Published by ChinaMNC · Mengjin

Anti-Corruption Campaign in China: What Foreign Founders Need to Know

China's intensified anti-corruption efforts affect business operations. Foreign founders should understand enforcement trends and compliance expectations when registering or running a company in China.

Anti-Corruption Enforcement: A Business Climate Factor

Foreign founders establishing or operating a company in China should note that the Chinese Communist Party (CCP) has reaffirmed its commitment to a sustained anti-corruption campaign. At a meeting marking the 90th anniversary of the Long March, Xi Jinping emphasized the need to "persist in advancing full and rigorous Party self-governance" and to achieve "self-purification, self-improvement, self-innovation, and self-enhancement." This signals that anti-corruption remains a priority with implications for the business environment.

In January, at the Fifth Plenary Session of the 20th Central Commission for Discipline Inspection, Xi stated the need to "advance the anti-corruption struggle with greater clarity and determination." For foreign investors, this means that compliance with anti-corruption laws and regulations is essential, and that enforcement actions can affect business operations.

Scale of Enforcement

According to official data, in the first three quarters of this year, disciplinary inspection and supervision organs across the country filed 800,000 cases and disciplined 680,000 individuals. These figures, while not specific to the business sector, indicate the broad scope of enforcement. Foreign founders should be aware that anti-corruption measures apply across all levels of society and economy.

Xi has warned that if corruption is allowed to spread, it will "inevitably damage the economic development environment, induce various risks and hidden dangers, and shake the foundation of the Party's governance." This underscores the government's view that corruption poses a direct threat to economic stability—a factor that foreign businesses should consider in their risk assessments.

Persistent High Pressure

Xi has stated that "corruption is still prone to occur and frequent" and that "the high-pressure stance must not waver." He called for "punishing every corrupt act,肃清 every corrupt element, and eradicating all corrupt individuals, leaving no hiding place for corrupt elements." For foreign founders, this implies that authorities will continue to actively investigate and punish corruption, and that companies should maintain robust internal controls.

The campaign also targets "micro-corruption" at the grassroots level. For example, in Shuangqiao Village, PingLe County, Guangxi, villagers suspected irregularities in the leasing of collective mountain land. Disciplinary officials investigated, and a village cadre who embezzled collective funds was disciplined, with intercepted rent recovered. Similar efforts are underway in areas such as rural collective "three assets" management, medical insurance fund management, and elderly care services. Foreign founders with operations in these sectors or dealing with local governments should be aware of increased scrutiny.

Improving Detection and Penetration

Xi emphasized the need to "grasp new trends and characteristics of corruption, innovate methods, and further timely discover, accurately identify, and effectively govern all types of corruption." This suggests that enforcement methods are evolving, and foreign companies should stay informed about regulatory changes.

One approach is the joint investigation of corruption and misconduct. In Dianjiang County, Chongqing, disciplinary officials verifying a cadre's improper hosting of his son's wedding banquet discovered a close relationship with a businessman, ultimately uncovering serious violations. Through a campaign against improper dining and drinking, multiple cases of corruption behind misconduct were investigated. Xi noted that "improper conduct and corruption are intertwined and share the same roots" and called for "integrating the correction of conduct, discipline, and anti-corruption, severely punishing intertwined problems through 'joint investigation' and eradicating common roots through 'joint governance.'"

Foreign founders should ensure that their anti-corruption compliance programs cover not only direct bribery but also improper hospitality and other misconduct that could be linked to corruption.

Integrated Approach: Deterrence, Prevention, and Culture

Xi has emphasized the importance of "integrating the promotion of not daring to corrupt, not being able to corrupt, and not wanting to corrupt." This three-pronged approach is a key part of his party-building thought. For businesses, this translates into:

• Deterrence: Strong enforcement sends a clear message that corruption will be punished.
• Prevention: Institutions and systems are being strengthened to close loopholes.
• Culture: Efforts to promote a culture of integrity and frugality aim to reduce the desire to engage in corruption.

As part of this, the government is promoting "a culture of integrity" by drawing on traditional Chinese values. In June 2022, Xi visited the San Su Shrine in Meishan, Sichuan, and said, "We should be good at drawing governance concepts and thinking from China's excellent traditional culture." Foreign founders may find it beneficial to align their corporate culture with these values, emphasizing integrity and ethical conduct.

Implications for Foreign Founders

When registering or operating a company in China, foreign founders should:

• Conduct thorough due diligence on local partners, suppliers, and agents to avoid entanglement in corrupt practices.
• Implement robust anti-corruption compliance programs that cover all aspects of business, including gifts, hospitality, and interactions with government officials.
• Stay informed about regulatory changes and enforcement priorities, as the campaign's focus may shift.
• Foster a culture of integrity within the company, aligning with the broader societal push against corruption.
• Be aware of grassroots enforcement if operating in sectors like healthcare, elderly care, or rural development, where "micro-corruption" is a target.

The anti-corruption campaign is a long-term endeavor. Xi has described it as a "protracted war" and emphasized the need for "perseverance." Foreign founders should view anti-corruption compliance not as a one-time effort but as an ongoing commitment.

In summary, China's anti-corruption drive is a significant factor in the business environment. By understanding the enforcement trends and prioritizing compliance, foreign founders can better navigate the risks and contribute to a transparent business climate.

This summary is based on information published by the relevant Chinese government website and is general information, not legal or tax advice.