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Fosun Group

China’s opaque investigations into corporate corruption only dent investor confidence

The brief ‘disappearance’ of Fosun Group chairman Guo Guangchang had a huge impact on the share prices of listed companies controlled by him

PUBLISHED : Wednesday, 16 December, 2015, 12:15am
UPDATED : Wednesday, 16 December, 2015, 12:15am

President Xi Jinping’s (習近平 ) determination to root out the official corruption that has thrived in the mainland’s opening up is not in question. But the way in which investigators still go about it as if it were an internal affair of the old state-run economy most certainly is, given the increasing importance of Chinese companies in global markets. The unexplained disappearance last week of a famous billionaire businessman, Fosun Group chairman Guo Guangchang, is a case in point.

READ MORE: ‘Missing’ Fosun chairman Guo Guangchang back at work after ‘helping Chinese authorities with investigation’

After it emerged that the conglomerate could not contact the man who fashions himself as China’s Warren Buffett, it was not until more than a day and a half later that it disclosed that he was “assisting” judicial authorities. He has since resurfaced at a company meeting, but left it unclear where he stands with the authorities. The disappearance – amid speculation that Guo is the latest victim of Xi’s campaign – has done nothing for confidence.

Investors detest such uncertainty. A sell-off of Fosun Group companies before and after suspension of the shares on Friday is testament to that. The lack of transparency and respect for the rule of law have also caused serious disquiet. It is not an isolated example, and it is not only markets that are kept in the dark, but also families and their lawyers. Such abuses and lack of accountability are, indeed, a throwback to a closed economy. The authorities are still using the Communist Party’s extrajudicial disciplinary machinery to hold someone incommunicado while seeking a confession or evidence. The motive of preventing flight and tampering with witnesses may be defensible when dealing only with officials, but as the fallout from Guo’s case illustrates it is a different matter when it affects the corporate world.

READ MORE: China’s missing tycoon Guo Guangchang back after ‘assisting authorities’ - but is this the end of the matter?

Guo’s links with senior officials now under investigation are well known. But that underlines the reality that in an economy where the state remains deeply involved, it is hard for businessmen to avoid contact with officials – straight and bent.

The willingness to do whatever it takes to minimise systemic corruption is understandable. But it comes at an unacceptable cost. The authorities should reflect on what kind of message it sends if the authorities behave as if nothing had changed in the last 30 years, to the extent that “China’s Warren Buffett” can just disappear. They should weigh the cost in lack of transparency, uncertainty and unfairness to shareholders and consider devising an element in the process that would at least reassure the public, not to mention families and business associates, without compromising the integrity of an investigation.