In a news report published on January 3, the Financial Times raised fears about the extension of President Xi Jinping’s anti-corruption campaign to China’s state-owned MNCs operating abroad. Newer and much tougher anti-corruption measures will target commercial bribery, through the construction of stronger compliance systems within Chinese multinational corporations.
A group of state-owned MNCs including China Mobile, China Merchants Bank, China Railway, China National Petroleum Corporation, and Dongfang Electric has been selected by SASAC to implement the new compliance systems.
The FT article referenced “new regulations which went into effect on January 1”. From the article, however, it is not clear what these “new regulations” are, or which new compliance systems are being created. This post sheds light on the matter, observing how the “new regulations” have created new classes of risks, which go well beyond commercial bribery.
These risks have been created by:
The Law Against Unfair Competition was amended on November 4, 2017, for the first time since 1993. The amendments went into effect on January 1. Most available commentaries have focussed on changes in provisions on commercial bribery, overlooking several risks. Most of these risks have emerged thanks to the creation of a social credit system.
From 1993 to January 1, 2018 several of the mechanisms mentioned in the first articles of the Law Against Unfair Competition were dead letter. In the absence of big data technology, and an adequate enforcement mechanism ‘fairness, honesty, credibility’ and the respect of ‘business ethics’ (art. 2) by Western and Chinese enterprises depended entirely on enterprises, and on their fidelity to their own ethical codes.
Today, ‘fairness, honesty, credibility’ and ‘business ethics’ can be quantified and measured. How these moral qualities are defined, quantified, and measured depends in part on social credit rules and indicators applicable to enterprises, and to specific industry sectors. In part, it depends on how amendments to the Law Against Unfair Competition will tie in with social credit mechanisms.
In the meantime, the amendments have:
- significantly broadened scope of anti-competitive practices
- introduced enterprises’ liability for perceived or actual violations of the rights and interests of Chinese and foreign consumers
- bestowed stronger powers on the central government
- attributed a stronger role to industry organizations
- provided a new and more comprehensive definition of commercial bribery, and introduced corporate liability for commercial bribery by employees
- introduced a more comprehensive definition of false advertising, which includes all forms of online advertising. Prohibited certain well-known online advertising practices, and SEO tactics
- introduced social credit as a mechanism to further punish unfair competition
Each one of these points is summarized and briefly commented upon below.
The regulatory document on compliance systems in SOEs touches upon such matters as the creation of discipline inspection organs and Party groups in Chinese multinational corporations in Europe, in the United States, in Africa, Latin America, and Australia. This document should be welcomed, because it brings corporate governance of China’s SOEs much closer to international CSR and anti-corruption standards.
As I have observed elsewhere, a core feature of corporate governance and CSR in China through big data is the central role played by Party organizations and by Party regulation…(1,259 words)