's legal authorities more than 20 times in the recent past.
Product
warranties in China are either violated or simply ignored, by everyone from Apple to LV to Mercedes-Benz; many
companies knowingly sell defective products in China and refuse warranty
claims. In what is surely one of the dirtiest practices ever conducted, P & G refused to give refunds for
their toxic SK-II products unless customers first signed a legal waiver
testifying that the product was safe and had caused no health problems, the
demand for the waiver itself being an illegal act. Many firms, again like Apple and Sony, make a practice of
performing warranty repairs with used parts, or replacing a defective item with
a used and reconditioned one instead of a new one. Apple is famous in China for
charging Chinese consumers for warranty repairs, sometimes as much as 50% of
the original cost of the item. There is no shortage of claims that foreign
firms, especially those dealing in so-called "luxury products" like Apple and LV, will put used and
reconditioned items back on the shelf in China and sell them as new.
These
firms take apparent advantage of every opportunity to cheat their employees by
outsourcing their staff to private employment agencies to avoid having to
provide statutory benefits and paying social security taxes. Foreign multinationals are the worst at
demanding unpaid overtime from their staff, feeling an apparent immunity to all
domestic labor laws. McDonald's and KFC are well-known for paying staff 60%
of the legislated minimum wage, claiming "unclear laws". Coca-Cola is
famous not only for outsourcing its staff - which is illegal in China - but for
the outsourcing company refusing to pay legislated overtime and severely
beating employees who dare request to be paid for their hours worked. Some American companies force new employees
to sign a contract stipulating they will be paid a certain salary, but then pay
them much less. The contracts are for the government to see. Many are
forced to work excessive overtime, sometimes 300 hours per month. Some of these
are truly criminal organisations that should be fined heavily enough to
bankrupt them, or be shut down, and their executives should be in prison.
Many
foreign brand products, including those of luxury marques, are made in China,
and manufactured to strict quality controls. But even this has a dark side.
Most often, and with most foreign
multinationals in China, those goods passing quality inspections are reserved
for export to the West, while those failing the tests are sold in the China
market - and at prices often three to four times higher than those charged in
their home countries for the same item. I have no shortage of documented
evidence that many famous brands will remove their best quality products from
sale in China, reserving these for the US and Europe. This is so true that
luxury goods sales have slowed in China from their breathless pace of
double-digit annual growth to double-digit plunges in some cases, primarily
because the honeymoon is over, and secondarily because the Chinese have discovered their own domestic products are in most cases
of higher quality and at a small fraction of the price. And in any case,
those desiring foreign brands have learned they
can purchase those products in Europe or elsewhere at higher quality and at
only 30% to 50% of the prices in China.
It seems there
is almost no limit to the extent of the blind greed that pervades many
international firms, especially the Americans, operating in China.
Companies renege on JV commitments, fraudulently buying and killing treasured
domestic Chinese brands to eliminate their completion for market domination.
They engage in every manner of dishonest marketing, cheating their customers in
almost every imaginable way, selling their substandard goods in China at price
levels far higher than in their own home markets, then reneging on warranties.
Some conduct illegal pharmaceutical or other tests on unsuspecting victims in
China, they pollute the environment far more heavily and with much less
apparent concern than do most domestic firms.
These
problems have existed for years. As far back as 2011, Xinhua News ran an article titled, "A Hundred Thousand Frauds of
'Poorly-Made in China'", which provided details of Chinese government
authorities having recovered more than one billion RMB, over $200 million, for
Chinese consumers, from foreign companies, most of these being American.
This recovery was from the sale of substandard foods and consumer goods
products, and unrelated to corporate fraud, misrepresentation and other overtly
criminal acts. The literally thousands of other cases involving criminal
misconduct were discovered and dealt with separately. The article noted that
not only are Chinese consumers becoming increasingly aware of their rights, but
the government has "greatly expanded the channels through which consumers
can voice grievances and obtain satisfaction."
