Held Hostage: Entrepreneurs Uneasy Over Chinese Government Inaction
Late last month, workers in a medical supply factory outside Bejing heard rumors of an impending plant closure. In the U.S. this might have resulted in heated whispering among employees, formal demands for severance, and strongly worded memos advanced through proper channels. The Chinese workers took a more direct and disturbing approach: they barricaded the building’s exits and took the company president hostage.
American entrepreneur Chip Starnes was held prisoner for nine days by employees of his medical supply company. During his captivity, he occasionally appeared at his office window, wearing the same clothes and looking increasingly wan. Some reports indicate workers used bright lights and loud noises to prevent him from sleeping, and that he may have signed contracts under duress.
Had this incident occurred in the United States, police would have arrested the perpetrators of such an act and charged them with kidnapping, unlawful imprisonment, or some similar offense. In China, however, authorities declined to get involved in what they said was a private dispute. Dan Harris of the Harris Bricken law firm, reports on his ChinaLawBlog that such hostage-taking to resolve disputes is relatively common, and police are not only unhelpful but sometimes actively assist the kidnappers.
This latest in a series of reported (and unreported) incidents has American entrepreneurs and businesspeople reconsidering the wisdom of doing business in China. Without strong assurances that their legal rights – and their personal safety – will be protected by the rule of law and afforded due process through judicial channels, many will hesitate to divert scarce resources into such a volatile situation. Far too often in the “wild east,” contracts cannot be enforced by courts, employee ethics and actions are not subject to legal controls, and authorities will not intervene even to keep violence from guiding negotiations. The Chinese government seems eager for foreign investment and economic development, but not to enforce the rule of law that investors and developers expect and rely on.
While I can’t imagine what Mr. Starnes must have endured, I’ve had my own struggles with the questionable business climate in China. I started a business from scratch in China in 2006 that today employs about 100 people in well-paying white collar jobs. We are strong contributors to the economy and good corporate citizens. But we too have had ongoing struggles with employee theft and most recently a case of flagrant fraud by ex-employee attempting to divert our customers (and their investments) to a “competitor” consisting only of a copy-cat scam website.
The Chinese government provides inadequate channels to prosecute such wrongdoing, and so advances the message that such behavior is acceptable and tolerated. By failing to get involved, authorities are sending a message to entrepreneurs and investors: you’ll have to fend for yourself, and no one is in control.
Now, as entrepreneurs we are accustomed to taking calculated risks. But the lack of a basic legal, ethical and judicial framework, or any means to enforce them, is not a calculable risk. It is worth noting that such violent and destructive acts (including unlawful detainment, negotiation by mob siege, and arson) are not targeted exclusively or even primarily at foreign companies. But Western investors seem unlikely to tolerate such egregious behavior as part of cultural heritage: there are right ways and wrong ways to address grievances and resolve disputes. If Chinese workers believe their concerns will not be heard, and violence is the only option, this is only further evidence that more effective channels must be established to serve all parties. Mediation, arbitration, and litigation options for dispute resolution must be implemented and, once established, administered swiftly and impartially.
Former U.S. Treasury Secretary Timothy Geithner recently said “They [China] have made possible systematic stealing of intellectual property of American companies and have not been very aggressive to put in place the basic protections for property rights that every serious economy needs over time.” If China hopes to be a player in the global economy, they must accept the responsibilities as well as the opportunities of such a role. Without the former, foreign investors will quickly withdraw the latter.
The Chinese people have much to gain through partnership with entrepreneurs, investors and developers. The employment and advancement opportunities play a role in raising the standard of living for almost a billion citizens still living below the poverty line. Only through appropriate protection of those partners, though, can the Chinese government bring the benefits of investment to its people. Expecting them to operate in a “wild east” environment will result in flight to more favorable locales, stifling and slowing investments in uncertain times.