New probes at JPMorgan, China Mobile
New probes against JPMorgan and a China Mobile executive reflect the acceleration of a recent campaign to clean up corruption in China's corporate sector
When the history books are written, 2013 could easily be named the "Year of the Probe" for firms in China, following a steady stream of new investigations into various companies that began in July. Most of the probes have involved major western firms, but news of the latest investigation against an executive at leading mobile carrier China Mobile (0941.HK; NYSE: CHL) shows that no one is immune from this recent bid to clean up China's unruly corporate sector. The latest western firm to get caught in a China-related probe is JPMorgan (NYSE: JPM), which has become the first financial services firm to come under scrutiny in the recent string of investigations.
In an interesting twist, neither of the two latest probes against JPMorgan and China Mobile is coming from the National Development and Reform Commission (NDRC) or the State Administration For Industry and Commerce (SAIC), which have spearheaded most of the earlier probes. Both the NDRC and SAIC are powerful central government bodies charged with maintaining fair competition and order in China's various business sectors. This broadening of investigative bodies probably reflect the fact that Beijing is officially encouraging these kinds of probes, meaning we could see many more by a wide range of regulatory and other agencies in the months ahead.
In the case with JPMorgan, the global banking giant is actually being investigated by regulators from its home US market over its China hiring practices. The issues at the heart of the probe shouldn't come as a surprise to anyone, with investigators looking at whether JPMorgan hired friends and relatives of powerful financial officials in order to win more business.
In one instance, JPMorgan reportedly hired the son of a former Chinese regulator who is now chairman of Everbright Group, a major financial conglomerate based in Shanghai. After the son joined JPMorgan, the US bank went on to win a number of major assignments from Everbright, including one to advise on an IPO for one of its units, according to the report. As I've said above, this kind of hiring shouldn't surprise anyone, and isn't really even limited to China.
It's quite common for western companies to hire friends and relatives of their major business contacts as personal favors, and is part of the broader business culture. For that reason, I doubt this US probe will result in any criminal investigation. But the big danger could come if China decides to open its own investigation into the matter, which looks like a strong possibility in the current climate where a large number of foreign firms are being investigated for everything from price fixing to bribery.
From JPMorgan, let's look quickly at China Mobile, where the latest investigation of a top company executive looks like a relatively routine probe into bribery and other corruption. According to a Chinese media report, China Mobile's general manager for affluent Guangdong province Xu Long and his wife have been under investigation since August 16. The report doesn't contain anymore detail, except to say that a provincial disciplinary committee is conducting the investigation.
This kind of probe has become fairly standard fare not only in the telecoms industry, but throughout China's big state-run firms over the last few years. The most recent campaign is being spearheaded by new President Xi Jinping, who has made cleaning up government corruption and excessive spending one of his major goals. This latest action, combined with the recent broader explosion in corporate probes, could indicate that we'll see an acceleration in such probes against top officials at big state-run firms in the months ahead. Accordingly, I would expect to see more similar headlines in the fall, perhaps reaching all the way up to the top echelons of one or two major state-owned companies.
Bottom line: New probes against JPMorgan and a China Mobile executive reflect the acceleration of a recent campaign to clean up corruption in China's corporate sector.
To read more commentaries from Doug Young, visit youngchinabiz.com