A noted risk management specialist based in Shanghai
"The debate now roiling the mainland is whether these original sins should be ignored or vigorously investigated"
Tycoon tales 05/03/2007
It is not an easy time to be a mainland tycoon. Deng Xiaoping may have proclaimed !§to be rich is glorious!‥ but many wealthy mainlanders who followed this exhortation currently live lives plagued by uncertainty and doubt.
The current crackdown on corruption in the mainland has raised uncomfortable questions regarding just how many of the Middle Kingdom's emerging captains of industry used illegal means to acquire their initial wealth, or as the Chinese phrase it, their first bucket of gold.
The discussion of these original sins is a sensitive topic and one familiar to any economy in transition be it the Russia of the 1990s or America during its so-called !§robber-baron!‥ period. The debate now roiling the mainland is whether these original sins should be ignored or vigorously investigated.
Those who favor ignoring offences argue China's early capitalists were pioneers who may have engaged in some !§minor irregularities!‥ but nonetheless played a key role in a crucial transformation of the economy which now benefits the entire population. They further add a witch hunt of this nature would unnecessarily destabilize the private sector just when it is making some of its most significant contributions.
Those in favor of initiating these inquiries counter that those who took advantage of a period of Chinese history characterized by poor controls and a lack of transparency to build their fortunes by engaging in a litany of offences including smuggling, sweatshops and the looting of public assets should not escape justice. This side leans heavily on President Hu Jintao's recent calls for a more harmonious society and reaffirmation of the concept of socialist honour.
Not surprisingly, this debate has created a very nervous class of domestic entrepreneurs and additional headaches for foreign investors already struggling with the complexity of analyzing risks associated with various mainland investment opportunities and potential partners.
Part of the problem with the current debate has been its all or nothing character with absolute absolution on one side versus merciless retroactive inquiries on the other.
One way to add some predictability and stability to the current situation may be to break the problem down into what should be the two key factors in assessing the need to go after the perpetrators of any of these original sins.
First, when in China's various phases of opening up did they occur and second, what was the exact nature of the alleged crime? With regard to the issue of timing it would be logical to accord more leniency to those who engaged in irregularities or illegal activity during China's early opening up period from 1979 up to 1988 when the Chinese constitution was altered to recognize the legitimacy of the private sector.
Prior to the 1988 individuals operating in the private sector in many cases had no choice but to operate outside the law in some cases offering bribes for loans or to be allowed to operate their businesses.
As to the actual nature of the offence, it may make sense to forgive minor tax evasion and similar small issues surrounding the issuing of business licenses in a confusing environment. One factor that has clearly emerged is how the entrepreneur is judged to have conducted himself after his initial irregular capital acquisition activities.
As a result, many at risk entrepreneurs are now engaging in philanthropy as conspicuous as their consumption to better position themselves in public and government opinion in the event they ever need to address original sin questions.
In a recent case in Southern China which may well be a template for future behavior, a successful tycoon was reportedly brought in for a discussion with government officials who after inquiring whether the businessman had noticed that many of his peers were now in jail or being investigated suggested it might be time for the now-jittery businessman to consider !§giving back!‥ to the province.
He was then promptly presented with a wish list for the region including a high-tech park which he promptly and with much relief set about fulfilling.
The fact that this debate has, to date, been relatively open and widely engaged in with no firm conclusion yet forthcoming reflects the central government's current ambivalence towards the issue. In fact, the current climate of uncertainty may well suit the central government's interests.
In an ambiguous environment Beijing as the ultimate authority retains the upper hand and that sort of flexibility vis a vie its pioneering capitalists may be something the Chinese government will wish to hold onto for the considerable future.