China: Directing public anger towards foreigners is easy

Although the most corrupt and biggest offenders are Chinese companies, it is unlikely domestic pharmaceutical and food manufacturing firms will face the kind of regulatory challenges imposed on their foreign competitors any time soon

The Chinese leadership wants to rebalance and reform their economy. At a recent conference, Li Keqiang, China’s prime minister, promised that the government would institute a broad range of market-friendly economic reforms. For a change, all businesses will now have equal access to markets and legal protection. According to Premier Li, “Reform and innovation provide an inexhaustible driving force.” The centre piece of this program is a free trade zone in Shanghai. The free trade zone allows for a slight liberalisation in financial products offered by Western funds, but biggest change is to allow unfettered access to Facebook.


It would appear that the Chinese economy is strong enough for these reforms. According to several recent data points, China’s economy is starting to rebound. But there are other ominous indicators. China Beige Book, a poll of 2,000 firms, points to a slightly different direction. Mining and transport growth sank as did manufacturing and real estate activities. Services and retail activities managed only slight gains after a poor second quarter. The author of the study Leeland Miller, the president of CCB International, said "This release represents perhaps the most surprising—and important—data that we have released in seven quarters of polling, with results that undercut the conventional wisdom that [the third quarter] saw both significant stimulus and a significant recovery. Both appear to be a fiction". It continued, "The yellow lights our credit data have been flashing since [the fourth quarter of last year] may now be flashing red."


It is not only the Chinese economy that may not be as advertised. The reforms may not materialise either. As Xi Jinping consolidates power, the government is in the process of a crackdown on corruption. Oddly, it appears that the most corrupt companies just happen to foreign. Not that the Western companies are totally blameless.


The most widely publicised inquiry is a bribery probe into British firm GlaxoSmithKline (GSK). Other drug companies are under investigation as well including France’s Sanofi, joint ventures of Germany’s Merck and Boehringer Ingelheim, Novartis of Switzerland, Baxter of the US and Denmark’s Novo Nordisk. Certainly some of these companies, specifically GSK, probably paid bribes to market their wares, however it is easier to target high-profile foreign companies. The Chinese public is outraged over high prices and safety scares and the foreign companies make convenient scapegoats.


It is not only the foreign drug companies that are targeted. The scandals surrounding baby formula poisonings have created a whole system for the informal importation of foreign brands often at twice the price of local products both foreign and domestic. Naturally parents are outraged. As you would suspect the foreign companies including Mead Johnson and Abbott from the US; Dumex, a subsidiary of France’s Danone; Royal FrieslandCampina of the Netherlands, and New Zealand’s Fonterra, the world’s biggest dairy company, have all been targeted for investigations and fines.


As China’s global economic presence has grown, so has the reach of its regulators. Large mergers now must get antitrust approval from the Chinese. Seemingly unfair or arbitrary actions of Chinese authorities have caused concern in the US but so far the issue has not been part of bilateral negotiations. This does not mean that it has not caused concern for companies doing business in China. Antitrust officials have recently convened meetings of several dozen in-house lawyers. The officials told the lawyers to expect further investigations, and warned of dire consequences if they sought outside legal help to challenge regulatory action through the courts.


Chinese regulators are far more circumspect in challenging local state owned companies. State owned companies have significant power and are well-connected. Although the most corrupt and biggest offenders are Chinese companies, it is unlikely domestic pharmaceutical and food manufacturing firms will face the kind of regulatory challenges imposed on their foreign competitors any time soon.


State owned or controlled companies may be exempt, but private firms with the wrong political connections are also targeted. Last year, in the Sichuan capital of Chengdu, the Communist Party announced that a politician who ran the city as the Party’s secretary and mayor was detained on suspicion of corruption. This year five of the city’s richest citizens have disappeared from view. Zeng Chengjie, a real estate developer from Hunan, was executed allegedly because he insisted on paying back his creditors not only the principal that was required but also the interest, which was prohibited.


The Chinese economy is truly slowing. If years of profligate lending are finally catching up with an overheated economy mired in debt, then it will take a lot more than a special economic zone in Shanghai to solve the country’s problems. It will take reforms that limit government power to interfere with legitimate private business. If the government for political reasons feels that it must direct public anger at foreigners rather than the corrupt and connected, then it will never be able to sustain growth. Even unlimited access to Facebook won’t save them.


(William Gamble is president of Emerging Market Strategies. An international lawyer and economist, he developed his theories beginning with his first-hand experience and business dealings in the Russia starting in 1993. Mr Gamble holds two graduate law degrees. He was educated at Institute D'Etudes Politique, Trinity College, University of Miami School of Law, and University of Virginia Darden Graduate School of Business Administration. He was a member of the bar in three states, over four different federal courts and has spoken four languages.)


Lalu Yadav, Jagannath Mishra among 45 convicted in fodder scam

A special CBI court in Ranchi has fixed 3rd October for pronouncement of the sentence against RJD chief Lalu Yadav, former CM Jagannath Mishra and others in the fodder scam

Lalu Prasad Yadav, the chief of Rashtriya Janata Dal (RJD) and Jagannath Mishra, former chief minister of Bihar are among the 45 convicted by the special Court of Central Bureau of Investigation (CBI) in the multi-crore fodder scam.


Other accused includes six politicians and four IAS officers. The all are convicted for fraudulent withdrawal of Rs37.7 crore from the Chaibasa treasury.


The Court has fixed 3rd October for pronouncement of sentence against Yadav, Mishra and others.


The fodder scam was a corruption scandal that involved the embezzlement of about Rs950 crore (equivalent to Rs2,000 crore or $310 million in 2013) from the government treasury of Bihar. Among those implicated in the theft and arrested were Lalu Yadav, the then chief minister of Bihar as well as former CM Mishra. The scandal led to the end of Yadav's reign as chief minister of Bihar. On 25 July 1997, Lalu resigned from his position, but installed his wife Ravri Devi as the new chief minister of Bihar. On 28 July 1997, Rabri's new government won another vote of confidence in the Bihar legislature by 194–110, thanks to the Congress and Jharkhand Mukti Morcha voting in alignment with the RJD.


There were also allegation on Nitish Kumar and Shivanand Tiwari of receiving Rs1 crore and Rs60 lakh, respectively from SB Sinha.


The theft spanned many years, and allegedly involved numerous administrative and elected officials across multiple administrations of the Congress and the Janata Dal parties. The corruption scheme involved the fabrication of "vast herds of fictitious livestock" for which fodder, medicines and animal husbandry equipment was supposedly procured.


Although the scandal broke in 1996, the theft had been in progress, and increased in size, for over two decades. Besides the magnitude and duration of the theft, the scam was and continues to be covered in Indian media due to the extensive nexus between tenured bureaucrats, elected politicians and businesspeople that it revealed, and as an example of the mafia raj that has penetrated several state-run economic sectors in the country.


As of May 2013, the trial has completed in 44 cases out of a total of 53 cases. More than 500 accused have been convicted and awarded punishments by various courts.


In 1992, Bidhu Bhushan Dvivedi, a police inspector with Bihar's anti-corruption vigilance unit submitted a report outlining the fodder scam and likely involvement at the chief ministerial level to the director general of the same vigilance unit, G Narayan. In alleged reprisal, Dvivedi was transferred out of the vigilance unit to a different branch of the administration, and then suspended from his position. He later became a witness as corruption cases relating to the scam went to trial, and reinstated by order of the Jharkhand High Court.




3 years ago

Whether Mr. Bidhu Bhushan Dvivedi, the then SI from anti-corruption vigilance unit, is suitably rewarded now?

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