Employee conflicts of interest in China are a big risk for any business.
For instance, it’s not unheard of for Chinese employees of foreign companies to take kickbacks from suppliers in return for awarding business contracts.
This happens at small and big companies. Even global brands like Adidas have faced big kickback and bribery scandals involving their China teams, with reports of managers receiving millions in cash.
To stop this, you need to spot conflicts early and set clear rules.
Why Conflicts of Interest Are Different in China
Business in China is built on personal ties, known as guanxi. Building trust (and scoring good deals from suppliers) often involves meals, gifts or favours with business partners. For example, it’s normal in China for a supplier to take an employee to dinner. In other countries, that might look suspicious.
But these close ties can sometimes blur the line between good business and bad behaviour. Without proper rules in place, Guanxi can turn into favouritism or kickbacks. That’s why it’s vital to set clear rules and train your team well.
Define Conflicts Clearly in Your Handbook
First, you should be defining exactly what constitutes a conflict of interest in your employee handbook. Quick reminder: This is the guide that explains your company’s rules, policies and what you expect from everyone.
In the Kinyu handbook, we define a conflict of interest as “any situation where the personal interests of an employee (or any of his/her relatives) conflict with the interests of the company.”
What constitutes a conflict of interest might be a bit different for your company, depending on your industry and how you operate. But the most important part is to keep the definition simple and well-defined, so everyone understands what’s expected.
Include clear examples like these:
- An employee or family member holding shares in a supplier, client, or competitor
- Staff making private business deals with company clients or suppliers
- Hiring or promoting friends/relatives instead of the most qualified candidates
- Accepting gifts or perks from business partners without proper approval
- Using company position for personal gain or to benefit associates
We also suggest running a background check on new employees during onboarding to spot any potential conflicts of interest early.
Set Firm Disclosure Requirements
You need to set clear rules for what employees should do if they spot a conflict:
- Immediately report any potential conflicts to their manager
- Disclose if they, their spouse, or family members hold positions in other companies that might create conflicts
The clearer you are, the fewer surprises you’ll face down the road.
There Have to Be Consequences
Nobody likes being the bad guy, but you should also spell out what happens if someone crosses the line.
In China, it’s perfectly legal to classify conflict of interest violations as grounds for immediate termination without notice or compensation. Your handbook should clearly state that:
- Hiding conflicts of interest is a serious violation
- Acting against company interests can result in immediate dismissal
- Taking bribes or unauthorized disclosure of confidential information are grounds for summary dismissal
Important: Chinese courts usually back up companies to fire employees right away if they hide a conflict of interest, as long as the company’s rules are clear and the process was fair. If you’re vague or keep employees in the dark, you might end up paying out more than you bargained for.
Tips on Spotting Conflicts of Interest
- Look for hidden ties. Check if employees or their family members have any financial or personal links to your suppliers, customers or competitors. This could be shares, jobs, or business deals.
- Watch for unusual choices. Is an employee always pushing for the same vendor without a clear reason? Time to dig deeper.
- Encourage reporting. Make it easy and safe for employees to report concerns, even anonymously.
Practical Prevention Strategies for HR
Based on our experience, we recommend these practices:
- Be Clear: Your handbook should clearly define conflicts, provide examples, and outline disclosure procedures.
- Conduct Regular Training: Make conflict awareness part of your onboarding and offer refresher sessions.
- Respect Cultural Context: Acknowledge the importance of relationships (guanxi) in Chinese business culture while maintaining clear boundaries.
The Bottom Line
If you want to keep things running smooth (and stay out of the headlines), set simple, clear rules, talk about them often, and make sure everyone knows where the line is drawn. Make it clear: Enjoy those business dinners; just leave the secret handshakes at home.
