Combating the Culture of Corruption

By EO Editorial Board
Published: 2009-08-21

Cover Editorial - EO print edition no. 432
Translated by Zhou Yuning
Original article:

Commercial bribery is a problem faced by all countries around the world, but? for China, the need to confront commercial corruption is especially urgent.

A survey conducted by the United Nations revealed that around the world, commercial bribery had pushed up the cost of contracts by almost 15 percent. The costs associated with commercial bribery in China are likely to be even higher in China.

According to statistics released by the Ministry of Commerce, every year 772 million yuan in state assets are blown on corruption and kickbacks in the pharmaceutical industry, this is equal to about 16 percent of the industry’s tax income.

This sum will eventually be included in the price of the products and thus is passed on to the end consumers - the public at large.

As an emerging global market, China also faces plenty of challenges in dealing with commercial bribery in cross-border trade.

More and more multinationals have been caught bribing their Chinese partners, for instance, the recently exposed case of Communication Component Inc's (CCI) payments to employees of China National Petroleum Corporation (PetroChina) and China National Offshore Oil Corporation (CNOOC).

There's also the case of sticker giant Avery Dennison’s under the table dealings with an affiliate of the Ministry of Public Security.

A research paper showed that cases of multinationals bribing Chinese companies is on the rise.

In the last decade, at least 500,000 cases have been exposed, of which 64 percent were related to international trade and involved foreign businesses.

Of course, we cannot simply jump to the conclusion that foreign bribery conducted by international firms makes up the majority of commercial bribery cases, domestic enterprises are no less involved than foreign companies.

The relatively strong legal system and the quality of regulation abroad, means that the illegal dealings of multinational enterprises are quickly exposed.

The lack of sufficient supervision and regulation makes it possible for domestic companies to break the rules at will and there is a serious risk that this kind of behaviour will become universally-accepted, a sort of unwritten rule about how business is done in China.

It's become obvious that in most cases involving multinational companies bribing Chinese businesses, that the regulatory authority of the foreign firms exposes and investigates the case and also finally levies the fine against the company, China's regulators are conspicuously absent from the process.

Not only does commercial bribery cause a huge loss for society, it eventually erodes the basis for equal competition in a market economy.

Commercial bribery and other unfair methods are like cancer cells in the body of a market economy, if they're not kept in check, they're sure to infect the healthy cells and will result in the death of the market economy as a whole.

People all over the world have recognized the negative effect of commercial bribery.

Thus, the U.S. introduced the Foreign Corrupt Practices Act (FCPA) to combat this problem.

Now China is confronted with the same problem. We believe China should establish a similar law as soon as possible, to put an end to what is in effect a “renting of power.”

We should prevent China from becoming a hot bed for commercial bribery, as this would wipe out the market economy that we have devoted so much hard work and effort to building and maintaining.

When China? first opened up our country's domestic market to overseas enterprises, the country was not only trying to attract capital, but also attempting to foster a spirit of fair competition and of business ethics.

But why do some foreign companies, who are model corporate citizens in their domestic setting, frequently become involved in corruption and bribery scandals when they come to do business in China?

We believe that one of the reasons has to do with the quality of China’s commercial environment.

As an emerging market, the construction of China's legal system has lagged far behind its progress in developing trade and communications.

Rather than form a specific law like the U.S's FCPA, the provisions related to commercial bribery in China are spread throughout many different sets of laws and regulations.

In addition, this overlapping nature of the administration control will likely weaken the strength of any future crackdown.

All of these factors contribute to continuing presence of bribery scandals involving multinational companies in China.

In addition, as commercial bribery actually seeks to buy “power”. The epicenters of the disaster that is bribery are those departments that hold monopolistic control of a certain market or possess the power to have the final say in certain economic transactions.

We notice that most of the companies exposed as recipients of bribes are state-owned enterprises, government departments or industry associations which have a close connection with administrative power.

They all have different kinds of power, such as the authority to approve a project or the responsibility for purchasing goods.

As a result, the continuation of the trend of decentralizing power, is indispensable in China's push for economic reform.?