An Empirical Study of Corruption Within China' SOE PDF

Chinese University Press
An Empirical Study of Corruption within China's State-owned Enterprises

Author(s): Wenhao Cheng
Source: China Review, Vol. 4, No. 2, Special Issue on: Corruption in China (Fall 2004), pp. 55-80
Published by: Chinese University Press
Stable URL: http://www.jstor.org/stable/23461884
Accessed: 23-09-2015 23:14 UTC
Your use of the JSTOR archive indicates your acceptance of the Terms & Conditions of Use, available at http://www.jstor.org/page/
info/about/policies/terms.jsp
JSTOR is a not-for-profit service that helps scholars, researchers, and students discover, use, and build upon a wide range of content
in a trusted digital archive. We use information technology and tools to increase productivity and facilitate new forms of scholarship.
For more information about JSTOR, please contact support@jstor.org.
Chinese University Press is collaborating with JSTOR to digitize, preserve and extend access to China Review.
http://www.jstor.org
This content downloaded from 131.94.186.11 on Wed, 23 Sep 2015 23:14:45 UTC
All use subject to JSTOR Terms and Conditions
The China Review, Vol. 4, No. 2 (Fall 2004), 55-80
An Empirical
Study of Corruption
within Chinays State-owned
Enterprises
Wenhao
Cheng
Abstract
China's
state-owned
practices
corrupt
power
and
given
the
how
very
which
control
have
managers
combination
Wenhao
China's
CHENG
Management,
from
Yale
of all
Peking
governance,
Anti-corruption
factors
that
many
led
to
corrupt
and
the ones
practices,
systems
provides
It is the
adventures.
managers'
has
of
managers
their corrupt
supervision
by
power
Various
by the system
given
for the general
of these
general
of the enterprises.
that
themselves
on of the managerial
enables
their
argues
enterprises,
to enrich
policy,
of existing
abuse
managers
the
by
to rampant
corruption
SOEs.
Professor
is an Associate
Tsinghua
University
University
by
further facilitate
created,
weakness
safe environment
relatively
those
both
including
and the institutional
within
activities
greatly
by the general
of all, the author
incentives
reform
harmed
those
general
decentralizati
Second,
lucrative
SOE
provided
strong
is an important
opportunities,
general
income
been
especially
to do so. First
developed
the most
why
explores
limited
their power.
abusing
by insiders,
they manage
have
managers
SOEs,
article
This
managers.
have
(SOEs)
enterprises
committed
in 2002.
corruption
at the School
received
University.
He
in 1996
his doctoral
His
and
research
control,
and Governance
covers
electronic
Research
his BA
degree
a number
government,
Center
of Public
in Political
of important
etc.
of Tsinghua
He
also
and
Policy
in International
Politics
from
Science
topics
such
founded
University
as
the
in 2000.
56
Wenhao
It takes
only
more
takes
Researchers
one
than one
person
to make
person
to totally
destroy
a state-owned
enterprise
Cheng
prosper,
but it
it.
into Chinese corruption have paid relatively little attention to

SOEs, an issue that we cannot afford to ignore.
corruption within China's

State-owned enterprises,
which form the foundation of China's public

three
roles in corruption. First, many of them have
sector, actually play
suffered greatly from corruption committed by insiders. Second, individual
state-owned enterprises, just like their counterparts in the private sector,
often engage in corrupt practices themselves. For instance, many of them
are willing to bribe officials in order to obtain loans, quotas and
contracts,
government
because
of market
when
these
resources
are
open
for
competition
reform.
The third role played by SOEs, which researchers tend to ignore, is

that they sometimes assist the corrupt practices of public officials by
providing false receipts, bank accounts, and similar documents to them. To
function and to profit, every enterprise has large numbers of bank
transactions and large amounts of cash flow that are difficult for outside
groups to monitor. At the same time, enterprises are subject to less
financial oversight than government agencies, because they are supposed
to make decisions freely based on the best judgment of the managers.
Therefore, in the eyes of corrupt officials, enterprises are a safe haven for
hiding, transferring, and laundering their corrupt proceeds.
Thus, although SOEs often suffer from corruption perpetrated by
insiders, they also engage in corrupt practices themselves, at times, and
facilitate the deals of public officials, simultaneously playing multiple
roles in corruption. This article will focus on corruption on the part of

insiders in order to see how corrupt practices could be committed in the
first place, and why existing supervision
from happening.
How
Serious
systems failed to prevent them
Is the Problem?
On the surface, corruption within SOEs can be demonstrated by the

extravagant life-style of many SOE managers. One survey showed that
among one hundred SOE managers in Shenyang, the capital city of
Liaoning Province, 70% had bought big houses for themselves and 82%
had obtained luxurious business cars using public funds after assuming the
position.1 An investigation carried out by government agencies into 400
entertainment facilities located
in six capital cities led to the surprising
An Empirical
Study
within
of Corruption
China's
State-owned
Enterprises
57
finding that as much as 60% of their total revenues came from SOEs. And
sometimes their spending became very extravagant. For example, one
entertainment centre in Xi'an City introduced a very luxurious service
package named "You are the Emperor." The package included 15 different
entertainment programmes that lasted for a total of 8 hours and was priced
at RMB5,000. Rich people rushed to bid for the title of "the first Emperor"
at auction. The general manager of one loss-making SOE eventually won
in the
the title with a bid of RMB68,888.2
By way of comparison,
meantime, the average yearly income of SOE workers in that province was
RMB6,230.3
In addition to the wilful spending of SOE managers, Chinese SOEs
also suffer greatly from the three major types of corruption in China: graft,
From 1999 to early 2000, corruption cases
bribery and embezzlement.
handled by People's Procuratorates at all levels involved more than 15.000
suspects that worked for SOEs. More than 12,000 of these cases involved
graft or bribes of over RMB50,000 or embezzlement of over RMB 100,000.
There
were also
570 cases
RMB500,000
graft and bribes of more than

of over RMB1
involving embezzlement
involving
and 790 cases
million.4
Rampant corruption within SOEs can also be demonstrated by the
official statistics of localities. From 2000 to September 2001, the People's
Procuratorate of Beijing registered 512 graft and bribery cases occurring in
SOEs, accounting for 60% of all cases it registered in that period.5 In the
first half of 2001 alone, the People's Procuratorate of Shanghai registered
209 graft and embezzlement cases involving SOE personnel, accounting
for 71% of all cases it registered in the period.6
In some cases, corruption within SOEs became
so devastating that it
In recent years, the
brink
of
to
the
the
bankruptcy.
enterprises
pushed
losses they
and
the
financial
within
SOEs
between
correlation
corruption
of
Procuratorate
made has almost become a rule. For instance, the People's
District of Shanghai, China's largest industrial city, has
24 graft and bribery cases in 12 loss-making SOEs.7
broken
successfully
in
Jiangsu Province once launched a campaign specifically to
Jiangyin City
target the so-called "rich monks in poor temples" phenomenon. Within two
months, investigators had identified 33 corrupt managers within 33
the Baoshan
that
enterprises
were
losing
money
for unexplainable
reasons.8
After reviewing the current situation of corruption within SOEs, it is

