China among riskiest places to do business

Prospect of bribery rises amid tighter focus by overseas regulators and economic slowdown

PUBLISHED : Wednesday, 12 February, 2014, 12:50am
UPDATED : Wednesday, 12 February, 2014, 3:01am

China is one of the riskiest countries in the world and a place where companies would avoid doing business because of the prospect of corruption, a recent survey by international business advisers AlixPartners found.

The survey, which covered China for the first time, interviewed lawyers and executives of multinationals involved in compliance and found 25 per cent of the companies avoided China and the Middle East for fear of corruption, while 39 per cent avoided Africa.

"The risk of corruption in China has risen due to such factors as the increased focus by US and British regulators, combined with the slowdown in China and the increased Chinese government focus on foreign and domestic entities in food and product safety as well as on the pharmaceutical industry," said Mike Murphy, the managing director of AlixPartners.

Globally, 15 per cent of the respondents had pulled out of an acquisition for fear of corruption, while 30 per cent had ceased doing business with a partner due to possible corruption.

Of the respondents, 41 per cent said corruption was unavoidable in China. Africa took the top spot with 56 per cent and Russia was in second place with 46 per cent.

Eighty per cent of the executives at Asian companies said their industries were exposed to significant corruption risk, with 54 per cent of them saying corruption was unavoidable in Southeast Asia, especially Indonesia, the Philippines and Vietnam.

"This research shows bribery and corruption are on the radar at many Asian companies," Murphy said.

Globally, 30 per cent said their industries were exposed to a significant risk of corruption, while 52 per cent said theirs were exposed to some risk. The industries most exposed to corruption were aerospace and defence, and insurance, the survey found.

Another survey by Kroll, a risk consultancy in the United States, showed 80 per cent reporting exposure to fraud in China for 2012 to 2013, up from 69 per cent between 2011 and 2012. On average, companies lost 1.2 per cent of their revenue to fraud in China for 2012 to 2013, compared with 0.8 per cent previously.

Kroll's study polled 901 senior executives globally.

"The sense of vulnerability to fraud [in China] has grown dramatically," said Kroll.

About 20 per cent of companies said they were highly vulnerable to corruption and bribery in China in 2012 to 2013, a sharp increase from 6 per cent for the previous period, the survey found. Twenty per cent felt highly vulnerable to compliance violations for 2012 to 2013, up from 4 per cent.