Chinese businesses realizing value of maintaining reputation

BEIJING - Chinese businesses are becoming more aware of the value of maintaining good reputations as the government ramps up corporate social responsibility regulation.

Chen Xuejiao has given a lot of thought to the bankruptcy in the past four months of two of her competitor farm produce companies in north China's Hebei Province.

The general manager of Shijiazhuang Dayin Farm Produce Company Ltd believes that their failings were based on irreparable loss of reputation. The two companies had advertised their products as premium quality, but provided only regular vegetables after receiving money from the clients, according to Chen.

What is more, she is concerned that such untrustworthy businesses could even put the reputation of an entire sector at risk.

Such worries are not misplaced. In 2008, China was shocked by news of melamine-contaminated powdered milk that killed six children and sickened 300,000. While Sanlu Group, the maker of the products, went bankrupt in 2008, the whole domestic dairy industry continues to suffer as customers turn to foreign baby formula brands thought to be safer.

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In the restaurant sector, a series of scandals in recent years have left many Chinese fearing to eat out. Although the use of expired meat and oil recycled from drains is far from a universal problem, the sector as a whole has suffered as a result of these disreputable practices by some.

According to official data, corporate trust failures in China are causing economic losses of around $100 billion each year. Companies' abandonment of corporate social responsibility in search of maximum profits clearly hurts not only the individuals operators, but China's economy far more broadly.

Feng Zhongsheng, an official at the National Development and Reform Commission, said that the major reason for widespread consumer distrust is because companies or individuals pay a very low cost for their misconduct. The penalties simply do not deter them from putting out dodgy or dangerous produce.

The Chinese government has been pushing forward "credit building" among companies through promotional campaigns and ratings systems. For instance, supervisory bodies have started blacklisting companies and upping punishment for breaches of trust.

A national conference held by the central government in late July aimed to raise awareness of the issue by inviting responsible companies to make statements on their understanding as well as practice of trust building.

CSR Corporation, a global leader in bullet trains, was one of the companies involved in the conference. "Corporate credit leads to employee confidence, trust from clients and the government, and good market reputation," said Zheng Changhong, the corporation's chairman.

"CSR has carried out its business based on honesty and credibility. By nurturing trustworthy employees and providing reliable products, we have contributed to making high-speed trains a source of national pride in recent years," he claimed.

Zheng cited honesty and credibility as the cornerstones of the company's success -- its products have been exported to 84 countries and regions, and its contract value in the first half of 2014 surged 128 percent year on year.

An upcoming regulation on corporate information disclosure may inspire more companies to act ethically, knowing that their reputations (and therefore bottom lines) depend on it.

Companies will be obliged to hand authorities annual reports containing information ranging from their contact details, new subsidiaries and stake purchases to penalty records. All the information will be available to the public.

Such moves may make Chen Xuejiao rest slightly easier.