logical to raise three questions. First, why has corruption within SOEs
become
so
rampant?
Second,
who
carried
out
those
corrupt
practices,
and
58
Wenhao
Cheng
how did they succeed in doing so? Third, is there any connection between
corruption in SOEs and certain reform policies that have been introduced
in the last two decades?
These are the questions that I will address in the

following part of this article.
Case studies are extremely helpful in explaining why corruption is so
rampant in SOEs. I have successfully collected 264 SOE corruption cases
published by the Justice Network of Procuratorate Daily (www.jcrb.com.
cn) from 1999 to 2001.1 found that these cases not only point to the general
trends of SOE corruption, but also provide detailed information about how
those practices were completed.
heavily on these cases.
Who
in Corrupt
Engaged
Thus, the analyses
Practices
within
which follow rely
SOEs?
In theory, three types of SOE employees are able to engage in corrupt

practices. First of all, ordinary workers may have opportunities to steal
public funds. They include accountants, cashiers, and sales representatives.
Although these people do not hold substantial managerial power, they are
the persons who come into contact with those resources that flow in and out
of the enterprises on a daily basis. Therefore, there are times at which they
can steal money by taking advantage of their low positions in the command
chain and of the information asymmetry problem that is built into the
system. They could do so in various ways, including forging financial
records, hiding revenues, and secretly cutting spending.
Among the 264 SOE corruption cases I collected, 38 involve corrupt
practices on the part of ordinary workers. As Figure 1 shows, accountants
were responsible
for 21 out of the 38 cases, while sales persons and fee
collectors
contributed
are
positioned
better
9 and
than
4 cases
others
It seems
respectively.
to abuse
their
that
accountants
power.
Middle-level
staff are another group of people who are more likely to

in
engage
corrupt practices. Unlike ordinary workers, they hold genuine
managerial power, especially the power to distribute certain types of
resources.
For
complicated
that often requires

raw materials
purchasing
including
modern
example,
industrial
process
production
various
supporting
is
very
activities,
and
equipment,
improving
technologies,
producing and selling products. As a result, industrial
enterprises often have a distribution of labour arrangement among middle
level staff. They usually have several directors, each of whom is in charge
of
certain
aspect
of
the
enterprise
such
as
procurement,
sales,
and
An Empirical
Study of Corruption
within
China's
State-owned
59
Enterprises
Figure 1
Others
Fee Collectors
Sales
21
Accountants
10
15
20
25
Number of Cases
financial
management. Figure 2 describes the distribution of labour

between top and middle-level staff in one typical Chinese SOE.
Although the directors work under the direct guidance of the general
manager, they also enjoy a certain freedom of action when handling issues
This freedom is usually
falling into their sphere of responsibility.
authorized by the senior management, which wants them to respond
quickly to changing situations. But sometimes directors can abuse their
power by taking advantage of their relative autonomy and by withholding
critical information about their work. For instance, directors of
procurement can always find a number of suppliers with whom to bargain.
When these suppliers have similar qualifications
the same
prices,
it is relatively
safe
for directors
and they ask for roughly

of procurement
to choose
Figure 2
60
Wenhao
the one who offers the most kickbacks.

sometimes
hide
some
sorts
And directors of finance can

revenues
of irregular
Cheng
that
are
known
to
only
them and a few accountants. They could then wait for a while and finally
keep the money for themselves.
Because
the
operation
of
modern
enterprises,
that
especially
of the
really huge ones, involves numerous activities, senior managers are simply
not able to monitor every activity closely. The more layers there are in a
hierarchic arrangement, the more information will be withheld when it is
transmitted to the top. Therefore, even in a SOE
of an
control
level
staff
astute
to make
general
manager,
there
that is under the tight
is plenty
of room
for middle
arrangements.
self-serving
Among the 264 SOE corruption cases that I have collected, 49

involved the corrupt practices of directors. Figure 3 reflects the distribution
of the cases among different departments.
Figure 3
Construction
Procurement & Supply
Sales
15
Others
Finance
i
10
19
t
15
20
Number of Cases
As Figure 3 shows, finance (19) and sales (8) are the two single biggest
contributors to the corruption cases. This is understandable, because
directors of finance have easy access to large amounts of cash flow.
The
financial
management
sector
as
a whole
has
contributed
40
cases
to the 87 corruption cases involving ordinary employees and directors,

including the 21 cases involving ordinary accountants. This confirms that
financial management is the most vulnerable part of China's
SOEs.
An Empirical
within
Study of Corruption
The third group of corruption

including
both
the
managers
are
often
and
entrusted
to
vice
managers.
the
supervise
61
Enterprises
are SOE
perpetrators
managers
general
State-owned
China's
managers,
vice
Because
of
operation
multiple
departments, they have much more discretionary power than department

heads. Thus, they can make corrupt deals either by bargaining with
outsiders individually, or by colluding with directors under their control.
In Chinese
the
possess
SOEs,
most
it is general
however,
decision-making
managers
but
power
also
who not only

have
the
most
opportunities to enrich themselves. Official statistics, for example, show

that
are
managers
general
for
responsible
substantial
of
proportion
corrupt practices taking place within SOEs. The People's Procuratorate of

Liaoning Province investigated the wrongdoings of 2,226 SOE employees
from
1997
to June
and
2000,
of them
1,067
were
general
In
managers.9
2000, Wuxi City in Jiangsu Province uncovered 52 corruption cases in

state-owned enterprises that were performing poorly and punished 56
of whom
persons,
41
were
managers.
general
can also prove this point. As Figure 4

shows, general managers alone have contributed 117 cases, 44.3% of the
total 264 cases. And general managers and vice managers together
The cases
contributed
I have collected
or 54.92%
145 cases,
of all cases.
The
percentage
is
disproportionately high.
Corruption cases involving general managers not only account for a
Figure 4
Other
Party Official
6
1 25
Sub
J 28
Vice Manager
38
Ordinary Worker
1 49
Director
General Manager
0
20
40
60
80
100
120
Number of Cases
140
62
Wenhao
Cheng
large portion of the total SOE corruption cases, they also often involve
large amounts of money. For instance, among the 32 big cases (graft or
or embezzlement cases
bribery cases involving more than RMB50,000,
involving more than RMB 100,000) that have been registered in Xianyang
City, Shanxi Province in the last three years, about 60% involved general
managers.
My research also confirms this point. On average, the 117 general

million in graft, RMB7.34
million in
manager cases involve RMB3.03
and
RMB21.26
million
in
embezzlement.
of
bribes,
By way
comparison,
the 18 cases of bribery by powerful local bank officials (14 were directors
or vice directors of the banks) that I studied involved RMB0.742
about one tenth of the total amount received
average,
In other
managers.
words,
general
managers
million on
by SOE
of state-owned
general
can
enterprises
sometimes extract many more bribes from the business activities of the
enterprises than bank officials can from the precious bank credits they
control. This comparison alone proves that these managers do in fact
control
enormous
Besides
economic
resources.
the large
amounts of money
managers also tend to
corruption. According to my calculation, 47
two or more core types of corruption, with 9
practices,
general
in their corrupt
in
engage
many types of
out of the 117 cases involve
involved
cases involving graft, bribe

