Saturday, Nov 1, 2014, 8:05 AM CST – China

Commentary

Corruption has evolved, so should the means to fight it

China’s anti-corruption efforts need to get ahead of their intended targets

When US authorities launched an investigation into JP Morgan’s alleged hiring of the “princeling” of powerful Chinese officials, the scandal exposed the rapid evolution of China’s official corruption in the business arena, leading to a widespread public outcry.

While the relevant companies in China rushed to mount a defense, no formal investigation has been launched on the Chinese side. This decision inevitably led to accusations that while the US authorities were willing to go after corrupt Chinese officials, China’s own anti-corruption agencies were not.

According to a report in the New York Times, JP Morgan hired the son of Tang Xiaoning, chairman of State-controlled financial conglomerate the China Everbright Group. Tang’s son Tang Shuangning, along with Zhang Xixi, the daughter of now-disgraced Chinese railway official Zhang Shuguang, both were given prominent positions, it is alleged, on the strength of their fathers’ Chinese business contacts alone.

Although the US investigation has yet to be concluded, there is consensus that Chinese officialdom now has interests in business across the globe. While the Chinese government has stepped up its anti-corruption efforts in recent years, corruption itself, experts allege, has become infinitely more complex and far-reaching than at any other time in history.

Compared to earlier “power for money” exchanges, corrupt officials now establish and nurture more complicated networks in an effort to conceal their illegally-acquired wealth. As China’s economy becomes more labyrinthine, so does corruption, and any investigator must negotiate multiple layers of relationships, tracing them back over a long period of time. More often than not, by the time an investigation connects an individual with illegal wealth, either the individual, their assets, or both will have migrated out of reach.

Another characteristic of China’s contemporary corruption is the forging of alliances between Western financial bigwigs and China’s political elite. While Western investment banks can offer desirable expertise and access to foreign financial markets, China’s political elite can offer generous returns. According to the Wall Street Journal, hiring princelings is a widespread practice among Western banks in China, and has earned these institutions the right to conduct IPOs for Chinese firms.

As interest transfer is conducted through established rules and procedures, it has become harder and harder for investigators to track and prove the existence of unlawful practices, both in China and abroad. For example, to prove a case against JP Morgan, the US government would have to demonstrate the bank had “corrupt intent” in hiring princelings. China’s own anti-corruption agencies are also hampered by the shifting sands of the State-controlled judiciary, which retains the right to veto any case it chooses.

China’s anti-corruption authorities have fallen behind, and must update their strategy. To supervise commercial deals between State-owned enterprises and private companies, China should establish independent audits and an effective withdrawal system. Central to such changes would be the establishment of a database detailing officials’ asset holdings and business connections – something that independent analysts and the public have demanded for decades.

As curbing corruption has become increasingly difficult, prevention may be a more useful pursuit than cure. In addition, solutions have to be political - limiting the power of individual officials, increasing the transparency of decision-making and making officials truly accountable.

As curbing corruption has become increasingly difficult, prevention may be a more useful pursuit than cure 

(The author is a senior media commentator.)

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