Why
do these firms dare to engage so widely in open criminality and defraud their
Chinese consumers on such a grand scale? The root cause is the amorality and
greed of the individual executives of all major corporations, especially MNCs,
enhanced by a deeply-rooted white supremacy and racism that the West exhibits
to all non-Western nations. These
foreign executives believe the Chinese are still uninformed consumers who tend
to worship the West, taking further advantage of an unwarranted assumption that
the Chinese lack discernment on consumer goods and have less tendency to be
critical. One author wrote that "the skilled American marketers read
the minds of Chinese consumers and translated their trust and faith into
profits. Cheating customers by
exploiting their credulity had become a stratagem for most American firms in
China, employing behavior and practices they would never consider in the
West." A major contributing cause was that for various reasons the Chinese Government had always treated
foreign companies with much more lenience than that accorded to domestic firms.
Until recently, foreign companies paid tax rates in China that were less than
50% of those charged to domestic companies, and were often given exemptions to
rules and policies or received priority in making applications. Few Americans
are aware that US firms also benefited from various subsidisations (some major)
from China's central government.
From
all this, the executives of these
foreign companies in China developed a false belief that their passport gave
them legal and moral immunity in China. Their sense of superiority and racism
led them to continue to treat China as a third-rate market. Of course, this
conduct has always been a matter of fact across the border in Hong Kong where these
firms were seldom punished according to the non-existent Laws of Hong Kong,
neither for financial crimes nor those resulting in physical harm. In the end,
the lack of government supervision and punitive enforcement, and an apparently
insatiable greed for profit, have combined to produce a thoroughly unpleasant
corporate landscape in China, one which will not change until the executives of
these foreign firms begin to pay personally - and heavily - for their criminal
activity. Corporate executives will behave well only when violations
automatically result in imprisonment coupled with serious personal financial
loss. Moreover, these greed-driven parasites will still feel little motivation
to improve their attitudes until the Chinese public punish them with a total
boycott of their company's products.
Chinese consumers at first were
trusting, with a blind faith in the quality of foreign brands, and at first
were reluctant to complain strongly and to boycott those companies that took
advantage of them.
But Chinese consumers have rapidly become more discerning in their judgment of
foreign products and more demanding in both quality and service. They became
gradually enlightened about unhealthy food and consumer products distributed by
foreign companies, and also realised they could purchase the same foreign goods
elsewhere at half the price or less. In prior years, foreign consumer goods
firms in China had been experiencing double-digit sales growth every year, but
by 2016, most American and European consumer products and FMCG companies in
China were experiencing their third year of steadily declining sales, viewed as
a disturbing and almost certainly irreversible trend. Many attributed the
decline to the 2008 financial crisis, or to a slowdown in China's economy. A
few of the brighter lights recognised that their dilemma was the result of Chinese consumers reverting to Chinese
brands, but apparently nobody seemed willing to face the fact that the
honeymoon was over because reality had diverged unacceptably far from
expectations. Chinese consumers had
tried foreign brands and found them wanting in quality, utility and safety,
realising they had been sold the sizzle without the steak. They realised at the
same time those famous foreign companies
had price-gouged them without mercy, while taking advantage in innumerable
other ways. And they walked away, turning to their own trusted and far less
expensive domestic brands. And they won't be back.
•Coddling Foreign Multi-Nationals
Thom
Hartman wrote an article in the Third World Traveler on US Foreign Policy,
titled "Coddling Foreign Multi-Nationals", in which he said:
"Multinational
corporations have abundant capital, advanced management systems and good brand
reputations. Therefore, they should lead the way in showing how to run
businesses honestly and sincerely. However, the recent food safety incidents
have made the public aware that mere self-control cannot prevent famous
enterprises from violating laws and regulations. The desire for more profits
always drives companies to keep approaching the lowest regulatory limit, which
means lowest standards, lowest costs and highest profits.”
Food
safety is crucial to people's health, but in the eyes of certain companies, it
is just business. The profits they reap from violating laws and regulations are
much more than fines and compensation claims. If they reap millions of yuan in
profits by violating rules, but are only fined 100,000 yuan, greed will
naturally grow and eventually become unstoppable. Due to the extremely low
costs of violating laws and regulations in China, multinational corporations
simply cannot resist the temptation to reap easy profits. Comforting companies
that violate laws and regulations after punishing them will only make them
greedier and eventually ruin an industry's reputation, instead of deterring
them from violating rules again. Why do these type of problems keep emerging
and why in China? Beijing Times commenter, Xun Lifan, expressed his opinion on
the matter:
"Different
strategies have developed due to the business environment in China. Many
foreign-owned companies operating in China are used to preferential policies
provided by the Chinese government, and lack serious domestic competitors which
makes them too arrogant to respect their customers as much as they should.
