As a firm fulfills its basic economic responsibilities, it must simultaneously

11.9 How competition changes in a global economy: the role of CSR

In order to explain the importance of the role of corporate social responsibility in the current economic context, we will start from the perfect competition model in a closed economy. In Fig. 11.5, as usual we draw a company's average and marginal cost curves and identify the long-run equilibrium points. We also assume, as we expect should happen, that companies will respect the rules in force in their own countries and that their cost curves include the necessary costs to ensure the protection, security, and dignity of labor and to respect environmental regulations.

In the short run the price is equal to the marginal cost, but it is greater than the average total cost, so the company makes a profit. Over the long run, as new companies attracted by opportunities to make a profit enter the market, the overall supply increases (the supply curve shifts to the right), so if demand remains the same the equilibrium price falls. The new equilibrium point is where the price is equal to the minimum average total cost and companies’ profits become zero (case A at price P).

A basic assumption underlying the entire model of perfect competition and its virtuosity is that companies all have the same cost curves. In a context in which information can circulate freely, the knowledge of production techniques should be a common asset, and companies should progressively take on similar characteristics. Setting aside trying to deal with all the possible violations of perfect competition that can impede its successful operation, such as externalities, public goods, information asymmetry, non-homogeneous products, entry barriers, and so on, we assume that the only deviation from the standard model is that companies initially operate in a closed economy and that the economy successively integrates with other countries’ economies, allowing a producer to delocalize production to areas where there are lower environmental and labor protection standards. We also assume that companies will adopt such practices when moving operations to a country without a framework of rules that can ensure a minimally acceptable level of protection, even by the social standards of that country (case B) (Table 11.1).

Table 11.1. Effects of some variables on the average wage of workers in cooperative enterprises.

ICSI Data Bank Number of observations: 4,134. The question used to build the intrinsic motivation indicator. Do you consider that your relationship with the Cooperative is: (i) a purely contractual relationship (strictly an exchange of labor for wages); (ii) a contribution to reach the goals of the cooperative; (iii) a mix of labor and personal growth; (iv) a group of relationships that goes beyond being purely work-related; (v) a common social engagement for you and the cooperative.

From a graphic point of view, this implies that the effect of delocalization modifies the cost curve structure of this new type of company, and more specifically, that it shifts the cost curve downward compared to domestic production conditions. Companies that delocalize earn short-run profits and attain a long-run price (P′). It is equally evident that the price P′ is less than the minimum average cost of the traditional company that does not outsource (Fig. 11.5), thus the latter is not able to survive in the market if it maintains its existing cost structure.

In order to not be forced to close down, traditional companies can also delocalize production or reduce their labor and environmental protections in their home country so they can compete with the new foreign competition. To achieve this goal, some companies will try to save all possible costs in both areas, for example by reducing the number of employees or making their work conditions less stable and more flexible, or even by breaking the law. As we previously mentioned, it seems clear that the gap in social conditions and labor protections between the citizens in the previously closed economy and the country where the company delocalizes is at the root of the problem of the “race to the bottom” effect, and so the latter moving out of poverty becomes a threat to the well-being of the former.

Suppose at this point that a new entrepreneur who is more attentive to social responsibility decides to start a new company in the country where production was delocalized. Unlike the first company that delocalized its production there, the new entrepreneur decides to raise the local social and environmental standards by making a real investment in opportunities to include local workers. The consequences are that its cost curves will not only be higher than that of the local outsourced company, but also higher than the rest who operate on the traditional market (Fig. 11.6). According to traditional economic rules, the new company's fate would be sealed. With the same quality, and with a higher price required to break even compared to the delocalized company or even the companies who decided to continue operations within the country, the new entrepreneur would not find anyone willing to buy its product. This is what happens unless it can use the social and environmental value of its initiative as a means of differentiating itself.

By following this path and advertising the social initiatives taken or obtaining a socio-environmental certification, the entrepreneur can leverage a segment of consumers with social preferences who are willing to pay a higher price – in this case the difference between its and the outsourced company's products – for its product's greater social and environmental responsibility. The sale price of her product will in any case be higher than the traditional non-delocalized company's, but despite that the company will remain in the market due to the upward shift in demand for its specific socially sustainable product.

