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Buyer Community> Trade Intelligence> China Biz> Business bribery troubles China
Source: Global Times Global Times

Business bribery troubles China

Published: 20 Aug 2009 20:02:01 PST

Illustration: Peter Espina

By Yu Miao

Its the age-old adage of you scratch my back, Ill scratch yours that drives one of the most common practices among Chinese companies: bribery.

Seen as basically an underlying rule of business, bribes have had their place behind the scenes for thousands of years.

But the time has come, Chinese officials say, to clamp down on the nefarious practice.

Earlier this month, China formally charged detained Rio Tinto employees in connection with bribery and infringing on industry secrets. But the ongoing investigation has gone far beyond the case itself  putting the spotlight on corporate crime and its often-unchecked spread throughout the country.

Unlike the Rio Tinto case, in which Chinese authorities were the first to expose what they maintain were illegal activities, most cases of corruption at the corporate level have been exposed by foreign regulators known for being much harsher on such malpractice.

That includes bribery scandals involving both foreigners and Chinese citizens, all of whom operate under the noses of local authorities, or worse, with authorities in on the shady deals.

Even after foreigners are found guilty of bribery, some of their Chinese recipients can still deny the charge, Jiang Yong, the director of Economic Security Studies at the China Institutes of Contemporary International Relations, told the Global Times.

The lack of specific laws on business bribery makes China an ideal stage for showing the power of money. I hope the swift move from Chinese authorities on the Rio Tinto case indicates their determination to crack down on business briberies, although it is still too early to tell, he added.

Malpractice make headlines

The Rio Tinto case is just the tip of the iceberg, and it has already caused great damage to China, as the country relies on imported iron ore that the Australian miner provides.

Every year, Chinese steel manufacturers negotiate iron ore prices with foreign exporters such as Rio Tinto. If Chinese authorities again waited for bribery alerts from their Australian counterparts, analysts say, China would have suffered more losses on its iron ore procurement.

Back in January, another bribery case broke in the US, despite happening in China.

Mario Covino, a former executive of CCI-Control Components, pleaded guilty January 8 to bribing many foreign officials in his efforts to secure business. Nine Chinese companies were involved, including CNPC, whose employees accepted bribes totaling at least $242,899.

According to a report yesterday at www.ifeng.com, the website of Hong Kong-based Phoenix TV, CNPC officials said they are still investigating the case. Other Chinese businesses involved, such as the Datang International Power Generation Co, CNOOC and Shenhua Guohua Power, said they were unfamiliar with the investigation or simply denied receiving any illicit money.

Around the time the Rio Tinto case was picking up steam late last month, the spokesman for Avery Dennison Corporation, David Frail, admitted that the company had bribed Chinese officials in 2004 for a sticker contract for 15,400 police cars.

The US Securities and Exchange Commission (SEC) ordered the company to return more than $300,000 with interest, plus a $200,000 fine. Chinese authorities were again unaware of the illegal activities until the case broke abroad.

From 2000 to 2003, Lucent Technologies, which merged with Alcatel and formed Alcatel-Lucent in 2006, invited about 1,000 employees from State-controlled Chinese telecommunication companies for a bit of sight-seeing in the US and other countries, spending more than $10 million.


The company succeeded in signing a $428 million contract with a firm identified as customer No. 1 in October 2002 for a CDMA project in China. Lucent reached an agreement with the US Attorneys Office and the SEC in 2007 for the illicit trips and paid $1.5 million in civil penalties.

During its August 12 coverage of the Rio Tinto case, Chinese Central Television (CCTV) cited figures indicating that during the past decade, the Chinese government investigated about 500,000 corruption cases, 64 percent of which were related to international trade or foreign business, and the ratio is still increasing.

In the absence of laws

The US has its Foreign Corrupt Practices Act, but there are no such designated laws in China to fight business bribery.

Currently, we make only amendments in the Unfair Competition Law and Criminal Laws to deal with business bribery cases, Qi Huan, an associate professor at the Law Academy of the China University of Political Science and Law, told the Global Times.

The status quo may continue for some time, as there hasnt been significant progress in making an anti-business-bribery law, she said.

And according to Jiang Heng, vice director at the Beijing New Century Academy on Transnational
Corporations a research facility under the Ministry of Commerce, enforcing restrictions on business bribery is too scattered to be effective.

The Rio Tinto case was handled by the Ministry of Public Security because Hu was a white-collar worker, Jiang Heng told the Xinhua News Agency, referring to Stern Hu, Rio Tintos Shanghai representative.

However, when a case involves a state official, it is handled by the Ministry of Supervision. Other small cases may be handled by the Administration of Industry and Commerce, as well as the Administration of Taxation, Jiang Heng added.

The current anti-bribery operations are more focused on bribe recipients, not the providers. Also, we pay more attention to government-related briberies, not the business ones, he added.

The aforementioned Jiang Yong expressed similar sentiments, saying that because of its few laws and lackluster enforcement, China's current fight against corporate crime relies mainly on the honor system of business ethics.

Not all Chinese people can hold on to their business ethnics, especially when being lured with dollars, Jiang Yong said. Many foreign businesses have established a policy of using Chinese to counter Chinese. They hire Chinese people to bribe Chinese officials. Some companies even set up extended budgets for catering and traveling, which are alternatives to bribery.

Mu Kun, an entrepreneur in Hangzhou with a small logistics business and 20 employees, spoke openly about his past experiences with bribery.

I've paid off all the officials I have to deal with. The forms of bribery vary, but I have initiated them all. That's the rule here, and everybody does it.

You can't get anywhere without giving up something first, he added. There are so many departments you have to go through; money can help.

Long road ahead

Since the country's opening-up in the late 1970s, foreign businesses have poured into China and contributed to its rapid economy development, thriving along with domestic firms in the new environment.

However, the negative impact of bribery has swelled along with the country's growing capacity for business, and more widely publicized cases such as Rio Tinto's would only serve to further weaken local and international perception of doing business in China.

And the public is already crying foul.

Liu Xiaoliang, an economics student at Renmin University of China, said he's concerned about the impact of corporate bribery on the general public.

No business bribery at least means we can buy things cheaper, Liu said. I'm afraid to catch a cold these days, not because of the A(H1N1), but because of the ridiculously high price of medicine. I know of reports involving doctors receiving bribes, but I haven't seen much progress in countering such behavior.

Jiang Yong put it simply, If we say business bribery is a tumor on China's economic body, then we need to excise it, even if we have to lose some blood. We need to complete an anti-business-bribery law. And we need a better enforcement system and stronger media monitoring.

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