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Where Is China's Corruption Crackdown?
Image Credit: United Nations

Where Is China's Corruption Crackdown?

 
 

The head of the Communist Party of China’s (CPC) anti-corruption watchdog, the Central Commission for Discipline Inspection (CCDI), has blasted President Xi Jinping and the Chinese government’s lack of progress in eradicating corruption since he took power five years ago.

Wang Qishan’s comments follow reports that a senior official, previously considered a contender for promotion, was being investigated for “discipline violations.” As the chief enforcer of Xi’s widespread anti-corruption campaign, Wang lamented a weakening party leadership and unhealthy party culture, citing the need for a long process to effectively root out corruption within the ruling apparatus.

 The criticism comes just days after the CPC issued revised regulations on internal party inspections, the latest move in a renewed campaign to improve supervision and governance of its 89-million strong membership. The amendment lifts political inspections to a higher place on the supervision agenda, with inspections required to preserve the centralized, “unified” leadership of the CPC. The new regulations are tied to an agreement reached on May 26, when the Political Bureau of the CPC Central Committee decided to amend the Party’s approach to inspections to better reflect the “latest innovative practices.” With the trajectory set, China’s ruling party appears determined to achieve true political transparency – or, at the very least, give the impression of real lucidity.

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However, things are never as straightforward as they seem. Ironically, despite the CPC touting in 2016 that more than 1 million corrupt officials had been probed since the campaign’s launch, the scope and length of the anti-corruption campaign has in fact led to an increase in the Chinese population’s perception that the central government lacks the political will to seriously punish corrupt officials – especially at the grassroots level. A 2016 study by researchers at Sun Yat-sen University concluded that the number of reported graft cases in the Beijing prefecture in fact had a positive correlation with perceptions of corruption in the local government and, by extension, failures at the central level. In attempting to separate the wheat from the chaff in his own party, Xi may be inadvertently covering himself in dust.

The backlash can also be explained by the pervasive sense that Xi may be using the campaign as a guise for removing political competitors. Take for example Zhou Yongkang, the former security chief and retired Politburo Standing Committee member, who in 2015 became the highest ranking-party official to be indicted. The announcement earlier this week that Sun Zhengcai, party chief in Chongqing and rising star within the party, had been put under investigation was similarly met with widespread speculation.

While it can be legitimately argued that Xi’s anti-graft campaign is not an entirely neutral enterprise, it can rightly be credited with weeding out several corrupt party officials and reining in nepotism. What is often overlooked is how the campaign has shown merit in tackling corporate corruption and malfeasance, especially after a more aggressive campaign targeting the private sector launched in January this year uncovered numerous illicit activities among the chairmen of state-owned companies China Telecom and Baoshan Iron and Steel.

It is not only Chinese firms that must now heed caution in the face of Xi’s campaign, but also foreign firms operating within the country. For example, the SAIC has begun targeting the tire manufacturing industry, with Michelin, Giti Tire. and Bridgestone all found to have violated commercial bribery law in recent years. In each case, companies were handed fines and disgorgement penalties.

Some of the misbehavior by major international corporations has made headlines, especially in the healthcare and hotly contested infant formula market. Swiss food producer Nestlé has been under investigation since 2011 for using bribery to increase its share of the Chinese baby formula market. According to media reports, the company had six employees pay bribes to medical staff to illegally obtain medical records from patients and promote its infant formula, a move in clear violation of a 1995 Chinese regulation designed to ensure the impartiality of physicians and protect newborns’ health. During the investigation, it was also determined that Nestlé was lacking adequate internal mechanisms for enforcing discipline and control. Regarded as an unfair business practice to corner the Chinese market, foreign actors in the industry need to seek more transparent strategies in claiming the ever-sensitive infant formula market in China.

The Nestlé case draws strong parallels with another high-profile investigation from 2014, when the Ministry of Public Security conducted a probe into GlaxoSmithKline (GSK) executives, accusing them of ordering subordinates to commit bribery in order to boost sales. The company was slapped with the biggest corporate fine at the time: $489 million. Healthcare has been on top of the priority list for Chinese anti-corruption authorities, because it is regarded by the CPC as a major service upon which its legitimacy rests. Unsurprisingly, the ten-month probe was lauded by state media as a clear warning to other multinationals operating in China to stick to the rules, or else.

Xi’s renewed initiative is producing positive results, but efforts to rein in corrupt practices by international companies need to be equally international in scale. As he has done with extraditions, Xi needs to pursue expanded cross-border anti-corruption initiatives in partnership with other countries. He will find willing partners: the U.S. Securities and Exchange Commission, for one, has already imposed a $20 million fine on GSK in 2016 for bribing Chinese officials and a $264 million penalty on JPMorgan for hiring Chinese princelings to win business. Mutually shared interests in fighting unlawful business practices are easily identified across a variety of sectors. Encouraging U.S. President Trump to enforce of the Foreign Corrupt Practices Act, which prohibits corporations from bribing foreign officials to gain a business advantage, would be an important avenue to improved mutual confidence and bilateral relations.

While China’s anti-corruption campaign may have many flaws, it has seen important steps forward in ending a long-time culture of corporate impunity in the country. With the CPC planning to create a new anti-graft body by 2018, a new wave of investigations into corporate corruption, particularly within the healthcare sector, can be expected. While keeping companies Chinese and foreign on their toes, the long-term benefits of the clean out are starting to show: lower procurement costs and better predictability in the cost of doing business will undoubtedly draw in more foreign investment. Even more importantly, a transparent campaign can restore Chinese public confidence as well.

Chris Zhang is a New York-based sustainability adviser. He studied international affairs at Fudan University in Shanghai and is a keen observer of political corruption and environmental standards in China.

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