A social entrepreneur can thus survive in the market with an apparently paradoxical strategy, which drives its competitors to operate along the same lines. Indeed, to the extent there is a possibility of leveraging this particular demand component, which emerged thanks to the socially responsible entrepreneur's actions, competitors put imitative strategies in place to capture this market by increasing their social responsibility. At the same time, workers in the country where production was delocalized have greater bargaining power in order to improve their working conditions.

4.9 Perceived Benefits of CSR/CS—Company Image and Financial Performance

CSR helps with the public relations management of a firm. In a survey on CSR accountability and transparency of corporate communication/public relations executives in China, four topical areas were investigated: drivers for CSR engagement, areas of practice, importance of CSR communication, and preferred channels of communication. It was found there was a strong concern for corporate image and culture in pursuing CSR. Among the society’s many problems, disaster relief was given an overwhelming priority, perhaps to earn goodwill with the government. The Chinese firms did most of the CSR communication on their website and Internet media (Wang & Chaudhri, 2009).

CSR activities are often considered as cost to a company and there is not a clear-cut financial payoff. Based on a study of 30 domestically listed Chinese Petroleum enterprises, it was found that the CSR increased their enterprise value in both the short term and long term. CSR investment of the petroleum enterprise had positive correlation with equity return, profit margin and growth rate of major business, and liquidity ratio. It had negative correlation with debt-to-asset ratio and no relationship with enterprises ownership (Xiantao, Wang, & Jian, 2014).

Many multinationals operate their subsidiaries in China. Although CSR is still new to China, being socially responsible nevertheless brings financial benefits. To achieve sustainability with a stakeholder-based CSR assessment, foreign invested enterprises need to improve on awareness and communication between different stakeholders (Shengtian, Fu, & Li, 2010). The MNC’s CSR practices can influence the firm’s performance in the host country at the subsidiary level. Their global and local CSR strategies must adjust based on local cultures and economic levels. It was found that the MNCs’ CSR performance influences the performance of the subsidiary in China and there are moderating effects of institutional and geographic distances. The subsidiaries’ CSR is associated positively with their profit in China. The greater the cultural, economic and geographic distances between the home countries and China, the less likely a subsidiary will benefit from CSR (Zou & Zhao, 2015).

19.1 Introduction

Corporate social responsibility (CSR) has been characterized as a crucial element of the social contract between business and society. However, despite decades of research, the purpose of this contract is the subject of debate. Two opposing views have been posited by analysts—the altruistic view and the strategic view. The altruistic view of CSR contends that firms are willing to give up profits for the sake of social interest (Elahuge, 2005). The alternate strategic view maintains that firms engage in profit maximizing CSR (Baron, 2001; McWilliams and Siegel, 2001) and that companies “do well by doing good.” At present there is no consensus and both views prevail.

A significant stream of research on CSR examines the association between CSR and financial performance with mixed results. If the strategic view of CSR holds, then it would appear that there would be a positive relationship between CSR and financial performance. An alternate approach has emerged to distinguish between the two views of CSR which entails examining the impact of product market competition on CSR. Consistent with the strategic view of CSR, Fernandez-Kranz and Santalo (2010) find strong evidence that firms operating in more competitive industries are more socially responsible. Utilizing a quasi-natural experiment, Flammer (2014) finds that US domestic companies respond to import tariff reduction by increasing their CSR engagement to maintain their competitiveness. Using a dynamic simulation exercise, Hawn and Kang (2013) show that product market competition reduces CSR engagement in the US. This mixed evidence serves as a motivation for further work especially in a cross-country setting.

We contribute to the literature on CSR-Competition link in three ways. First, while prior work has predominantly concentrated on the US market, our paper extends the research to a cross-country setting. Our second contribution is to use a data set other than that of the Kinder, Lydenberg, and Domini Research and Analytics database (KLD). While KLD data set is used extensively by CSR researchers, Chatterji et al. (2009) point out that KLD is not optimally aggregating historical data resulting in lower predictive power of future emissions and penalties compared to simpler alternatives. Finally, we use more recent data, increasing the relevance of our research.

Our empirical results which are based on a comprehensive cross-country sample covering 69 countries support the altruistic view of CSR since there is a negative relationship between industry level competition and CSR. Our results are robust to alternate measures of competition. These findings are different from the conclusions based on the US studies, therefore our research highlights the importance of country context while examining the role of competition on CSR.

The rest of this chapter is organized as follows: In Section 19.2, we provide a brief review of the literature. In Section 19.3, we describe the data used and the methodology employed in our empirical tests. In Section 19.4, we present our empirical results. Finally in Section 19.5, we discuss our findings and offer our concluding remarks.

