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April 08, 2009

Corruption in China Proves Difficult to Uproot, But Corporations Can Mitigate Issue in Their Supply Chains
    by Robert Kropp

Briefings from Ethical Corporation Institute find that China's traditional business culture contributes to problem, but government regulation and attention by corporations to supply chains help mitigate corruption. -- Two briefings recently published by the Ethical Corporation Institute (ECI) document the persistence of corruption in business practices in China, but find that the Chinese government does seem to be taking steps to address the problem.

In the first of the two briefings, entitled Anti-corruption, Ethics and Compliance in China, the ECI references figures published in 2008 by Transparency International that rank China's business environment as among the most corrupt. Corruption in China takes a range of forms, from small cases of bribery to avoid bureaucratic requirements to bribes in order to secure major business contracts. According to the ECI, "China’s traditional business culture illustrates the importance of personal relationships, with somebody’s word often replacing written contracts."

Anti-corruption initiatives are increasingly effective in China's coastal provinces, where foreign investment has been concentrated over the past 30 years. Multinational corporations operating in the inland provinces are more likely to encounter examples of protectionism and other forms of corruption, as well as issues related to intellectual property protection.

Most executives interviewed for the ECU briefing believe that legal steps are being taken to address the issue of corruption in China, but many of them express concern that China’s traditional business culture could make enforcement of anti-corruption laws difficult.

The second briefing, entitled Counter Supply Chain Corruption in China, finds that the global economic crisis has not spared the Chinese economy, where exports decreased 17.5% and imports fell 43.1% during the year-long period ending in January 2009. Some executives surveyed fear that economic pressures will increase the tendency to resort to corruption in China.

The second briefing includes the finding that corruption in China will persist during a time of economic recession, despite efforts by the government to create a robust regulatory environment. Corruption in China will continue to persist according to geographical variations, with anti-corruption efforts taking hold much more readily in the coastal provinces.

Finally, the ECI encourages multinational corporations with supply chains in China to develop programs that implement compliance codes and evaluate partners based on ethical and compliance criteria.

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