The $1 million bribe came on wheels: a travel suitcase stuffed with U.S. dollars that senior Chinese banker Yang Kun collected from CJW, a bar in Beijing’s Chaoyang District that offers cigars, jazz and wine.
The property developer who handed over the money in November 2011 wanted loans from Agricultural Bank of China Ltd., where Yang was a vice president, according to a report of court proceedings in the state-run People’s Daily.
Wrongdoing like Yang’s -- his life sentence was announced Feb. 4 by a provincial court -- may take time to stamp out. The excessive power of senior bankers, appointed by the Communist Party and able to dole out relatively cheap loans from the nation’s $18 trillion of deposits, impedes efforts to combat corruption, according to Hu Xingdou, an economics professor at the School of Humanities and Social Sciences at Beijing Institute of Technology.
“The government needs to fix the fundamental problems, such as giving more banking licenses to non-state capital, establishing market-oriented decision-making processes and cultivating real bankers rather than politicians,” said Hu, who’s written books on reform such as “The Issue of China.”
China Minsheng Banking Corp. President Mao Xiaofeng, a Harvard graduate and a rising star of Chinese banking, stepped down from his roles at Minsheng, where he was also Communist Party secretary, after Caixin magazine reported last month that he’d been taken away by investigators.
Mao’s case is linked to the party’s investigation of Ling Jihua, a former top aide of retired president Hu Jintao, according to Caixin, which has cited unidentified people. In December, the Communist Party said that Ling was under investigation for alleged serious disciplinary violations.
The party installed Mao at Minsheng in 2002 after he’d served as a senior official at the China Communist Youth League. He resigned from the bank for “personal reasons,” Minsheng said Jan. 31, adding that the company was operating normally. The bank declined two requests to comment further and the banker couldn’t be contacted for comment. He hasn’t been charged with any offence.
Minsheng has a market capitalization of about $48 billion, more than Deutsche Bank AG. Minsheng shares tumbled as much as 10 percent in Hong Kong on Feb. 2, the first trading day after the Caixin report. They closed Wednesday at HK$9.06, down 4.1 percent since before the report.
Chinese President Xi Jinping has taken on energy companies and the military in a graft clampdown that state-owned media have called the toughest since the republic was founded in 1949.
“Recent actions by the Chinese government, by the Discipline Inspection Commission, have scared, I would say, most officials in China,” said Victor Shih, a professor at the University of California at San Diego who studies China’s politics and finance. At the same time, “the temptation is there,” and corruption among bankers will persist so long as deposit-rate caps provide lenders with capital so cheap that companies will pay bribes to tap it, he said.
China’s biggest lenders charge their best customers about 5.5 percent interest for one-year loans, compared with 20 percent or more for money borrowed from outside the formal banking system, where smaller businesses turn to friends, relatives, pawnshops and underground lenders.
That rate gap, combined with a dearth of credit for smaller businesses, increases the power of the senior bankers who decide who gets to borrow.
While bank lending surged from 2008 to unprecedented levels, state-owned companies and local governments were the big beneficiaries, with the state-run Xinhua News Service reporting in November that 90 percent of more than 50 million smaller private businesses don’t have access to bank credit.
Over the past decade, Chinese banks have weathered probes of executives and, in some cases, the jailings of their leaders. Some of the bigger names to fall included China Construction Bank Corp.’s Zhang Enzhao, sentenced to 15 years jail in 2006, and China Development Bank Corp.’s former Vice President Wang Yi, given a suspended death sentence in 2010 for taking bribes.
Two former Bank of China Ltd. managers at a sub-branch in Kaiping county in Guangdong were convicted in the U.S. in 2008 for a conspiracy that defrauded the bank of at least $485 million from 1991 until their arrest in October 2004, the U.S. Department of Justice said at the time of the convictions. They laundered money through Hong Kong, Canada and the U.S. before fleeing to the U.S. under false identities, it said.
“If you compare the cases uncovered now with the amount of money embezzled a decade ago by some branch executives we have to acknowledge that Chinese banks have come a long way in improving their internal controls,” said Jimmy Leung, Shanghai-based banking and capital markets leader at PricewaterhouseCoopers LLP in China.
In the case of Si Wei, a former vice president of Beijing Rural Commercial Bank Co. who was sentenced last month to 12 years in jail, a witness recalled giving him money because Si’s power to approve loans meant that “he controlled the fate of my company,” according to a Beijing Times report of Jan. 12, which cited court documents.
Si’s case suggests that Xi’s famous speech of Jan. 22, 2013, where he pledged to root out “tigers and flies” -- the highest and lowest of corrupt officials -- didn’t immediately resonate with everyone. In the lead-up to China’s spring festival, which started about three weeks later, Si accepted shopping payment cards bearing 30,000 yuan ($4,800) of value and a 100-gram gold bar, according to the Beijing Times report, posted on Xinhua’s website.
In previous years, Si had reportedly taken bribes such as a jade pendant and a 117,700 yuan Breguet watch and one witness told of funding Si’s second executive MBA, according to the Beijing Times. No comment on Si’s case was immediately available after calls and faxes to Beijing Rural.
For Agricultural Bank’s Yang, aged in his late 40s, ill-gotten gains from 2005 to 2012 included gold bars; an 8 million yuan bribe for him to invest in stocks; and an artwork in ink, entitled Lotus and painted by the Chinese master Qi Baishi, according to the China News report carried in the People’s Daily.
Shanghai-listed developer Greattown Holdings Ltd., named by the 21st Century Business Herald as the company that paid the bribe to Yang, said in a June 24 statement that an 800 million yuan credit line approved by Agricultural Bank in December 2011 was legitimate and it had no record of any illicit payment.
In 2012, Yang was being considered as a potential candidate for promotion. That led to extra vetting by the Communist Party’s disciplinary department, which reviewed letters on file from whistle-blowers and then placed Yang under surveillance, according to the China News report. No comment on Yang’s case was immediately available after calls and faxes to Agricultural Bank. His life sentence was announced on the microblog of the Jiangsu provincial court on Feb. 4.
Investigations of at least seven senior bank executives, mostly from provincial lenders, have become public since Xi became president in March 2013, according to official announcements and media reports. Wei Jian, the head of the Communist Party’s disclipinary agency division that oversees the financial industry, was removed from his job in May last year and placed under investigation, suspected of “seriously violating disclipline and law,” the agency said in a statement on its website at the time.
“China’s financial industry is a hotbed for corruption,” said Hu, the academic. At the same time, anti-graft campaigns will only “buy time for the government until the fundamental mechanism is fixed.”