China’s corruption watchdog zeroes in on cadres’ fake business investments

CCDI says it is taking aim at officials who take bribes in the guise of dividends from private equity stakes
It cites the case of a former China Development Bank official jailed last year for taking millions in illicit payments

China’s Communist Party

William Zheng

Published: 12:00pm, 18 Mar 2024

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China’s top anti-graft watchdog is targeting cadres who take bribes in the form of “dividends” from fake business investments, a type of corruption that authorities say is becoming more common, secretive and complex.

The Central Commission for Discipline Inspection (CCDI) said on Sunday that in these cases, the officials take “returns” from the business without actually investing in the enterprise or being involved in its operations.

In many cases, the invested company has no actual operations or profits and distributes dividends only to a handful of shareholders who are the officials or their proxies.

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As an example, the CCDI cited the case of Yang Degao, former vice-president of the Hubei branch of China Development Bank.

The commission said that from 2005 to 2014, Yang took advantage of his position in CDB to help a company obtain a loan from his bank.

Yang and four accomplices also invested 2 million yuan (US$280,000) in the firm, becoming shareholders and receiving fixed dividends every year.

The group received 8 million yuan in “dividend payments” and took back their “principal” of 2 million yuan in just the next few years, with Yang receiving over 3.74 million yuan more than his rightful amount, according to investigators.

In January 2023, Yang was sentenced to 12 years in prison for accepting over 31 million yuan bribes.

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The campaign against such bribery is part of the CCDI’s priority this year to crack down on “corruption involving political and business collusion”, particularly in the finance sector, state-owned enterprises and the energy, tobacco, healthcare and infrastructure industries.

Beijing has repeatedly warned its millions of Communist Party cadres to stay away from investing in private equity to avoid ownership situations that are ripe for corruption.

The party’s internal rules clearly prohibit officials from having stakes in unlisted companies, restricting them to investments in listed shares.

Officials are also required to report their family’s investments including shares, property and insurance to the disciplinary watchdog every year.

In addition, the Civil Servant Law also stipulates that public officials shall not “violate relevant regulations to engage in or participate in for-profit activities or hold concurrent positions in enterprises or other for-profit organisations”.

The CCDI said that to get around these rules and avoid investigation, officials often named family members or other third parties as shareholders of the companies.

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President Xi Jinping has made tackling corruption in the sprawling party a signature issue since taking power more than a decade ago.

Over the years the campaign has brought down more than 1½ million government officials. This year alone, the CCDI’s crackdown on the US$61 trillion financial sector has brought down more than 100 executives and officials.

Some 110,000 party officials faced disciplinary action last year, the CCDI said in January, a 13 per cent increase from the previous year.

Last year, the commission opened corruption investigations against a record 45 senior officials, according to a tally by the Post.

And there is little sign that it will end soon. In his instructions to the CCDI in January, Xi said he regarded the efforts as critical to the party’s long-term governance as well as its “advanced nature and purity”.