Additionally, the vulnerable position of consumers makes it difficult to
protect them, which encouraged the big companies to take their business
operations to extreme levels."
Multinational
corporations in China have been feeling the pressure of a crackdown on a
variety of practices, including alleged monopoly, corruption, and safety
issues, a pressure accelerating in recent years. Chinese probes have been
viewed as targeting foreign firms unfairly while providing insufficient legal
recourse. If anything can be concluded from all of this, it is clear that
multinationals no longer enjoy the preferred status that they did ten or
fifteen years ago. Wages are rising, the legal enforcement environment is
tougher, licensing procedures have become more difficult, the price of raw
materials is rising, and local Chinese businesses are becoming more
competitive.
Hartman ended his article with a question as
to the long-term existence of these American MNCs in China, thinking they might
shift their production and other facilities to other countries in Asia since
they might find it "too costly to do business in China". These
companies will certainly shift production to lower-cost countries, and have
already been doing so, but that avoids the real issues which are related almost
exclusively to executive criminality and the rapidly-increasing penalties for
that behavior. If companies like
Wal-Mart, Pepsi, Nike, Coca-Cola, P&G, and Apple leave China because the
costs of obeying the laws are becoming onerous, then the sooner they leave, the
better for everyone. Chinese authorities have indeed been increasing both
supervision and penalties against foreign MNCs but, if anything, this activity
needs to increase, and with prison sentences necessarily added to the financial
penalties. And I have to say I laughed out loud when I read in one of AmCham's
annual reports that the number of American companies who "were happy"
in China dropped from 43% to 28% in one year. I would like to see AmCham's list
of Chinese companies who "are happy" in the US. But in the end, by
far the best solution for these problems
is a total boycott of most American products, one that should remain in
effect until these firms are 'purified through bankruptcy'.
It's
worth noting as a comparison that the Bank of China branch in New York was
fined US$20 million on what was a trivial matter of accounting for loan
collateral, one in which there was no loss nor suggestion of evading
regulations. No bank in the US, domestic or foreign, had ever been fined that
large an amount for so trivial a matter and, after Beijing objected, the fine
was reduced by half. There are many more US banks in China than there are
Chinese banks in the US, and China had never fined an American company such an
amount even for much more serious (and felonious) crimes involving health and
personal injury. Time for this landscape
to change.
There
is another matter here that tends to be overlooked by everyone, most especially
the media and the Chinese self-appointed "experts" on foreign
involvement in China, this being that foreign frauds are not perpetrated in
China by corporations but by individuals. A 'company' cannot commit a crime,
because a company is simply a piece of paper in a legal office somewhere. It is
real people who make these decisions and commit these crimes, and this is where
the focus must be placed. Fining a company serves only to punish innocent
shareholders by diminishing their profits, but has no effect on the corporate
executives who made those criminal decisions. The answer is not fines, but long
criminal sentences. China is taking the
American route, which is to consider corporate executives immune to criminal
prosecution, and we need only look at the US today to see the result of this
philosophy.
There exists in China among many
foreigners a widespread contempt for China, for the Chinese people and culture,
and for Chinese rules and regulations, the corporate crimes forming only
one part of this picture. I recently met an American in Shanghai who was
driving one of the old models of the Changjiang motorcycles and, as we chatted,
he told me of having been stopped by the local police while driving that bike
while very, very drunk. The policeman called his wife to drive the man home
while he (the policeman) drove the motorcycle home. They didn't arrest or fine
him, but they did cancel his driving license for 6 months. When I asked why he
was still driving his bike, he said, "This is China. Who cares? They can't
even speak English. They won't do anything to foreigners." In a similar
example in Shanghai, three young Americans, perhaps 25 years old, were seen
taking their bicycles onto the metro, something not permitted in Shanghai.
