China gets serious in its crackdown on culture of graft

Tue, May 1, 2012, 01:00

ASIA BRIEFING:AT THE GIFT-wrapping service of one of Beijing’s most exclusive department stores, a woman was being inordinately picky about getting her present – a gold-coloured ornament of a buffalo – wrapped up just right.

The sales assistant afterwards said the woman had been so fussy because she had spent a whole year’s income on the gift, which was for a local official to encourage him to grant her a favour and help her son get a government job.

This is generally how corruption works in China; a gift here and there to an influential cadre, a bit of back-scratching. It can be much bigger, of course – a significant factor in the rise in the luxury car market over the past few years is people buying cars as gifts for business contacts.

But often it is quite small-scale.

Corruption has been in the news a lot in recent days, with tales of graft in football and property in China and Hong Kong, and reports of the Securities Exchange Commission (SEC) investigating the big Hollywood studios over paying off cadres in addition to other revelations.

What all the stories have in common is that they illustrate how companies coming out here to do business should not get involved in bribery, full stop. Increasing efforts to stamp out graft means the chances of getting caught are getting bigger, either locally or by the authorities at home.

I’ve never seen anyone formally hand over cash in a suitcase, but then I wouldn’t, as a foreign journalist. My journalistic colleagues here are routinely given a couple of hundred yuan, maybe €20, when they go to press conferences, for “transportation costs”.

Even at schools, parents will bring teachers out to dinner to make sure their child gets to sit close to the top of the class, and gets the extra attention to make sure they do well.

The guangxi system of building connections is well-documented in China, a mechanism of leveraging influence familiar to any Irish person. It’s hardly corruption in the strictest sense of the word, although still not something you come across much in more meritocratic societies.

Last week, Garth Peterson, a former Morgan Stanley executive, pleaded guilty to bribing a Chinese official in exchange for business and personal gain. US authorities alleged that Peterson paid money to the official to win investments for the bank.

Peterson, who was head of the bank’s real-estate investments division in China, is also accused of secretly acquiring valuable property in China.

The legal documents are revealing, and will send shivers down the spines of many people working in China. In November 2005, Peterson told colleagues in an email how important it was to help the Chinese official he was allegedly bribing. Referring to the company the Chinese official worked at, he wrote, “We owe [Yongye] a favour . . . [Yongye] gave us this deal.”

Also last week, Reuters reported that the SEC was investigating the possibility that some major studios in Hollywood were making “inappropriate payments” to government officials in connection with securing approval for their films to play in the booming China market.

Many people who come to China presume they are going to have to pay bribes to make business work. It certainly happens, but, increasingly, if you are caught, your company’s business will suffer. Or worse, you or your local agents will go to jail.

In March 2010, the Australian mining company Rio Tinto’s iron ore chief Stern Hu was jailed for 10 years for accepting bribes and stealing commercial secrets.

There was strong evidence of bribery and wrongdoing, the court said at the time, a fact acknowledged by Rio. But what was worrying about the conviction was the way part of the case – relating to state secrecy – took place in closed session.

Even in extremely transparent markets such as Hong Kong, graft is common. Where Hong Kong wins is in its efforts to stamp it out. Last week, its anti-graft agency, the Independent Commission Against Corruption, said it was looking into payments of more than €1.9 million to a former top public servant as part of a probe involving Asia’s largest property developer, Sun Hung Kai Properties, run by the brothers Raymond and Thomas Kwok.

Graft has even been tainting the “beautiful game” in China, and is often cited as one of the main reasons why the playing standard is so low even though people are football crazy and there is a player pool of hundreds of millions.

Chinese football has long suffered from the bribing of coaches, players and officials by gambling syndicates. Free kicks are restaged until the “black whistle” – as the corrupt refs are called – gets the result he has been paid to provide. Players pay money to get on to the first team.

The ongoing anti-corruption sweep has found dozens offside. The former deputy head of the China Football Association was jailed for 10½ years for accepting tens of thousands of euro in bribes from 20 different clubs, while the country’s top referee, Zhang Jianqiang, was imprisoned for 12 years for taking €330,000 in bribes.

The government has isolated corruption as the primary source of dissatisfaction among the general populace and, in recent years, has made massive efforts to stamp out graft, because it undermines the legitimacy of single-party rule by the Communist Party. And that will not be allowed to happen.