1.2.4 Corporate social responsibility

Corporate Social Responsibility (CSR) is another term which, like corporate governance, can mean many things to many people. In many ways it is not a new concept – its roots may be found in the activities of those socially enlightened Victorian industrialists who provided their factory employees with a range of non-pay benefits such as:

acceptable housing;

educational opportunities; and

in some cases, the chance to enjoy other aspects of culture and self-improvement.

A simple definition might be ‘the idea of social responsibility (in a range of forms), as exercised by corporate enterprises’.

A fuller description can be found at the website of the UK Government:

www.csr.gov.uk/whatiscsr.shtml

This states: ‘The Government sees CSR as the business contribution to our sustainable development goals. Essentially it is about how business takes account of its economic, social and environmental impacts in the way it operates – maximising the benefits and minimising the downsides. Specifically, we see CSR as the voluntary actions that business can take, over and above compliance with minimum legal requirements, to address both its own competitive interests and the interests of wider society… CSR is essentially about companies moving beyond a base of legal compliance to integrating socially responsible behaviour into their core values, in recognition of the sound business benefits in doing so.’

CSR is an increasing consideration within the wider world of corporate governance, as it continues to move from being an essentially voluntary, aspirational set of principles to being embedded in certain non-voluntary codes and statutes. For this reason you will come across frequent references to the concept in this book.

Why would a company choose to embrace CSR principles, with all the additional effort and cost this involves, especially in the straightened times in which we find ourselves? There are a number of key drivers:

External demand: The past decade has seen increasing calls for CSR adoption on the part of shareholders, government, various public interest groupings and other stakeholders – as a result of which many business have chosen to respond proactively.

Internal/commercial drivers: Various studies have indicated that businesses incorporating CSR into their governance frameworks can better:

Manage certain of their risks;

Improve their competitive standing, by gaining and retaining customers and enhancing the business's value;

Avoid various types of controversy or reputational risk;

Consequently, over the long haul, enhance their brand's reputation;

Encourage employee recruitment, retention and performance; and

Foster a corporate culture and value set which can help to distinguish and promote their brands' evolution.

Websites

Corporate Social Responsibility Index: www.reputationinstitute.com

Financial Accounting Standards Board: www.fasb.org

International Accounting Standards Board: www.iasc.org

American Institute of Certified Public Accountants: www.aicpa

Current deal-related stories: www.nytimes.com/pages/business/dealbook/index.html

Current deal-related stories: www.reuters.com/finance/deals/mergers

M&A deal terms: www.bvresources.com/products/factset-mergerstat

Businesses for sale: www.bizbuysell.com

Financial data: www.capitaliq.com

Securities and Exchange Commission company filings: www.edgar-online.com

Financial data: www.factset.com

Industry and company financial data: http://finance.yahoo.com

Company reports: www.hoovers.com

Legal, news and business documents: www.lexisnexis.com

Social network for business professionals: https://dealstream.com

Information on security regulations and enforcement actions: www.sec.gov

Information on antitrust laws and premerger review: www.ftc.gov

Recent corporate press releases: http://www.businesswire.com/portal/site/home/my-business-wire

Current M&A trends and developments: https://www.pwc.com/us/en/washington-national-tax/newsletters/mergers-and-acquisitions.html

Abstract

Engendering corporate responsibility as a technical executive should be a conscious choice. There is an evolution from the more specific to the more general; communication both internally and externally is more constrained, and requires a level of consistency that may be quite new, and the managerial responsibility and leadership necessary often will transcend any usual business hours. Nonetheless, this can be a very fulfilling opportunity, particularly seeing the success of the organization and those within it achieving both the collective objectives personally and professionally. There is an emphasis on ensuring that the human resources in the company are both adequate and advancing, and that attention is focused on issues you can have a positive influence on (since you almost surely will not be able to be involved in all of them!). Finally, having to interface with a board (whether trustees or directors) may be a new experience; having several advisors within the industry but not affiliated with the company can be invaluable to provide advice with this group of overseers.

Toms

When corporate responsibility is a fundamental value of your organization, it is reflected in all of your communication, including your hashtags. The shoe company Toms has eschewed traditional advertising in favor of socially promoting the causes that they support. This is best demonstrated by the user generated #withoutshoes social media campaign which resulted in 27,435 children in 10 countries receiving new shoes in 2016 (Toms, 2016).