These men knew that, so they entered the metro through the exit gates, lifting
their bicycles over the turnstiles and proceeding to the subway, obviously not
paying their fares either. In this case, some passengers detained them until
the police arrived, but this kind of thing occurs constantly in all parts of
China. The underlying attitude emanates from the insufferable moral superiority
that permeates almost everything American. I'm sorry to add that it is also
racist. In a more obvious case from late 2016, an American NBA basketball player named Bobby Brown boasted with photos
on the Internet how he carved his name and team in huge letters on the Great
Wall. His post: "Had a blast at the Great Wall of China today", with
photos of him defacing one of China's most treasured cultural and historical
relics. When his post triggered a storm of outrage, Brown made another
post, saying, "I apologize. I didn't mean any harm by this. I respect the
Chinese culture. I made an honest mistake." But then immediately upon
leaving China, he deleted his apology. Draw your own conclusions.
•Wage Theft in China
Temporary
employment agencies can fill a need in a nation's labor market since it often
occurs that companies in many industries require additional labor during
vacation periods or high seasonal demand. Corporate managers appreciate them
because a single phone call can produce the requisite number of workers for a
day, a week or a month. But the senior executives of American MNCs appreciate
them for other reasons, the main one being that these temporary workers by
definition are paid only an hourly rate, often the legal minimum wage but, even
more importantly, are not entitled to the range of statutory benefits which
include health care, pensions, unemployment insurance, legislated termination
notice periods, pregnancy and sick leave, and many other such requirements. In
particular, it is illegal in China to fire a pregnant employee and in addition
the company must provide generous maternity leave, but these provisions apply
only to permanent staff and not to temporary labor. You can already see the
temptation.
This
is one American labor practice that has been attracting increasing government
attention in China, the alarming tendency to outsource permanent, full-time
staff to temp agencies, primarily to avoid the cost of paying statutory
benefits but also to escape responsibility for a host of other actions which
would otherwise be illegal. Coca-Cola is
famous for this American practice. As in all Western nations, it is illegal
in China to hire full-time permanent staff through temporary agencies or to
employ outsourced labor for other than temporary positions. But, if you have a
clever lawyer play with the rules, you can find ways to pretend these are
really only "temporary" employees, and you can pay them much less
while avoiding all responsibility for their welfare and statutory benefits -
and their mistreatment. In one recent
case, immediately prior to China's new Labor Laws taking effect, Coca-Cola
fired all its employees in some China locations and turned them over to an
outsourcing agency at half pay. One Coca-Cola employee reported that
"they called us into a meeting . . . with no notice, and told us that they
were outsourcing our jobs and turning us over to a third party. We would no
longer be Coca-Cola employees". But not to lose the main point which was
that Coca-Cola executives took this drastic step just before the laws changed,
in what was surely a blatant attempt to circumvent the new laws. Other American firms, Schering-Plough among
them, did the same.
Coca-Cola
managers claim they employ temporary labor because drink bottling is a seasonal
business, but investigations have proven that perhaps 50% of the staff in the
company's plants during an entire year consist of temporary outsourced labor.
It has been well-documented that Coca-Cola
in China has employees who have been working continuously for as long as 10
years in the same job as "temporary labor" while being paid less than
the minimum wage, a situation containing clear and multiple violations of
the law. There were many media reports that nearly half the employees at
Coca-Cola's Hangzhou plant were "illegally dispatched", employed by
the labour supply company but working full-time for Coca Cola. The company's
China management insist their use of contract labor is lawful and that
"independent auditors" have confirmed they were "fully compliant
with local labor law." The translation is that they found clever ways to
circumvent the law while becoming too cozy with a few officials in the
government labor office in Hangzhou. A few years ago, students conducted
investigations in five Coca-Cola bottling plants, discovering there were severe legal violations in each - long term
and high volume use of dispatch labor, frequent workplace injuries,
insufficient safety measures, wage deductions, wage arrears, excessive overtime,
etc. After publicly releasing the report, there was much media coverage that
resulted in a strong public reaction, giving Coca-Cola executives no choice but
to respond, but they persistently denied the fundamental problem of illegal use
of dispatch labor. Reports are that over the years, nothing has changed in the
slightest, with no reduction in the large volume of illegally employed dispatch
workers, wages still remain much below the legal minimum, worker safety is
apparently ignored, and workers have no have insurance or other statutory
benefits.
