- Conflicts of interest: Foreign companies are exposed to risks of conflicts of interest when their Chinese subsidiary takes part in related-party sales or purchases. Conflicts of interest sometimes take place through fraudulent purchasing schemes, whereby the local management purchases products or services from a company owned by a friend or relative, or alternatively directly owned by one of the fraudsters involved in the scheme. This form of bid rigging is arguably the most common type of fraud that businesses suffer from in China today. Fraudulent sales schemes are another common example, and there have been instances where the local management sells products to an intermediary company that is colluding with the fraudsters, and the products are sold in a second time to third-party customers at a higher price. The margin on the sale acts as the motive for the crime.
- Bribery: A common example of bribery in China nowadays involves the local management receiving invoice kickbacks from suppliers, in exchange for preferable payment terms or simply as a reward for their ‘loyalty’. In certain industries, bribes in various forms (gifts, ‘red envelopes’, dinners, etc.) are still sometimes used by sales teams to facilitate business deals, though such examples of malfeasance are less frequent than in the past. Indeed, corruption in its most obvious form is increasingly condemned across the Chinese business environment and this stance is echoed at the very top of Chinese government.
For further information, please contact Thibaut Minot.
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