But what if your concessions result in jail time for a Chinese dissident?

That’s what’s at stake for Yahoo, as the company is being criticized by the US Congress for turning over documents that led to the arrest of a Chinese journalist.

Here, you’ve got an interesting case of business ethics:

The committee is investigating statements Mr. Callahan made at a Congressional hearing early last year. He said then that Yahoo had no information about the nature of the Chinese government’s investigation of Mr. Shi when the company turned over information about him in 2004.

Mr. Callahan has since acknowledged that Yahoo officials had received a subpoenalike document that referred to suspected “illegal provision of state secrets” — a common charge against political dissidents.

Though you won’t likely find much discussion online, this makes me wonder if Yahoo will quietly be shunned by the Chinese, in the fears that one questionable search string could mean unexpected prison time.

Meanwhile, there’s not much Yahoo could really do to manage the bad PR. I mean, you can’t just go back in China and just say “we promise not to hand over dissidents next time!” — you’ll be on some inner politburo black list faster than you can say Tiananmen Square.

What I found interesting was how Callahan said “that in going into future markets, like Vietnam, Yahoo would aim to find a way to avoid turning over to the government information on citizens’ online activities.” Umm, if I’m not mistaken, Vietnam is also communist and also run similarly to the Chinese government. I’d love to sit in on that meeting where they figure out how.

Today, an article in the New York Times titled Lessons Even Thomas Could Learn really hits that point home.

After all of the egregious recalls over lead in the paint, many US residents had lost confidence in toys — many of which are manufactured in China:

…by September — with Mattel recalling millions of toys — lead paint seemed to be the norm for the toy industry. As Sean McGowan, a toy industry analyst, said in a front-page article in this newspaper, “If I went down the shelves of Wal-Mart and tested everything, I’m going to find serious problems.”

NY Times reporters wanted to discover just how true that claim was. They went out of their way to buy toys that had red and yellow paint — often more likely to contain lead than other colors — toys made in China and other countries with less regulation, and toys stocked by Wal-Mart and lesser-known retailers. Then they got the toys tested for lead.

The surprising result? None of the 50 toys had lead levels beyond what US law permits. That means that the lead problems weren’t some epidemic problem among toy manufacturers (including toy manufacturers in China) — rather, the US toy companies in the recalls weren’t practicing due diligence. It’s a cautionary tale for anyone who is quick to point the finger at China:

The companies involved in the recent recalls aren’t simply the unlucky ones that got caught. Either out of carelessness or a misplaced cost-cutting zeal, they are the ones that didn’t make the effort to keep their toys safe.

When Ms. Nordquist first had her toy-chewing, 17-month old daughter tested for lead this year, the results showed that she had more lead in her blood than any parent should want. When the girl was retested recently, months after the Thomas trains had been put out of her reach, the level had fallen significantly. Two tests prove nothing, Ms. Nordquist notes, but they are enough to make a mother angry.

I called Curtis W. Stoelting, RC2’s chief executive, and Peter J. Henseler, its president, to ask why parents should have faith that RC2’s new safety measures would work better than its old ones. Neither executive called me back. Instead, representatives from two public relations agencies working for RC2 sent me a memo that almost hilariously avoided most of my questions.

Ms. Nordquist had a similar experience. After mailing her recalled trains to RC2 and enclosing a letter requesting a refund, she received an e-mail message signed, “Consumer Services.” It didn’t acknowledge her refund request but promised that replacement trains were on the way. The message also thanked her for the trust she had placed in Thomas.

“I guess you didn’t bother to read the letter I enclosed,” Ms. Nordquist wrote back. “Any trust I had with your firm is gone. I do not want any replacements. I want a refund. You have endangered my children.”

I find it particularly telling how RC2′s PR team dodged the real issues in their response. Isn’t that something we often tend to blame China for — that is, a lack of transparency and a general tendency to avoid responsibility? Yet here you have it, a US company who can’t even admit they’re wrong, and has the hubris to think they can get away with this and still remain successful in the marketplace.

Before we chastise China as the root of all manufacturing evils, we’d better think about the US and other companies who are quite often the ones “pulling the strings” up top.

It’s not a surprising reaction. This supposedly “Golden” year of the Pig is turning out to be more porcine than prosperous, thanks to the slew of recalls — especially for toys. It hasn’t been great PR for China, as evidenced by this “man-on-the-street” piece with interviews of Clevelanders. Just about everyone in the video has sworn off Chinese products. (Whether they’ll be able to stick to that is another story…)

The subject of embarrassing recalls surfaced over a lunchtime conversation with my brother-in-law’s colleague, Mr. Wu, in China, back in July. My arguments hit the usual suspects — such as the manufacturers’ shirked responsibilities.

Mr. Wu didn’t disagree. But he did make a rather compelling point — what about the US companies? They also have a responsibility for quality assurance. Plus, China is a developing country. While the US has been doing due diligence in business for at least 50 years, if not more, China has only seriously cleaned up its act within the last 10 years or so. Has the US forgotten that it too has a tarnished history of manufacturing substandard and dangerous goods — one that it overcame only through experience and robust law enforcement (two resources that China desperately lacks)?

We easily forget the snake-oil sellers of the 1800′s, or the deplorable conditions of meat-packing workers described in the Jungle or the current muckracking classic Fast Food Nation. We have amnesia about our vulnerable food supply, evidenced by the E. coli Spinach scandal of 2006. Many of China’s mistakes were made here in the US long ago, and some continue to surface every now and then — a reminder that even we, a superpower, can’t always remain in control. Yet it is so easy to push the blame on a developing country — and neglect our true involvement in the making of a scandal.

