Probe of Chalco executive signals more reckoning for China's SOEs
Investigation of Chalco executive signals more corruption probes of SOEs, but it's still unclear whether party has will to break up monopolies
A series of investigations involving executives of major state-owned enterprises underscores Beijing's seriousness in cracking down on corruption and tackling vested interests.
The Aluminum Corporation of China (Chalco) became the latest state-owned giant to see a senior executive face the graft-fighters, following investigations into officials at companies including China National Petroleum Corporation (CNPC) and the nation's largest container shipping line, the China Ocean Shipping Company (Cosco).
It's likely that some of the crackdowns were derived primarily for political ... purposes
Chalco, the country's largest smelter of the lightweight metal, issued a brief statement last Wednesday saying that vice-president Li Dongguang - also the general manager of Chalco Aluminium International Trading - was being investigated due to "personal reasons". His resignation would have no major impact on the company's daily operations, Chalco said.
State-owned giants have over the past decade made huge profits from their monopolies over resources, ranging from credit to land. The system puts private enterprises at a competitive disadvantage and helps stir unrest.
Analysts say President Xi Jinping and other top leaders were likely to tackle more graft cases in SOEs as reforms ventured further. The Communist Party concluded an agenda-setting meeting two weeks ago, pledging to let the markets play a "decisive" role in the economy, while still ensuring a central place for SOEs.
"The leaders have shown a determination to boost the healthy development of the state sector through economic measures aimed at improving corporate governance at SOEs, as well as [taking] legal steps to crack down on corruption," said Hu Xingdou, a professor of economics at the Beijing Institute of Technology.
"The SOEs operate like government administrations, but compared with those agencies, SOE executives engage more often in business activities and more easily get involved in corrupt activities," Hu said.
Since taking office last autumn, Xi has launched a series of campaigns to combat rampant corruption and luxury gift-giving by senior government officials as well as executives at the most powerful state-owned sectors such as energy and resources.
Earlier this month, Xu Minjie, executive director of Cosco, resigned after he became the target of an official investigation. Xinhua, citing unnamed sources, reported that former Cosco chairman Wei Jiafu's movements had been restricted by authorities.
Jiang Jiemin, who was appointed chief of the State-owned Assets Supervision and Administration Commission in March after serving as chairman of CNPC, was investigated for serious "discipline violations" - a common euphemism for graft - in late August.
Four other senior CNPC officials were placed under investigation days earlier, including Jiang's former aide, Wang Yongchun .
Former senior executives at telecoms giant China Mobile have also been forced to resign after being investigated.
Although little is known about the details of the investigations, some analysts believe that Xi may be using the crackdown on SOEs to consolidate power by weakening state-sector political cliques in the party.
"It's likely that some of the crackdowns were derived primarily for political, not economic, purposes," said Yuan Gangming, a senior researcher at the Chinese Academy of Social Sciences.
The has reported that party leaders agreed in August to investigate retired Politburo Standing Committee member Zhou Yongkang for corruption. Zhou was general manager of CNPC executive before becoming the public security tsar and was believed to have great influence in oil sector.
"The crackdowns will set off alarm bells among the rest and may contain some irregularities in the short term," Hu said. "But … many people may want to try their luck to escape punishment due to the very low numbers of those being caught."
He urged Beijing to build up a long-term, anti-corruption apparatus to focus on making SOE finances more transparent, requiring their leaders to disclose their wealth, allowing the press to more freely report on them and encouraging the public to report executives' wrongdoings.
The state monopolies have been blamed for harming competition and lowering efficiency in many sectors.
The country's gross domestic product growth has dropped below 8 per cent for several quarters from a peak of more than 14 per cent in 2007, after an investment explosion in the state sector created excessive capacity, financial risks and asset bubbles.
According to Xu Xiaonian, a professor of economics and finance at the Shanghai-based China Europe International Business School, the more control the state has over a company, the less efficient it is.
SOEs get access to cheap land and bank loans, while facing little competition from private players that are banned from entering a number of lucrative sectors, such as steel and other metals.
Even with these privileges, companies like Chalco and Cosco have recorded huge losses.
Chalco incurred net losses of 1.85 billion yuan (HK$2.33 billion) in the first three quarters of this year, even after the company continued to dispose of assets.
Heavy spending on ships by Cosco since 2008 has eroded the shipping giant's profits, with losses recorded in the past two years. In the first three quarters of this year, the company posted a net loss of two billion yuan, compared with a 990 million yuan loss in the first half.
Hu welcomed the government's decision to set up state capital investment companies, in which the state would own shares without necessarily interfering in daily operations.
Asked when China might see its first state-run company report strong financial strength while exhibiting strong corporate governance, Hu said: "I'm not sure whether such a company may emerge by 2050. It would be good enough if China can complete its SOE reform by then."
