Oversight, transparency key in SOEs’ expansion
- Source: Global Times
- [22:59 August 16 2009]
- Comments
The Foreign Corruption Practices Act of the US has had an unexpected effect: it has exposed a fair number of Chinese State-owned enterprises (SOEs) allegedly receiving bribes.
The latest example involves a slew of high-profile Chinese SOEs. Responding Saturday to a statement on the website of the US Department of Justice, petrol giant China National Offshore Oil Corporation (CNOOC) denied involvement in a corruption case. PetroChina and several other Chinese State-owned companies were also listed as recipients of bribes offered by the US valve company Control Component Inc.
It’s natural that large Chinese SOEs with overseas operations show up on the regulatory radar screens of foreign governments. How far Chinese companies can truly go global depends on their clean performance.
It’s nothing new for anti-corruption efforts in other countries to expose misdoing among top managers of Chinese SOEs. Zhang Enzhao, the former president of China Construction Bank (CCB), was sacked and imprisoned after a US company filed a lawsuit against him and CCB for unfair business practices.
The seniority of the managers involved in the foreign bribery cases is stunning and provides compelling evidence of the lacking internal oversight and transparency among China’s large SOEs.
Given their solid foundation and scale, large SOEs are better positioned than private companies to realize China’s global ambitions. Judging from the balance sheet, they are doing pretty well. ICBC, China’s largest commercial bank, is also ranked as the world’s biggest. China Mobile boasts having the largest number of subscribers in the world.
But the formidable size of these enterprises seems not to have translated into convincing business power. Especially when launching overseas mergers and acquisitions, Chinese SOEs are challenged to shake off the stereotypes associated with them.
Chinese firms’ acquisitions of foreign companies have often met with fear and resistance from local politicians and the public.
Chinese SOEs are often seen as predators grabbing precious resources; their business clout, many foreigners hold, comes more from government connections than efficient management.
A lack of transparency among Chinese SOEs is an important cause of this perception.
The government has poured huge resources into cleaning bad assets and putting in place internal control mechanisms. Listing on foreign stock exchanges has also put more transparency requirements on Chinese SOEs.
But as they are still evolving from the old planned economy, SOEs haven’t completely escaped the deep-seated tendency toward using poor business practices brewed by over-intervention of the government. The recent punishment of several high-level executives for serious corruption scandals demonstrates that the problems are far from being uprooted.
The economic crisis has presented Chinese SOEs with a good opportunity to pursue their strategy of global expansion, but without a transparent system of corporate governance, they will be further troubled by corruption scandals and meet with external suspicion.