Among
the documented labor violations in Coca-Cola's bottling plants is the frequent
claim that workers are asked to sign a
blank contract in which only the expiry date has been entered or which contains
a fictitious salary meant only for government inspectors to see. According
to one group of student workers, "A manager at the agency asked us to sign
a contract stating that we will be paid the minimum wage of Hangzhou, which is
5.7 yuan, but at the same time, he told us that we will only be paid 4.5 yuan
and we have to work 12 hours a day with no overtime pay. We wonder how much
Coca-Cola pays the agency." Zhen Zhiqiang, the agency's manager, claimed
the students were paid the minimum wage and were lying. One investigator
reported that, under pressure from Coca-Cola's managers, staff "often
worked 12 hours per day for an entire month without a single day off.",
and SACOM said that this dispatched (outsourced) labour always had overtime
work up to 150 hours per month in Swire Guangdong Coca-Cola - in other words,
working 16-hour days, while others were forced to work excessive overtime,
sometimes as much as 300 hours per month. The Chinese press reported from the
investigations that Coca-Cola employees were "involved in the most
dangerous, intense and tiresome labor, work the longest hours, but receive the
lowest wages and face arrears and even cutbacks in their pay." It's clear
that Coca-Cola is bringing its destructive labor, human rights, environmental
policies and products into China. My
view of the situation is that a few labor officials in Hangzhou and Guangdong,
and more than a few Coca-Cola China executives, need to sit in prison cell
until Coca-Cola converts all its subcontracted workers into full time employees
as required by the law.
A
few years ago, Coca-Cola China was involved in a massive public scandal involving
intimidation and physical violence against university students who had been
hired for summer jobs through the company's outsourcing agency. At the end of
the summer, when the students appeared in the company office, as per
instruction to receive their final pay, they were refused overtime and other
earned pay, and threatened by the company staff. One student named Xiao Liang,
who was apparently not intimidated and insisted on being paid what he was
legally owed, was beaten by two managers in the labour supply company’s office,
and was hospitalised with serious wounds in one eye and hand, and was diagnosed
with a ruptured eardrum and permanently damaged hearing. The incident occurred
in the office of the vice-general manager of Zhiqiang Company, Coca-Cola's labor dispatch company. The response
of Coca-Cola's executive staff was, as always in many similar situations, to
deny any responsibility for the actions of its agency, and to dismiss the
violence as an isolated incident, but contrary to Coca-Cola’s assertion, the
CLB’s preliminary research showed that this workplace violence was a serious
and widespread problem. Officials at Coca-Cola in China said the dispute did
not involve Coca-Cola. Zhai Mei, the associate external affairs director of
Coca-Cola China, told the media "We
are very sorry about what happened to Liang, but the conflict is strictly
between Liang and the employment agency. The bottling factory and Coca-Cola are
not aware of the situation." He further claimed that Coca-Cola and its
bottlers not only "strictly comply with the laws and regulations regarding
labor practices", but also "have strict supplier guiding
principles" for its employment agencies.
One
practice shared by Yum, KFC, Pizza Hut,
and McDonald's is wage theft. These firms are renowned as much as Coca-Cola
for finding every possible way to pay their employees less. This is especially
true, and especially irritating, in China where KFC earns half of its worldwide
profits on a sales volume half that of the US. Part-time staff are particularly unfairly exploited, with both KFC and
McDonald's paying only 60% of China's minimum wage, persistently blaming
"unclear regulations" while continuing to violate the laws.
American critics complain that US companies are singled out for this kind of
media attention, but the fact is that American
companies came to China boasting of their high standards and high quality, of
employing "international best practices", and being generally
superior in all respects, then proved to be the least honest and most predatory
of all companies. It is the American firms who will make extensive use of
every possible legal loophole to avoid paying wages and providing statutory
benefits for their staff. The Chinese
authorities have been much too lenient on these American companies for much too
long, leading to the point where they now believe they are above all domestic
law.
In
spite of its pretty face and attractive products, Apple has some of most deplorable labor practices of any American
multi-national. Steven Jobs is revered as an innovator because of Apple's
iphone, but the iphone was nothing. Jobs' real innovation was in finding a firm
- Foxconn - that would build a one-million employee concentration camp where it
could manufacture and assemble iphones while the one million young workers were
living on the brink of starvation. and at the time of writing, Apple was
sitting on a cash pile of $150 billion (then increased to $200 billion), but
that entire cash pile was stolen from the workers who made Apple's products.