Blake Mycoskie founded the shoe company Toms in 2006 after traveling to Argentina and witnessing the challenges faced by those without shoes (Toms, n.d.). For every pair of Toms shoes purchased, they give a pair to a needy child; but they accelerate the pace of giving once a year during their annual #withoutshoes campaign. For almost 3 weeks in May, they challenged their followers on Instagram to post pictures of their bare feet with the hashtag #withoutshoes and every picture would result in one pair of shoes being donated, up to 1 million pairs (Henning, 2015).

Over the course of the 9 years that the Without Shoes campaign has taken place, the hashtag has become not only the shorthand representation of the campaign, but also shorthand for the brand itself. While Toms’ CEO has said that this campaign is not about advertising their brand, #withoutshoes has garnered tremendous support from all corners of the world and even celebrities have participated, including Charlize Theron and Christy Turlington (Shorty Awards, 2015). The #withoutshoes campaign has allowed Toms to showcase the strength of their brand in the area of corporate responsibility to a global community of activists. As Toms CEO Blake Mycoskie notes, “Toms doesn’t have any ad spend. A big portion of our spend goes on giving. But by giving, we build a community and people recommend through word of mouth and on social media” (Anderson, 2015, para. 4). This interactive social media strategy has worked well for the brand, with the company having a reported worth of 625 million dollars (Anderson, 2015).

1.3 Aims and Structure

The aim of this book is to examine the development and transformation of the Chinese business model. The impact of the financial crisis on countries and China will help the reader to understand its evolution toward a form of market capitalism. We develop three main parts as a framework: The business model of companies and how it affects the performance and the management of firms; business culture and its influence of financing policy of enterprises; finance and investment and how the financial sector could help the development of companies.

The first issue considered is structural organization and management in China. Here we address the following questions: What are the main factors that explain the spatial and economic development of China? Does governance have an impact on the performance of companies? Since the 2008 Global Financial Crisis, corporate governance developed a new dimension regarding enterprise performance. In its broader sense, governance can be understood through the different forms of decisions and control that exist inside a firm. Implicitly, such concepts aim to define how power is distributed within a firm and the decision-making process then justifies the form of corporate governance. It must take into consideration the property rights specific to the institution, which could be public or private (Brickley, Smith, & Zimmerman, 1997). To enable shareholders to fulfill this role, their participation on the General Assembly Board is essential to guarantee their monitoring role concerning managerial decisions. Moreover, each member must have reliable information about the objectives of the company. Hence, asymmetric information problems should be solved. Only in this context will good management be possible in order to achieve higher performance.

The concept of CSR is diverse and applied in China (Warner & Rowley, 2011, 2014; Yeung, Ramasamy, & Rowley, 2016). In 2006 the most recent version of China’s Company Law became effective.1 This explains the conditions under which CSR should be applied to Chinese companies (Brohier-Meuter, 2011). This states that companies “shall comply with the laws and administrative regulations, social morality, and business morality” and “shall act in good faith, accept the supervision of the government and the general public, and bear social responsibilities” and codifies the obligation of businesses to observe the basic principles of CSR and provides a legal basis for CSR in China.2

CSR (gongsi shehui zeren) is correlated to corporate sustainable development (CSD) (Romero & Lamadrid, 2014). CSD is seen as a business strategy that attempts to meet the needs of organizational stakeholders without compromising the resources and interests of the local community. CSD has been the object of much work in recent decades and researchers have adopted varying perspectives.

Even if these values are now more integrated in business management, CSR’s implementation is diverse among Chinese companies for several reasons. First, many major corporations are SOEs and controlled by the government. Nearly a quarter of corporate assets are state-owned (National Bureau of Statistics of China, 2009). Second, Chinese CSR implementation refers to a top-down planning process, which incorporates company law, with guidelines that do not have the status of law and environmental requirements for credit and listing on the stock exchange (Brohier-Meuter, 2011). Third, the integration of company’s inherent social responsibilities has to cope with traditional Chinese business management (Lin, 2010). Fourth, SOEs are unaccustomed to authentic public accountability. Therefore, responsible corporate behavior does not develop naturally among Chinese companies, even as the economy moves toward a market model.

