Article Review #1 - China Airs Some Very Dirty Laundry by Chen Wu of BusinessWeek Online (article date - 6/28/2004)

Authors Avatar

BUS 545

International Business

Dr. Chapman

International Business Article Reviews

Submitted by: Aaron Rogers

On: July 6, 2004


Article Review #1 – China Airs Some Very Dirty Laundry by Chen Wu of BusinessWeek Online (article date – 6/28/2004)

According to a June 28th BusinessWeek online article, China’s Auditor General Li Jinhua surprised lots of people by uncovering billions of dollars of embezzlement and monetary losses due to investment mismanagement and fraud in a recent annual report to the Chinese legislature.

While the accusation came as no surprise, what was surprising was the level of corruption and the state-owned enterprises to which most of the corruption charges belonged.  Of the organizations that exhibited the most fraud were the state-owned Industrial & Commerce Bank of China, China Life (parent of NYSE listed China Life Insurance), The Bank of Communication, China State Power, 41 different state agencies, and the General Administration of Sports.

To summarize some of the findings, at the ICBC alone, nearly $2 billion dollars of illegal loans were discovered and this on top of $8.3 billion in fraud and financial irregularities reported in January of this year!

A China State Power, the General Auditor’s report uncovered more than $947 million worth of losses due to bad investment decisions, illegal loans, and blind lending practices in the years from 1998 to 2002.  As much as a third of that figure can be traced to a single executive who was believed to have left China two years ago under suspicion of charges of corruption!

Jinhua’s report further suggests that almost $16 million in Olympic funds was spent to build private houses for the staff members of the General Administration of Sports.

It does not take a long and careful analysis of this report to realize the fact that these accusations could seriously hinder China’s foreign investment sectors.  Foreign governments and private investors alike with large stockpiles of capital in Chinese banks may feel the need to move their capital elsewhere due to potential financial backlash and/or the possible collapse and re-structuring of the state-run ICBC.

Join now!

While the negative possibilities surely exist, there is also a positive side the report’s findings.  The BusinessWeek online article quoted Frank Peng, a professor at Tongji University’s School of Economics and Management in Shanghai as saying, “(the report) shows the resolution and confidence of the central government to fight corruption.”  The author of this review was surprised by the level of openness of Jinhua’s report and was further surprised that the findings were allowed to be exposed to the public.  Such openness goes a long way in showing China’s commitment to moving away from its strong-armed Communist Party controlled ...

This is a preview of the whole essay