When US companies manufacture in China, they have a responsibility to ensure quality — just as their manufacturing partner does. Of course, they want to find reliable partners who are less likely to have quality transgressions, and thus require less supervision. Yet, perhaps some US companies turned too much of a blind eye. They clearly didn’t have a handle on what was really going on in their factories. In some respects, they did not provide enough oversight on the ground — something that many of the “rising stars” in the China manufacturing world, trustworthy though they may seem, might require. Compared to their US counterparts, these manufacturers haven’t been in the game that long. They have a hard time keeping a long-term perspective about anything — because their successes have been fast and intense. China’s law enforcement is also notoriously unreliable, which trickles down into the manufacturing environment.

I am not absolving the Chinese manufacturers of their wrongdoing. Breaching contractual agreements — especially when it can endanger the health of the end-user — is just not good business.

But perhaps Mattel does owe their Chinese manufacturers an apology too. If Mattel failed in their supervision, in setting a standard and tenor for their Chinese partners, they hold equal responsibility for the recalls.

When I walked into the wedding flower shop in Tonglu, China — my husband’s hometown — I knew exactly the kind of flowers I wanted: roses, just like the roses on my wedding dress. The shop owner, however, didn’t ask us what type of flowers we wanted. Instead, she asked us how much we were willing to spend: 380RMB, 580RMB or 800RMB.

The implication was this: money defines who you are. The more you spend, the better you are.

I came for roses, and I was holding my ground. Even if they were on the lowest (380RMB) tier of pricing.

But most Chinese consumers would probably be tempted to go for the 800RMB choice — whatever it was. Why? Because it makes them look good in the public eye…and just as the salesperson said, it’s the trendy choice.

Chinese culture has long valued face, or mianzi. And as a collective country, Chinese people tend to easily follow mainstream trends; they desire conformity. All this spills over into consumer behavior, creating what many refer to as “mianzi consumption.”

If you’ve spent any time in China, you’ve probably seen mianzi in action already. Think about gift-giving customs — the packaging is just as important, if not more so, than the actual product. (this has, not surprisingly, led to excessive packaging in China). You’ll find these elaborate, overwhelming packages, all in the name of giving the sender good face. Shanghai’s Maglev Train, supposedly one of the most hi-tech trains of its kind, was built in the name of giving the city some good mianzi. Doesn’t matter that the design (forcing riders to take the metro before switching over to it), hours (it only runs 8:30am to 5:30PM) and cost (40 RMB one way — a lot for a lot of inconvenience, considering direct buses only cost half of that) have rendered it utterly useless.

Mianzi consumption takes the concept of face into the world of shopping, allowing Chinese consumers to exchange their renminbi for services and products that will boost their face and reputation — sometimes at the risk of their own health and financial well-being.

For example, a Sohu article (Chinese) describes how college-age women will spend hundreds of RMB on name brand makeup and beauty treatments, even to the point where they haven’t enough money leftover to eat. But they’d rather “invest” the money on their face — literally — because, as far as they’re concerned, appearances count.

This article in the Youth Daily makes a link between the “Housing Slave” (people whose mortgages take up 50% of their monthly income) phenomenon in China and mianzi consumption. They suggest that people get into such a precarious situation — having an unmanagable mortgage — simply because they choose to buy homes they can’t afford, all to live a lifestyle they believe is theirs.

Mianzi isn’t going away anytime soon — and neither will mianzi consumption. Especially when it comes to high-end, often foreign, products, such as BMWs, Louis Vuitton Bags, and top-shelf liquors. But there is a certain manipulation involved at times, one that perhaps nudges Chinese consumers into purchases that they would rather not make. Just as Chinese consumers have a responsibility to make smart shopping decisions, companies have a responsibility to sell their products without preying on a consumer’s emotional or cultural vulnerabilities (remember the sleazy car dealers?).

Come on…give roses a chance.

This contemptuous attitude towards businessmen no longer exists in current China. Making money is given priority now.

However, problems come up when this priority may be the only consideration for many businessmen in China. Media reports that forced laborers are widespread in Shanxi province, and many of the victims are children. One brand of toothpaste from China contains diethylene glycol that can poison people. Gluten sourced from China was tainted with melamine that killed dozens of cats and dogs in the US.

Many businessmen in China are not well-educated. They are motivated by a single clear goal — making money. They have no idea how their products and business behavior would influence the health and well-being of other people. Many of them are not conscious about business ethics and social responsibility.

In China, due to the overall education level, the general public has limited knowledge about certain products, such as tools that may use harmful chemicals or foods that contain unhealthy ingredients. Many detrimental effects of the products are cumulative and not immediately seen. So monitoring from the public sector to the business sector is not so strong.

The supervision from the government to businesses is also weak. The government officials are not so fervent about the interest of general public. They care about meeting the economic development benchmarks set by their superiors. Those bosses — scrupulous or not — will help them attain the goal. Bosses and local officials are on the same boat. It is very unlikely local officials will trouble the bosses.

The law in China is also under development, which means that many areas of business are not regulated. When the law is underdeveloped, unscrupulous businessmen usually can take advantage of the weaknesses in laws. Even when the law is well-developed, such as in the USA, there are still examples of corporate fraud like Enron.

A better solution is to voluntarily adopt and practice business ethics and moral standards.

When doing business in China, you should assume social responsibility and adopt moral standards, especially when dealing business with Chinese counterparts. Sometimes it may be the only strong oversight available.