Everything’s booming in China – especially graft

I’ve recently been reading optimistic articles about the increasing stability of China’s banking system, and I actually was ready to credit China with successfully gaining control of a life-threatening problem. After reading this new article on Chinese bankers, I may have to re-evaluate my re-evaluation.

They may have been small- time bankers from a provincial Chinese city, but they traveled like high rollers.

On Oct. 2, 2001, three junior Bank of China managers from the southern Chinese province of Guangdong boarded a private jet in Vancouver for a flight to Las Vegas. One of the bankers, Xu Chaofan, was in a generous mood. He tipped the flight operator more than $1,200, according to evidence that Bank of China later presented in a Hong Kong court. The bank testified that Xu then lost $2,368,400 on the tables at the Caesar’s Palace and Paris casinos.

For a man on a modest salary, this should have been a heavy financial blow. At the time, Xu and his colleagues, Yu Zhendong and Xu Guojun, were earning about $925 a month.

However, court records in Hong Kong and the United States suggest that this was but a minor setback for the three bankers. They are accused of conspiring to embezzle at least $485 million from Bank of China’s branch at Kaiping, a small city in the booming Pearl River Delta, before fleeing overseas. Yu has been convicted in the United States and repatriated to China, where he is serving a 12-year prison sentence.

The sheer scale of the Kaiping scandal highlights China’s challenge in cleaning up a banking system riddled with corruption and mismanagement.

“The internal controls in China’s banking system are really, really poor,” said Liao Ran, the program coordinator for South Asia and greater China at Transparency International, an independent anti-corruption organization based in Berlin. “Kaiping is not the only case. There have been many others.”

Read on to get a feel for how vast and how deep the problem is, and how there’s no quick fix in sight. Luckily, as the article points out, foreign banks will be coming to China this year, part of the country’s agreement to enter the WTO. If I had money in a Chinese bank, I’d be transferring it to a foreign bank as fast as I could. (Don’t get me started on banking in China…)

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