The Puppet Masters Send a Message – Again

Simon Zadek has an interesting piece over on Project Syndicate, where he notes the increasingly active role Chinese regulators are playing in curbing “excesses” in the activities of multi-nationals.


As he notes:

Hardly a day goes by without China’s government thrusting another global brand into the limelight. Last month, China’s environment ministry rejected an application from BMW Brilliance, the German carmaker’s Chinese joint venture, to expand one of its plants, citing inadequate waste-water analysis and failure to meet official pollution-reduction targets. Less than a week later, an electrical fault forced the company to recall more than 140,000 vehicles, further undermining BMW’s long-standing reputation for high production standards and sterling environmental credentials.

Similarly, Apple – a company famed for its customer-oriented approach – recently came under fire from state-backed media for offering sub-standard iPhone warranty services in China. And the British pharmaceutical giant GlaxoSmithKline, long positioned as a beacon of virtue in a sector known for its ethically dubious behavior, has been accused of bribery, tax fraud, price fixing, and improper research practices.

Zadek seems to think that is interventionist position signals the arrival of “a new age of corporate responsibility” in China. While this may be the case, I think he is more accurate when, at one point, he notes that there may be much more going on than simply trying to punish foreign (and domestic, he rightly points out) corporate wrong-doing. Zadek notes that “the timing and type of allegations against multinationals have so effectively damaged their brands that one might ask whether there is a deeper logic to the government’s actions. Exposing foreigners’ ethical failings and ruthless business practices sends the message that China must remain vigilant, while reinforcing the legitimacy of a powerful, interventionist state, including state-owned enterprises, which have come under increasing fire in recent years.”

Personally, I think this is as much, if not more, of a driver of these crackdowns than a sudden burst of concern for the well-being of the typical Chinese consumer. I have said, based on everything I have heard and seen in China personally and from executives working there, that the Chinese economy is a like a puppet show. One sees the characters move and the action progress, but one is always aware the action is controlled by those who wishes to remain unseen. Most of the time the show is predictable, but the puppet masters surprise the audience from time to time, intentionally I think, to remind you that you can enjoy the show but must remember that the puppets are not in control.

So now the puppet masters pull the strings of the regulators and suddenly crack down on what they have allowed for a decade, and probably will allow again down the road. Why? Perhaps, as Zodek suggests, as a way of reinforcing their authority and ultimate control.  Control can often generate its own logic, and having your strings pulled from time to time, is from the reactions of the multi-nationals, simply part of doing business in this market.

To be fair, this is not a phenomenon unique to China. Other countries, from the US to Brazil to (especially) France have their own puppeteers. These nations and others all share a long history of using regulatory power to “send messages” to the market and, sometimes, society as a whole. Perhaps the only real difference is that this phenomenon is somewhat more predictable in those places, which makes the sometimes (seemingly) arbitrary Chinese version more interesting.  If Zodek is correct though, and this activitiy increases as the Chinese government feels more and more need to re-assert authority in the face of an increasingly heterogenous socio-political spectrum, then what does that signal for the future, as Chinese social discourse continues to evolve to a wider, not narrower, spectrum?

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Carlos Alvarenga

Founder and CEO at KatalystNet and Adjunct Professor in the Logistics, Business and Public Policy Department at the University of Maryland’s Robert E. Smith School of Business.

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