by Tony Boyd
Business in China is not always straightforward.
The shock arrest and detention of 18 employees of Crown Resorts in China has provided a chilling reminder that doing business in the Middle Kingdom can be fraught with danger.
Understanding how business is done in China will becoming increasingly important for Australian investors, boards of directors and management in the years ahead.
China's emerging middle class will, according to the McKinsey Global Institute, account for half of the increase in global consumption between now and 2030.
A growing number of Australian companies will inevitably offer their services in China alongside those already trying to make profits in the country.
Australian public companies with significant operations in China include BHP Billiton, Rio Tinto, Fortescue Metals, Seven Group Holdings, Commonwealth Bank of Australia, ANZ Banking Group, Blackmores and Murray Goulburn.
Strangely enough, Crown does not have an office in China.
There are also many private Australian companies with operations in the country.
The shock arrest and detention of 18 employees of Crown Resorts in China has provided a chilling reminder that doing business in the Middle Kingdom can be fraught with danger.
Understanding how business is done in China will becoming increasingly important for Australian investors, boards of directors and management in the years ahead.
China's emerging middle class will, according to the McKinsey Global Institute, account for half of the increase in global consumption between now and 2030.
A growing number of Australian companies will inevitably offer their services in China alongside those already trying to make profits in the country.
Australian public companies with significant operations in China include BHP Billiton, Rio Tinto, Fortescue Metals, Seven Group Holdings, Commonwealth Bank of Australia, ANZ Banking Group, Blackmores and Murray Goulburn.
Strangely enough, Crown does not have an office in China.
There are also many private Australian companies with operations in the country.
It is these companies which tend to be the most vulnerable when it comes to testing the boundaries of the law in China.
Unethical revenue
One Australian with a business in China told Chanticleer that he was always really conscious of the temptation to secure increased revenue through methods that were not illegal but were not ethical.
In one case the businessman pitched for a contract with a major Chinese firm.
When the business was offered to him it was on the condition that he establish a new joint venture with employees of the Chinese company.
The idea was that he would win a long-term contract but only through a new corporate structure which would ensure a percentage of all revenue was shared with his new joint-venture partners who happened to be the same people offering him the contract.
"I always said: 'If this goes badly you will be reprimanded and I will be in jail. I don't think that's a fair trade.'"
He said this attitude cost him plenty of deals.
Outside observers can often be left confused by China's approach to enforcing its laws.
The idea was that he would win a long-term contract but only through a new corporate structure which would ensure a percentage of all revenue was shared with his new joint-venture partners who happened to be the same people offering him the contract.
"I always said: 'If this goes badly you will be reprimanded and I will be in jail. I don't think that's a fair trade.'"
He said this attitude cost him plenty of deals.
Outside observers can often be left confused by China's approach to enforcing its laws.
But those who observe others breaking the law in China should not jump to the conclusion that it is acceptable to do the same.
The gaming industry in Macau, which is a dependent Chinese territory, is prime example of an industry that operates at the boundaries of the law and, in some cases, outside it.
A recent report by analysts from Japanese broker Nomura highlighted the many ways in which Chinese visitors to Macau manage to get around laws covering the movement of money and the types of betting allowed in the Macau casinos.
The gaming industry in Macau, which is a dependent Chinese territory, is prime example of an industry that operates at the boundaries of the law and, in some cases, outside it.
A recent report by analysts from Japanese broker Nomura highlighted the many ways in which Chinese visitors to Macau manage to get around laws covering the movement of money and the types of betting allowed in the Macau casinos.
No basic rights
The Crown incident is a brutal reminder that employees of multinationals arrested while working in China, as well as a range of other Asian countries including Japan, do not have access to basic human rights.
As of Friday, none of the Crown Resorts employees arrested a week ago had been charged.
The employees include three Australian nationals headed by Jason O'Connor, who is executive general manager in charge of international VIP services.
In China, people accused of breaking the law can remain in jail for weeks without being charged.
In China, people accused of breaking the law can remain in jail for weeks without being charged.
This facilitates ill-treatment and plays into the hands of authorities trying to extract confessions.
Crown has refused to comment on the circumstances surrounding the arrest of its employees.
Gaming billionaire and controlling shareholder of Crown James Packer issued a statement on Tuesday stressing that Crown would do everything it could to support its employees.
"As the major shareholder of Crown Resorts, I am deeply concerned for the welfare of those Crown employees detained in China," he said.
"I have sought regular updates on this issue and have asked Crown to do everything possible to contact our employees and to support their families, as we await further details from Chinese authorities.
"I am respectful, that these detentions have occurred in another country and are therefore subject to their sovereign rules and investigative processes."
But commentators on China's approach to law enforcement this week questioned Crown's management of the risks facing its employees, who were selling packages to VIP high rollers.
Crown has refused to comment on the circumstances surrounding the arrest of its employees.
Gaming billionaire and controlling shareholder of Crown James Packer issued a statement on Tuesday stressing that Crown would do everything it could to support its employees.
"As the major shareholder of Crown Resorts, I am deeply concerned for the welfare of those Crown employees detained in China," he said.
"I have sought regular updates on this issue and have asked Crown to do everything possible to contact our employees and to support their families, as we await further details from Chinese authorities.
"I am respectful, that these detentions have occurred in another country and are therefore subject to their sovereign rules and investigative processes."
But commentators on China's approach to law enforcement this week questioned Crown's management of the risks facing its employees, who were selling packages to VIP high rollers.
'Skirting the edge'
Dan Harris, an attorney at American law firm Harris Moure, said in a blog published this week that "many foreign companies have sales people and executives in China who market products or services in China that are illegal in China, with offshore and foreign casinos just one example".
He said examples of activities that were widely legal elsewhere and illegal in China included gambling, certain types of education services, certain types of internet services, certain types of communication services and many publishing services.
Harris said Chinese lawyers at his firm were constantly being asked to provide legal risk assessments to companies that "may be skirting the edge in China".
"One of their most common questions is 'should I go to China'. Our most common answer – by far – is no, because we simply cannot quantify the risks of their getting detained, nor really can anyone," he said.
"The thing that gets to me about all of this though is how so many companies either have no clue about their risks or wilfully choose to ignore them.
"One of our China lawyers loves to tell of how he met an expat bragging in a bar about his China business and when our lawyer told him that what he was doing was flat out illegal, the response was that the Chinese government didn't care and actually wanted this sort of business in China, the written laws be damned.
"And everyone else at that table joined in on this sentiment. Just a few years later this person was arrested and convicted and served substantial time in a Chinese prison."
Harris, who stressed that his firm had never acted for Crown, updated his opinions in relation to Crown later in the week with the following comment: "Once again, if you are doing anything that involves China and is viewed as illegal by China, don't go to China."
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