China Corruption & Nepotism
China says state-owned firms riddled with corruption, nepotism
Dec 7 2022
China’s top graft-busting agency has lambasted the country’s powerful state-owned industries as being riddled with corruption and nepotism, saying the origins of the problem could partly be traced back to the chaos of the Cultural Revolution.
As part of President Xi Jinping’s battle against corruption, anti-graft inspectors have over the past few months visited dozens of strategic central government-owned groups, where top executives hold the rank of deputy ministers.
In a statement reported by most state media on July 14, the Communist Party’s Central Commission for Discipline Inspection said the inspections had found certain leaders abusing their power and helping relatives for corrupt purposes.
“Some people embezzled state assets under the name of carrying out reforms, while others tried to corrupt senior officials, using illegally obtained state resources,” it said.
“Some are still breaking the rules, spending vast sums on luxurious holiday homes and taking their wives and children out golfing on the public dime,” the watchdog added.
Leaders at some state firms are ignoring party promotion procedures, deciding themselves who to promote, and “forming cliques”, it said in the statement, which was issued on July 13.
It said that the problem of nepotism could in part be traced back to the end of the Cultural Revolution more than 30 years ago, when many of the educated youth who had been “sent down” into the countryside came back to the cities to work, and were often placed with family members in state-owned firms.
“This created the problem left over from history of a concentration of family members,” the watchdog added.
It did not name specific companies or executives.
The statement praised the role of the state-owned sector in China’s landmark economic reforms since the late 1970s, but said they had to fall in line.
“Leaders have forgotten that they are managing state firms under the party’s leadership,” it said. “State-owned firm are not excluded from efforts to strictly manage the party.”
Beijing has been expected to unveil a master plan to reform the powerful sector, but it one has yet to be published.
Xi has warned that the problem of official graft is serious enough to threaten the Communist Party’s legitimacy and has vowed to go after powerful “tigers” as well as lowly “flies”.
Graft-busters have gone after business leaders and politicians alike.
Senior executives at automaker China FAW Group Corp, Baosteel Group and China National Petroleum Corp have all been put under investigation for corruption this year.
Asia's emerging countries need to move away from nepotism, cronyism
For 18 years, Liew led SP Setia's aggressive drive to develop high-end residential complexes, turning it into a top-level Malaysian company in the process.
The story behind Liew's departure from the real estate developer symbolizes some serious problems with the country's economy.
It began three years ago, when Permodalan Nasional, a state-run investment company, acquired a major stake in SP Setia and then made an offer to take over the developer. SP Setia initially resisted the proposal, but eventually had no choice but to accept.
Liew was astonished by the offer and remains unwilling to talk about the episode.
In a nutshell, the Malaysian government gobbled up the company with a promising future. SP Setia is now a government-affiliated operation with over 60% of its shares held by PNB.
Malaysia has increased its per-capita gross domestic product to above $10,000 through state-led economic development. Government-affiliated companies account for nearly 60% of the total market capitalization of the country's 30 largest operations.
If the government continues curbing competition, the country's technological innovation will stall, warns Tricia Yeoh, COO of the Institute for Democracy and Economic Affairs, a Malaysian think tank. Some 1 million Malaysian workers, mainly those with specialist skills such as engineers, have left the country, according to the World Bank.
China goes global
In September last year, WH Group, a Chinese pork producer, bought U.S.-based Smithfield Foods and its debt for $7.1 billion, becoming one of the world's largest pork processing companies.
WH Group, the Henan Province-based company formerly known as Shuanghui International Holdings and having close ties with Chinese Premier Li Keqiang, was embroiled in a food safety scandal in 2011. A banned additive was found in pork that was sold to a subsidiary of the Shuanghui Group. Many major investors worried about the company's reputation and decided against buying the company's shares. WH Group was forced to withdraw its planned April initial public offering in Hong Kong, for the time being.
As China's economic growth has started to lose steam, a number of Chinese companies have been expanding internationally in pursuit of new markets. But some of them have caused trouble around the world. In December last year, it was disclosed that Baidu, China's largest search engine provider, had used its Japanese input software to upload user information to its servers without their consent.
The Chinese government pressured Google into pulling out of the Chinese market after the U.S. search engine provider refused to cooperate with Beijing's Internet censorship. The move paved the way for Baidu's effective monopoly in the market. There have been many other Chinese companies, including state-owned oil operations, which have used money earned by playing ball with the government to expand overseas.
Companies backed by their governments tend to disobey international rules.
Time for change
Family has been another central factor, along with state, in fast economic growth in many parts of Asia.
In Hong Kong, a drama emblematic of the nepotism and cronyism that characterize Asian-style capitalism is unfolding. Co-Chairmen Thomas and Raymond Kwok of Sun Hung Kai Properties, Hong Kong's second-largest developer, are now on trial in a high-profile bribery case. Hong Kong law-enforcement authorities launched the corruption case in 2012 when it charged the Kwok brothers with conspiring to provide payments, loans, and property use to a former high-ranking official in the city.
A family conference is the same as a board meeting, quipped a senior executive of a European financial institution in Hong Kong, commenting on the scandal.
Hong Kong doesn't impose an inheritance tax and its income tax rate is very low, 15% in principle. This tax code has created the tradition of wealthy families controlling the city's economy. A tradition that led The Economist magazine to describe Hong Kong as the world's most nepotistic economy.
In the late 20th century, some Asian leaders including former Malaysian Prime Minister Mahathir bin Mohamad advocated "Asian-style capitalism," which meant a state- or family-led economy. But this system is showing signs of doing more harm than good to many Asian nations which have joined the ranks of middle-income countries.
The problem of the huge influence enjoyed by state-owned or government-affiliated companies in these Asian countries has been a major topic in the Trans-Pacific Partnership trade agreement negotiations.
It is time for Asia to tap the power of its some 4 billion individuals for economic growth, instead of pursuing development led by governments and influential families.
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