This confirms the rule that "bad things often
taking and embezzlement.
come together," and Figure 5 shows the percentage
of different
combinations of corruption types in the 117 cases.
By all standards, then, general managers are the main perpetrators of
corruption within SOEs, and they therefore deserve to be the focus of any
systematic research on SOE
Three
questions
corruption.
surface
when
we
focus
on
the
corrupt
activities
of
SOE
general managers. First, why would SOE general managers abuse

their power? Second, how are they able to abuse their power successfully?
Third, why have existing supervision systems failed to contain their

corrupt practices? I will address these questions one by one in the
following section.
Would
Why
SOE
Managers
Abuse
Their
Power?
Both strong incentives and adequate opportunities are required for an

individual to engage in corrupt practices. Thus, one direct reason for SOE
managers
to abuse
their
power
for personal
gain
is that
they
have
strong
An Empirical
within
Study of Corruption
China's
State-owned
63
Enterprises
Figure 5
1
"1
1 9
G.B&E
10
B&E
1 13
Embezzlement
G&E
1 14
G&B
14
Graft
Series I
20
Taking Bribes
10
20
15
J 31
25
30
35
would
find
strong
Number of Cases
Notes:
B = Bribes, E = Embezzlement,
incentives
to do
so.
As
G = Graft.
rational
persons,
they
incentives
to corruption only when the expected benefits for abusing their power far
exceed
the
expected
costs.
Let
us
now
find
out
how
they
reach
such
conclusion.
As I mentioned at the beginning of this article, SOE managers and staff
have dual identities. They are not only employees of enterprises, but also
enjoy the status of cadres (gan bu). As cadres, it is possible for SOE
managers
to assume
party
or
government
positions
at some
time
in the
future and hence they need to consider carefully both their economic and
political interests before abusing their power. Let us first take a look at
their economic interests.
The legal income of an SOE manager usually consists of two parts, the
basic salary (jiben gongzi), and a bonus. As a cadre, the manager's basic
salary is mainly determined by the executive rank held rather than the
financial
strength of the enterprises he/she leads. Frankly speaking,

managers' salaries are very limited, if their capabilities and responsibilities
are taken into consideration. Although bonuses complement their salaries,
they are not very substantial. For example, from 1979 to the mid-1990s, the
"Chinese Tobacco
King" Chu Shijian successfully converted a small
64
Wenhao
Cheng
cigarette factory he led into the most profitable SOE in China. During
Chu's tenure, the factory contributed tax revenues totalling RMB20 billion
to the state each year. However, despite his great contributions, in 1990
Chu's basic salary was only RMB480 per month. With his bonus also taken
into account, his total monthly income was only RMB 1,000.10
Low pay is a problem that bothers almost every SOE manager in
China. Yu Zhi'an, former general manager of Changjiang Energy Group of
Hubei Province, embezzled US$10 million to establish a private electricity
company in the Philippines.
private business. Because
He then fled to the Philippines to manage his

Yu, Chu and many other influential SOE
managers began to abuse power when they approached the retirement age
of 60, their fall has been called the "Age 59 Phenomenon" in China. One
common
explanation
managers
receive.
for the phenomenon
points to the low pay SOE
In addition to their low pay, SOE managers also face two gaps. One is
between their legal income and that of private businessmen of similar
the People's
Republic of China remained a highly
for
the
first
three
decades of its history, more recent
egalitarian society
economic reform has led to the emergence and widening of the income
gap. According to Forbes, the total assets of the Top 50 richest persons in
background.
While
mainland China in 2001 amount to US$13
billion. And the richest family

Liu
peasant entrepreneur
Yonghao and his brothers, is
reported to own assets totalling US$1 billion." Although SOE managers
are usually better educated and trained than private entrepreneurs, their
legal income only accounts for a tiny portion of that of the latter. Under
on the mainland,
these circumstances, it is not unexpected that some SOE managers will feel
that they are treated unfairly by the state.
The other gap facing China's SOE managers is the one between their
legal
income
and
the
enormous
economic
resources
under
their
control.
One objective of China's SOE reform is to reduce government intervention

in SOE operation and to allow managers to enjoy a high degree of
autonomy when making managerial decisions. To achieve this end, the
state has continuously decentralized decision-making powers to SOEs. As
a result,
SOE
operation,
management.
transferred
have
managers
gained
including
As
enormous
control
over
almost
every
procurement, production,
result,
resources
the
decentralization
from
government
critical
aspect
of
sales, and financial
process
control
has
to the
actually
hands
SOE
of
managers. This has directly increased their expected benefits from

corrupt practices, if they choose to abuse their newly gained power.
An Empirical
Study
within
of Corruption
China's
State-owned
65
Enterprises
The three factors mentioned above have jointly provided some SOE
managers with strong incentives to engage in corruption. Thus far, we have
reviewed the economic interests of SOE managers and how they play a role
in the cost-benefit calculations of these managers. In fact, SOE managers
also need to take their political interests into account before they decide to
abuse their power. Because appointment and promotion of managers is
carried
out by government
whether
question,
or
not
that oversee
agencies
continue
can
managers
in
the enterprises
themselves
enriching
depends heavily on their personal relations with their superiors. As long

the
relations
remains
close,
can
managers
to stay
expect
in office,
or
be
promoted, even if their performance is very poor indeed. For this reason,
SOE managers have spent substantial time and resources on pleasing their
superiors, including sending bribes and facilitating the corrupt deals of the
latter. As a result, the appointment of many incapable and/or apparently
corrupt mangers to leadership positions at other SOEs, or even their
to
promotion
workers'
complaints
about
The record-breaking
the Shenyang Passenger
During his tenure, Xia
embezzled
He
even
is
positions,
government
their
poor
occurrence,
frequent
and
performance
despite
corruption.
case of Xia Renfan, former general manager of

