China finds state-owned firms riddled with corruption, nepotism

BEIJING — China's top graft-busting agency has lambasted the country's powerful state-owned industries as being riddled with corruption and nepotism, saying the origins of the problem could partly be traced back to the chaos of the Cultural Revolution.

As part of President Xi Jinping's battle against corruption, anti-graft inspectors have over the past few months visited dozens of strategic central government-owned groups, where top executives hold the rank of deputy ministers.

In a statement reported by most state media on Tuesday, the Communist Party's central commission for discipline inspection said the inspections had found certain leaders abusing their power and helping relatives for corrupt purposes.

"Some people embezzled state assets under the name of carrying out reforms, while others tried to corrupt senior officials, using illegally obtained state resources," it indicated.

"Some are still breaking the rules, spending vast sums on luxurious holiday homes and taking their wives and children out golfing on the public dime," the watchdog added.

Leaders at some state firms are ignoring party promotion procedures, deciding themselves who to promote, and "forming cliques", it continued in the statement, which was issued on Monday.

It said that the problem of nepotism could in part be traced back to the end of the Cultural Revolution more than 30 years ago, when many of the educated youth who had been "sent down" into the countryside came back to the cities to work, and were often placed with family members in state-owned firms.

"This created the problem left over from history of a concentration of family members," the watchdog added.

It did not name specific companies or executives.

The statement praised the role of the state-owned sector in China's landmark economic reforms since the late 1970s, but noted that they had to fall in line.

"Leaders have forgotten that they are managing state firms under the party's leadership," it said. "State-owned firm are not excluded from efforts to strictly manage the party."

Beijing has been expected to unveil a master plan to reform the powerful sector, but one has yet to be published.

Xi has warned that the problem of official graft is serious enough to threaten the Communist Party's legitimacy and has vowed to go after powerful "tigers" as well as lowly "flies".

Graft-busters have gone after business leaders and politicians alike.

Senior executives at automaker China FAW Group Corp., Baosteel Group and China National Petroleum Corp. have all been put under investigation for corruption this year.

Separately, official data showed Monday that China's total trade slumped in the first half of this year, falling well short of the government's targets and dealing a blow to the global economy from its biggest trader in goods.

Two-way trade for the first six months of the year fell 6.9 per cent to $1.88 trillion, the General Administration of Customs indicated.

China is the world's second largest economy and a key driver of global growth, with an outsized impact on resource-rich supplier countries such as Australia.

Over the six months, trade with the European Union declined 6.7 per cent, Customs said, and with Japan it dropped 10.6 per cent.

Monday's result was well below Beijing's official target for the year for trade growth of "about 6 per cent". That figure was a reduction from the 7.5 per cent set for 2014, when values expanded only 3.4 per cent, the third consecutive year the goal had been missed.

"Commodity prices fell significantly, dragging down growth in import value," Customs spokesman Huang Songping told reporters, noting that "sluggish foreign demand" was the "major factor" affecting trade growth.

"Export costs remained high, undermining export competitiveness," he said, adding that by June 30, the yuan had strengthened 0.2 per cent against the dollar from the start of the year, 6.9 per cent against the euro and 2.2 per cent against the yen.

"The downward pressures on the domestic economy increased and the demand for imports was weak," he said.

For June, imports fell for the eighth consecutive month, Customs said, dropping 6.1 per cent year on year in dollar terms to $145.48 billion.

But exports increased 2.8 per cent to $192.01 billion on-year, snapping a run of three monthly declines in a row, and the country's trade surplus leaped 47.5 per cent to $46.54 billion.

The monthly percentage changes were slightly smaller in China's yuan currency.

According to Louis Kuijs, a Hong Kong-based economist with the Royal Bank of Scotland (RBS), there had been "extreme weakness" in the first five months of the year.

But there were signs domestic demand was strengthening and the monthly June data suggested "the momentum is starting to improve".

"That is definitely encouraging for the rest of the world," he told AFP.

'New normal'

The latest data comes as Chinese authorities manage what they describe as a "new normal" economy in which they steer it away from a traditional model of high growth based on big investment projects and towards one where consumer demand takes prominence.

China's gross domestic product (GDP) expanded 7.4 per cent in 2014, the lowest rate in nearly a quarter of a century, and signs of further weakness have mounted this year.

GDP expanded 7 per cent in the January-March period, the worst quarterly result in six years.

China announces second-quarter GDP figures on Wednesday and the median forecast in an AFP poll of 14 economists indicates GDP expanded 6.9 per cent in April-June.

ANZ economist Liu Li-Gang said the trade data mean the second-quarter GDP figure "will underperform" as both imports and exports were weak during the latest three-month period, predicting that the GDP figure could come in at 6.8 per cent.

For all of 2015, the AFP survey predicts growth at a median 7 per cent, more optimistic than a forecast of 6.8 per cent in a similar poll in April and in line with the government's official target of "about 7 per cent".

Authorities have taken steps to boost slowing economic growth, cutting interest rates four times since November while also lowering the amount of cash banks must hold in reserve in a bid to boost lending.

"We expect import growth to continue to rebound as policy support helps to stabilise domestic demand," Julian Evans-Pritchard, China economist at Capital Economics, wrote in a reaction.

The contraction in imports in June was better than May's 17.6 per cent decline, while on a month-on-month basis imports increased 10.9 per cent in June from May, according to customs.

Analysts see more such measures on the horizon.

"We continue to expect more policy easing to offset the headwinds to growth", Nomura economists said in a note.