Rio sentences: China has delivered a heavy-handed message on corruption. Four employees of Rio Tinto have received 7-14 year sentences for receiving bribes, and stealing commercial secrets. The Anglo-Australian miner backed the Shanghai court's decision - slamming its employees' behaviour as "deplorable". Perhaps, but it is hard not to feel that China would benefit from being tougher on corruption by its own.
Western companies who won't play by China's rules are a topical bugbear. Search engine Google closed down its Chinese site because it wouldn't abide by self-censorship requirements; politicians accused it of "breaking a written promise". The same week, oil major Sinopec called for "severe punishment" for companies who paid bribes, claiming German carmaker Daimler had done just that.
The political furore around Rio is understandable. Judges are openly encouraged to consider the national interest when considering court cases. And Rio's iron ore is a key ingredient of China's growth into a rich country. Moreover, as a foreign firm, Rio is fair game for China's press in a way that state-owned domestic firms may not be.
Still, corruption in China remains endemic, and not just among foreigners. China slipped seven places on Transparency International's Perceptions of Corruption Index last year, leaving it south of Colombia. Research for the Carnegie Endowment for International Peace has estimated that kickbacks and bribes might swallow up 3 per cent of GDP. High-profile domestic cases do happen. Huang Guangyu, chairman of electrical retailer Gome, was famously pulled from his post in 2008 on charges of economic crime. A crackdown on corruption in the city of Chongqing yielded 782 prosecutions, including city officials, police chiefs and tycoons. Still, that begs the question of what goes on in other big cities and companies.
All of this may send little more than a momentary shudder through Western companies who do business in China. While times are good and returns high, the threat of white-collar crime may not affect most businesses' investment decisions. But investors should arguably factor in the added risks of becoming victims — or presumed perpetrators — when calculating their cost of capital.
