How This Executive’s Fall Shows the Corruption of China’s State Firms

By Lu Chen
Lu Chen
Lu Chen
May 13, 2015 Updated: May 13, 2015

When Chinese anti-corruption authorities took down the head of the state-owned enterprise Jiuquan Iron and Steel Corporation (JISCO), the firm’s exorbitant reception expenses came into focus under the public lens.

On May 6, the Communist Party’s anti-graft agency in Gansu Province announced that JISCO’s chairman and deputy Party secretary Feng Jie had been placed under investigation on charges of “severe violation of law and discipline.”

Details about Feng’s case were not released, but JISCO’s so-called “reception expenses”—paid for by public funding, have come under scrutiny. According to the state-run China Business News, in 2014 the company allocated over 1 billion yuan (about $160 million) to cover receptions, a threefold increase from 2011.

For state-run firms like JISCO, “reception expenses,” along with overseas business trips and vehicle procurement and maintenance, are covered by state funds.

These provisions allow for loopholes that executives can easily take advantage of. In 2013, Feng Jie spent 76 million yuan ($12 million) on a luxurious reception office in Beijing, despite his company suffering annual losses of 3 billion yuan, China Business News reported. The building was supposedly intended for receiving officials and company staff travelling to Beijing for business.

Reception is productive force

Another state-run company, the China Railway Construction Corporation, spent 837 million yuan ($135 million) on “business hospitality” in 2012.

Interviewed by the state-run Xinhua news, Xu Baoli, department director at a government asset regulation authority, said that state-run firms had “grown accustomed to wasteful consumption of public funds.” Arbitrary welfare allocation and reimbursement fraud are other significant aspects of the problem, Xu said

Expensive meals and lavish business receptions have become a way obtain the favor of officials in securing state projects. “If state-run firms don’t do it like this, they can’t get the project,” Wang Mengshu, deputy chief engineer at China Railway Tunnel Group, told Chinese media Time Weekly. “Hosting a meal must cost tens of thousands of yuan or the other side will be displeased.”

“It’s become a means of doing business. No one is exempt from this nationwide condition,” Wang said.

An anonymous project manager at a large state-owned construction enterprise also confirmed the pervasiveness of the issue, saying that his company not only needed to host meals and bestow gifts in order to obtain project rights, but after finishing a project as well, so as to ensure that the project meets standards, the Time Weekly says.

At the official reception office of Tianshui City in Gansu Province, a large slogan was painted on the wall, saying “Reception is productive force.” Chinese newspaper Southern Daily reported that authorities soon took down the slogan following public condemnation.

Lu Chen
Lu Chen