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Published on Jan 3, 2013 in Featured Articles, slider

Hybrid Ethics is the Norm in China

chinese business ethicsChinese ethics is complicated. Before China opened to the rest of the world, and was subject to foreign influence, its ethics was largely home grown, developed internally over more than 2,500 years. Therefore, it was somewhat predictable, and relatively easy to understand. However, as China began to interact with the rest of the world, foreign influence, coupled with domestic turmoil and the introduction of capitalism, greatly impacted traditional Chinese thinking and changed the ethical outlook of the average Chinese.

A question we’re constantly asked by our clients is: why is it important to understand Chinese ethics when all I have to do is assume, when conducting business in China, that they don’t have any ethics? It’s a fair question and it’s one that we’ve frequently asked ourselves. Our answer comes from a decade of performing forensic due diligence and assisting in negotiations in China: because understanding Chinese ethics, and how it came to be the hybridization it is, will greatly help in negotiations, in establishing business relationships, and in understanding how you can achieve your goals by knowing where the thought process of your Chinese counterpart is likely to take him.

What comprises Chinese ethics is largely unknown or misunderstood by most foreigners. Most assume that, given the current “do’s” and “don’ts” of Chinese behavior, they can come to an understanding of Chinese ethics. However, Chinese ethics, with its philosophical and social overtones, can only be understood by going back several thousand years in Chinese history. At that time an individual’s ethics was dictated by either collectivism or individualism.

In collectivism, with its “us” against “them,” or outsider versus insider, mentality there was an interdependence of the individuals within a group. Everyone worked for the common good. In addition, there was a common set of ethics governing the group and anyone not conforming to these standards was considered unethical and usually expelled from that group. Collectivism originated several thousand years ago out of necessity. Farmers, trades, and individuals banded together for mutual protection against nomads and bandits, as well as the ravages of nature. In times where a family’s survival could depend on the success or failure of their crop, a collective group shared the bounty of its agricultural production. When bandits attacked, the group, with its greater numbers, was able to protect itself as well as its crops. This physical and economic protection bound members of the group into a tight knit society where members tended to trust only those inside their group, and distrust anyone outside of it. According to Carolyn Blackman the Chinese have a saying: Each person sweeps the snow on his own path, but ignores the frost on his neighbor’s roof. What this means is that one treats his own group, insiders, with respect and trust and demonstrates a coldness or distrust toward all outsiders. In China, you’re either an insider or an outsider. This philosophy continues to survive in present-day China and is a part of the ethics in Chinese society. We most frequently experience this insider versus outsider collectivist mentality when negotiating, on behalf of our client, with a Chinese company or individual.

A collectivist group may be any geographic size and consist of any number of people. In fact, today, a person is a member of a number of collectivist groups – a company, a village, a province, a city, and a country. All are collectivist groups. The size of the group isn’t important. What’s important is the commonality of purpose within the group which provides for the economic and personal protection of its members. Individualism is the polar opposite of collectivism and values the self-reliance and social outlook of the individual. This is not very prevalent in China.

Collectivism is one reason why many Chinese feel it’s OK to lie or take advantage of a foreigner in a business transaction. To the Chinese, we’re outsiders, not part of their collectivist group, and can’t be trusted. In fact, most Chinese expect to be taken advantage of by us. Moreover, they feel that if they attempt to steal, lie, or attain their goals by deceit, then it’s up to us, as an individual or as part of our own collectivist group, to make sure that doesn’t happen and that we aren’t taken advantage of. Collectivism plays a significant role in current Chinese ethics.

Following on the steps of collectivism, Confucianism was present in China around 551-479 BCE (BC is known as BCE in China and is used as an alternative to Before Christ and means Before the Common Era. BC and BCE dates are virtually the same).

Confucianism puts a high premium on loyalty and the hierarchy of relationships placing one’s duty to family as their first priority, followed by their spouse, the government or person in authority, and then one’s friends. Confucianism focuses on the individual and the moment, rather than an afterlife, as Confucius believed that the afterlife was beyond a human’s understanding and, therefore, we should focus on doing the right thing in this life, perfecting ourselves, and respecting hierarchical authority. But Confucianism doesn’t necessarily advocate following the law, when it conflicts with the family, as one’s loyalty to family and friends takes precedence over the law, illustrated by an example used by Stephan Rothlin, General Secretary for the Center for International Business Ethics (CIBE) in Beijing: if a person sees his father stealing a sheep he should not turn his father over to the authorities.

Confucianism prevailed in China for nearly 2500 years and was so dominant within Chinese society that applicants for government jobs would, at one time, have to pass an exam on Confucianism prior to being accepted. Collectivism and Confucianism co-existed for two and a half millennia. Overall, at the macro level, there was respect for hierarchical authority, a focus towards the common good, and a strong belief in family. At the micro level there was still distrust between villages, as each was collectivist, but within the geographic area dominated by the emperor, all adhered to imperial authority and worked towards a common goal with family as the focal point in their societal relationships.

