Asia Brieing: Beijing hostage drama tarnishes China’s business image

China’s reputation as a place to do business took a battering last week after a US executive was held hostage in his own medical supply factory for five days by the workforce, angry over a pay dispute.

Chip Starnes, a 20-year China veteran who is co-owner of US company Speciality Medical Supplies in Beijing, described the experience as "humiliating" and "embarrassing". He lost four kilos during his time locked in his office.

“There is a dirty underside to doing business in China, there’s no doubt about that and I don’t think that’s a secret either,” Mr Starnes said in an interview with CNBC.

“I tried to downplay it over on the China side but I’m extremely upset that the government, nobody really stepped in to help or do anything to solve the situation. I felt like I was an animal in a zoo,” he said.

Workers rights are a thorny area in China, and often disputes escalate as there is little legal recourse in the event of a row. Foreign firms are particularly vulnerable.

Rising inflation and production costs, as well as government efforts to move up the production value chain, means the years of China being the world’s factory are probably numbered.

Many foreign companies are looking elsewhere for cheap production, such as Bangladesh, Cambodia and Vietnam.

Mr Starnes’s ordeal was a reminder of the bad old days in China.

Tim Clissold's classic 2004 book, Mr China, a memoir of western capitalists marauding through China in the decades following opening-up and reform in 1979, has a similar story describing workers surrounding a factory building, demanding that the facility be seized and the foreigners kicked out.

“Desperate calls to the police and local government met with no reply,” Mr Clissold writes of the siege.