Corruption undermines China's state-owned companies

Jan 8, 2010, 13:28 GMT

Peking - China's state-owned companies are being shaken by a series of financial scandals, as authorities find their hands tied by top managers' connections.

Former and current executives of some of China's leading telecoms, nuclear and oil companies are under investigation for fraud or corruption, with Chinese anti-corruption authorities promising to clamp down further in 2010.

The authorities find it hard to prosecute top managers, who often come from the high ranks of the party or state structures, sometimes appointed to their corporate positions by top-level government organs.

Zhang Chunjiang was fired last week from his position as vice president of China Mobile Communications, the world's largest service provider by customer base, following accusations of 'serious financial irregularities,' according to a statement made by the company to the Hong Kong stock exchange on Friday.

Zhang's is suspected of having falsified accounts in a previous position with China Netcom, another mobile telecoms company where he worked until 2008, according to press reports.

Huge losses were covered up ahead of China Netcom's merger with mobile service provider China Unicom, said Caijing magazine. Accountants estimate that the fraud involved up to 20 billion yuan (2.9 billion dollars).

Zhang is the latest of around 30 top executives whose financial activities were scrutinised by the authorities over the last year.

Other prominent cases include Kang Rixin, former general manager of China National Nuclear Corporation (CNNC), and Chen Tonghai, former chairman of the oil company Sinopec. Like China Mobile, both are state-owned enterprises.

Chen was sentenced to death in July 2009 for accepting up to 200 million yuan in bribes. His sentence was suspended for two years, and can under Chinese law be commuted for good conduct to life imprisonment.

Lin Yueqin, an economist at the Chinese Academy of Social Sciences, said of the China Netcom scandal 'They are selling the nation.'

The corruption issues 'stem from the current appointment system' he said. Apparatchiks are particularly present in the top management positions of state monopolies. 'Given their background, these executives tend to abuse power because even the board cannot check their authority,' Lin told the China Daily.

'It's complicated,' said an official from the state-owned Assets Supervision and Administration Commission, with unusual candour. 'We cannot effectively supervise some bosses of major state-owned enterprises as they are directly appointed and managed by the central authorities,' said the official, who requested anonymity when he spoke to the Chinese paper.

Vice-Minister of Supervision Qu Wanxiang promised an outraged public there would be a clampdown on graft in the state-owned enterprises.

'We will push ahead with investigations and try to curb corruption in SOEs (state-owned enterprises) in restructuring, mergers and acquisitions, property transactions and construction projects,' he told a press conference.