Had Jobs accepted responsibility for what were in fact Apple employees and paid
them anything resembling a living wage, that $200 billion would be zero. The
iphone's 'cool factor' is irrelevant in this equation. Apple's profits did not come from cool; they came from the theft of
wages from society's most vulnerable young people who needed a job and a start
in life. Steve Jobs wanted Apple to be profitable, with a margin of about 40%,
but to succeed in his quest, Jobs first had to ensure they failed in theirs.
And he did. Even in an internal company report, Apple admitted the
"sweatshop" conditions inside the factories that make and assemble
its products, admitting that at least 55
of its 102 factories were making staff work more than 60 hours per week, that
only 65% were paying legal minimum wages or statutory benefits and that 24
factories paid nothing near China's minimum wage. The pressure placed on
these young people for higher productivity was truly unconscionable, with
dozens of young people committing suicide, a fact which did not escape the
attention of either Steve Jobs or Tim Cook but which resulted in no action. A
human rights organisation accused Foxconn of having an "inhumane and
militant" management, the executives of neither Foxconn nor Apple caring
to comment.
A
few years ago, Carrefour came under fire in China for having refused to raise
wages for more than ten years, with company executives refusing to accept the
collective wage negotiation system that has existed in China for decades. Since
China does not have a compulsory system of heavy fines for violations of these
regulations, it is cheaper for Carrefour executives to ignore them. According
to media reports, the salaries of more
than 6,000 employees at about 20 Carrefour stores in Shanghai barely changed
between 1998 and 2010 while the average salary of Shanghai workers more than
tripled. Many American MNCs do the same. It seems that no behavior is too
low for a Carrefour store manager. You have no doubt seen displays in supermarkets
where a company hires (usually) young university students to distribute free
samples or free tastes of a new product. Carrefour not only charge high fees to
permit this on-site marketing, but view it as a source of free slave labor. The
girls usually work an 8 or 10-hour day, after which the Carrefour manager
demands they don a Carrefour smock and work another 4 hours - unpaid - for the
store. The incentive is that if they
refuse, they will be given a negative reference to their employer and will lose
their jobs.
•And Not Only the Corporations . . .
The
US government itself has a long history of defrauding the Chinese public
whenever a suitable opportunity presented itself. One such example has been the
issuance of US travel visas to Chinese citizens. The US State Department didn't
publicise this but AmCham, the American Chamber of Commerce, boasted in one of
its annual reports that Chinese visa
applications constituted "a significant source of revenue for the State
Department". The reason was twofold: the first that the State
Department charged 1,000 RMB per
application, with one visa officer able to process at least 16,000 applications
in a year, thereby earning about 16 million RMB per officer - of which the
State Department has about 50 in China, generating total revenue of about 800
million RMB per year. The second, and even better, part was that the 1,000
RMB application fee was "non-refundable" and that the American
consulates deliberately made the application process so complicated and lengthy
that many, or even most, applicants simply abandoned their applications,
leaving the State Department with most of their 800 million RMB as clear
profit. This constitutes unconscionable price-gouging that surpasses even the
astonishing greed of most American health care companies and universities in
China and, looking at the details, there is no way to avoid the conclusion this
had all the signs of a deliberate and fraudulent scam. An added attraction was
that since these fees were delivered to the US consulates in cash, they would
create neither paper nor banking trail accessible to Chinese authorities,
permitting the money to be quietly re-distributed (also in cash). The State
Department then had a perfectly invisible method of employing those visa profits
to finance the activities of USAID, the NED, and various other
politically-incestuous American NGOs in China, a clever way to use the money of Chinese citizens to finance the CIA's
destabilisation efforts in Tibet and Xinjiang. Among other things.
Another
more open fraud was promoted in legislation initiated by the Jewish-American Senator Charles Schumer,
one of the world's most renowned China-haters who discovered infamy with claims
China's RMB was 40% undervalued. In this case, Schumer conceived a plan to
refloat the US economy by sucking huge amounts of cash from the bank accounts
of the (in Schumer's deluded mind) hundreds of millions of Chinese citizens
desperate to live in the US but unable to obtain a travel visa (see above). The
plan was brilliant. Any Chinese citizen could receive a three-year
automatically-renewable US visa, by doing two simple things: (1) purchase a
home in the US for more than $500,000 and, (2) agree to pay taxes to the US
government in perpetuity on all world-wide income. Additional stipulations were
that the home purchase must be in cash, and that the visa was tourist-only,
with no possibility of either a green card, work permit, or other amendments.
