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Source: China Daily China Daily

Anti-graft drive hits financial sector

Published: 25 Feb 2015 01:21:15 PST

BEIJING - Apparent probes into executives at two Chinese banks have been interpreted as a sign that China's anti-corruption drive is broadening, exerting pressure on banks to clean up their acts.

Bank of Beijing Board Director Lu Haijun is under investigation for "suspected severe disciplinary violations", the Shanghai-listed bank confirmed on Tuesday.

The announcement came two days after China Minsheng Bank President Mao Xiaofeng resigned for "personal" reasons, after reports that he had been questioned by discipline inspectors.

Fitch Ratings forecast limited impact on these banks, saying that Minsheng's strategy is unlikely to change much in the wake of Mao's exit while Lu's departure is also unlikely to have a significant influence given that he only served as the representative of one of the bank's shareholders, Beijing Energy Investment Holding Co.

However, it said these events underscore broader issues of governance, management and political risks facing China's banks, and could lead to a wider investigation into corporate management, which could potentially enhance transparency and improve governance standards in the long run.

Though the two incidents have yet to be confirmed by authorities as corruption-related cases, market expectations are growing that the nation's graft-busting campaign will eye the finance sector.

The nation's disciplinary inspection authorities vowed in January that they will toughen inspections of major state-owned enterprises (SOEs) across different sectors this year.

Li Jin, vice president of the China Enterprise Reform and Development Society, a government think tank, expects up to 72 centrally-administered SOEs to be inspected this year, including 19 in the finance and railway sectors.

Since 2013, Chinese authorities have organized five rounds of anti-graft inspections of ministries, provincial governments, state-owned enterprises and public institutions.

Fourteen SOEs were covered by these campaigns, including Sinopec and the Export-Import Bank of China.

"After years of anti-corruption efforts, the influence of graft-busting campaigns has been huge, and I expect the finance sector to face targeted corruption inspections this year," said Zhuang Deshui, a researcher on clean governance at Peking University.

China's top state-assets authority, which oversees 112 centrally-administered SOEs, said last month that practices such as embezzlement and squandering of state assets are typical problems, vowing to clamp down on the corruption.

According to official data, 71,748 Chinese officials were punished in 2014 for corruption.

Jiang Jiemin, former head of the State-owned Assets Supervision and Administration Commission, was expelled from the Communist Party of China in June, while the handover of Zhou Yongkang to prosecutors late last year made him the latest and highest-ranking official taken down since China began an unprecedented campaign against corruption in November 2012.

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