Transportation Group, is a very good example.
million for himself,

RMB8.34
appropriated
RMB 18.38 million, and received bribes worth RMB668.314.
owned
a private
villa
that covers
of 210
an area
acres,
over
costing
RMB20 million and taking three years to build. To secure his position and
to be promoted, Xia repeatedly bribed the then mayor of Shenyang, Mu
in
and RMB50,000
a watch worth RMB90,000,
Suixin, with US$30,000,
cash. Mu then strongly recommended Xia to be appointed as the director of
the Shenyang Transportation Bureau, but his proposal did not go through
because
of the resolute
resistance
of all
the leaders
of the Bureau.
then
The
director of the Bureau even resigned voluntarily to show his opposition.

workers in Xia's
reported his
group have repeatedly
Although
wrongdoings
to anti-corruption
agencies,
the
latter
could
take
no
action
because of the interference of Mayor Mu. It was not until Mu himself was
caught in early 2001 that investigators could officially start to process
Xia's cases.12 Xia was finally prosecuted on four criminal charges.
This case shows how a corrupt relationship between SOE managers
and their superiors can secure their position and power. Thus, generally
speaking, managers need not worry very much about their political future
as long as their superiors still trust them and the and-corruption agencies
do not have solid evidence to prove they are corrupt. As long as their
66
Wenhao
Cheng
political status is secure, managers have a relatively stable context in which

to cash in on their managerial power. Add to this the low pay that they
receive, which makes them feel that they have nothing to lose, and the
combination
of all these factors leads to the intensification of their
incentives
How
to corruption.
Could
General
Abuse
Managers
Their
Power
Successfully?
Incentives
to corruption do not equal real corrupt activities. Thus, after

the
reasons why strong incentives develop for general managers
studying
to abuse their power, it is logical to consider how the managers could abuse
their power successfully. My answer to this question consists of three parts.
First
of
all,
general
had
managers
more
resources
to
steal
after
the
economic
reform started. Second, SOE reform has granted them more

autonomy in managing and distributing these resources. Third, they have
identified ample opportunities for corruption and created even more of
them using their legitimate power. These opportunities, combined with
their managerial power, have made possible large-scale corrupt practices.
I will address the three points one by one in what follows.
Increased
Resources
Although the SOE

sector,
many
sector as a whole has declined in relation to the private
state-owned
enterprises
currently
own
many
more
fixed
assets and circulating funds than they did before the economic reform
started. For most of the pre-reform years, SOEs were forbidden to keep the
profits that they made. Instead, they had to turn in almost all of their profits
to the
government
and
apply
for
funds
when
they
needed
to spend
them.
SOEs
were at one point allowed to make decisions freely on purchases of

less than RMB200 only. For any purchase larger than that, they had to seek
the approval of the relevant government agencies.13 Thus, the financial
freedom of SOEs was extremely limited during that time.
Such a tight financial control imposed by the government greatly
limited the autonomy of SOEs to operate and make decisions. Having fully
of this problem, in 1978 the state
recognized the negative consequences
began to experiment with some new financial arrangements between SOEs
and
the government.
were allowed
Under
the new
arrangements,
state-owned
enterprises
to keep a small portion of the profits they made.14 In 1983,
An Empirical
within
Study of Corruption
China's
State-owned
the state furthered the reform by converting profit submission

contribution.
taxes
based
In
on
other
SOEs
words,
state-set
could
instead
rates,
of
now
keep
turning
in
67
Enterprises
the
most
profits
profits
into tax
and
to
pay
the
government and then letting the latter decide if they could use some of the
funds for certain purposes. This reform has greatly increased the financial
resources that SOEs
can keep, manage and spend.

have another important source of financial resources: bank
credits. Because China's national banks favour state-owned firms when
SOEs
issuing loans, a substantial portion of the total loans they made went to
SOEs. Until 1993, industrial and commercial SOEs received about half of
all the loans issued by China's major financial institutions each year.
Although the percentage has continued to decline since then and was only
35% in 2000, the absolute amount of the loans SOEs receive is still
increasing.
The consistent inflow of bank credits, combined with the profits that
SOEs can keep for themselves, have substantially increased the financial
resources available
to SOEs.
Meanwhile, the total fixed assets of SOEs

have also grown steadily, owing mainly to the investments they have made
repeatedly in equipment, production plant, etc. Figure 6 reflects the robust
increases of both SOEs'
Increased
resources
circulating funds and their fixed assets.

have
clear
implications
for the corrupt
practices
of
Figure 6
Sources:
Zhongguo
tongji nianjian
1993 (China
Statistical Yearbook,
1993), p. 430; and China
Statistical Yearbook, 1994-1999.
68
Wenhao
Cheng
SOE
When the enterprises they lead now own

general managers.
funds
of
millions
and valuable fixed assets, in theory general
circulating
managers have many more things to steal or trade with outsiders. The only
problem which remains is how they could manage to do so. Unfortunately,
it is relatively easy for general managers to graft and embezzle those
resources,
because
they have a virtual monopoly
of various managerial
powers.
Power
Expanded
Before the economic reform started, state-owned enterprises were tightly

controlled by the state. Under the central planning system, SOE managers
could not independently decide whom to hire, what to produce, or the
selling prices of their products. Instead, they always had to obtain approval
from the relevant oversight agencies before they could implement any
plan.
The state also took over most of the critical activities of enterprises.
For instance, it was responsible for supplying raw materials, selling all
products, setting prices, appointing staff, and even setting salary levels.
Under these circumstances, the limited power of general managers was
further restricted to the internal management of the enterprises, and it did
not enable them to interact with the outside world. In other words, they
were simply not able to touch the most lucrative activities of the
enterprises, let alone benefit from them.
Such controls inevitably made China's
Because
the
finally
state
took
care
lost the incentive

had
problem
economy
negative
bothered
of almost
to innovate
China
for decades
were officially launched

caused
consequences
SOE
sector very stagnant.

state-owned
everything,
and improve
before
the
enterprises
themselves.
reforms
of the
This
urban
in 1984. Having fully recognized

state
by heavy
control,
reformers
the
decided
to
gradually reduce government interference in SOE operations. The first step

was to increase the freedom of SOEs to handle their financial resources.
But
reformers
soon
that
recognized
in
order
to
convert
SOEs
into
real
enterprises that could operate independently, they had to decentralize more

decision-making
decisions.
power
and
let
enterprises
themselves
make
most
major
The Law of Industrial State-owned
into force in 1988, granted SOEs
Enterprises,15 which came

the legal right to make critical decisions.
In
drastic
1992,
the
state
decision-making
made
another
move
by
decentralizing
fourteen
powers to SOEs.16
An Empirical
Study
within
of Corruption
China's
State-owned
69
Enterprises
powers relate to almost every important aspect of