All these considerations help us to understand why corporate ownership in China is so concentrated (Claessens, Djankov, & Lang, 2000; Faccio & Lang, 2002). The institutional context discussed earlier, together with weak legal or regulatory protection for minority shareholders, exacerbate agency problems, interest conflicts, and make the Chinese stock market highly conducive to “tunneling” activities (e.g., Jiang, Lee, & Yue, 2010; Peng, Wei, & Yang, 2011), whereby majority shareholders use their personal position to make additional profits. As a result, the conflict of interest between controlling and minority shareholders, rather than the one between the delegated manager and diverse investors, becomes the central theme of agency problems in Chinese firms.

Given all of the above, Chinese management is different from what is expected in the Western context. Several issues have to be considered. The first issue concerns participative management and corporate governance. In reference to our preceding argument, public firms focus on distribution policy toward their workers. For private and foreign enterprises, interaction between managers and employees is a key issue in defining “good managerial practices” in a Chinese context. The latter refers to leadership and empowerment, which are crucial to Western managerial processes. The question is how to adapt such concepts to Asia (see Rowley & Ulrich, 2012a, 2012b). In this particular context, where conflict of interest often exists in companies, it is easy to understand why Chinese employees are not really willing to share responsibility with managers. Participative management questions the traditional model, but also appeals to the construction of a new paradigm to satisfy the Chinese environment for firms.

The second issue to consider is the financing policy and performance of Chinese firms. The financing of an investment project will induce a hierarchical choice regarding the financial structure of firms. In particular, small firms prefer internal financing (internal funds, bonds) and use banking loans as the last resort. Medium size companies also have some difficulties in accessing financial markets and will privilege bank loans. Large firms operate an optimum choice between banking credit, bonds, and financial assets. These facts should be adapted to the particular form of Chinese culture where guanxi plays a very important role in business culture. As a product of Chinese traditional culture, guanxi has a huge influence on Chinese society and business behavior (Wang & Rowley, 2016; Warner & Rowley, 2011, 2014) and in the way firms finance their investment projects.

The banking system is controlled by the government and used as a policy tool for addressing national and social priorities. Access to credit may be determined by political considerations as well as connections, rather than solely on a commercial basis. Many studies show that large firms and SOEs have priority in obtaining bank loans (Martin, 2012); while small and private firms have more restricted access. The market segmentations in China provide opportunities to observe how the shock in the bank loan supply affects the corporate capital structure of different firms.

A third issue is that monetary policy and bank loan supply can be frequently adopted to stimulate economic growth in countries. A recent phenomenon is the significant credit growth since 2008 in large emerging markets, such as China (Onaran in Bloomberg Business Week, 2013). In China, the supply of bank loans substantially increased in 2009 and 2010 following an expansionary monetary policy. However, disparities in investment policies exist among Chinese firms across the country. Hence, three industrial models coexist: the Suman Model, characterized by local, state-directed, township and village enterprises; the Pearl River Delta Model, corresponding to externally driven development and exo-urbanization; and the Wenzhou model, composed of family-owned small business. This unequal industrial development is not specific to China. For example, there are similar situations in Italy and Germany (Hadjimichalis, 2006; Schamp, 2005). Government policies during the Maoist era of state investment made Wenzhou’s economy less oriented to SOEs and so unequal access to credit could explain the differences in Chinese industry. In particular, investment in fixed assets in rural firms came from bank loans (Peng, 1994), while Wenzhou enterprises were generally financed by extended families, social networks and “underground” financial institutions (Tsai, 2002). Some questions then follow. Could investment policy help industrial relocation to create wealth and development? And will size, ownership, and governance affect this relocation?

Despite the recent financial crisis, many enterprises have continued largely using banking credit to finance their projects. As China’s economy slows further, companies are seeking lower rates of return on investments. The system is showing stress. Standard and Poor’s noted in November 2014 (Standard and Poor’s warns on China corporate risks) that China suffered its first corporate default when a solar firm failed to make a payment to bondholders. So far, central government initiatives to restrain credit growth have largely failed. Companies are even turning to unconventional financing options—increasing their debts in the process. The question is how to contain debt growth without damaging the economy. And how does this difficulty in finding liquidity for investment projects affects the performance of firms?

Such questions naturally lead to consideration of the financial and banking system. China’s banking sector is dominated by four state-owned banks (SOBs), which prefer to provide loans to SOEs—often very large firms. There are also 12 joint-stock banks, which, in terms of size, are in between SOBs and the third banking type: city commercial banks. Due to their relatively small size and local business orientation, most city commercial banks target local SMEs. Universal banks, private institutions, and SOEs play a central role in credit distribution, as pointed out earlier. Despite apparent strength, the stress tests conducted by central banks and regulatory institutions have indicated the fragility of the banking system. In particular the solvency II ratio of Basel III is far from being respected by private and public Chinese banks. The task is to evaluate the measures taken by the government to ensure the stability of the Chinese banking system.

