Bo Xilai in court (pic: BBC)
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Another risk faced by foreign businesses in China is the
risk of operating in an environment where there is deep rooted institutional
corruption. This was highlighted by the trial of the senior Chinese politician,
Bo Xilai, who was sentenced for life for bribery, corruption and abuse of power
in September 2013. The case illustrates that the power of senior Chinese
officials is not restrained by the same safeguards that we have in the UK. A free
press and democratic elections don’t exist in China and the legal framework is
very different to that in EU countries. The risk of corruption is possibly
increased by the culture of “Guanxi” (relationships/trust) which can lead to
gift-giving on a grand scale. A recent (2013) example of a UK company which has been caught up in a Chinese
corruption scandal in China
is GlaxoSmithkline (GSK). The pharmaceutical company allegedly used travel
companies to channel £300 million to bribe doctors and officials and has
admitted wrongdoing by some of its executives. This led to their sales plunging
61% in July-September 2013 with a negative impact on their brand and profits.
There are a good number of other companies which have been caught in the China
corruption “trap” e.g. the GSK case has similarities with the improper payments
that Avon has been alleged to make in China. The end outcome of being
embroiled in such corruption scandals is the risk of financial losses. So in
that sense the proposition in the question, i.e. that the risk of financial
losses is the greatest one that companies face in China, looks to be sound.
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