Level of corruption
Business Corruption in China
President Xi Jinping has started the country’s biggest anti-corruption campaign since the rule of Mao Zedong. Since assuming office, President Xi has vowed to fight corruption and promised to fight ‘tigers’ and ‘flies’, by which he referred to high and low-ranking officials. His campaign has resulted in the punishment of 182,000 officials for corruption and abuse of power nationwide in 2013. The investigation into some high-level officials, such as a former internal security chief, Zhou Yongkang, and a former deputy logistics chief of the People’s Liberation Army, Gu Junshan, is producing evidence that Xi is to break the party’s long-established unwritten rule of immunity for members of the Politburo Standing Committee. Despite the positive development regarding corruption investigation and prosecution, the effectiveness of citizens as well as civil society groups reporting on corruption still remains low.
The Criminal Law does not contain an exception for facilitation payments like the US Foreign Corrupt Practices Act(FCPA), according to Morrison & Foerster in August 2011. Businesses should pay special attention to such practices, especially under the climate of the new government’s fight against corruption, which is leading to an increasing number of foreign and multinational companies coming under scrutiny and being accused of corrupt practices by authorities (such as the GSK bribery scandal). Companies are advised give careful consideration to the type and value of gifts and the nature of the business relations. Further, companies should develop and implement compliance systems and conduct due diligence when doing business in China. For more information about Guan Xi, see this country profile’s special section Guan Xi (关系).
Chinese Corruption Levels
Levels of corruption in the different sectors indicate where corruption can be encountered. The levels are defined as follows:
- Individual Corruption: Corruption that takes place primarily in relations between individual citizens and public officials and authorities.
- Business Corruption: Corruption that takes place primarily in relations between enterprises/companies and public officials and authorities.
- Political Corruption: Corruption that takes place in the higher echelons of public administration and on a political level.
Business and Corruption
Corruption in China is endemic within public and the private sectors, despite passive and active bribery being serious crimes, punishable by up to life imprisonment and the death penalty. Business executives surveyed by the Global Competitiveness Report 2013-2014 report that public funds are sometimes diverted to companies, individuals or groups due to corruption, and that the lack of ethical behaviour of companies in their interactions with public officials, politicians and other companies represents a competitive business disadvantage for China. Congressional Research Service Report 2013 suggests that widespread government corruption, financial fraud and misuse of investment funds, resulting from a general lack of rule of law, are serious barriers for doing business in China. Kickbacks in the pharmaceutical industry haven proven to be endemic, as illustrated by several most recent corruption scandals involving international pharmaceutical companies such as GlaxoSmithKline and Sanofi.
China is still in the process of acceding to the Government Procurement Agreement (GPA), which calls for more transparent and non-discriminatory conditions for international competition. Although much progress can be witnessed, as reported by the Investment Climate Statement 2013, China is still trying to protect its ‘vital industries and key fields,’ which are defined as ‘industries concerning national security, major infrastructure and important mineral resources, industries that provide essential public goods and services, and key enterprises in pillar industries and high-tech industries’.
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