SOE operations, including hiring, purchasing raw materials, producing,
setting prices and salary levels, managing the funds they retain, and
These decentralized
the right to resist wilful
making investments. The state also granted SOEs

on
interference
the
even
Although
part
of government
agencies.
government
agencies
now,
still
to
try
retain
some
operations, the decentralization has in fact increased the

of
SOEs
substantially. It is undeniable that they now enjoy more
autonomy
freedom than they did two decades ago.
control over SOE
But progress in this realm has come at a great price. There is nothing
wrong with the decentralization of decision-making powers per se. But the
problem is that although in theory, it is SOEs that gain those powers, in
that
of the powers
were
went
decentralized
to SOE
reality
most
Because
general managers assume the main responsibility for managing

they found that their personal powers were suddenly expanded.
SOEs,
managers.
of personal power was not

such a drastic expansion
by the establishment of an effective supervision system. On
Unfortunately,
accompanied
the
one
both
hand,
and
government
control
party
the
over
SOEs
were
intentionally by the reform measures mentioned above, and

general managers could also use state stipulations to resist supervision
from above. On the other hand, democratic management of SOEs, which
weakened
law envisioned, has not been achieved. Thus, the old supervision
system receded before a new one could rise to fill the power vacuum. As
a result, general managers not only found their personal power had
the SOEs
expanded drastically, they also recognized that they enjoyed great freedom
in using (and even abusing) their newly gained powers. When an effective
system of checks and balances does not exist, rapid decentralization will
inevitably lead to disaster.
To
enterprises
do
they
a better
serve
their
the
own
control
interests
first,
the
most
and
morality
do.
the
power
But
(and
important
enables
them
to
who
prefer
to
to those
decentralization
has
process
the
also
to the
commitment
a real
of managerial
otherwise
could
they
over
have
expansion
manage,
than
job
them
that
managers
general
most
granted
profitable)
transactions of their enterprises. To them, abusing power for personal gain

is not only a real possibility, but also relatively easy to do.
In a typical Chinese
They
are
procurement
management,
involve
transfer
five types of activities are very profitable.
SOE,
materials
of raw
construction,
of resources
and
asset
of high
and
equipments,
sales,
financial
All
of these
activities
management.
value.
Therefore,
general
managers
70
can
Wenhao
either
steal
non-monetary
and
embezzle
resources
for
the transferred
funds
bribes.
7 describes
Figure
Cheng
or trade
directly,
the
other
relationship
between the five activities.

Figure 7
Construction
Procurement
Financial
Sales
Management
Asset Management
As we consider the five types of activities, we might wonder which

ones
are
more
prone
to the corrupt
activities
of general
I found
managers.
that among the 117 corrupt general managers I studied, 85 abused their
financial management power; 21 abused their procurement power; 20
profited by misappropriating assets of the enterprises; 18 received bribes
for granting
construction
contracts;
14
made
corrupt
deals
in selling
the
products of their enterprises. Figure 8 shows the number of times that the
above
powers
were
abused
by general
managers.
Figure 8
Sales
Construction
14
18
Asset Management
20
Procurement
21
Financial
Management
85
20
40
60
80
Number of Cases
100
An Empirical
Study
within
of Corruption
China's
State-owned
71
Enterprises
According to my calculation, 25 out of 38 cases of corruption practised

by ordinary workers, 19 out of 49 cases where it was practised by directors,
and 85 out of 117 cases where general managers were implicated, involved
corrupt activities in the financial management process. All in all, financial
management is the most vulnerable part of SOEs.
This is not difficult to understand. Financial management always
involves a large flow of cash, so stealing from it often lead to enormous
benefits. The poor financial management of many SOEs has made it
relatively
for general
easy
In a narrow
to do
managers
financial
sense,
so.
means
management
the management
of all
the financial resources of an enterprises. But in a broad sense, it includes

such activities as revenue collection and expenditure. All of these activities
to a unified process that keeps the "blood"
of an enterprise
describes
9
the
the
three activities
circulating. Figure
relationship among
mentioned above.
belong
Figure 9
Revenue
Management
Financial
Expenditure
Management
System
General managers hold the most power in managing the financial

resources of the enterprises and tightly control the three stages mentioned
above. I further examine the exact location of the corrupt activities within
the process. Although not all case reports provide enough information to
support this classification, I did obtain some rough findings. I found that
among the 85 cases, 11 involved corrupt activities in the revenue collection
process, 28 in the spending process, and 14 in both of them. Thus, it seems
SOE
is most
spending
Let
cite
us
managers
managed
payment
collection
commodities,
Sometimes
Financial
expect
much
to steal
to
examples
funds.
public
Since
process.
takes
to pay.
need
several
of the
personnel
buyers
concrete
there
is
how
demonstrate
It is relatively
a
easy
market
buyers'
general
to do
so
at the
for
most
payments often lag behind the delivery of goods or services.
it even
buyers
to corruption.
prone
some
And,
to pay,
months
enterprises
most
because
for the sellers

often
importantly,
selling
do
not
they
prices
to receive
know
often
are
payment.
when
do
only
not
they
know
known
can
how
to the
72
Wenhao
Cheng
who negotiated the deals. In most cases, it is corrupt general

managers who tightly control the most lucrative selling activities.
people
General managers can abuse their financial management power in

several ways. A high-risk strategy is to graft some or all the proceeds of a
business transaction. But there are also other strategies that involve less
risk of discovery. For example, general managers can list prices which are
much lower than the real ones, when they register the deals with their
enterprises. They can pay the enterprises the sum cited at the prices they
and
declared
the
keep
for themselves.
rest
Because
general
are
managers
persons in SOEs, and also because they can both

promote employees and remove them from their current positions, few
financial personnel dare to question their activities. This has paved the way
for general managers to employ different strategies.
the most powerful
Let
us cite
one
concrete
Ruan
example.
who
Yongming,
was
once
the
general manager of the Huanzhu Hotel in Hepu County, Guangxi Province,

bought 44.8 acres of land through a subordinate company of the hotel at a
cost of RMB620,000.
He then sold the land for RMB13.6
million. Ruan
asked someone to use a false account to forward only RMB6.1668
million
to the account of the company and distributed all the profits that were left
to others. Ruan himself took as much as RMB2.2195
million.17 In this
case, because only Ruan and those who were directly involved in the
transaction knew the price, outsiders (including the financial personnel of
Ruan's company) simply did not know how much revenue the transaction
had actually
Such
generated.
a situation
of information
asymmetry
provided great opportunities for Ruan to hide large amounts of revenue.
There are more corrupt opportunities associated with the spending
activities of SOEs. Because it is general managers who make or approve
major
strategy
that
deserve.
For
from
decisions,
spending
the
often
they
instance,
they
use
enrich
can
they
use
more
false
actually
in various
themselves
is to receive
they
than
enterprises
can
of a refund
to get
receipts
spent.
Because
than
ways.
they
a greater
sellers
and
One
really
refund
service
providers would be willing to do almost anything to secure their business,