Chinese ethics was Confucian, with collectivist leanings, as China entered the middle of the nineteenth century and there was more frequent interaction with foreigners. During this time the Chinese sold the British tea, but to the British, and to the rest of the world, China was still a mysterious country with few foreigners venturing beyond its coastal cities.  To foreigners, it was also a closed society. That was a problem for the British who wanted to increase trade with China, open its ports to British vessels, and expand diplomatic relations. China, on the other hand, wanted none of the above. Therefore, in a dispute between both countries, the British sent their fleet to China and, in short order, defeated the Chinese during what was known as the First Opium War which occurred between 1839 and 1842. Chinese and British relations didn’t get any better after this as the British subsequently wanted additional trade concessions. Again the British sent their fleet to China and the Chinese were defeated in the Second Opium War, which lasted from1856 to1960. A little over three decades later China was once again at war with a foreign country when, from 1894 to 1895, they and Japan fought each other over control of Korea in what’s known as The First-Sino-Japanese War.

Throughout this time, with successive military defeats and increased inaction with foreigners, the teaching of Confucius became less dominant as China experienced increased internal conflict. The Chinese people were moving away from their respect for hierarchical authority and the harmonization advocated by Confucius. They felt that they were increasingly being humiliated by foreigners and losing face. Finally, in 1911, the Chinese people lost faith in the Qing Dynasty’s ability to protect their interests and they ended the rule of emperors. In its place the Republic of China (ROC) was established under the rule of Sun Yat-sen, a uniting figure in post-Imperial China.

The pendulum of Chinese ethics now swung away from Confucianism, and towards collectivism, with its “us” versus “them” mentality, as the new government did not support the Confucian philosophy or agree with its teachings. This move away from Confucianism accelerated with the Chinese revolution of 1949 to the point where, at the end of the Cultural Revolution in 1973, Mao’s wife launched a campaign that criticized Confucius, equating him as a reactionary. As a result, Confucian temples were destroyed and texts of his teachings were burned throughout China. Collectivism was left as the dominant ethical philosophy throughout China.

However, it’s hard to eliminate a philosophy that was the fabric of Chinese society for nearly 2,500 years and Confucianism, although not openly practiced, nevertheless still existed and was practiced by many people throughout China. Nevertheless, collectivism, with its inherent trust of foreigners, was now the prevalent Chinese ethical philosophy and openly supported by the government.

The hybridization of Chinese ethics, with Confucianism and collectivism as their core values, added a third component in 1978 when Deng Xiaoping proclaimed to the Chinese people that “To get rich is glorious” and ushered in the existing era of capitalism within China. In addition, although he didn’t support all aspects of Confucianism, Deng Xiaoping nevertheless allowed Confucius’ teachings to resurface in China. Chinese ethics now had three components: collectivism, Confucianism, and capitalism. These exist to this day.

Although we consider collectivism, Confucianism, and capitalism the three primary components to China’s hybrid ethics, there are obviously other factors which impact ethics in China. These include one’s age group, as younger Chinese tend to be more westernized than previous generations and are less collectivist and more individualist than their parents. Also, a person’s social status, their education, if they’re male or female, and guanxi, or the melding of a personal and business relationship where there is little if any distinction between the two, are all important factors which affect ones ethics.

Now that we know that hybrid Chinese ethics consists of collectivism, Confucianism, and capitalism, with an input from other societal influences, how does this help you in China? How does this give you an advantage when sitting across a negotiating table, or in trying to establish a relationship with a government official, for example? Let’s give some examples.

Being an outsider can affect contractual negotiations. For example, you’ve completed all the legal work necessary to form a Wholly Foreign Owned Enterprise (WFOE), and received support from the national government who’s anxious to have your firm, with its innovative technology, establish a presence in China. The government has given you permits and tax credits at the national level and you expect that you’ll have an easy time getting local support as you have strong government backing.

To someone inexperienced in hybrid ethics, this might seem the case. However, it’s not. From the standpoint of capitalism, this project would certainly receive everyone’s support as it provides tax revenue and jobs at the local and national level. From the Confucian point of view, it enhances harmonization within the community with increased employment. It also enhances familial relationships because more workers will now be able to better care for their families. However, there’s a collectivist issue that causes conflict. To the community in which you intend to build your factory, the national government is an outsider. They won’t recognize it. This is a local collectivist society, governed by their rules (local and provincial laws), and they want the final say within their “commune.” Therefore, if you haven’t thought ahead to consider these local collectivist ethics, you’re going to have compliance problems with the local government – almost guaranteed! Therefore, don’t be surprised if you’re told that you’re not in compliance with a particular regulation, even though there’s no regulation governing what you’re doing. This may not seem ethical, but it’s to be expected. You’re an outsider and the national government is an outsider. The better approach would have been to understand that the national and local governments are each collectivist, that you’re an outsider to both, and that each will require separate negotiations considering the hybrid ethics of each. Do this, and everything will go smoother and you’ll have greater success.

Another example would be where, in a joint venture, you direct changes within the company to increase overall efficiency. The changes are necessary, and you don’t consider them major. However, you later find out that the changes you directed are never carried out. Instead, nothing’s changed. You own 50% of the company, what’s the problem? The problem is that the employees will normally have a Confucian adherence to a respect for hierarchical authority. They want to hear from their immediate boss prior to making any changes. In addition, you’re a foreigner and an outsider. As such, when it comes to taking directions, Chinese employees are suspicious and place foreigners at the bottom of their list. An understanding that you’ll need an insider, directly responsible for those working below him, would enable you to effectively initiate these changes.

In each of these examples an understanding of hybrid ethics better enables you to negotiate, establish your business relationships, and attain your goals.

If you have any questions please e-mail them to info@thornhillcapital.net