Two years ago, the founder of Orange Hotel Group, Wu Hai, lambasted government red tape and corruption in China in a 5,000-word blog post addressed to premier Li Keqiang. The post became so popular that Li invited Wu to Beijing to discuss these issues with top policymakers in Beijing, including Li himself. Wu is now asserting that little has changed since that initial meeting.
Orange Hotel Group is headquartered in Beijing and operates 92 hotels oriented around “designer” experiences in China.
Wu Hai publicly criticized government red tape and corruption’s impact on businesses in China
Initially, Wu complained about overbearing local officials and the “fees” they imposed on businesses operating in China. Specifically, he argued that officials seeking bribes and favors used their positions and connections within the state undermined Chinese business operations and the economy itself.
Fortunately for Wu, these opinions were largely in line with efforts at the central level of the Chinese government to crackdown on corruption and overbearing red tape. This explains in part the resonance his initial online posting had with Premier Li and others in Beijing.
Nonetheless, Wu believes little has changed since that meeting two years ago, but still praised Li’s efforts in this regard. Instead, he places the blame on local government officials not making genuine efforts to improve their interactions with businesses.
Despite promises from the central government, the hotelier argues little has changed in the last two years
Wu’s very public complaints and his audience with Li Keqiang underline the struggles of doing business in China and struggle of the Chinese government in maintaining control while encouraging growth.
While it’s arguably more important than ever for tourism stakeholders to have a presence in the China market, the ease of doing business in China is not improving. Of the ten largest economies in the world, China only surpasses India in terms of ease of doing business according to the World Bank. Overall, China ranks 78th, with New Zealand taking the top spot.
Foreign firms have long lamented the challenges of operating in China. China’s state-led development model often favors domestic firms, and foreign companies are required to partner with Chinese companies to enter the market.
Not only that, but the influence of local government officials on the operations of businesses is substantial. Navigating the political environments of municipalities, counties, and provinces can be extremely challenging, and this challenge can vary substantially by location. The business environment in China is so intertwined with the interests of government officials, that the China historian Maurice Meisner once labelled the Chinese economy a “bureaucratic capitalist” system.
At times, bribery and corruption can seem necessary to gain licenses and approvals for foreign businesses, or just to gain an edge. These kinds of corrupt practices are arguably endemic in China. Of course, this behavior can land companies in trouble at home and within China.
Several prominent foreign companies have adopted corrupt practices in the China market, and have paid dearly
In 2014, the British pharmaceuticals company GlaxoSmithKline was handed serious fines in punishment for its practice paying off doctors and hospitals to prescribe its drugs, as well as bribing government officials to look the other way. Glaxo funneled much of this money through travel agencies and consulting firms. The firm was fined around $500 million by the Chinese government and multiple Glaxo executives were convicted.
More recently, Nestlé employees were fined and jailed for similar practices involving its baby formula in 2017.
However, this doesn’t mean that Chinese businesses don’t have their fair share of struggles. Wu’s complaints illustrate the challenges Chinese firms have in operating in relation to government officials and particularly the constraints that corruption can place on Chinese firms as well. While undoubtedly many firms and business people have no problem with bribery, many others, like Wu Hai, clearly resent it and hope the Chinese business environment will improve.