in many cases they can provide false receipts with increased charges for the
purchases.
can
Buyers
then
present
the
receipts
to the
finance
department
of their enterprises
for refunds. General
have inherent
managers
in
in
this
since
are
the
ones
who approve
manner,
advantages
cheating
they
major spending
receipt,
refund
approve
the
activities.
the
expenses.
They can purchase
purchases
Because
and
they
then
can
order
something, obtain a false

the
complete
finance
all
department
these
activities
to
An Empirical
Study
within
of Corruption
China's
State-owned
73
Enterprises
themselves, they deem it a relatively effortless and safe way to steal public
funds.
For instance, Wei Wei, the then general manager of Jianyin Liquefied
Petroleum Gas Corporation of Hebi, Henan Province, purchased 450 gas
containers at a cost of RMB60,300
for his company in October 1994. He
managed to obtain a false receipt, which showed that the total expense was
Wei then got a full refund from the finance department of his
RMB81,000.
from a single transaction. Wei was
company and easily made RMB20,700
emboldened
the
next
by his success and stole public funds three more times within
year.18
with stealing public funds directly, embezzling
Compared
sometimes
lead
to more
benefits
with
fewer
risks.
One
them can
common
strategy
employed by corrupt general managers is to take public funds out of the

bank accounts of their enterprises, invest them in lucrative activities that
can bring them quick money, and then return the public funds to the
finance department of the enterprises. According to Chinese criminal law,
the maximum penalty for embezzlement
is 10 years imprisonment. By
contrast, serious graft crimes can result in life imprisonment and even the
death penalty. Thus, many general managers prefer embezzling public
funds to outright theft. They have taken full advantage of the "penalty cap"
mentioned above by embezzling
not keep permanently. Among
huge amounts of money, which they dare

the 1 17 cases of corruption by general
embezzlement
and 57 involved graft. But the
managers, 46 involved
embezzlement cases involve RMB21.2586
million on average, six times

more than the average amount for graft crimes (RMB3.0324
million). This
that
proves
general
the
"penalty
managers
for embezzlement
cap"
to convert
amounts
large
even
of public
encourages
funds
into
corrupt
their
own
milch cows. As many corrupt officials proudly claim, "You will remain
safe as long as you have not put public funds into your own pocket."
Ample Opportunities
In
the
above
we
section,
have
studied
how
general
managers
themselves by misusing their managerial power. Besides

that
they
obtained
as
result
of
SOE
reform,
general
enriched
the broad power

managers
can
facilitate their corrupt endeavours by utilizing and even creating many

opportunities for corruption. Some of the opportunities are system-given,
while others were created by general
power.
Because
there
are
various
types
managers
using their legitimate
of opportunities
for corruption
in
74
Wenhao
Cheng
every aspect of SOE operation, I will cite only two, to show how they
emerged and how they facilitate the corrupt activities of general managers.
One typical opportunity for corruption that the system provides is the
lack of official rules regarding the most lucrative transactions of SOEs. For
instance, until recently, there was no rule that required SOEs to award
construction contracts through running a public bid. Similarly, there was
no rule to define how these enterprises should purchase goods and services.
When there is no rule to follow, general managers are not violating a rule
when they make deals with suppliers that can offer the highest bribes, even
if the prices the latter charge are much higher than the market level. Not
until 2000 did the state introduce a few guiding principles for the
procurement activities of SOEs.
General managers themselves often create opportunities for corruption
using their legitimate managerial power. One example is the so-called
"family control" (jiazu kongzhi). Family control means general managers
tighten their control over the operation of their enterprises by appointing
their family members, relatives or close friends to critical management
positions. In this way, general managers and their appointees form a
corrupt closed circle and can do anything they wish without being noticed
by outsiders, including
ordinary workers. When heads of various
all belong to a patronage network, any check and balance
arrangement will collapse. For instance, to remove the obstacles to his
the former general manager of the
corrupt practices, Li Hongmei,
departments
Glass Factory in Shandong

Province
trusted
Pingshang
appointed
subordinates
to critical positions
and let them control financial
management, sales, production, and other important activities of the
factory. After finishing the preparatory work, Li then began to abuse his
His
power.
rampant
corruption
finally
drove
the
big
that
factory,
once
owned RMB200
million of fixed assets, out of business.19

a
Forming
corrupt network within an enterprise is an effective way for
general managers to make possible various corrupt activities, especially
those
very
complicated
ones
that
need
the
cooperation
of employees
from
multiple departments. Although such networks were not given but were
created by general managers, the appointment power of the latter is the key
to their success
in doing so. Thus, opportunities for corruption basically

originate from the general managers' intentional misuse of their legitimate
powers. Once these opportunities are in place, they will build on general
managers'
most
broad
complicated
power
corrupt
and
make
practices
it possible
for them
to carry
out
even
successfully.
the
An Empirical
Lack
Study
within
of Corruption
China's
State-owned
75
Enterprises
of Supervision
When studying the corrupt activities of SOE general managers, we should

always keep in mind that these activities all took place in the face of three
supervision mechanisms that are supposed to check the power of general
managers. These mechanisms
its workers'
question,
are the party committee of the enterprise in

and
congress,
the
government
that
agency
oversees
the enterprise (see Figure 10).
10
Figure
Related Government Agencies
SOE
Party committee
Managers
/
Workers' Congress
Discipline
Almost every Chinese

For
state-owned
example,
is overseen
SOE
food
are
factories
Inspection Commission
by one government agency.

