One of China’s best boutique hotels has a sleek modern bar and perfect cocktails. Successful Chinese entrepreneurs mingle seamlessly there with foreign investors and well-heeled tourists.
It is always crowded, so I was surprised to hear that the western owner— whom we’ll call John—recently sold it. A mutual friend told me “John was happy to get that monkey off his back.”*
He elaborated that as a successful businessman with hotels in many countries, John was careful about new ventures. At first he was enthusiastic about how smoothly the project was going. The municipality seemed eager to help, the land was easy to obtain, and construction was proceed- ing ahead of schedule. But then the problems started.
His story was familiar: to get the sixteen permits required to operate the hotel, John and his partners had dinner after dinner with local officials to establish the right guanxi, or relationships. When John followed up to ask when the permits would be issued, he was not given a date. Instead he was told that he should hire a specific consultant for the fire permit, another for the building inspection, a third to get the alcohol license, and so on. The “consultants” cost at least four times the price of the permits themselves, and John was not naïve about where the additional money was going. At first he pushed back. To finish work ethically, he installed the lobby security cameras exactly where and how the anquan ju (the State Security Bureau) had told him to do so. When the inspector came out, he told John “this is all wrong, you need to move the cameras to the other side of the lobby.” Once that was accomplished, the inspector had another com- plaint. After several more rejections, John caved and called the “consultant” the inspector had recommended. Once John paid the exorbitant fee, the security cameras magically passed inspection.
Trees were similarly problematic. John was told that the lovely trees in the hotel courtyard weren’t getting enough airflow and he would have to modify the building plans substantially, at great cost and delay. The tree bureau suggested he hire a helpful, if expensive, construction company. That company made tiny adjustments to the courtyard facade, and surprise (!), the trees suddenly had enough airflow and the permit was issued.
John persisted for several years, but finally the constant low-level corruption was too much. It wasn’t just the initial “consultants,” he told my friend. After the initial shakedown for the permits, there were opaque, recurring “service fees,” not to mention that some officials expected to come by the hotel once a week for free steak and wine.
Aware that he was jeopardizing his ethics, John finally had enough, and sold the hotel. He believes, and I agree, that the Chinese bureaucrats saw nothing wrong with their behavior. Before the dramatic recent anti- corruption crackdown, the long-standing mentality was that this is the way business is done.
Corruption is also endemic throughout Indian business and government, though it has a different character. I discovered just how blatant it can be when I traveled to India as an official for the U. S. St ate Department in 2007.
* “John” has authorized me to use this story. To protect the individuals described here, I have changed his name and key identifying details of the place and situation.