As I said, Schumer's plan was brilliant in conception. The US housing market
was in the gutter after 2008, with no hope of resurrection, but now we would
suddenly have hundreds of millions of eager Chinese rushing to purchase a home
and re-inflating the housing balloon to even greater heights, solving America's
housing crisis without costing the US government a penny. These hopes were
becoming increasingly common among Americans, with the wealth from China's
emerging middle class considered a panacea for all American troubles in recent
years. As one writer noted, "When American workers needed jobs, a
conditional green card was offered in exchange for half a million dollars and
10 local job opportunities. When American farmlands needed cultivating, a
conditional green card was offered to those willing to buy large parcels and hire
farmhands. And now, why not salvage the distressed housing market by tapping
into those deep Chinese pockets yet again?". With luck, China would once
again become a cash ATM dispensing hundreds of billions of dollars to refloat
the US economy. However, while Schumer's
plan may have been brilliant in conception, it proved to be idiotic in
execution, with precisely zero Chinese citizens availing themselves of the
opportunity to pay income taxes forever to the US government when they were
neither American citizens nor earning money in the US.
•Owe Money to a Chinese Company?
This
topic was originally prompted by a story published in Canada's Globe & Mail about a Canadian businessman with a
peculiar view of doing business in China. A Mr. Jim Tyrer and his company, Trans-Pacific,
sent a shipment of substandard lumber to a Chinese firm in Tianjin. The
customer of course complained and, while Tyrer admitted his product was
substandard, he refused to accept a return or refund the customer's money. The
Tianjin company finally made application to the courts and obtained a judgment
for the shipment's value. However, Tyrer ignored the court judgment and refused
to pay because his lawyer advised him that since Trans-Pacific had no assets in
China, "the Chinese court ruling was unenforceable". Unfortunately
for Tyrer, the Chinese courts disagreed, and after he skipped out the first
time they were waiting for him on his return. He was arrested prior to
departure, and released only after payment was made to the court. The Globe
& Mail unashamedly turned the article into what they called "a
cautionary tale about doing business in China", but it should have been a
tale about doing business with Canadians. And not only Canadians. It seems we are developing a kind of new
Olympic sport - reneging on debts to Chinese businesses on the grounds that the
Chinese dislike confrontation and conflict, and probably won't sue.
Following
this, we discovered an enlightening series of articles published by an American
lawyer named Dan Harris, who openly
recommends not paying debts to Chinese companies, on the same basis as outlined
above. This was posted in [China Law
Blog, by American Lawyer Dan Harris on July 9th, 2009. Harris & Moure;
600 Stewart Street, Suite 1200, Seattle, Washington, 98101 Phone: (206)
224-5657: http://www.chinalawblog.com/]
Harris
wrote a charming article titled "How
to get free product from China: Just Don't Pay". Being the clever US
lawyer he is, Harris tells us he is not recommending reneging on debts to Chinese
firms, while he gleefully recommends reneging on these debts. As follows:
"If
you owe money to a Chinese company for product and you cannot pay all of your
creditors, skip out on the Chinese company. Near as I can tell, there is nearly
a 100% chance they will never sue you to recover. About a year ago, a client
had come to me for a consultation regarding a dispute it was having with its
Chinese OEM supplier. The Chinese company was threatening to sue my client for
about $350,000, per its invoices. I advised my client not to pay anything. I
met with this US client (later) and asked him "whatever happened with that
Chinese supplier that had been threatening to sue you?" His response was
that nothing had changed. Every few weeks, the Chinese company emails seeking
its $350,000 and threatening to sue. My client responds by offering $200,000 in
full settlement and the Chinese company refuses. We laughed and moved on."