overseen
usually
by the
local
Light Industry Bureau, and coalmines by the local Coal Industry Bureau.20
Before the beginning of the economic reform, government agencies tightly
controlled
the
of
operation
the
state-owned
enterprises
oversaw.
they
Government agencies still have great influence over them, even though the
state
has
to
managed
most
decentralize
of
the
to
powers
managerial
enterprises. First of all, they are responsible for providing guidance

regarding the overall development of the enterprises. Second, and more
importantly, they select and appoint the general managers of those
enterprises.
In
theory,
to
agencies
the
power
appointment
deter
effectively
the
alone
can
enable
of
practices
corrupt
government
SOE
managers.
Unfortunately, however, this is not what happens in practice. First of all,

there usually is a close personal relationship between agency leaders and
enterprise managers. Sometimes the relationship has been developed over
a period
sides.
of time
If managers
superiors
they
these
through
and
to secure
the
general
circumstances,
repeated
corrupt
between
arrangements
are corrupt, they will naturally

the protection
managers
they
will
of the latter.
belong
try their
to the
best
If agency
same
to protect
the
two
try to bribe their
corrupt
leaders
are
network.
the managers
bribed,
Under
in order
76
Wenhao
Cheng
to secure their own corrupt benefits, instead of investigating and exposing

the wrongdoings of the latter.
Even when there is no conspiracy relationship between the two sides,
information asymmetry has made it almost impossible for government
agencies to monitor the behaviours of enterprise managers effectively.
Most
government
Therefore,
they
enterprises.
In
have
agencies
are
other
able
only
words,
to
they
of
dozens
monitor
the
are
able
only
to
enterprises
overall
oversee.
of the
performance
to review
the
macro-level
things, including long-term development strategies, production plans, and

the financial statistics of the enterprises. But the corrupt activities of
managers are deeply hidden in micro-level affairs, including
procurement and selling. Because
corrupt practices are hidden in the
routine business activities of the enterprises, it takes a deal of time, energy
general
and
to identify the wrongdoings

of general
patience
managers.
Government agencies simply do not have the resources and the incentive
necessary
to undertake
finally received
managers,
it has
such
credible
been
work.
When
anti-corruption
tips regarding
late.
too
In
cases,
many
completely rotted out by corruption.

Besides
their lack of resources
agencies
the wrongdoings
the
enterprises
have
of general
have
been
to monitor
the operation of the

also
face
restrictions imposed
enterprises effectively, government agencies
from above. To guarantee the autonomy of managers in making decisions,
the state no longer allows government agencies to intervene in the daily
operation of the SOEs that they lead. This has granted managers an
effective protection against supervision imposed by government agencies.
As a result, external supervision is weak, superficial and sporadic, and is
simply not able to deter the corrupt activities of SOE managers.
Can
almost
supervision
every
systems
state-owned
located
enterprise,
in SOEs
there
have
is a party
any
deterrent
committee
effect?
In
to manage
the party affairs of the enterprise. It usually contains a Discipline

which is responsible for enforcing party rules
Inspection Commission,
within the enterprise and investigating the alleged wrongdoings of SOE
managers and other staff. Thus, in theory, there is a formal anti-corruption
agency in each SOE. But in reality, the Discipline Inspection Commission
is not as effective as it is supposed to be. This is true, in general, because
the status of the party committee declined substantially in relation to that of
the managers after the economic reform began. And based on the principle
of "separating party affairs from government ones" (dang zheng fenkai),
party committees of SOEs focus primarily on such issues as party member
An Empirical
Study
within
of Corruption
China's
State-owned
77
Enterprises
management and propaganda, instead of intervening in the management of

the enterprises. As a result, the committees as a whole, and the Discipline
in particular, do not know enough about the
Inspection Commissions
transactions of the enterprises. But it is these transactions that give rise to
various corrupt practices. Thus, party organs within SOEs face the same
as
problems
government
agencies.
Let us cite a concrete example. After the fall of Xia Renfan, the corrupt
million to build a villa for
manager in Shenyang who spent RMB20
himself, the director of the party Discipline
company said sadly:
there were
Off course
was
We
not our
not able
were
general
Although
differ substantially.
Xia's
if we
even
power
wanted
secretary
have
even
it
pay the price.

so....
to do
rank, their powesr
from the sky while
if the party
he will
manager,
had
that
thought
will
are of the same
is commanding
In reality,
we all
the law, he himself
and party secretary
to finance
But
wrongdoing.
breaks
It is as if one
of the general
from the enterprise
to Xia's
to check
manager
on the ground.
is standing
interests
clues
Whoever
business.
of his
Inspection Commission
the other
to protect
fails
difficulty
getting
the
money
party activities.21
The above testimony reflects the general difficulties facing the party
organs within SOEs when they are dealing with corrupt general managers.
In many cases, the corrupt activities of general managers lasted for several
years,
and
practices.
Inspection
even
could
workers
ordinary
detect
the
of
existence
corrupt
But it was not until prosecutorial

agencies or Discipline
of higher levels intervened that an official
Commissions
investigation could begin. This proves the inherent weakness

corruption organs of SOEs.
of the anti
In addition to the problem caused

by a shortage of accurate
information, there is another factor that can, at times, completely cripple
the function of the Discipline Inspection Commission. In many SOEs, the
general
manager
is responsible
enterprises.
is also
the head
for leading
It is common
manager
and
party
party
the Discipline
sense
boss. Thus, when the Discipline

corrupt
of the
that
no
Inspection
can
clerk
Inspection
secretary,
it can
so
committee,
he
Commission
check
Commission
do
that
the
power
or she
of the
of the
is faced with a
nothing.
The Workers' Congress is another entity that is supposed to check the

power of the general manager. According to China's law of industrial
SOEs, major decisions of the enterprise are supposed to be approved by its
Workers' Congress before they can be implemented. This stipulation
78
Wenhao
seems
to empower
Workers'
and
Congresses
enable
to
them
Cheng
block
any
decision
that is likely to bring corrupt benefits to managers. In reality,

however, the Workers' Congress is even weaker than the Discipline
Inspection Commission, and the reasons for this are clear. First of all, the
Workers'
Congress does not hold any "real" power. It is the relevant

government agencies which are responsible for appointing the general
manager. The Discipline Inspection Commission at least holds nominal
investigative power. But, unfortunately, the Workers' Congress does not
have
solid
any
power.
In
some
extreme
cases,
even
managers
disband
the
Workers'
Congress in order to prevent any challenge to their authority.

Second, it is often difficult for the Workers' Congress to tell whether
certain decisions
made by managers will actually serve their own interests.

