Permission to cause cancer - the WTO column

(today at Chinabiz)

On popular demand I will address today the position British American Tobacco has maneuvered itself in. At the very busy and pleasant mixer of the American Chamber of Commerce on Wednesday I could investigate among the Chinabiz readers what news had amused them most in the past week and BAT’s dealing with the permission they got, did not got and then got again to build the first foreign-invested cigarette factory in China won with a high margin.

The official line of the central government is that it wants to bring back the red tape. This culture, marked by the red chops, has stopped many at least potentially profitable activities in their tracks. Getting permission was a major thing in the past and still is, at the builders of major infrastructure projects in Shanghai found out the hard way. It is the main reason the Chinese bureaucracy exists.
My first encounter with the Chinese attitude towards the red chops was at the university where I stayed and where I wanted to interview some people. “We need permission to do that,” said my temporary assistant, a diligent student who is by now a Fudan professor. Who should give us permission, I wondered. “As long as we have permission, it does not matter whom gives permission,” was the answer.

I was at the time of course confused about this permission thing, as confused as the chairman of British American Tobacco (BAT) who first told his investors last week the company had permission to open a factory producing annually 100 billion cigarettes in a country where tobacco was at least technically a monopoly. Of course the shares went up.
China is the only tobacco-friendly country in the world where it would at least allow tobacco adds on the F1-racing cars – not on the circuit, as a compromise between the Chinese anti-smoking lobby and the sections of the government that earn a lot of money in causing cancer among their compatriots. No wonder that BAT, on the retreat in most of the rest of the world, is eager to set up shop in China.
Then the China Tobacco, the official holder of the monopoly in China, said it had not given anybody permission. Then BAT chairman Jan du Plessis tried to limit the damage and said they had high-level permission. It is not going to help him.
“Who is the idiot who dunnit,” was the key question according to my audience at the Amcham mixer. BAT is very well connected in China. One of their managers even married the famous film actress Gong Li: now, how much better can you get connected in China? So why did they repeat the lessons everybody learned from the failure of the Singaporean park ten year ago in Suzhou?
Then president Jiang Zemin himself gave green light for an industrial park that should show China how the Singaporean model would work in their country. The conclusion is by now even shared by Singaporeans: it did not work. What was forgotten was to secure the support of the local authorities, who had much more interest in promoting their own industrial park in stead of the Singaporean one. China is not a top-down command society where the top has absolute control over the country, as the classic models of the communist way of organizing suggest.

BAT did not want to disclose who actually gave the permission, only that is was very high up in the hierarchy. It is not going to help them and the question is why well-versed managers, who exactly know how China works, could not tell their bosses back home they were making a stupid mistake.
BAT might now be sitting in the backseat, while competitors can make advantage of the mistakes BAT made. Some people never learn.

Fons Tuinstra