Millennium Post

China in rank crisis

On  5 June, Li Lang, former general manager and Party secretary of the Zhangzhou branch of China Telecom, one of China’s three telecoms giants, was detained by police for ‘severe violation of law and party discipline,’ becoming the 47th high-ranking State-owned enterprise (SOE) executive to come under investigation for corruption this year.

Following the 18th National Congress of the Communist Party of China (CPC) in November 2012, China launched an ongoing nationwide anti-corruption campaign, an effort that has so far seen a total of 180 high-ranking SOE ‘tigers’ (President Xi Jinping’s buzzword for powerful corrupt officials) jailed, with bribery, embezzlement and abuse of power being the three most common charges.

Repeated exposures of systemic corruption within China’s monolithic SOEs, including in core fields like energy, telecommunication, press and construction, have left China’s population with little faith in the government’s supervision of SOEs.

‘It has become evident that [the government’s] various layers of supervision on SOEs are largely ineffective. In other words, SOE officials are not subject to supervision by their subordinates, and are beyond the control of their superiors,’ Ji Xiaonan, chairman of the Supervision Commission of Key SOEs told the media following the arrest of Jiang Jiemin, former president of CNPC (China National Petroleum Corporation).

In 2014, the Disciplinary Inspection Commission of the CPC Central Committee has so far held four separate conferences on the subject of SOE corruption, and has issued an array of new policies to tighten both internal and external supervision on SOEs, such as setting up a dedicated office for the supervision of the State-owned Assets Supervision and Administration Commission (the SASAC), the department responsible for overseeing the SOEs, and expanding the range of investigations.

However, these efforts have been met with skepticism- critics called for a loosening of the relationship between administrative powers and SOE management, which many have referred to as the ‘soil’ in which corruption germinates.

Powerless Supervisors
China is now reportedly home to over 150,000 SOEs, most of which fall under the jurisdiction of the SASAC or its local counterparts which are responsible for supervising the assets, operations and human resources including top-level personnel- of SOEs. It is generally believed that this management structure has lead SOEs to bear a closer resemblance to government departments than enterprises, with many SOE leaders enjoying immunity from supervision due to their high administrative rank.

Of the 113 SOEs managed directly by the SASAC, 54 are designated ‘deputy ministries’ whose top-level leaders are appointed by the State-level Organisation Department of the Central Committee of the CPC, China’s highest determining body for official appointments. This means that many leaders at these SOEs hold a higher administrative rank than their supposed supervisors at the SASAC, let alone those at local supervision organs. Former president of China Three Gorges Corporation, Cao Guangjing, for example, was a deputy ministry-level official with status equal to that of the mayor of Chongqing Municipality where the gorges are located. Even more ironically, Jiang Jiemin, the former CNPC president now under investigation, had been promoted to director of the SASAC before his arrest.

‘[Due to the ranking issue,] the SASAC cannot exercise its right of supervision,’ Zhou Fangsheng, deputy director of the China Enterprise Reform & Development Society under the SASAC, told NewsChina, adding that many SOEs have been known to bargain with the SASAC over their annual performance appraisals.

Worse still, the administrative ranking system has effectively allowed SOE officials to set their own budgets. While the SASAC’s financial approval system, ostensibly an internal anti-corruption measure, sets specific thresholds for the amount of public funds different levels of SOE leaders are authorised to use, this has seldom restrained senior leaders, especially those in big state-owned monopolies.

Many believe this to be the reason why SOE corruption is often most rife in finance-heavy business activities like investment, procurement and bid solicitation. For example, both Li Lang and Jiang Jiemin are accused of having accepted bribes during purchases of telecoms and petroleum facilities, respectively. Jiang was also accused of controlling overseas assets valued in the billions of yuan.
Sources within the CNPC are reported to have criticised him for making the corporation into a ‘walled kingdom,’ requiring private enterprises to offer substantial kickbacks in exchange for contracts. ‘The so called ‘chairman’ of an SOE actually serves as both competitor and referee, usually dominating the decision-making with his sizable power,’ Zhao Huxiang, president of SinoTrans & CSC, a State-owned logistics giant, told political journal Nanfengchuang.

