In China, Investigation into Eight Banking Executives Exposes Widespread Corruption
Frank Fang, 5 Dec 17
       

Chinese 100 yuan, 10 yuan and one yuan notes, an illustration taken in Beijing, on Sept. 29, 2016. (Fred Dufour/AFP/Getty Images)

China recently opened up its financial system to more foreign ownership, allowing foreign investors to take controlling interests in Chinese securities firms, insurance companies, asset managers, and futures traders. The relaxation of ownership has been welcomed by many financial institutions in the United States. However, the investment environment might not be all too favorable, given the recent spate of investigations that have led to Chinese banking executives getting sacked.

Cai Guohua, chairman of Hengfeng Bank, one of twelve joint stock commercial banks in China, was put under investigation for serious violations of Party discipline—an oft-used euphemism for corruption, reported Chinese business news publication Caixin on Nov. 28.

Cai was also stripped of his other position as the bank’s party secretary, according to Xinhua. In the interim, he will be replaced by Wang Hua, the former secretary general of Shandong Province.

The news is perhaps not much of a surprise, given that top executives at the bank were mired in multiple scandals last year. First, an embezzlement scandal revealed that Luan Yongtai, then the head of Hengfeng, had siphoned off 21 million yuan (about $3.18 million). Luan then outed Cai for taking 38 million yuan (about $5.74 million) via the company’s bonus system, giving himself a higher salary and bonus without approval from either the board of directors or shareholders, according to Chinese news portal Sina.

Then, Chinese business publication Caixin exposed that Cai, who was formerly the vice mayor of Yantai, a city in Shandong Province, had illegally moved 43 billion yuan (about $6.5 billion) of the bank’s trust funds to shell companies, in an attempt to wrestle control of the bank away from Yantai’s State-Owned Assets Supervision and Administration Commission, which was the largest shareholder of Hengfeng Bank at the time.

Though Luan was stripped of his position in December 2016, Cai seemed to have dodged legal punishment until now.

The corruption at Hengfeng Bank was hardly an isolated incident. In February, Yang Dongping, party committee member and chief risk officer of the Bank of Communications, one of China’s largest banks, was disciplined with “shuangkai,” being stripped of his Party membership and public office position (as chief risk officer). The Chinese Communist Party (CCP)’s anti-corruption watchdog agency, the Central Commission of Discipline and Inspection (CCDI), found that Yang had illegally provided loans for private businessowners and pocketed money for himself and his relatives, according to People’s Net, the online version of the regime’s mouthpiece People’s Daily.

At Bank of Inner Mongolia—a state-owned commercial bank with total assets of 118.6 billion yuan (about $17.9 billion) according to the latest official state statistics—Yan Cheng, the bank’s former deputy head, was expelled from the Party in April after the CCDI’s investigation found that he had embezzled public funds and accepted bribes, the CCDI’s website said.

According to the book “China’s Banking Transformation: The Untold Story” by James Stent, chairmen and CEOs of state-owned and joint-stock banks are considered senior Party members and hold ministerial and vice-ministerial ranks within the Party hierarchy. Generally, the chairman or CEO also serves as the bank’s party secretary, in charge of the bank’s Party organization that discusses central policies and Party ideology.

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