Chinese companies lag global peers in transparency matters, says new report

Weak anti-corruption procedures and poor disclosure risks allowing corruption to thrive

PUBLISHED : Monday, 11 July, 2016, 10:36pm
UPDATED : Monday, 11 July, 2016, 10:46pm

Chinese companies continue to lag their global peers in terms of transparency due to their weak or non-existent anti-corruption policies and procedures, a new report said on Monday.

The inability of the Chinese companies to adhere to international best practises has created an environment for corruption to thrive in their businesses and in the locations around the world in which they operate, said the report published by Transparency International, a global think-tank.

The report entitled Transparency in Corporate Reporting: assessing emerging market multinationals stressed on the need for large multinational firms from emerging markets to take more concerted efforts and steps to stop corruption.

Susan Côté-Freeman head of Transparency International’s business integrity programme told the Post however that there were a number of differences within the Chinese companies that they investigated. “We saw a divergence between the levels of transparency of SOEs in China and their subsidiaries which were listed overseas,” she said. “The subsidiaries often had better levels of disclosure than the parent company, presumably because they need to do so to meet the appropriate listing requirements.”

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Côté-Freeman said four Chinese companies viz. ZTE, Lenovo, Li & Fung and Sinohydro performed better than their peers.

Though Chinese companies performed badly, the report found that most of the biggest emerging market companies are also culprits when it comes to transparency.

“Pathetic levels of transparency in big emerging market companies raises the question of just how much the private sector cares about stopping corruption, stopping poverty where they do business and reducing inequality,” José Ugaz, Chair of Transparency International said.

“Some Asian companies, when they expand overseas, but within the region, may feel that since they have lower standards to adhere to than some of their competitors, they can take advantage of some legal or regulatory arbitrage. It is a very short term view though,” said Wilson Ang, who leads law firm

Norton Rose Fulbright’s investigations and compliance practise in Singapore.

When it comes to expanding into western markets, Ang said that the situation varied. “Some companies put their head in the sand and while they acknowledge that these laws exist they feel that they don’t really have to respond, as they persuade themselves that these are for western companies. Others pay much more attention, as they know that is the way the world is going, and feel that compliance is not a western construct but an international trend,” he said.

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In some countries, for example the United States and the UK, companies can be tried under British or US law for activities they do anywhere in the world. This is not the case for Chinese companies.

“There is no extraterritoriality in Chinese law,” said Kent Kedl, senior partner at Control Risks in Shanghai. “Chinese companies going abroad are not worried by Chinese legislation back home.”

Kedl however, said that Chinese companies were becoming more aware of compliance related issues. “At least the ones we talk to say that they are looking to abide by global standards,” he said, “and we have even been asked to do some anti-corruption training for Chinese SOEs, so they are spending money on it.”

“One difference I have noted is that Chinese companies are more concerned about the practicalities of dealing with compliance. If you talk to a western company they want to know what the laws are and what they can or cannot do. In contrast, some of our Chinese clients want to discuss what to do if, for example, they are operating in sub Saharan Africa and reach a checkpoint where they are going to be asked to pay a bribe.” Kendl said.