China's Companies Most at Risk for Corruption, Says Transparency International

By Dexter Roberts | October 17, 2013

Maybe Xi Jinping is on to something. Early this year, China's president vowed to "fight corruption at every level, punish every corrupt official, and eradicate the soil that breeds corruption." Neither high-level officials or "tigers" nor low-ranking "flies" would be spared, Xi said on Jan. 22, reported the China Daily.

That was followed by an ongoing corruption crackdown that has netted senior officials, including Jiang Jiemin, the former head of China National Petroleum, one of China's largest companies. Ji Jianye, the mayor of Nanjing, the provincial capital of Jiangsu province, was "placed under an internal disciplinary probe," for "economic violations," the Global Times reported on Oct. 17, citing news portal people.com.cn.

Now a new survey ranks Chinese companies as the least transparent, and so most prone to corruption, among those in emerging markets. "Results show that companies from China lag behind in every dimension with an overall score of 20 percent (2 out of a maximum of 10)," says Berlin-based anticorruption organization Transparency International, in an Oct. 17 press release. "Considering their growing influence in markets around the world, this poor performance is of concern."

The 52-page report, called Transparency in Corporate Reporting: Assessing Emerging Market Multinationals, looks at 100 multinationals from China, India, Russia, Brazil, and 12 other countries that are active in industry, consumer goods, and basic materials. The 100 selected for the survey were the same as in a list, called Global Challengers 2011, compiled by Boston Consulting Group. The ratings were based on research conducted with publicly available information, and the average level of transparency among all 100 enterprises was 36 percent.

Transparency International rated companies in part based on their own publicized anticorruption programs, noting that "weak levels of reporting may indicate poor or nonexistent anticorruption programs and a lack of commitment to countering corruption." The average rating in this category was 46 percent.

Another key measure: organizational transparency, or the degree to which companies come clean about all the subsidiaries, affiliates, and joint ventures they have, sometimes in multiple countries, and the financial relationships among them. As the Transparency report notes: "Understanding complex company structures and other critical information such as intracompany financial flows is only possible if companies are transparent about their organizational structure."

Of the 11 companies given a zero for organizational transparency, nine were from China. (The average score among all companies was 54 percent.) They included big-name state enterprises such as China National Offshore Oil, or CNOOC, Anshan Iron and Steel Group, and China Shipbuilding Industry Corp., as well as private players Huawei Technologies and auto-parts maker Wanxiang Group. "Most of the companies disclose little or no financial data on a country-by-country basis, with companies from China disclosing the least," says the report.

Not surprisingly, the survey showed that listed companies were significantly more transparent than unlisted ones. For example, in reporting on their own anticorruption programs, publicly listed companies scored 53 percent, compared with 30 percent for state-owned firms and 27 percent for private ones (both unlisted.) "Stock market listing requirements definitely have a positive impact on a company's level of disclosure," says Transparency.

The survey also looked in detail at the record of enterprises from the so-called BRIC countries, which overall had an average rating of 35 percent. Indian companies beat the average, and did best with a 54 percent rating. Meanwhile, South African companies were just behind India, followed by Russia, Brazil, and in last place, China.

Among all companies surveyed, Tata Communications ranked at the top for transparency, earning a ranking of 71 percent. "In India, domestic legal requirements have led to Indian companies providing more extensive financial information on their subsidiaries. They also report on the countries in which their subsidiaries are incorporated," says Transparency International. The worst: China's Chery Automobile, along with Mexican appliance maker Mabe, which both earned a zero ranking.

Roberts is Bloomberg Businessweek's Asia News Editor and China bureau chief.

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