Apart from banks, financial markets are mostly underdeveloped in China. Equity financing is a relative new development and remains trivial (Allen & Shen, 2012). Enterprises rarely use direct finance for their investment projects. Access to security markets is controlled by the state and constitutes a supplement of funds for large SOEs. It is highly volatile, as security prices do not appear to be efficiently set, so prices do not provide either a positive signaling function or a disciplinary factor for the management of firms. As a consequence, Chinese security markets do not provide adequate opportunities for the management of financial risks. Two questions then arise. Firstly, what are the main sources of financing for Chinese firms and how will they impact on their productive investments? Second, what are the factors that influence investment in Asian countries?

Given our structure above, our book will provide answers to our questions, which will allow a better understanding of the business world in China—explaining both the managerial and financial strategy of its firms. We now outline the content of our book that fulfills this aim.

16.38 Increase in Ethical Awareness

Corporate ethics and corporate social responsibility have developed an increasingly high profile, especially in the light of the scandals at Enron and Worldcom. In the past, it may have been tempting for directors to regard business ethics as well intentioned, but as of little practical value in the real world. However, ethical perspectives are coming more and more to the forefront of social thought, and the public – and in particular potential employees, investors and customers – are generally better informed and more ethically conscious than they were even 10 years ago.

3.3.5 CSR and Business Ethics

A study of CSR across 50 companies in seven Asian countries (India, Indonesia, Malaysia, the Philippines, Singapore, South Korea, and Thailand), based on analysis of Web site reporting, found considerable variation across countries in CSR explained by factors in each national business system rather than by stage of development (Chapple & Moon, 2005). The study found also that multinational enterprises (MNEs) are more likely to adopt CSR than purely domestic firms. CSR profile, however, reflects profile of the host country of operation rather than the home country or origin.

For China, studies of 292 employees from 53 companies and 224 middle-level managers from 40 companies found that ethical leadership and external stakeholder pressure significantly and positively influence CSR implementation (Tian, Liu, & Fan, 2015). The effect of external stakeholder pressure weakens with higher level of ethical leadership and strengthens with lower level of ethical leadership. These findings suggest that ethical leadership is the dominant consideration.

The findings raise the issues of the philosophical orientation of business leaders and the role of moral education of those business leaders (Windsor, 2015a, 2015b). In China, how to understand responsibility and concepts of duty, obligation, power, and right must be studied in context (Lu & Koehn, 2015). Coase and Wang (2013) report that premier Wen Jiabao was impressed with Adam Smith’s The Theory of Moral Sentiments (1759), appearing in various Chinese translations. Those authors express the view that Adam Smith appeals to the Chinese because there is an affinity with traditional (pre-communist) Chinese thought on economy and society. Viewed in this way, China might be returning to its traditional cultural foundations. The only philosophical competition with or substitute for communist ideology arguably lies either in pre-Maoist Chinese philosophers or in modern market economics theory. The three dominant pre-Maoist Chinese philosophies are Daoism (or Taoism), Confucianism, and Legalism (Ma & Tsui, 2015). Legalism seems better characterized as political realism in a condition of competing and warring states; individual morality is irrelevant and impersonal systems should guide personal selfishness to benefit the state in effect indirectly (Goldin, 2011; Pines, 2014). Ma and Tsui (2015) analyzed articles reporting interviews with fifteen Chinese business leaders to determine relationship between their leadership practices and the three traditional philosophies. Applying any of these traditional philosophies to business ethics and leadership practices involves both contextualization and decontextualization (Liu & Stening, 2016). Contextualization means placing specific Chinese moral concepts back into original context for accuracy of understanding and interpretation. Decontextualization means adjusting those concepts to the modern business environment in China (Liu & Stening, 2016).

There is no available evidence discovered by this author concerning the beliefs of Chinese businesspersons (whether in state-owned or privately owned enterprises). The three options appear to loyalty to the prevailing party ideology, interest in pre-Maoist Chinese philosophies, or the economic rationality of business (Windsor, 2015a, 2015b). What is important to appreciate is that Chinese business executives likely choose for themselves among these options; and the empirical distribution of choices may affect business–government interactions in China.