POLITICs
crimes like insider trading have been on the
increase at a time when corruption in the fi-
nancial sector usually involves large amounts
of money, produces severe consequences and
causes heavy economic losses. Compared
with other areas, he added, corruption in the
financial sector is more technical, and thus
harder to uproot.
“Financial crimes are serious and shocking.
It may affect economic stability and national
security if proper measures are not taken,” he
told ChinaReport.
Li Yongzhong told our reporter that regu-
latory authorities and banks have become
high-risk areas of financial corruption. He
blamed corruption for the concentration of
power and the unsystematic staff selection
process and promotion systems. “Our finan-
cial model lags way behind the market,” he
told our reporter.
According to Li, in both the big five State-
owned banks, the People’s Bank of China or
the regulatory agencies, senior officials are
appointed in the same way as government
organs. Few leaders in the financial sector
have a professional background in the field,
which has become a shackle around the an-
kles of financial reform.
“There are three main types of corrup-
tion: nepotism, insider trading and extor-
tion. They are all also prominent in the fi-
nancial sector,” Qiao Liang, a researcher at
the National Academy of Development and
Strategy, Renmin University of China, told
ChinaReport.
Qiao said that to most people the finance
sector might seem full of market regulations
and strict trading rules, but it controls a huge
amount of resources. Financial corruption
“mainly stems from the monopoly of the
distribution of power and resources” and it
is easy to fall into corruption when tempted
by rich profits.
Institutional Improvement
The fight against financial corruption is
not a recent campaign. As early as March
2014, the CCDI initiated a round of insti-
tutional restructuring and the number of
disciplinary inspection teams was increased
to 12, including one directly responsible for
financial institutions. After the CCDI in-
spector conference on February 11, 2015, its
supervision was expanded to cover all finan-
cial enterprises which are directly controlled
by the central government.
But despite the tightening anti-graft
campaign and the introduction of harsh
measures to curb corruption, corruption in
the financial sector, however, continued to
abound. In the opinion of Li Yongzhong,
the key to curbing financial corruption lies
in discovering the fundamental loopholes
that allow the problem. But, he says, political
reform has to accompany financial reform.
“To begin with, we need initial research to
grasp basic information, including how seri-
ous the financial corruption is, the propor-
tion of corrupt staff, and how to deal with
the situation when a large number of staff
and a great amount of money are involved,”
Li said. “Without a pilot programme, we’re
fighting in the dark.”
Li told our reporter that currently a pilot
programme of supervisory reform is under
way in Beijing, as well as Shanxi and Zheji-
ang provinces, but it will take time to expand
it across the entire financial sector. Because of
backward financial models, financial reform
continues to stand still, which obstructs anti-
graft efforts.
Financial institutions have their own su-
pervisory organs that have played a crucial
role in curbing corruption. Li said that the
disciplinary supervision organs and financial
regulators are playing different roles. The for-
mer are dedicated to laying out strategies tocurb corruption and the latter are responsible
for specific anti-graft campaigns that discover
the roots of corruption in banks, securities
organisations and the insurance system be-
fore remedying the issues.
Qiao Liang added that disciplinary inspec-
tion and supervision organs can intervene
only after corruption is committed, then
conduct investigation following tip-offs. Fi-
nancial regulatory agencies, however, can get
involved when there is a sign of unusual trad-
ing through internal supervision and there-
fore prevent corruption before it takes off.
“Criminal penalties could root out ille-
gal practices but not eliminate the breeding
ground of crime. What’s more, the effect of
criminal penalties will wane as time goes by.
The focus should be on the institutional im-
provement,” Yu Guodan said. “It does not
mean that criminal penalties are unimport-
ant.”
Yu recommended two steps to curb finan-
cial corruption. The first step is to increase
deterrence through harsh and prompt crimi-
nal penalties on corruption. The next step is
to build a sound institutional system which
will take longer and require more over-
all planning but is fundamentally needed
to stop the problems. Li Yongzhong said,
however, that a combination of measures
are needed. One of them is to end cash pay-
ments, because checks and bankcards are
easier to trace. More talent also needs to be
drawn to corporate governance to effectively
supervise the finance sector’s power.
“It is impossible to eradicate corruption
entirely but institutional improvement and
the establishment of the long-term mecha-
nism will diminish the corruption risks to the
minimum to better serve the real economy,”
Li said. “It will be a great success if anti-graft
efforts in the finance sector can contribute to
the financial reform.”