Example of How Corruption Works in China

Here is an example of how corruption works in China- from here

The extensive government funded construction in China is a fertile ground for corruption. A standard scheme works as follows: an officer is in charge of a construction project. He hires a friend to act as general contractor. The general contractor bills for the work at an inflated price. The two share in the illegal profit. The report discusses this sort of scheme as well.

The issuance of these reports is a good news/bad news event.

On the good news side, Report 1 shows that the central government is taking strong steps to rid government, banks and state owned enterprises of financial corruption. Report 2 breaks with tradition and lists the full names of the defendants and provides full details of the fraudulent activities, making clear that the government is serious about transparency. On the bad news side, the amount of corruption and fraud uncovered is a tiny fraction of the almost endemic fraud that pervades Chinese government, banking and business. Most Chinese, when reading this report, extrapolate out to what they see as the real magnitude of the problem. The result is a feeling of concern rather than a feeling of accomplishment.

There are two messages here for foreign companies doing business in China. First, be on guard at all times against fraud within your own company and in connection with those with whom you do business. Second, avoid getting involved in this kind of activity at all costs. Though the chance of discovery and prosecution may be small, the chance is real and I can assure you that you will not enjoy a 14 year stay in a Chinese jail.