At times, these decisions may benefit both the enterprises and managers
themselves. For instance, a decision to upgrade production facilities will
definitely benefit the enterprise in the long run, but the construction
projects it would involve would grant the general manager a new
opportunity to make special deals with contractors. In fact, almost all of the
corrupt practices in which general managers were involved were tied to
perfectly legitimate activities of the enterprise. Under these circumstances,
the Workers' Congress will face a dilemma if it attempts to boycott
decisions
because
that are likely to bring corrupt benefits to the general manager,

doing so will definitely hurt the public interest. Moreover, the
Workers'
Congress meets only infrequently, while corruption can take

place anytime and anywhere. Thus, it is not even capable of catching up
with the new developments, let alone checking them.
In sum, although in theory there are three supervision systems that can
check
the power
deterrence.
The
of general
in reality
managers,
inherent
weakness
of
none
both
of them
internal
can
and
exert
any
external
systems, combined with the extensive managerial power that

general managers hold, grant them great freedom in abusing their power.
supervision
Conclusion
Corruption within SOEs is a classic example of how the economic reform
has both strengthened the incentives to corruption of power holders and
increased
own
many
therefore
their opportunities
more
corrupt
resources
general
inherent complexity
for abusing their power. First of all, SOEs

than
managers
of the SOE
they
did
now
in
the
have
operation
pre-reform
more
enables
to
steal
years
and
from.
The
them to hide their
An Empirical
Study
within
of Corruption
China's
State-owned
79
Enterprises
in every routine activity of the enterprise.
corrupt practices
of
decentralization
managerial
enables
power
them
to
Second,
the
control
directly, and they can also make major

that will generate substantial
decisions
corrupt benefits. Various
those
both
for
given by the system and
corruption,
including
opportunities
of the resources
distribution
the ones general managers have created using their legitimate power,
further facilitate their corrupt practices. And the institutional weakness of
existing supervision systems provides a relatively safe environment for
general managers' adventures. It is the combination of all of these factors
that has led to the rampant corruption engaged in by SOE managers.
Notes
1. Zhang
Yan,
"Guanyu
(Some
Thoughts
Daily),
21
fu fangzhang
qiongmiao
Monks
on Rich
March
1997.
tongji
nianjian,
in Poor
de poxi
xianxiang
Renmin
Temples),
yu sikao"
ribao
(People's
2. Ibid.
3. Zhongguo
4. Beijing
5. China
News
Agency
(Beijing
Daily),
telegram
from
Beijing,
6. Jiancha
ribao
(Procuratorate
7. Jiancha
ribao,
19 October
8. Zhang
(Note
9. Justice
Net
10. Chu
October
29
7 August
Daily),
Yearbook,
1997).
2000.
12 February
2001.
2001.
1999.
1).
4 October
(www.jcrb.com.cn),
these
publicized
Lifetime
Statistical
(China
Youth
bao
qingnian
1997
when
numbers
award
of China
Achievements
2000.
he received
the Outstanding
Entrepreneur
in 1990.
11. http://finance.sina.com.en/g/20011026/121726.html
Xia
12. "Jutan
fubai
Renfan
and
Shangquan
China's
Qixian,
Yang
(Jinan:
SOEs)
Activities
Corrupt
of Xia
Renfan),
Justice
2001.
30 November
Net,
13. Gao
toushi"(The
Jinan
Zhongguo
guoyou
House,
Publishing
qiye
of
(Reforms
gaige
p. 33.
1999),
14. Ibid.
15. The
full title of the law
gongye
qiye
Enterprises
16. Most
Owned
17.
in 1992
confirmed
(Seven
Corrupt
Officials
guo
of
suoyouzhi
quanmin
China
Industrial
on
People).
were
powers
of the People's
mentioned
Republic
on the Reform
the freedom
in Hepu
gonghe
Republic
People's
But the "Stipulations
formed
December
the
by the Whole
Enterprises
in 1988.
renmin
is Zhonghua
of
of the decision-making
State-owned
force
(Law
fa
of SOEs
Grafted
RMB7
in the Law
of China
of SOE
when
it came
Management
in exercising
Million)
of Industrial
those
Jiancha
into
Style,"
powers.
ribao,
2000.
80
18.
(Financial
19.
You
Loss
Zhang,
Control
(Family
December
20.
In 2001,
industry
some
21.
See
Exposes
Su
and
Led
a Corrupt
Manager),
Yun
"Jiazu
Cai,
to the Collapse
shi
Jiancha
guanli
ribao,
gaokua
of a Large-sized
Cheng
7 March
2001.
yijia
da
Justice
SOE),
guoqi"
Net,
27
2000.
the
state
bureaus
power
Note
Bo
Wenhao
over
decided
into
to convert
national
the enterprises
trade
the eight
associations,
within
highly
influential
but these
their respective
unions
national
still retain
fields.
12.

An Empirical Study of Corruption Within China' SOE PDF

Transféré par

Informations du document

Description originale:

Titre original

Copyright

Formats disponibles

Partager ce document

Partager ou intégrer le document

Options de partage

Avez-vous trouvé ce document utile ?

Ce contenu est-il inapproprié ?

Droits d'auteur :

Formats disponibles

An Empirical Study of Corruption Within China' SOE PDF

Transféré par

Droits d'auteur :

Formats disponibles

Chinese University Press

An Empirical Study of Corruption within China's State-owned Enterprises

The China Review, Vol. 4, No. 2 (Fall 2004), 55-80

for the general

and the institutional

of all, the author

into Chinese corruption have paid relatively little attention to

corruption within China's

which form the foundation of China's public

The third role played by SOEs, which researchers tend to ignore, is

roles in corruption. This article will focus on corruption on the part of

systems failed to prevent them

On the surface, corruption within SOEs can be demonstrated by the

in six capital cities led to the surprising

graft and bribes of more than

and 790 cases

After reviewing the current situation of corruption within SOEs, it is

These are the questions that I will address in the

Thus, the analyses

which follow rely

In theory, three types of SOE employees are able to engage in corrupt

for 21 out of the 38 cases, while sales persons and fee

staff are another group of people who are more likely to

that often requires

management. Figure 2 describes the distribution of labour

and they ask for roughly

the one who offers the most kickbacks.

And directors of finance can

that is under the tight

Among the 264 SOE corruption cases that I have collected, 49

Procurement & Supply

to the 87 corruption cases involving ordinary employees and directors,

The third group of corruption

departments, they have much more discretionary power than department

who not only

opportunities to enrich themselves. Official statistics, for example, show

corrupt practices taking place within SOEs. The People's Procuratorate of

2000, Wuxi City in Jiangsu Province uncovered 52 corruption cases in

can also prove this point. As Figure 4

My research also confirms this point. On average, the 117 general

cases involving graft, bribe

general managers. First, why would SOE general managers abuse

Third, why have existing supervision systems failed to contain their

Both strong incentives and adequate opportunities are required for an

strength of the enterprises he/she leads. Frankly speaking,

He then fled to the Philippines to manage his

for the phenomenon

points to the low pay SOE

mainland China in 2001 amount to US$13

billion. And the richest family

One objective of China's SOE reform is to reduce government intervention

sales, and financial

managers. This has directly increased their expected benefits from

depends heavily on their personal relations with their superiors. As long

case of Xia Renfan, former general manager of

million for himself,

director of the Bureau even resigned voluntarily to show his opposition.

political status is secure, managers have a relatively stable context in which

to corruption do not equal real corrupt activities. Thus, after

reform started. Second, SOE reform has granted them more

Although the SOE

sector as a whole has declined in relation to the private