China’s corruption watchdog focuses on executives’ fake business investments

In many cases, portfolio companies have no actual operations or profits and only distribute dividends to a small number of shareholders, who are executives or their agents.

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As an example, the CCDI cited the case of Yang Degao, former vice president of the Hubei branch of China Development Bank.

The commission said that from 2005 to 2014, Yang used his position at CDB to help companies obtain loans from his bank.

Mr. Yang and his four accomplices also invested 2 million yuan (US$280,000) in the company, becoming shareholders and receiving fixed annual dividends.

According to investigators, the group received 8 million yuan in “dividends” and recovered 2 million yuan of “principal” in just a few years, leaving Yang with more than 3.74 million yuan more than he was entitled to. He said he received it.

In January 2023, Yang was sentenced to 12 years in prison for accepting bribes worth more than 31 million yuan.

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China’s government has repeatedly warned millions of Communist Party officials to refrain from investing in private equity to avoid an ownership situation prone to corruption.

The party’s internal regulations explicitly prohibit officials from owning shares in unlisted companies, limiting them to investments in listed stocks.

Officials are also required to annually report their family members’ investments, including stocks, real estate and insurance, to the Disciplinary Oversight Board.

Additionally, the Civil Service Law stipulates that public servants “must not engage in or participate in profit-making activities in violation of relevant provisions, or hold concurrent positions in companies or other profit-making organizations.”

To circumvent these rules and avoid investigation, officials often named family members or other third parties as shareholders in companies, CCDI said.

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Over the years, this campaign has ousted more than 1.5 million government officials. This year alone, the CCDI’s crackdown on the US$61 trillion financial sector has resulted in the ouster of more than 100 executives and officials.

In January, the CCDI announced that around 110,000 party officials were disciplined last year, an increase of 13% from the previous year.

Last year, the commission launched corruption investigations into a record 45 senior officials, according to a tally by the newspaper.

And there is little sign that it will end anytime soon. In an instruction to the CCDI in January, Mr. Xi said he viewed the initiative as crucial to the party’s long-term governance and its “progressivity and purity.”