Open but not yet free

Editor’s note: Gary Lim is principal of Gary Lim Consultancy, a Singapore-based research firm.

For many companies and organizations in the world, China is probably the hottest topic when discussing the world economy and business. Almost every company, big and small, will invariably have the need to consider China in its equation and its impact on their business.

China is both an opportunity and a threat to many companies. Since its economic reform and the opening of the economy in the 1980s, many companies have entered the Chinese market. From anecdotes, it seems that failures far outnumber successes. Some of the failures are spectacular ones. There are many barriers of doing business in China, including lack of clear rules and regulations, poor intellectual property protection, cultural barriers, lack of respect for legal documents and agreements, a weak and biased judicial system, an antiquated business infrastructure, political uncertainty, corruption, and lastly, lack of understanding of the role of market research in the economy.

It must be remembered that China is still a communist state. The ruling party is the Communist Party of China. Under the communist system, all economic and industrial data are considered state property and state secrets. Possession of such data is considered a criminal offense. This includes basic business data like the amount of steel production, shipping tonnage, number of coal mines, etc., in China.

Deng Xiaoping officially announced economic reform in China in 1978, starting in the agricultural sector. The momentum for the economic reform picked up in the late 1980s. However, it was derailed by the June 1989 Tiananmen incident when the government brutally clamped down on pro-democracy movement. An economic boycott by the West resulted in a temporary halt to the reform program. The respite lasted a couple of years, and the reform program resumed in the early 1990s. The economic boom since then has continued unabated, averaging 9 percent growth per year since.

Groping in the dark

Companies doing business in China have been groping in the dark regarding market statistics. There are no reliable statistics and data that one can confidently work on. Most companies operate on the assumption that the numbers and markets are huge, but the exact size and shape is difficult to grasp. For example, there are doubts about the most basic of economic data, the population. The China Statistical Yearbook 2000 lists the population as 1,259,100,000. How accurate is this official statistic? To control the population explosion, China has a one-child policy. Violation of this policy is a crime. Due to a natural Chinese bias towards having boys, families may not stop at one if the first child happens to be a girl. This is especially true in the rural areas, which has more than three-quarters of the population. Officially, it may be reported as one child, but the fact is that there may be more than one. Besides population, the government publishes other demographic and economic statistics regularly. Dubious official figures have been blamed for widespread miscalculation of the market size, with the resultant misallocation of company resources needed to compete domestically.

As the economy opened up, the need for accurate and reliable statistics and market research activities became apparent. Market research companies and their activities started to sprout. Like every activity in the communist regime, the government wanted to control it. However, the bureaucrats have absolutely no idea of the scope of the market research activities and the important role it plays in the market economy. Under pressure from the business community and the demands of the economy, the government finally enacted some rules. One of the efforts passed in August 1999 was the “Provisional Measures on the Management of Foreign-Related Social Survey Activities.”

Among the clauses, it forbade companies from doing research by asking questions that duplicated statistical surveys conducted by the government. In practical terms, it meant that key statistical information on income, which is essential for companies trying to ascertain pricing structures or production targets in a region, would be unavailable or unreliable at best. It stated that all foreign market research firms, except those in which a domestic partner holds a majority stake, must register with the Bureau of Statistics and present the following:

  • a copy of the contract with the client, plus the cost;
  • a written statement outlining research goals;
  • a copy of the questionnaires (at least 24 days before research starts);
  • details of the geographic scope of the research;
  • details of the groups targeted for research;
  • final survey results.

This draconian law seems to sound a death knell to market research firms hoping to work in China. Bureaucrats now have to approve the whole scope of the market research activity, including the final survey results before they are released to clients.

It seems that this law was proposed at the insistence of the anti-reformists and the departments in charge of security. Their hand was strengthened by two events that made the government very jittery. One was the emergence of the apparently harmless social and exercise group known as Falun Gong. The group had grown beyond teaching breathing and meditation exercises and seemed to have a social, religious and political agenda. The second event was the trend towards independence in Taiwan. Intelligence activities under the guise of market research were conducted on behalf of the Taiwanese groups favoring independence.

The government’s overriding concern was that sensitive information about government activities could be obtained to hurt the state. This information could include military information, technology for military applications, human rights abuses, pro-democracy movements, anti-social activities, intelligence regarding Taiwan and Tibet, and information deemed to embarrass the government. The last part includes the level of corruption in government, nepotism by party and government officials, government performance, popularity of government officials and ministers, the amount of non-performing loans by the state-owned firms, and business activities of the People’s Liberation Army.

There were two main concerns of market research firms. The first is the turnaround time, as the bureau is expected to be swarmed with work and would take a long time to process the projects. In practice, the turnaround time is quite fast. Most projects are approved with just a cursory glance. The second concern, the more important one, is confidentiality. It violates one of the key ethical issues of market research that results only be revealed to the client. Information could be leaked out of the back door to help bolster lagging domestic firms, fueling both the competition and a black market rampant with counterfeit and pirated merchandise. While the bureau has given assurance this would not happen, there is no guarantee.

As with all other business activities in China, the bigger market research firms tend to comply with the letters of the law. Smaller firms do sometimes take the risk of conducting their projects without the bureau’s approval.

While strictly commercial market research is fairly safe, the problematic area is in opinion and social research. Projects of this nature are in the grey area, and could be interpreted as research in the sensitive areas of government domain. Objectives, questionnaires and other scope-of-work issues will be vetted closely by the bureau to ensure compliance with the letters of the law. Of course, there is a high degree of subjectivity in the interpretation, and the interpretation and approval will depend on the particular officials in charge. The law can therefore be selectively applied to penalize those firms deemed to be not in the good graces of the bureau and the government.

In practice, many international market research firms apply self-censorship to avoid bureaucratic delays. Many have also reduced the geographic scope of their studies, to avoid seeking permission from each province they conduct research in.

Buck the tendency

There are two trends that will buck the tendency of the government to control market research activities. The first is the Internet, which has become a new vehicle for social studies that the government cannot control. There are several Web sites where anyone can register his or her opinion on a range of social and political issues. The second trend is the government’s continuing need for foreign investment to fuel the economy. Restricting market research activities will not be well received by the international business community.

While the government does provide basic statistics like economic and demographic data, they are insufficient for companies operating in the country. Some foreign firms do have in-house market research capability, but most rely on the big market research firms to satisfy their needs. These firms offer full-service capability, including in-depth consumer analysis and tracking studies. These big market research firms include AC Nielsen, Synovate, Millward Brown, Taylor Nelson Sofres, Gallup, Research International, and MBL. Many local market research firms have sprung up in recent years. However, they do not have the breadth and depth of the international market research firms.

Many conquests

China’s history has been peppered with many conquests of its territories by foreigners. These foreigners include Westerners such as the British, French, Spanish, Portuguese, Dutch, German, Italian, American as well as the Japanese. China’s memory of its ignominious exploitation at the hands of foreign nations is long, deep and bitter. Anti-reform forces are very strong in China to counter the opening up of the China economy to the world.

Market research has come a long way since the days of strict communist authoritarian rule. While it is still ruled by the Communist Party, the economy has been running with a strong dose of socialism and capitalism. One of the significant events of the past few years is the fact that China joined World Trade Organization on December 11, 2001. It will have to comply with international modes of operation in economic and business activities, including market research. But it will be some time before China can reach the level of sophistication to enable market research to operate as freely as that in developed countries in North America and the European Union.