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China’s Anti-Corruption Drive: What Foreign Founders Need to Know

A practical guide for foreign founders on how China’s anti-corruption campaign affects business operations, with key takeaways from recent official statements and enforcement data.

China’s Anti-Corruption Campaign: Implications for Foreign Founders

Foreign founders setting up or running a company in China should be aware of the country’s ongoing anti-corruption efforts, which can affect business operations, regulatory compliance, and market integrity. Recent official statements and enforcement data provide useful context for understanding the direction of policy and enforcement.

High-Level Commitment to Anti-Corruption

At a recent event commemorating the 90th anniversary of the Long March, China’s leadership reaffirmed the commitment to rigorous Party discipline and continuous self-improvement. This signals that anti-corruption remains a priority. For foreign founders, this means that compliance with anti-corruption laws and regulations is essential, and that enforcement is likely to remain strict.

Since the 18th Party Congress, China has developed an anti-corruption approach characterized by centralized leadership, addressing both symptoms and root causes, and promoting a culture of “not daring to corrupt, not being able to corrupt, and not wanting to corrupt.” This approach is expected to continue. In the first three quarters of this year, disciplinary inspection and supervision organs across the country filed 800,000 cases and disciplined 680,000 individuals. These figures underscore the scale of enforcement activity.

Economic Impact and Business Environment

The leadership has emphasized that unchecked corruption would damage the economic environment, induce various risks, and undermine the foundation of Party governance. For foreign founders, this translates into a business environment where integrity is increasingly emphasized. Companies that engage in corrupt practices may face severe consequences, while those that maintain clean operations can benefit from a more level playing field.

Current assessments indicate that corruption remains a frequent issue. The leadership stresses the need to maintain a high-pressure stance, with no tolerance for corruption, and to ensure that corrupt individuals have nowhere to hide. This suggests continued scrutiny of business dealings, including those involving foreign-invested enterprises.

Focus on Grassroots Corruption

Anti-corruption efforts are not limited to high-level officials; they also target grassroots corruption that affects ordinary citizens. For example, in Shuangqiao Village, Pingle County, Guangxi, villagers suspected irregularities in the leasing of collective mountain land. Disciplinary inspectors investigated, and a village cadre who embezzled collective funds was disciplined, with intercepted rent recovered. Such actions aim to ensure fairness and justice at the local level.

Similarly, efforts are underway to improve management of rural collective assets, medical insurance funds, and elderly care services. For foreign founders, this indicates that local-level corruption is being addressed, which can reduce informal barriers and improve transparency in dealings with local authorities and partners.

Innovative Methods and穿透力 (Penetration)

To enhance the effectiveness of anti-corruption efforts, authorities are adopting new methods to identify and address corruption. The leadership has called for understanding new trends and characteristics of corruption, innovating methods, and promptly detecting, accurately identifying, and effectively governing various corruption issues.

One approach is the integrated investigation of improper conduct and corruption. For instance, in Dianjiang County, Chongqing, disciplinary inspectors verifying a cadre’s improper hosting of a wedding banquet discovered close ties with a businessman, ultimately uncovering serious violations. Through campaigns against improper dining and drinking, multiple cases of corruption behind disciplinary issues were handled. This shows that authorities are examining not only obvious corruption but also related improper conduct that may indicate deeper problems.

Cases demonstrate that improper conduct and corruption are often intertwined. The leadership emphasizes a unified approach to rectify conduct, enforce discipline, and combat corruption, using simultaneous investigation and treatment to address both symptoms and root causes. For foreign founders, this means that even minor infractions can trigger deeper scrutiny, so maintaining high ethical standards is crucial.

Advancing the “Three Not” Approach

The strategy of promoting “not daring to corrupt, not being able to corrupt, and not wanting to corrupt” is a key component of the leadership’s Party-building thought. This approach is both a basic policy for anti-corruption and an important strategy for comprehensive strict Party governance in the new era.

Efforts focus on strengthening deterrence (not daring), closing loopholes (not being able to), and enhancing consciousness (not wanting to). The Party explores ways to make these three aspects work simultaneously and in the same direction, aiming for more institutional results and governance effectiveness. For businesses, this implies that systems and regulations are being tightened to prevent corruption, and that a culture of integrity is being promoted.

Cultural Foundation and Long-Term Outlook

Cultural factors play a role in anti-corruption. In June 2022, at the San Su Shrine in Meishan, Sichuan, the leadership emphasized drawing on traditional Chinese culture for governance ideas. The construction of a culture of integrity in the new era is being deepened, fostering a social environment that values integrity and rejects corruption, and eliminating the soil and conditions for corruption.

The leadership has also highlighted the Party’s ability to purify itself. In a July 1 speech, one of the Party’s six outstanding qualities was described as “focusing on strengthening itself and always maintaining vitality,” with a commitment to removing factors that harm the Party’s advanced nature and purity. This determination suggests that anti-corruption will remain a long-term effort.

In October 2022, the leadership stated that Communists are materialists and fearless, ready to face tests and challenges. This attitude indicates a resolve to persist in anti-corruption despite difficulties.

Practical Takeaways for Foreign Founders

• Compliance is non-negotiable: With 800,000 cases filed in the first three quarters of this year, enforcement is active. Ensure your company has robust anti-corruption policies and training.
• Local operations are under scrutiny: Grassroots corruption is being targeted, so be cautious in dealings with local officials and partners; avoid any involvement in improper payments or favors.
• Improper conduct can lead to corruption investigations: Even minor violations like improper banquets can trigger deeper probes. Maintain high ethical standards in all business activities.
• Systems are tightening: The “three not” approach means regulations are being strengthened to prevent corruption. Stay updated on legal changes and ensure your internal controls are robust.
• Culture matters: A culture of integrity is being promoted. Align your corporate culture with these values to build trust and avoid risks.

Foreign founders should view China’s anti-corruption drive as both a challenge and an opportunity. While it demands rigorous compliance, it also contributes to a more transparent and predictable business environment. By staying informed and adhering to best practices, you can navigate these developments successfully.

This summary is based on information published by the relevant Chinese government website and is general information, not legal or tax advice.

For assistance with registering and operating a company in China, foreign founders can contact ChinaMNC on WhatsApp / WeChat at +86 153 1898 8535.