Gift giving culture in Chinese business

08Apr2015

When in Rome, do as the Romans do

As one of the two world’s largest economies, China never loses its appeal to foreign investors to bring their business sin and take a slice of this lucrative pie. Its huge population size, sternly growing economy due to Chinese government’s investment-led strategy and constantly increasing purchasing power are the main criteria driving interest of foreign players. International investors are keen to know what Chinese consumers like and dislike and spend tons of money researching and studying the market. However, to know Chinese business etiquettes when interacting with local partners and officials are nothing less important than to know business market since building relationship, in Chinese word “Guanxi” is very crucial for maintaining and developing business. Gift giving has been one of the means used in workplace or unprofessional ordinary life for the sake of relationship in China; in fact, it has been a tradition as the Chinese saying goes “courtesy demands reciprocity” or “Li Shang Wang Lai”. The relationship between these two people or business partners is made stronger by such friendly gesture of gift giving, and it is usually not a one-sided random behavior but equal and reciprocal, more like keeping a tally. For instance, when one party receives a gift, the party somehow is expected and compelled to return the kindness at a future date with a gift of at least an equal value to the offering party to keep the balanced and harmonious relationship.

Gift giving or commercial bribery?

So when foreign investors in China, they choose to follow the gift giving culture in Chinese business and do as the Chinese do. However, when it comes to workplace gift giving, you need to be careful to make sure that the friend gesture is not considered as bribery according to Chinese law and regulations. The gift is given to demonstrate your respect and courtesy for an individual and your commitment to creating or maintaining a relationship, not “seal the deal”. It is clearly provided in China’s Criminal Law and Anti-Unfair Competition Law to prohibit giving and acceptance of bribes between businesses in a purely commercial context. According to article 164 of Criminal Law, “Offering property to company and enterprise work personnel for improper benefits shall in cases involving relatively large amounts be punished with imprisonment or criminal detention for less than three years, for cases involving a large amount, with imprisonment of over three years but less than 10 years, and with fine. Units committing offenses under the preceding paragraph shall be punished with a fine, with personnel directly in charge and other directly responsible personnel being punished according to provisions of the preceding paragraph. A briber who confesses his bribery act before prosecution may receive a lighter sentence or a waiver for punishment.” So it will be deemed as a crime to “Offering property to company and enterprise work personnel for improper benefits” or for “units committing offenses under the preceding paragraph”. “Property” can be interpreted into different type of property-like benefits that can be calculated in monetary value, such as membership cards, gift cards with monetary value and travel expenses, while “Improper benefits” has a vague interpretation: it refers to any benefits in violation of laws, regulations or policies, or those that require the recipient to provide aid or convenience in violation of laws, regulations, policies or industry norms.

China’s Anti-Unfair Competition Law defines the cases where it is construed as commercial bribery: according to Article 8 of Anti-Unfair Competition Law, managers shall not use money or properties or the other methods to bribe to others in order to sell or purchase commodities. It shall be guilty of giving bribe if managers give a secret commission to the other organizations or individuals without the normal accounting records. It shall be guilty of taking bribe, if the organizations or individuals accept the secret discount without normal accounting records. “Property” herein refers to cash or tangible property, including marketing fees, promotion fees, sponsorship fees, research fees, service fees, consultation fees, commissions and reimbursements. It also contains offering travel inside or outside China and other benefits besides property.

In a word, to count as commercial bribery is to conduct unfair acts by giving or receiving property or other benefits which violate the principles of fair competition to provide or receive business opportunity or other economic benefit, to count as legal commercial activities is to prove that none of the acts is conducted for the purpose of business benefits or affecting a fair and square transaction deal winning. It is not defendable by only saying it is a “culture” thing, and to establish gifts as bona fide gifts it is quite challenging so it is better to follow strict to the law and genuine gifts are not misconstrued as bribes.

FCPA compliance against Gift giving culture in Chinese business

The Foreign Corrupt Practices Act of 1977 (FCPA) was made by the United States to provide transparency requirements under the Securities Exchange Act of 1934 and to regulate bribery cases of foreign officials. The anti-bribery provisions of the FCPA make it unlawful for a U.S. person, and certain foreign issuers of securities, to make a payment to a foreign official for the purpose of obtaining or retaining business or directing business to, any person. When foreign investors invest in China, a country ranked as 40^th by Transparency International’s 2013 Corruption Perceptions Index (CPI)(zero means highly corrupt, and 100 means limited corruption) with relatively high risks of corruption, it is pretty sensitive to interact with Chinese government officials and give out any gifts, tangible or intangible in return of business opportunities which might be considered a bribery under FCPA.

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