China, Face and the Impact of SARS on Foreign Direct Investment

 

by William R. Dodson

 

7 May 2003

Face – mianzi – is the single greatest reason for the Chinese government’s reluctance to share its SARS infection rates and patient access with the rest of the world. Face is the identity with which one associates oneself and which one projects to the world around him; the one by which he wants others to recognize him. In Chinese culture, without Face, one has no relationship with those one wants to impress most.

 

The international business community should learn from this episode in China’s history that the root cause of the fear and uncertainty in China surrounding SARS has their roots in the Chinese predilection for maintaining Face at all costs; even if the final tally is death itself.

 

Economists have projected the Chinese economy will decline in Foreign Direct Investment (FDI) and GDP this year as a direct result of the spread of SARS throughout the country. China watchers expect the GDP to lose as much as a percentage point on its typical seven to eight percent per year growth rate. Foreign companies have cancelled business trips and withdrawn their foreign expats and their families from the region. Concerns about contamination have also seen the indefinite postponement of conferences and exhibits. Everywhere in the world at this writing, countries have declared a containment of the radius of infection and a reduction in the number of cases of SARS. Everywhere, that is, except China.

 

The single greatest reason for the divestment of appetite in Chinese business affairs vis a vis SARS is the uncertainty surrounding the contagion. Has the spread been contained? Is the rate of infection decreasing? Has patient-zero in each of the Chinese cities been caught and quarantined, the individuals with whom she came in contact identified and hospitalized? The lack of answers to the questions and the changing answers that the government does deliver do not adequately meet the responsibility the PRC has to the world for transparency of information.

 

Of course, as in any government, those in the highest positions require Face to move along their agendas, ensure their legacies for the future are secure and reflected upon in a positive light. It was inevitable then that with the outbreak of SARS occurring in Guangdong province at precisely the same time as the 54^th National Congress of the Peoples Republic of China the news of a highly contagious infection would not have been released. November 2002 was one of the most important transitions in government since Deng Xiaoping anointed Zhang Zemin the leader of China. In November, it was the announcement of Hu Jintao and the new Standing Committee of the PRC that overshadowed the perceived risks of the contagion spreading. November 2002 also marked Zhang Zemin’s attempt at accession to the same pedestal upon which stand the statues of Mao Zedong and Deng Xiaoping.

 

Certainly there was an economic impetus as well to covering up the existence of a fast-spreading disease that originated in one’s own country. Spring Festival – or Chinese New Year – is the biggest holiday of the year. The two-week long holiday sees the largest migration of human beings on the planet. Chinese travel to their home towns and villages to be with their families, no matter where they might be working. The PRC banks on the revenue consumers generate during this furious time of travel, gift-giving and meal-taking. To have declared a public health emergency just before the Festival might have caused the GDP to dip even sooner, more deeply. Chinese travelers would simply have stayed home, literally.

 

By March 2003 the virus had struck its first victims in Beijing. Still, the world had not heard the news of an airborne disease that was as highly contagious as the ebola virus. The People’s Congress once again needed to project the image that all in China was well, politically, socially and economically. Hu Jintao and his coterie were officially taking their positions as the new stewards of the world’s most populace country. It was a time during which the outgoing leaders defined their legacies lest the world forget; and the incoming officials announced their agendas. Everything had to be perfect.

 

Of course, it wasn’t, and less than two weeks later SARS had broken out of China to severely affect Hong Kong. The disease spread to Canada, Europe and Southeast Asia. Now, SARS could keep Singapore and Hong Kong’s economies in recession, and drive companies in the travel and tourism industries into bankruptcy.

 

When the SARS threat diminishes and the uncertainty enshrouding the virus subsides, one lesson foreign enterprises should take away as they pursue their Chinese joint venture targets and business negotiations is that Chinese businessmen will sometimes use Face to hide the true facts of their businesses and to mis-represent the true conditions of their activities. Cutting through the artifice of Face too late in the development process could be as deadly to your company’s efforts as SARS has been for the Chinese economy.

 

When structuring those deals in China, then, take nothing at Face value.

 

William R. Dodson is Managing Director of Silk Road Advisors, L.L.C., a market research and business development consultancy that advises companies on how to enter and succeed in international markets. He is the contributing editor on international business to the American Management Association’s (AMA) MWorld Journal of Management, and writes the column “The Cultured Business”, found at www.silkrc.com and at the Global Perspectives section of the AMA’s member website. He can be reached at sradvisors@gmail.com or +1 (847)630-1271.