China's Anti-Corruption Campaign Enters the Private Sector

The recent detention of two high-profile businessmen serves as an announcement that Chinese tycoons are not exempt from the government’s anti-corruption drive. Since coming into power in November 2012, President Xi Jinping has sought to crackdown on corruption, targeting both high profile cadres and low-level officials also referred to as ‘tigers and flies.’ The Central Commission for Discipline Inspection (CCDI), China's corruption watchdog, has investigated 149 government institutions since late 2012 and aims to finish inspecting all 280 government bodies by the end of 2017. Reportedly, over 100,000 people have been arrested since the start of the campaign. Unlike government officials and executives of state-owned enterprises, businessmen in the private sector have rarely been targeted. However, the detention of several high profile businessmen in recent months indicates that China has extended its campaign. 

On 11 December 2015, Guo Guangchang, China’s 17th richest person and the chairman of Fosun group, the country’s largest private-sector conglomerate, was detained by authorities to reportedly assist with investigations. Though the details of the investigation remain unknown, some reports allege that it was in connection with a corruption case involving Ai Baojun, the former vice mayor of Shanghai and director of the Shanghai free trade zone. While it is not clear when Guangchang was released, he made a public appearance on 14 December at Fosun’s annual meeting during which he refrained from discussing his disappearance. Following this, on 7 January 2016, reports emerged that China’s 62nd richest man, Zhou Chengjian, founder of one of the country’s most popular fashion brands, Metersbonwe, had been detained by authorities to help with investigations into insider trading and stock manipulation. Chengjian returned to work on 18 January 2016. 

While a clampdown on corruption in the private sector has been welcomed by advocates of clean corporate governance, businessmen and investors are concerned about the risks of being embroiled in the campaign. Investigations have the potential to cause damage to reputation and market share. As such, several prominent companies have chosen to carry out internal investigations to identify employees suspected of corrupt practices such as bribery and embezzlement. By launching their own initiatives in this regard, private companies are guarding themselves from negative repercussions associated with being linked to the government’s current campaign. 

As Xi continues to crackdown on high-profile officials and civil servants, suspected private businessmen are likely to be detained without warning, and if charged, could face lengthy jail terms. While the initiative may serve to improve the government's public image in the long term, in the short term business continuity may be affected.