A tale of 'connections' gone astray at a Chinese factory

"I've got connections." The Chinese Equivalent is "guanxi-hu." Without a network of "guanxi-hu" it is very difficult to get anything done in a country like China, where shortages are the rule rather than the exception. At best it speeds business. At worst it leads to favoritism and corruption.

An example of an enterprise that came to grief because of wrong "connections" has been played up by the official People's Daily in an anti-"guanxi-hu" campaign.

The campaign may curb some flagrant practices. But it is not expected to succeed until underlying shortages and malfunctions of the economy have been corrected.

Sometime last year a Shanghai knitwear supply depot somehow formed a "connection" with a chemical fiber plant in the neighboring province of Jiangsu.

As authorities reconstructed the case, a purchasing agent of the chemical fiber plant, Wu Tongfen, came to Shanghai sometime in December with her husband, Wu Jianwu, to try to sell a type of imported stretch fiber to the underwear section of the knitwear supply depot.

The two got in touch with Zhang Manying, deputy secretary of the Communist Party branch and deputy director of the underwear section, and told her this:

A 2,000-ton shipment of the stretch fiber had arrived in nearby Zhenjiang. The chemical fiber plant had bought 200 tons at 33,000 yuan (about $19,437) per ton.

Because it needed funds, the chemical fiber plant was willing to sell 50 of the 200 tons it had bought to the knitwear depot, the Wus said. Miss Zhang and others in the depot's underwear section believed the Wus' story and signed an agreement to buy 50 tons. But the contract was not wrapped up that day.

The next day around 3 o'clock, Mr. Wu telephoned the depot to say that he could make immediate delivery on 20 tons of the 54 tons contracted for.

But the purchase price, $660,000 yuan (about $388,000), for the 20 tons would have to be paid by 7 that evening.

The call caused a commotion at the depot. Some argued the fiber should be bought immediately. One can imagine the lure of being able to buy "imported" fiber without going through complicated import procedures. Depot officials could hope to reap a handsome profit on the underwear woven from this fiber

The accounting department, however, urged caution and no payments until completion of regular procedures.

Zhao Meinian, deputy manager of the depot, finally decided to authorize immediate payment. Thus, without anyone's having seen the goods, having signed a formal contract, or having investigated the creditworthiness of the supplier, the 660,000 yuan was cabled to the account of the chemical fiber plant.

The 7 o'clock deadline came and went, but the chemical fiber plant did not send the bill of lading it had promised in exchange for the cabled funds. Instead, a receipt for the funds arrived, addressed to Miss Zhang, with an explanation that the goods would arrive in Shanghai Jan. 8.

Miss Zhang said nothing to her superiors. Two days later, Mr. Zhao, the deputy manager, found out what had happened and asked Miss Zhang to send someone to the chemical fiber plant to urge quick delivery. This person returned with a bill of lading from another company, addressed to the chemical fiber plant, for 20 tons of fiber.

When Jan. 13 came with no sign of the goods, the depot's party committee investigated.

It turned out that the 20 tons of fiber had never existed. Swindlers had made up a bill of lading for the 20 tons, and the chemical fiber plant had purchased the bill of lading and passed it on to the hapless Shanghai depot for a handsome profit.

The swindlers were arrested, People's Daily said. Mr. Zhao was officially reprimanded while Miss Zhang lost both her party and underwear sections posts.The depot recovered its 660,000 yuan in May, minus a fine of 7,000 yuan, in addition to which it incurred interest charges of 19,126 yuan and travel expenses of 800 yuan.

The article does not say who the individuals involved were, nor how the connection was formed.

In the wake of the affair, the depot's party committee has adopted an eight-point set of rules stipulating that raw materials and finished goods are not to be used for personal profit and that employees are not to receive gifts or accept entertainment; nor are they to grab for personal profit goods belonging to the depot. The purpose, it is said, is to draw a lesson from the affair and improve the atmosphere within the party.

What the article does not say, but what readers instantly imagine, is the kind of connections that made possible so seemingly incredible a story. Regulations and accounting procedures exist, in China as in other countries, but apparently the word of a deputy manager is sufficient to set these rules aside. Presumably if all had worked out well, nothing more would have been said.