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

China’s intensified anti-corruption efforts affect business operations. Learn how foreign founders can stay compliant and mitigate risks when registering or running a company in China.

China’s Anti-Corruption Campaign: Implications for Foreign Founders

China’s leadership has reaffirmed its commitment to fighting corruption, emphasizing that the campaign will continue with greater resolve. For foreign founders setting up or operating a company in China, understanding this landscape is crucial for compliance and risk management. This article summarizes key points from an official government source and offers practical guidance.

Continued High-Pressure Enforcement

At a recent event commemorating the 90th anniversary of the Long March, President Xi Jinping stressed the need for consistent efforts to enforce party discipline and achieve self-purification and self-improvement. Since the 18th Party Congress, China has developed an anti-corruption approach characterized by addressing both symptoms and root causes, and by ensuring that officials dare not, cannot, and do not want to be corrupt. This path will be steadfastly followed.

In the first three quarters of this year, disciplinary inspection and supervision organs nationwide filed 800,000 cases and disciplined 680,000 individuals. These figures underscore the sustained intensity of the campaign.

President Xi has warned that if corruption is allowed to spread, it will damage the economic development environment, trigger various risks, and undermine the party’s governing foundation. He emphasized the need to maintain a high-pressure stance, stating that corruption must be punished, greed must be eliminated, and wrongdoers must have nowhere to hide.

For foreign founders, this means that Chinese authorities are actively investigating and penalizing corrupt practices. Companies should ensure their operations are transparent and comply with all relevant laws. Bribery and other corrupt activities are serious offenses and can lead to severe consequences.

Focus on Grassroots Corruption

The campaign also targets corruption at the grassroots level, particularly in areas that affect people’s daily lives. For example, in Shuangqiao Village, Pingluo 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 managing rural collective assets, medical insurance funds, and elderly care services. These actions aim to ensure fairness and justice are felt by the public.

Foreign founders should be aware that local officials are under scrutiny, which may affect interactions with local authorities. It is advisable to maintain proper records and avoid any informal payments or favors that could be construed as corruption.

Innovative Methods to Increase Penetration

To effectively combat corruption, authorities are adopting new methods to detect and address emerging forms of corruption. President Xi called for understanding new trends and characteristics of corruption, innovating methods, and improving the timely discovery, accurate identification, and effective governance of corrupt practices.

One approach is to investigate both improper conduct and corruption together. For instance, in Dianjiang County, Chongqing, disciplinary officials, while verifying a cadre’s violation of rules on hosting a wedding banquet for his son, discovered close ties with a businessman and ultimately uncovered serious disciplinary and legal violations. Through campaigns against illegal dining and drinking, multiple cases of corruption behind work-style issues were investigated.

These examples show that Chinese authorities are using sophisticated techniques to uncover corruption. Foreign companies should implement robust anti-corruption compliance programs, conduct due diligence on business partners, and train employees on relevant laws and regulations.

Advancing the ‘Three Not’s’ Approach

The strategy of ensuring officials dare not, cannot, and do not want to be corrupt is a key component of Xi Jinping’s thought on party building. President Xi has described this integrated approach as both a basic policy for anti-corruption and an important strategy for full and rigorous party governance. The party is working to strengthen deterrence, tighten institutional constraints, and enhance consciousness, aiming for more institutional achievements and governance results.

Cultural initiatives also play a role. For example, at the San Su Shrine in Meishan, Sichuan, visitors learn about traditional virtues such as integrity and honesty. President Xi has emphasized drawing on China’s fine traditional culture for governance concepts. The construction of a culture of integrity in the new era aims to create a social environment that upholds integrity and rejects corruption, and to eliminate the soil and conditions for corruption.

Foreign founders can benefit from understanding these cultural nuances. Building a corporate culture that values integrity and compliance can help align with local expectations and reduce risks.

Implications for Foreign Founders

The anti-corruption campaign has significant implications for foreign businesses operating in China. Here are some practical steps to consider:

• Conduct thorough due diligence: Before engaging with local partners, suppliers, or officials, investigate their backgrounds and reputations.
• Implement a compliance program: Develop and enforce clear anti-corruption policies, including gift and hospitality guidelines, and provide regular training to employees.
• Avoid facilitation payments: Even small payments to speed up routine procedures can be considered bribery under Chinese law.
• Maintain accurate records: Keep detailed financial records and ensure all transactions are properly documented.
• Stay informed: Monitor regulatory changes and enforcement trends to adapt your compliance strategies.

President Xi has also stressed the party’s courage and determination, quoting “Though thousands oppose, I will go forward” to illustrate fearlessness in facing challenges. This resolve suggests the campaign will continue with vigor.

As the campaign evolves, foreign founders should remain vigilant and proactive in managing corruption risks. By understanding the landscape and implementing robust compliance measures, they can protect their businesses and contribute to a fair business environment.

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

For assistance with registering and operating a company in China, foreign founders can contact ChinaMNC on WhatsApp / WeChat at +86 153 1898 8535.