China‚Äôs leadership transition and its impact on anti-corruption enforcement
Thursday, November 15, 2012 at 9:13AM
Eric Carlson in 18th National Congress, China, Hu Jintao, Wang Qishan, Xi Jinping

Chinese Vice Premier Wang Qishan, Secretary of the Central Commission for Discipline Inspection, holds the autographed basketball given to him by President Barack Obama in 2009 (Photo by Pete Souza-The White House)China’s new slate of leaders have been announced -- the seven members of the Standing Committee of the Politburo, the highest-ranking body in the Communist Party (and therefore the country). The announcement came Thursday at the end of the 18th National Congress of the Communist Party.

Efforts to curb corruption have played a visible role in this Party Congress -- perhaps more than in the past, as China’s leaders try to convey to the general populace, which has become increasingly vocal (particularly online), that the Party-state is effectively battling corruption. During his keynote speech at the Party Congress, outgoing President Hu Jintao described corruption as a “life and death struggle” for the Party and country, although this description has been used by senior leaders in China since at least 2001 -- including by Hu himself five years ago at the 17th Party Congress. And during his inaugural address today, Xi Jinping, the incoming top leader, spoke of “severe problems” facing the Party, among them “corruption and bribe-taking by some Party members.”

Many observers and members of the general public, however, have yet to be convinced that the new leadership will have the clout to challenge deep-seated vested interests or to change structural impediments to effective anti-corruption enforcement any more than the outgoing leadership did. (As an indication of this skepticism, a popular joke circulating around the Chinese internet sums up the key messages of President Hu’s keynote speech in three points: (1) the biggest danger facing China now is corruption; (2) corruption is rooted within the system; and (3) the system will never change.)

Nevertheless, the new leadership will almost certainly feel some pressure to take additional and decisive actions in order to be seen as cracking down on corruption. Although predicting trends in Chinese politics and government is notoriously difficult, here are a few observations and predictions:

Personalities. Wang Qishan is the Standing Committee member responsible for the anti-corruption portfolio.  He will serve as secretary of the Central Commission for Discipline Inspection, the body that oversees discipline for Party members. Wang is generally viewed as a straight-talker with significant financial management expertise and savvy political sense. (Many had predicted that Mr. Wang, known as “the fire chief” or “Mr. Fix-It” by some for his work in handling crises and the financial system, would assume a significant economic portfolio, where his past experience has been.) It is unclear how much his formidable skills abilities and political abilities will be able to overcome institutional barriers to effective anti-corruption enforcement.

Demand-side Enforcement. Reports have suggested that many senior Party officials view official corruption -- and public perceptions of official corruption -- as a serious threat to the Party, and that the Party leadership has agreed that a ratcheting up of efforts is needed, particularly by targeting relatively senior government officials. We therefore expect to see more “big-name” prosecutions of government officials.

It is unclear whether the “supply-side” bribers will be prosecuted in any significant numbers: historically, enforcement has focused more on prosecuting bribe-taking government officials than bribe-givers. Regardless, the increasing scrutiny by the public, including via microbloggers, means that bribe-givers often end up named in the press even if they are not formally prosecuted.

Enforcement Against Multinationals. Whether true or false, there is an ongoing perception by many in China that multinational companies are a main source of bribe-giving in China. Combined with the perception that MNCs are deep pocketed, multinationals are often targeted for corruption enforcement.  We expect this trend to continue and possibly increase as the new leadership searches for ways to show that they are cracking down on corruption.

Commercial Bribery. China’s government has previously announced certain priority sectors in commercial bribery enforcement. Top-priority sectors have been identified as purchasing/marketing of pharmaceuticals, land-use rights/mineral resources exploration, engineering/construction, government procurement, development of resources, and trade in property rights. Second-priority sectors include bank credit, securities and futures, commercial insurance, publishing/distribution, sports, telecommunications, electric power, quality control, and environmental protection.

As detailed in a previous post, commercial bribery is an ongoing risk for many companies operating in China, particularly because the commercial bribery laws are vaguely drafted, broadly interpreted, and unevenly enforced. We have seen an apparent increase in commercial bribery enforcement over the last 12-18 months, particularly against multinationals. Because most of these prosecutions are initiated and driven locally, we do not expect the leadership transition to affect this increased enforcement.

Enforcement of Overseas Bribery. As noted in prior posts here and here, China amended its Criminal Law in 2011 to prohibit Chinese nationals and PRC companies from paying bribes to non-PRC government officials.  We have not seen any prosecutions to date of companies under this amended law. Should the new leadership want to send a strong message against corruption, it is possible that the government could bring a significant corruption case against a Chinese company for bribes paid overseas, although the companies most likely to have overseas operations -- state-owned enterprises and other national champions -- are the same companies most insulated from serious legal harm by their political backers in the senior leadership.

Looking ahead, state media have reported that the Party plans to issue another “Five-Year Plan” on preventing corruption. That document, which reportedly has been drafted and will be issued next year, may provide additional information on the Party/government’s top enforcement priorities, including those of the new leadership, although five-year plans typically are drafted at a high-level and include few specifics.

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Eric Carlson is a contributing editor of the FCPA Blog.

Article originally appeared on The FCPA Blog (https://www.fcpablog.com/).
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