Page 1 of 2 China Inc taps into seam of bribery By Olivia Chung
HONG KONG - The sense of outrage in the West that greeted the arrest in China
of four Rio Tinto executives last month was predictable. The subsequent trial
may indicate whether or not the outrage is misplaced. For the case of the Rio
four follows a lengthening list of overseas companies allegedly doing in China
what the Chinese there are noted for doing - bribing their way through
business, at times getting caught.
About two-thirds of the half-million corruption cases investigated by Chinese
authorities over the past 10 years have reportedly involved parties from
overseas.
Chinese prosecutors say Stern Hu, an Australian citizen who headed London-based
Rio Tinto's iron ore business in China, and
his three Chinese national sales staff obtained commercial secrets about
China's steel and iron industries through "improper means" and were involved in
bribery. Earlier claims that they were involved in spying and stealing state
secrets have been dropped.
Australian opposition Senator Barnaby Joyce was in little doubt that there was
a mendacious hand behind the arrests. "This should be a sobering wake-up call
for all Australians," Joyce said in an e-mailed statement three days after the
Rio staff were taken into custody on July 5. "This should be a clear example to
Australia, and other countries around the world, of the extent of the
relationship between a 100% owned entity in the People's Republic of China and
the actions of the Chinese government."
The arrests came as Rio was deadlocked in annual talks on iron ore prices, with
China, the world's largest buyer of the key product in steel, holding out for
larger price cuts than had been granted to South Korean and Japanese
steelmakers.
A few days later, Australian Prime Minister Kevin Rudd was assuring a concerned
public that his government was working on the case at "multiple levels" with
Chinese authorities.
Rudd said he had raised the issue of Hu's detention with a Chinese vice foreign
minister during a meeting of world leaders in Italy, Bloomberg reported. A day
later, he ratcheted up tensions by warning the Chinese that the "world is
watching" how the case is handled. In the United States, Commerce Secretary
Gary Locke chipped in by urging "greater transparency" by the Chinese
authorities and due process.
The Chinese responded, perhaps not unreasonably, that Rudd's comments were an
"interference" with the nation's legal sovereignty.
Civilian "experts" were also quick to come forward with comment on what some
perceived as brute government intimidation in a business negotiation. Jerome
Cohen, a professor at the New York University School of Law and a member of the
New York-based Council on Foreign Relations, even called for overseas
businesses dealing in China to take this opportunity to become more involved in
China's human-rights issues.
"This case is a shock to the foreign investment community in China because
they've shown little interest in human-rights cases and issues of due process
there in the past," he said. "Business people like to look the other way. This
shows that they should pay more attention and put more pressure on the Chinese
government to meet international standards."
Foreign multinational companies (MNCs) on the mainland have tried to
distinguish themselves from domestic companies by stressing operational
efficiency, integrity and professionalism - to the extent that leading Chinese
companies seek also to meet those standards, or at least to give that
appearance.
The rod to the backs of most overseas businessmen is a convention adopted by
the 30-member Organization for Economic Cooperation and Development (OECD) that
prohibits the bribing of foreign public officials. China is not an OECD member,
most industrialized countries including the US and Australia are.
China's fast modernization has gone hand-in-glove with increasing levels of
corruption, leading to a widespread perception that it has become deeply
ingrained in society during the past 30 years of economic reforms.
China, the world's third-largest economy, scores dismally in the annual
corruption listing put out by Transparency International (TI). The communist
country ranked 72nd out of 180 countries in the organization's Corruption
Perceptions Index last year. On a scale of 10, with 10 being the least corrupt,
China scored a mere 3.6.
China is Australia's second-biggest trading partner and Australia's largest
source of foreign investment, yet Australia is at the other end of TI's
corruption spectrum, its 8.7 score ranking it ninth, five places behind the top
Asian nation, Singapore and ahead of 12th-ranked Hong Kong, now a
semi-autonomous part of China.
The world's top two economies - the United States and Japan - shared 18th spot.
Death for corruption
Whatever fate might await the Rio four, it is thought unlikely to be as severe
as that meted out to senior Chinese executives breaking bribery rules.
Execution for corruption was the fate just last Wednesday of Li Peiying, the
former chairman of Capital Airport Holding Co, which controls or has stakes of
31 airports. Li, 59, whose company, founded in December 2002, also does
business in the securities and real estate industries, was found guilty of
embezzling 82.5 million yuan (US$12 million) and accepting 26.6 million yuan in
bribes during his tenure.
His death came two days after the head of China's nuclear power program was put
under investigation for corruption.
Kang Rixin, party secretary and general manager of the state-owned China
National Nuclear Corporation (CNNC), is the latest of several officials to be
investigated for allegedly interfering in the tendering process of the
company's nuclear projects. In a separate case, China Guangdong Nuclear Power
Corp has been implicated in the leaking of business secrets to foreign nuclear
power companies before a public tender process last year.
China, the world's second-largest power market, has 11 working nuclear reactors
and is adding at least another 24, including five plants scheduled to start
construction this year.
In April, construction started on China's first third-generation pressurized
water reactors using AP 1000 technologies developed by US-based Westinghouse, a
company now owned by Japan's Toshiba. China wants to have 100 Westinghouse
nuclear reactors in operation or under construction by 2020, more than double
what was anticipated, the Pittsburgh Tribune-Review reported in June 2008,
citing chief executive Aris Candris. In 2007, the company beat out French rival
Areva to win a $5.3 billion contract to build four AP 1000s in China, the
report said.
Severe sentences are clearly not deterring Chinese nationals from having their
palms greased by their overseas counterparts in the mutual pursuit of profits.
In recent years, Germany-based engineering conglomerate Siemens, French
supermarket chain Carrefour and Lucent Technologies, now part of French
telecommunications giant Alcatel-Lucent, are just some of the multinationals
whose staff have blended in with the local corruption culture - to the
disappointment of some locals.
"They cannot bring their clean operation and integrity from abroad," said He
Jun, senior analyst on economic and public policies of Anbound Group, a
Beijing-based information consultancy. Although accurate figures on how
widespread bribery is involving MNCs on the mainland are by their nature
absent, there is an increasing trend of corruption involving overseas outfits
in China, he said.
About 64% of the 500,000 corruption cases that had been investigated on the
mainland in the past 10 years involved multinationals or foreign trade, He
said, citing a survey published at the end of 2006.
Experts attributed this to a culture of local corruption, big state-owned
enterprises enjoying monopolies and a lack of a comprehensive corruption law.
Multinationals may try to uphold high ethical standards, but they have made
concessions by paying bribes as part of their business costs when becoming more
accustomed to the Chinese culture, He said.
"When doing business in China, most foreign companies have no clues due to the
lack of transparency in China's business environment. On the contrary, guanxi
- having to develop connections with government agencies - is usually viewed as
a common way of doing business. When in Rome do as the Romans do. That's why
foreign companies bend themselves to this hidden rule in China."
He also blamed rampant multinational bribery on the structural problem of
China's business market.
"With the [government's] preferential policy treatment, state-owned enterprises
[SOEs] enjoy monopolies and their heads have been preconceived as being easy
targets for doing business with ... some SOEs are taking advantage of their
positions to earn as much as they can. Besides, without checks and balances in
these enterprises, we will only hear more cases involving such big fish," He
said.
Sometimes not such big fish.
Germany's Siemens last year said it agreed to pay total fines and penalties of
about 1 billion euros (US$1.4 billion) in Germany and the US for its bribery in
several countries, including China.
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