Relationships are critical to business in China, however at JP Morgan, nepotism may be the bank’s downfall. Recently the SEC has been looking into JP Morgan to see if the company favors hiring the children of powerful Chinese officials in order to gain favors. While there are not any formal charges yet against the bank, the fed has been seriously looking into the company to ensure they are not violating the 1977 federal law that prohibits companies in the United States from giving “anything of value” to foreigners to curry business.
One case in particular that is raising questions around China and the United States is the choice to hire Tang Xiaoning, the son of the chairman of China Everbright. Before Tang joined the JP Morgan team, the bank did little business with Everbright. However after their hire, China Everbright has become one of JP Morgan’s closest Asian clients. Furthermore, JP Morgan was one out of 12 sources consulted before the company went public. Some believe this can be traced back to a “sons and daughters” program instituted in 2006 to help prevent this sort of situation from occurring.
Although the notion of Guanxi is very important to doing business in China, it remains to be seen how the American public will view the bank’s preference. Furthermore it will be interesting to see what happens in the investigation, and how other American banks will do business with Chinese companies in the future.
Works Cited: http://dealbook.nytimes.com/2013/11/01/u-s-inquiry-broadens-into-banks-asia-hiring/?ref=china