What Beijing can learn from Wal-Mart

April 17, 2014

“So, how?”

The question, short for “So, how do you want to handle this?” is a common, subtle way to invite someone to offer you a bribe in Asia. A traffic cop pulls you over for running a yellow light. He’s at your passenger window, a leather strap covering his name tag. He tells you to follow him to the police station so he can process your $100 fine. “So, how?”

If you slip 10 dollars into his ticket book — 20 dollars if you’re a foreigner — he’ll close it, and you’ll both be on your way.

It’s small scale — not like the graft that accompanied China’s high-speed rail system — but it happens all the time in Asia’s developing countries: in traffic, at customs offices, while getting and keeping licenses of all sorts. Nowhere is the bribery problem more severe, and more relevant to the rest of the world, than in China. Three years ago, China’s central bank reported that up to 18,000 officials have fled the country since the 1990s, taking some RMB 800 billion ($128 billion) with them. China lost almost $3 trillion in illicit financial outflows — crooked officials and businesspeople moving their dirty money out of the country — between 2000 and 2009, according to estimates by Global Financial Integrity, a Washington, D.C. financial watchdog. Because China is the world’s largest exporter, bribery in manufacturing and food production — and the related quality control issues — is a global problem.

Wal-Mart is in the news this week for not paying bribes in China — or at least, that’s the underlying premise in the retailer’s three-year-long struggle with Chinese authorities. On April 13 the Wall Street Journal reported that the Chinese government has fined Wal-Mart $9.8 million for infractions ranging from having the words “net weight” in a too-small font ($486) to botching the genus and species on an almond label ($2,323). China’s domestic companies rarely face such scrutiny.

Anyone who has ever run a retailer in a developing country can see how these fines come to be — and how they are often avoided. It’s easy to picture government inspectors in pursuit of extra income, swarming stores across China, finding minor infractions, and asking “So, how?”

Wal-Mart paid the fines, but their domestic competitors haven’t received the same level of scrutiny. Retailers in Asia are notoriously tight-lipped about their businesses. The last thing they will talk about is paying bribes. But the inspectors who fine Wal-Mart visit other stores, too — so it’s hard not to infer what’s happening. A retailer who slips a fat envelope to a landlord for a prime location — a common practice in developing markets  — thinks little of slipping a thin one to a store inspector to look the other way.

The practice continues upstream, on the farms and in the dairies, slaughterhouses, and processing plants where food is produced. Wal-Mart says it terminated 300 suppliers last year over safety and testing issues, all of which had paperwork to prove they had passed government inspections.

So because inspectors aren’t catching food safety problems at the source, the big Western retailers must do the inspections themselves — filling the role of the government, practically everywhere else in the world. But if money is changing hands upstream, it means the quality control by Western retailers helps only that fraction of China’s consumers they serve.

Food safety, like any quality issue, has to be addressed at its source. Once a tainted product leaves a plant and travels across the country, it’s too late. Failure to catch problems at their source led to 300,000 sick babies, including six fatalities, from tainted baby formula; thousands of dead pigs floating downriver into Shanghai; and fox meat in diners’ Five-Spice Donkey Delight.

Fining the big retailers and blasting their infractions on the nightly news is pure propaganda. As long as inspectors aren’t doing their jobs at the start of the food chain or with local retailers, China’s consumers remain at risk.

Though a little fox meat in a donkey meal might sound humorous to someone eating steak at the kitchen table in Des Moines, Iowa, it loses its entertainment value when you consider the billions of dollars of food that China exports annually — close to $5 billion to the United States alone.

“Food safety in China is complicated, far more complicated than in other countries,” said retailer Carrefour’s Shanghai director of risk prevention in the Journal article. Yet it’s really not more complicated, or at least it shouldn’t be.

When more than four in 10 people in China identify food safety as “a very big problem,” it’s time for the government to get its act together. The tainted baby formula scandal was six years ago. In the past year alone, China has experienced dead floating pigs, fox as donkey, and KFC-bashing over tainted chicken. What is Beijing waiting for?

Wal-Mart is one of the world’s most experienced and competent food distributors and retailers. By sharing what it knows about evaluating and monitoring food suppliers, the company could have a major impact on the way that food is produced and distributed in China, which would have benefits worldwide.

Maybe instead of fining and bashing Wal-Mart, the Chinese government should replicate its food safety technology across the country. Then blast its findings on the nightly news.

So, how?

PHOTOS: Chinese consumers crowd the newly opened Wal-Mart store in Shanghai, July 28, 2005. REUTERS/Ming Ming RKR/PN

Officers prepare to destroy unqualified milk powder which was confiscated, in Shanghai November 14, 2008. REUTERS/Stringer (CHINA)


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Funny, but we in America also have bribery. Its in all the fines and fees that every government office charges for ‘violations’, ‘processing fees’, late fees’. I thought all of the taxes we pay go to pay for government services

For instance, if you decide to replace your side walk on your own, even when the side walk is coming out of its place and is a safety hazard to all who walk on it, and do so without a permit, you will be fined heavy.

In my parents neighborhood, they fine you $2800. And they only did what the local government should have taken care of, and didnt, even after numerous calls and letters.

Or when a doctors office bills you for a missed appointment fee. If you do not call and complain, they will bill you for it.

They are all forms of bribery and usery, all incorporated into our laws and business practices.

As Americans we are quick to point out the problems of others. If you want to see problems, you need not look further than in the mirror.

Posted by KyleDexter | Report as abusive

On top of all that you mention. There is that big payoff from K Street to the “Inside the Beltway” gang.

Posted by rikfre | Report as abusive

really interesting

Posted by lady142 | Report as abusive

To compare American corruption and bribery to Chinese corruption and bribery isn’t doing anyone any favors. It’s a completely different creature.

If you’re doing business in China, you need to be ready for this. You need to know what you’re getting into. The rhetoric from the Chinese government these days about “Fighting Corruption” isn’t making a bit of difference in the overall society. Maybe one day it will, but currently, the society, as a whole is, by western standards, fundamentally corrupt.

Be prepared to pay off anyone and everyone and don’t expect the law to be on your side. Don’t protest any perceived injustices, and whatever you do, don’t try going to any sort of authority. That always makes it worse.

The development of China has led to a very interesting, fast paced society, but it has been devastating to the overall values of the nation. If you’re going there for any reason, take everything they give you, pay everything you need to, don’t try to be smart, and be patient.

Posted by AngieMac82 | Report as abusive

Hey Robert ,
It seems that you think pretty low of third world countries, tell don’t you face bribery problems . just to remind you of the recent crash in India of a US made C-130 which had fake parts . And the blame game points that they were made in china .To stop blaming other and glorifying yourselves for no one is perfect .

Posted by Shubham_Singh | Report as abusive

Maybe the Chinese Wal-Mart should have goods made in the USA..?

Posted by rikfre | Report as abusive

It interests me that bribery is the primary focus of the responses to this article. I see the true concern here as health and safety, and believe that this is the direction the article was taking its reader. Bribery aside, the issue of unsafe products entering the marketplace, be it in the US or anywhere else in the world, is paramount. Finding a way to hold responsible whomever is producing and marketing a substandard product is of utmost importance. Focusing on the bribery issue is akin putting a blowtorch to the tip of the iceberg. What rises as the ice melts is wider and more oppressive than that which has been cleared away.

Posted by Terra | Report as abusive