When the Olympic Games went on hotly in Beijing, a case shocked Chinese economic field. Guo Jingyi, having taken his post in Ministry of Commerce (MOC) for many years, was responsible for the formulations and modifications of Chinese laws on foreign capital and investment. He was accused of bribery in the process of law formulations. If so, all the foreign mergers and acquisitions in China may be affected.
Guo Jingyi was the Inspector of the Treaty and Law Department of MOC. Though his level was not high, his case generated serious results. It was reported that Guo was suspected to accept bribes from foreign companies in the formulations and juristic explanation of the laws and regulations on foreign mergers and acquisitions in China, providing illegal convenience for the foreign companies in the industrial mergers and acquisitions in China.
It was known that Chinese CPC Central Commission fro Discipline Inspection (CPC CCDI) and Supreme People’s Procuratorate were responsible for Guo Jingyi Case. By the end of September, the case had been a secret to the public. It this was true, this might be the “No.1 Case” after the foundation of MOC in 2003 and the first case of “economic traitor” after the foundation of the PRC in 1949.
According to an insider, Guo Jingyi was sacked from his post by CPC CCDI on August 13. The insider also said that the discipline inspection department had already got enough proofs of Guo’s bribery. So the inspection authority arrested two lawyers related with the case. It was very obvious that the relevant departments and authorities had made careful and thorough planning and arrangement before their actions.
There was another saying that some other Chinese government officials might have relationship with this case. It was believed that Chinese government had sensed the loopholes in the examination and approval system of the foreign mergers and acquisitions in China. The arrest of Guo Jingyi might be the start of a large reform.
How did the Corruption Happen?
Guo was the highest-level official accused of bribery after the foundation of MOC. Before that, his life and official career were smooth and fluent. After graduating from the International Law Major of the Law Department of Beijing University in 1986, he entered the Treaty and Law Department of the Ministry of Foreign Economy and Trade (current MOC) and was gradually promoted to the Director of the Treaty and Law Department one by one. After the establishment of MOC in 2003, Guo still took the post of Deputy Director of the Treaty and Law Department. In March 2007, he was promoted to be the Inspector when he was 44 years old.
An entrepreneur thought Guo was a person who was young, capable, courageous and resolute. But according to a lawyer, Guo sometimes appeared obtrusive and lack of cool consideration. “Sooner or later, he will have trouble,” said the lawyer.
The entrepreneur said that Guo gave him a deep impression for his excellent acquaintance in investment laws and understanding of the juristic spirit when he consulted the legal problems with Guo. So far as he knew, Guo used to take the post of the Deputy Director of the Anti-monopoly Office of MOC. He took part in all the recent formulations and modifications of some important investment laws, such as the Provisions on the Takeover of Domestic Enterprises by Foreign Investors, and the Execution Opinions on Several Issues concerning Law Application for the Administration on the Examination, Approval and Registration of Foreign-funded Companies.
“Guo was also an important official of the execution level of foreign investment examination and approval. He was in charge of all the applications and explanations of the laws on foreign capital examination and approval. Such a system provided the condition of the corruption,” said an insider.
Many lawyers specialized in foreign mergers and acquisitions thought the Guo Jingyi Case, if true, would be the typical example of the corruption caused by the phenomenon that Chinese law enforcement departments also take the responsibility of legislation.
Is there Intentional Loopholes in Policy Formulation for Foreign Capital?
Guo had been the core person of the examination and approval of the foreign mergers and acquisitions in China since 2006. According to an insider, in recent years, the relevant departments will invite some lawyers to participate in or provide consultations when formulating laws and regulations. Zhang Yudong, one of the two arrested lawyers, took part in the formulation of many laws, including the two above-mentioned laws which brought decisive influence on the foreign mergers and acquisitions.
According to the insider, some foreign enterprises could operate according to the stipulations of the special laws. He said some legal loopholes existed in the formulations of some laws on foreign capital. This could make foreign capital, especially foreign hot money, easily enter Chinese sensitive departments and industries or enter Chinese market in a disguised form. This could threaten the national economic safety of China.
The foreign enterprises also complained about the present laws on foreign investment. They said: “The policies were too general and vague, which were hard to be carried out.” So someone guessed: “We should not exclude the possibility that certain foreign enterprises exerted some influence on the formulation of relevant policies through relevant channels. This was the most reliable way, which was very hard to be discovered.”
“If reading the laws on foreign investment carefully or looking up the relevant public reviews, we can easily find that some laws lack of detailed operation or are vague in operation details or even have loopholes,” said an anonymous lawyer from a foreign-funded law offices. He attenuated that the generalness, vagueness and lack of operation details of the laws provided preconditioned convenience for the authority seek in the next step.
New Pattern Was not New
The Anti-monopoly Law and the “three-definition” plan of the ministries in China redefined the new pattern of the examination and approval of the foreign mergers and acquisitions.
The anti-monopoly pattern, in which the MOC, State Commission of Reform and Development and General Administration of Commerce and Industry share the right of enforcing the Anti-monopoly Law, was established after the coming-out of the “three-definition” plan. According to the Provisions on the Main Responsibilities, Inside Organization and Personnel Arrangement of Ministry of Commerce, the MOC established the anti-monopoly bureau, assuming the detailed duty of the State Council’s anti-monopoly commission stipulated in the Anti-monopoly Law.
On September 13, further report said that Chinese State Council approved the Rules of the Anti-monopoly Commission of the State Council, taking charge of fighting against monopoly. The director of this commission was Chinese Vice Premier Wang Qishan.
The acquisition of Huiyuan by Coca Cola was undoubtedly a difficult problem for Wang Qishan. On September 3, the US Coca Cola Company declared that they planned to contribute 2.4 billion USD to acquire Huiyuan Juicy, which was the largest case of acquiring a Chinese domestic enterprise by a foreign company. Though Coca Cola didn’t formally hand in the declaration materials of anti-monopoly examination, the war of protecting domestic brands had broken out in Chinese society.
Actually, after joining in WTO in 2001, China, for its lack of laws and regulations, experienced many large mergers and acquisitions of domestic brands by international monopoly capital. Those international monopoly groups targeted at Top 5 of Chinese domestic brands in different industries and tried to hold the stock controlling through joint venture. Then they kept the joint venture companies in the status of deficit or small profit, forcing Chinese side to withdraw. Finally they reached their goal of controlling the monopoly enterprises and then “amazingly” turned the enterprises’ deficit into profit.
According to a report by three scholars from Beijing Jiaotong University, in 2004, in China there were 9 industries in which the market share of foreign capital exceeded 40%; four in which the market share exceeded 50%. In the fields of communication equipment, computer, and apparatus, the market share of foreign capital even exceeded 70%. The market share of foreign capital in China had been on an uphill trend since 1993. In 2007 the share reached 31% and the annual growth rate was 12.25%.
According to the international general standard of security line for the market share of foreign capital (the share is usually 20%), many Chinese industries had been in danger of being controlled by foreign capital. The increase of the market share of foreign capital means the shrink of domestic capital. For a developing country like China, this will restrict the normal development of the domestic capital and even strangle its emerging industry. What’s worse is that this will bring great damage to the national economic safety.
Therefore, some scholars said that China was confronted with the economic invasion from western countries. By contrast, the mergers and acquisitions of Chinese companies in foreign countries always met trouble and difficulties.
The Anti-monopoly Law assumed many people’s hope of changing that situation. However, the new laws also seemed to lack of operation, which temporarily shattered this beautiful hope. Another important examination, which is called State Safety Examination Procedure, is also in chaos. In addition to Guo Jingyi Case, maybe it’s really the time for people to worry about the national economic safety of China.