Harris advises those reading his
firm's website, to first "Get everyone out of town". In other words, when you
plan to default on your debts to a Chinese firm, first send all your American
staff (and your assets) back to the US, then tell your Chinese supplier
"from far far away" that you aren't going to pay. Disturbingly, Harris appears to be suggesting that
American companies do this as a matter of course, whenever they have no Chinese
assets to be attached. Certainly, he is putting the thought firmly in their
minds. According to Harris, you should make a huge purchase from a company in
China, then just ignore their demands and eventually they will go away and you
won't have to pay. And if you do plan on perhaps paying them someday, be sure
to put the Chinese firms at the very bottom of your payables list. What else is
there to say? Harris is educating us to the American principles knows as 'rule
of law' and 'playing by the rules'. Can you imagine the outcry in the Western
media if a Chinese lawyer were to publicly recommend that Chinese firms renege
on their US debts on the basis that they have no US assets and that judgments
are unenforceable?
Certainly
Harris has prompted such behavior. Several American firms confirmed this
approach. In one case, an American executive posted on Harris' blog: "This
is so true. This is exactly what my company did and we got away with it. We
owed money to a Chinese company and all they had to do was sue us and we would
have paid, but they just kept calling and writing and calling and writing and
we just never paid. At first I felt bad about this, but then I started seeing
it as payback for how American companies get treated over there." Another
executive posted this: "This is what happened with my company. We chose
not to pay one of our Chinese creditors because we could not afford to pay
everyone. They said they would sue and a lawyer (from China) wrote us, but then
they just gave up."
According
to Harris, the problem is not that American companies are dishonest and renege
on their debts. Rather, the problem is
entirely China's, for "the terrible job Chinese companies do in collecting
on their international debt". He tells us there are countless stories
of Chinese companies shipping product overseas and then never getting paid, but
it's their fault for trusting Americans.
And I suppose he's right. Americans cannot be trusted. Certainly, Chinese
companies must become more prudent in issuing export credit. The best solution
is cash in advance or an irrevocable letter of credit. Too many Chinese
exporters, especially the smaller ones, worry about losing customers and are
often lured into granting credit in unjustifiable situations. Given the slim
export margins, one large unpaid debt can easily represent an entire year's
profits. Chinese culture is much less belligerent than that of nations like the
US who readily resort to litigation for the smallest dispute. To the Chinese,
this kind of open warfare is a failure, with negotiation being the preferred
process. But negotiation is possible only with sincere participants, and
Americans display no such sentiment.
There
are a great many such corporate executives following (or attempting to follow)
Harris' advice, and from the accumulated evidence, few of these are
unanticipated defaults where a purchaser simply ran out of cash. Rather, there
is substantial evidence that these defaults are planned, the American firms
counting on the probability they won't be sued in US courts. Often, an
unscrupulous buyer begins with small orders and prompt payment, sufficient to
gain trust from Chinese suppliers, then places a large order and simply reneges
on payment. Following precisely this practice, the American electronics
distributor APEX, defaulted on debts to Changhong, China's major electric
appliance maker, of about 2.5 billion yuan, nearly equivalent to all the firm's
net profit from 1998 to 2003. But there are other, more sinister schemes. American firms often take advantage of
Chinese lack of familiarity with US corporate law, and set up a shell company
without assets specifically for the purpose of fraudulently placing orders then
disappearing without a trace, many American firms doing this repeatedly as a
standard procedure. China's Export and Credit Insurance Company found that
many exporters in various Chinese cities were cheated by the same American
buyers in the same way. An executive of an asset management firm which helps
Chinese companies collect debts in the US, said the cheating tactics used by American companies in dealing with Chinese
firms consist of virtual templates falling neatly into precise categories,
with more than sufficient examples to enable compiling a catalogue record of
their cheating practices. It appears it will still require some time for
Chinese firms to fully acquaint themselves with the truly predatory nature of
American capitalism.
*
Larry
Romanoff is
a retired management consultant and businessman. He has held senior executive
positions in international consulting firms, and owned an international
import-export business. He has been a visiting professor at Shanghai's Fudan
University, presenting case studies in international affairs to senior EMBA
classes. Mr. Romanoff lives in Shanghai and is currently writing a series of
ten books generally related to China and the West. He can be
contacted at: 2186604556@qq.com
*
Larry
Romanoff is
one of the contributing authors to Cynthia McKinney's new COVID-19
anthology ''When China Sneezes''.
Copyright © Larry
Romanoff, Moon of Shanghai, 2020