In 2000, China’s State Council set up a separate supervision commission, the Supervision Commission of Key SOEs, in an effort to tighten supervision of large, listed SOEs by bringing in third-party auditing firms, sitting in on SOE board meetings, and calling ad-hoc talks with top leaders.

However, since many SOEs form a part of the same administrative structure as the various supervisory departments, many of them enjoying an equal footing with their supervisors, the new measures have failed to guarantee independent supervision.

Official data show that the Supervision Commission in 2012 submitted a total of 283 briefs about their supervision of SOEs, proposed 730 pieces of advice and revealed 222 problems, most of which analysts have dismissed as irrelevant.

Inspectors Marginalised
A force of ‘disciplinary inspection secretaries,’ government-appointed internal supervisory personnel for SOEs, are even less effective, Chen Wei (pseudonym), one such secretary for a large SOE directly under the SASAC, said in an interview with NewsChina. He said that his position, in the eyes of many, is ‘nothing but an empty shell.’

‘As subordinates to the top leaders, it was hard for us to get involved in their work, let alone to supervise them,’ said the source. ‘Sometimes, [leaders] would get irritated because I was asking too many questions.’ Having been involved in SOE disciplinary inspection for 18 years, the source told NewsChinathat he spent most of his time reading newspapers and official documents. ‘The position was commonly known as a job for idle workers, or a substitute for retirement,’ he said.

Gao Zhikai, a former deputy president of a large SOE, China National Offshore Oil Corporation (CNOOC), agrees. He attributed the limited remit of disciplinary inspectors to the lack of legal rights of detection and investigation. ‘They have neither the right to monitor the calls and emails of those under suspicion nor to get involved in company operations. Simply ‘looking around’ at SOEs does little to fight corruption. Corruption is never obvious,’ he told NewsChina. ‘Even if the inspectors find evidence of foul play, the SOE leaders would either try to push them aside or drag them into the wrongdoing,’ he added.

‘No abnormalities were detected’ is our most frequently used term in reports to upper-level departments,’ said Chen Wei. ‘Although SOE corruption has been expanding in recent years, the number of reports of corruption we receive from the public is declining sharply, even to zero in the case of some SOEs. This proves that the public no longer trusts us,’ he continued.

How Far to Go?
Luckily for Chen Wei, since 2014 the Party’s central disciplinary inspection commission has expanded the powers of its disciplinary inspectors within SOEs, such as increasing their say over things like human resources and remuneration. According to Chen, the new policies have enhanced his status in the enterprise, and he is now receiving corruption reports from the public again. However, corruption remains endemic.

‘I still feel reluctant to report a suspect to the higher authorities [for further investigation]. If I do not do so, I have failed to fulfill my duties, but if I do, I might lose my job,’ he said. ‘I had never dared to refuse an SOE leader’s request for leniency on a suspect he wanted to protect.’ Chen’s worries are understood by many analysts and experts who believe that anti-corruption efforts based entirely on short-term campaigns will not be effective. Some now hope that the recent spate of shocking corruption scandals will press the government to deepen reform of SOEs, with measures such as breaking SOE monopolies and improving information disclosure to the public.

These hopes were given new momentum when the CNPC issued a new draft policy on 26 June, allowing private businesses to participate in the nation’s petroleum network- a move that some have suggested may be a byproduct of anti-corruption work.

However, many remain pessimistic, claiming that the government’s supervision of the SOEs is similar to a parent disciplining their children – favoritism is unavoidable. ‘I would much rather own a State-owned enterprise than have shares in one, as it’s the only way to have any say in how they are run,’ Zong Qinghou, chairman of the private food and beverage giant Hangzhou Wahaha Group, commented on the government’s bid to tempt private capital into State sector.

‘The root cause of SOE corruption is that the true stakeholders- the public- are kept out of supervision,’ CNOOC  former deputy president Gao Zhikai said. ‘If an SOE were to draw a map of its vested interests, it would start with bodies like the State Council, the SASAC and the ministry of finance, before moving onto things like the industrial and commercial sectors. The public wouldn’t be a factor,’ he continued.‘If this system can’t be broken, it will be impossible to uproot corruption.’ Link Times
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