Infrastructure projects are by nature vulnerable to mismanagement and fraud, as damning government audits of high-speed railway projects on the mainland and in the United States have shown.
'In China, whenever there is a construction project, there is a high chance of corruption because the legal infrastructure is weak,' said Raymond So Wai-man, an associate professor of finance at the Chinese University of Hong Kong.
In recent months, the national audit office found billions of yuan of questionable spending on the Beijing-Shanghai high-speed railway. In the US, millions of dollars were improperly accounted for in California's high-speed rail network.
Both projects are part of government stimulus packages to combat the global financial crisis.
'The risks are not based on geography but on the controls put in place to guard against fraud, waste and abuse,' said Dane Chamorro, the North Asia general manager of Control Risks, an international risk consultancy. 'You must have a very robust control system including separation of duties, due diligence on vendors, strict quality control, surprise audits and serious penalties for malfeasance.'
In infrastructure projects, the easiest way of cheating is substitution fraud, whereby materials are replaced by those of lower quality, as happened in many school buildings that collapsed in the Sichuan earthquake in 2008, Chamorro said.
