China Business

Protection Money and Your China Business

Chinese mafia

“I won’t pay. I know too much about extortion.”
Tony Soprano, Season 3, Episode 7,

One of the “interesting” things about representing companies in emerging markets is having to deal with organized crime play. The Associated Press, in a story entitled, China readies for crackdown on organized crime, recently wrote how the Chinese government is cracking down on organized crime in China.

There is one country in which my firm does a substantial amount of business where we were told multiple times that we would need to make monthly payments for our “own protection.” Thanks to the intersession of a local friend, the party seeking to “protect us” realized we were not a proper party for the proposed “business” relationship.

None of our clients have ever told us of having to pay such money in China and I have never asked.

I am asking now, though. Have any of you had to pay “protection” money in mainland China and, if so, in what city or cities? Do you have on good authority that others have had to make such payments? Were they domestic or foreign companies.

My sense with China has always been that the government in Beijing does not want to see this with foreign companies and has made this fact clear so as to generally prevent it.

But we would love to hear from our readers on this. What are you seeing/hearing on this?

10 responses to “Protection Money and Your China Business”

  1. Dan, I think you need to widen the scope of this post, a bit. I know of several foreign companies in the food and beverage business who make direct payments to their local (district) police departments for “security.” The way this works is as follows: when they first open, the police stop by the restaurant once per hour, walking through the dining room and – generally – unnerving the foreign customers. This necessitates a meeting, during which the police ask for a security fee that allows them to provide far more professional security services. Meaning, they won’t walk through your dining room on an hourly basis, anymore. Experienced restaurant owners know that they should arrange the security payments BEFORE the opening. Cost of doing business, and I suspect that it’s repeated in other kinds of businesses, as well.

  2. I’ve known more than a few guys who’ve played the red-envelope game, and all I can say is that they’re only fooling themselves. They are not Chinese. They have no Chinese family. They have no ‘guanxi’ (a term which I hate). They are just seen as cash cows that are begging to be milked. They’re being taken for a ride by low-level bureaucrats. It’s a slippery slope, and once you start on it, you get pulled down that slope.
    For whatever infraction you think you have bribed your way out, your bribe money will not last you past the Chinese New Year (or past the quarter). I have watched a lot of these jokers come and go. Don’t fall into this trap.

  3. Dan, I misread your post topic as being about bribery generally. Funny that. I read “organized crime” and immediately thought you were talking about provincial and local Chinese government.
    I’ve always felt that organized crime in China was something of a regulated industry. A symbiotic relationship between the police and organized criminal enterprises, even. As long as there’s no open violent crime, and no one is being selfish, the police just keep tabs on things and keep things within bounds.
    The article mentions the recent rise in crime since the economy started slowing down. My impression is that this is mostly thugs on the street, not organized crime. Mugging and pickpocket gangs, home burglarly, that sort of thing. These aren’t people that the police have a relationship with. They’re too transient.
    But to get back to your question, I agree with your sense of things. I’ve never been approached by people from the organized gangs, and rarely even see them. We foreigners definitely fall within the firm and exclusive purview of the police, and the organized gangs certainly seem to read that message loud and clear.

  4. @ Dan,
    Your firm is being shaken down based on empty threats, only those with local operations (such as f&b, local consultants, etc) in which they are present need to worry about protection money. You are the type of business that flies in an out. Only real power players would even have the resources, connections and gall to go after such a crowd and if well dressed gentlemen are approaching you in and around 5 star hotels and eateries, there is something much darker afoot and it would be in yours and your clients’ best interests to have the contact info of your new security unit available so you can let them know when you are in town to arrange discounted payment options and to prevent other organizations from shaking you down.

  5. The government in China doesn’t want organized crime running protection rackets because it wants to maintain its monopoly in this area. I know too many business people, foreign and local, who have found themselves offered “protection” from one or other bureaucracy as soon as their businesses start doing well. Of course, it’s all “above board” in the sense that if they refuse to pay they start finding themselves getting fined for various infractions of the law that end up costing more than the protection fees would have cost. It happens in Beijing and Shanghai, though probably less often and less obviously than in the Wild West of the country.

  6. A Chinese friend of mine who is a landlord in Shenzhen had someone try to shake her down for money, but the person doing the shaking down turned out to be be a no-connections low-life – but I do see this as a straw in the wind, Shenzhen being China’s roughest and most quickly growing city. Otherwise, well, Taiwanese ‘businessmen’ have brought some of their practices with them from Taiwan – but I’ve never heard of this affecting the locals. Just like everyone else, the only time I’ve heard a credible story of westerners or mainland Chinese being leaned on for money in China it is the police or government that have been doing the leaning.
    HK has a rep for organised crime, but the people I know there say that it is rare to be asked for protection money. Taiwan is pretty bad for it though – as much as I disagree with the image of Taiwan that is portrayed in mainland China of an island mired in corruption and organised crime, many of the Taiwanese business folk that I know have been shaken down for money. One dance-hall owner I know (yeah, it was actually a proper ballroom style dance hall) refused to pay and a few nights later someone came to his place with a gun firing shots into the ceiling. Suffice it to say that he went out of business after that.

  7. Corruption is a problem in China but in general it is very safe for non-Chinese in terms of organized crime. Of course, arguments could be made that the shadier elements of some local governments are akin to crime syndicates but that probably requires a sociological study on its own.
    In comparison, kidnapping of foreigners (or anyone who is perceived to have money) is common place in Mexico. Also, it is known that organized crime is a huge problem in Russia. Funnily, the Chinese have also used Russia as an example of why they do not want to go down the route of mafia democracy and prefer a slower pace of political development.

  8. No direct shakedowns in China, but two interesting moments:
    There were two major private security firms in town (why two? WTO entry meant competition) both owned by the local police brass. If you hired a small start-up firm it was well known that the cops would not show up if called.
    My factory builder stopped materials theft from the site by hiring the local mafia head to sit in front of the site in a lawn chair for an hour a day. Amazing how well that worked.
    Keep in mind that we were in Fuzhou. It’s the organized crime capital of China.

  9. I’ve been Chief Rep of Representative Offices and Legal Rep for our WOFE for close to 10 years. Never had any approach from either Govt officials for bribes or orgnised crime for protection money. We pay taxes, all legally required social insurances for local staff, we try to manage HR properly and avoid disputes with ex-staff etc. Key lesson here is to get proper advice, employ professionals in whatever field you are in, pay both corporate and income taxes and do business in a legitimate way. Good external advice from legal firms and accountants is crucial.
    China can be remarkably business friendly when you abide by the book!

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