Amid market fluctuations and slowing export numbers, China is underscoring its commitment to rehabilitate another aspect of its economic mosaic – the fight against corruption. Global communications being what they are, now more than ever, international corporations are warily viewing the risks created when Chinese officials fail to uphold national laws, or play fast and loose with manufacturing rules. The threats posed to Chinese workers by lapsed corporate and administrative ethics can be deadly. For an international enterprise that has millions invested in China’s manufacturing sector, the potential injuries to its customers and the consequential damage to its reputation could mean the end of the company altogether.
2015 Highlighted the Pain Caused by Graft:
The August 12 explosions in Tianjin province drew international attention to the corruption problem. A warehouse in that port city exploded because of inappropriate storage of hazardous and highly toxic chemicals. The warehouse was not only not licensed to store such chemicals, but it was also located too close to residential areas, another violation of industrial rules. The blast caused billions of yuan in damages, killed 114 people, and injured more than 700 others. The investigations that followed the blast revealed that the local chief “work safety regulator” had allowed companies to operate for years without proper licensing for storing hazardous chemicals. The State Administration of Work Safety is charged with inspecting, directing and coordinating efforts regarding worker safety. After the explosions, that entity was being investigated for corruption by China’s “corruption watchdog,” the Central Commission for Discipline Inspection (CCDI), which is responsible for maintaining party discipline and conformance with national laws.
Other revelations exposed by ongoing investigations included the fact that one of two owners of the warehouse used his connections as the son of a former police chief to gain factory licenses, despite safety and regulatory violations. The other owner of the warehouse was a former chief of a state-owned chemical company. He had used his connections to get approval for the facility. The whole situation highlights the long-standing reality of Chinese administrators using their governmental positions to inappropriately enhance their personal wealth.
President Xi Reiterates Commitment Against Corruption:
On January 13, 2016, President Xi emphasized the Chinese government’s commitment to fight corruption all the way to the “grass-roots” level. Launched in 2012 by the newly elected Xi, the anti-graft policy has been a national priority and has seen at least one notable success. In October 2015, Jiang Jiemin was sentenced to 16 years in prison for abusing his power as a state-owned company employee, accepting bribes and holding title to large amounts of assets of unknown provenance. Formerly the head of one of China’s largest petroleum companies, in 2013, Jiemin had taken a job as head of the (state-owned) Assets Supervision and Administration Commission. He confessed to approving construction projects and offering personal promotions in exchange for the bribes. Along with the prison sentence, the state also confiscated more than 14.8m yuan from his estate.
Not Just Public Officials:
Recent developments indicate that China is going after possible graft in the private sector, too. In mid-December, Chinese billionaire Guo Guangchang was reported missing; his company, the Fosun conglomerate, indicated that he was “assisting Chinese authorities with an investigation.” In August, a Chinese court had cited Gui as a possible connection of a supermarket chain executive who had been convicted of corruption. Gui is one of China’s most prolific international investors, with global holdings in real estate, mining and retailing.
Anti-Corruption Enforcement is Good News:
China’s industrial might is staggering, considering it entered that market only 35 years ago. As it has matured, the factors that drove its initial growth have dwindled, and the country is now working to better align itself with international standards and expectations. By pursuing its current anti-corruption policies, Chinese leadership is demonstrating its confidence that the country will maintain its place as the world’s primary manufacturing sector through scrupulous adherence to national and international laws. While off-shore producers should maintain a vigilant eye on their own holdings, China’s current policy indicates that the level of oversight necessary may be diminishing. I’m available anytime to chat about how China’s continuing anti-graft policy might affect your Chinese supply chain.
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You might also want to read some of my other blogs. A sample of recent blogs can be found here:
ChAFTA Changes Australian-Chinese Tariff Rules
ChAFTA Opens China’s Services Sectors to Australian Providers:
China’s Down and Up 2015 Economic Year
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