China’s Anti-Corruption Efforts Gain Momentum in Finance and Healthcare

Editor’s note: Tables at the end of the PDF version of this article detail a selection of the officials who have been investigated as part of probes into the health and financial sectors this year.

On September 27, Chinese President Xi Jinping presided over a meeting of the Politburo, where he announced the end of the current round of finance inspections but suggested that more were to follow (Xinhua, September 27). The authorities may have chosen to focus on financial corruption to coincide with the restructuring of financial regulators in March, in which a central finance commission was created to give the Party center more direct control over the finance sector. This move indicates that the Party has taken a greater interest in the sector.

So far in 2023, China’s anti-corruption organs, the Central Commission for Discipline Inspection (CCDI, 中国共产党中央纪律检查委员会) and the National Supervisory Commission (NSC, 中华人民共和国国家监察委员会), have intensified investigations across both the healthcare and finance sectors. Authorities have investigated at least 180 hospital chiefs and 80 senior employees in financial institutions between January and early September. [1] By comparison, the CCDI and NSC only targeted 12 hospital leaders from 2019-2022 (CCDI). Through the anti-corruption campaigns, the party leadership is likely to bolster support among certain demographics, eliminate political opponents, and address some real instances of graft. However, due to the absence of robust institutions and transparency, systemic corruption will persist after the current drives wind down.

 The Party and state organs carry out anti-corruption in healthcare regularly, but in 2023 they have elevated the importance of this work. This is the first time the CCDI and NSC were involved in the National Health Commission’s annual conference on anti-corruption, where a national centralized campaign to crack down on graft was launched. The campaign will continue until mid-2024 (National Health Commission, July 21). [2] One motivation may be to address public frustrations with healthcare from the COVID-19 pandemic. There was an uproar over incidents like hospitals turning away ER patients for not having negative Covid tests and testing centers generating huge profits but producing fraudulent test results (Joint Prevention and Control Mechanism of the State Council, December 9 2022 Credit China, December 23 2022). Another reason may be to combat illegal healthcare charges in order to boost household consumption, one of the government’s top economic targets for 2023 (Xinhua, March 14).

A Shift in Focus: Social Well-Being and Monopoly Industries

 Education and healthcare are among the problem sectors that the CCDI has previously identified as damaging popular interests. Anti-corruption organs have focused in recent years on industries that have a large impact on social well-being. The CCDI laid out their priorities for anti-graft work for 2023–2027 at their second plenary session in January 2023 (Xinhua, January 10). The meeting emphasized addressing corruption issues that “harm the interests of the masses (坚决整治各种损害群众利益的腐败问题)” (Work report of the 19th CCDI to the 20th National Congress of the CPC, October 27, 2022).

Sectors which tend toward monopolistic practices are another key focus of the Party’s campaigns. With high concentrations of power, capital, and resources, the financial sector is identified as a primary target by the CCDI’s sightlines for the next five years. This follows similar campaigns in recent years at the technology sector, where Alibaba was fined Renminbi (RMB) 18 billion ($2.75 billion) for anti-monopoly violations (Reuters, April 9, 2021).

The CCDI’s focus on social well-being and monopolies is part of a broader Party concern with enhancing equality—or at least signaling such a concern to the public. (China remains a highly unequal society by comparative standards (CSIS, May 26, 2022).) In his inaugural theoretical presentation of “Common Prosperity” in 2021, Xi Jinping said that “in some countries, there is a polarization between rich and poor, and the collapse of the middle class has led to social divisions, political polarization, and the proliferation of populism. The lessons are very profound (一些国家贫富分化，中产阶层塌陷，导致社会撕裂、政治极化、民粹主义泛滥，教训十分深刻).” Xi Jinping emphasized the need to equalize basic public service provision, including healthcare. Discussing monopolies, he urged China to “accelerate the reform of monopoly industries … to deliver more balanced development” (Qiushi, October 15, 2021). Following this pronouncement, the State Administration for Market Regulation (SAMR), which oversees market competition, targeted the technology sector. They fined giants such as Alibaba and Tencent for violating anti-monopoly rules (Xinhua, March 15, 2021; SAMR, July 10, 2022). The Ministry of Education also announced its “Double Reduction Policy (双减政策)” in 2021, cutting down homework and after-school tutoring to try to reduce families’ spending and equalize students’ opportunities (General Office of the Central Committee of the CCP, July 24, 2021; Youth.cn, June 6; Hunan Daily, September 15). The policy led to tens of thousands of layoffs, bankrupted tutoring companies, and wiped billions of dollars from education firms’ market values, while failing to achieve its aims (Japan Times, July 22).

Healthcare

Healthcare is the last of the “three new mountains (新三座大山),” that constitute a significant strain on families’ budgets. [3] According to the World Bank, out-of-pocket expenditures accounted for 34.8 percent of healthcare costs in China in 2020. While the percentage has declined over the past two decades, it is still much higher than in high-income countries, where the figure stood at 12.1 percent. People who suffer from serious diseases face much higher out-of-pocket expenses—a contributing factor to China’s relatively high household savings rate (which stood at 45.9 percent in 2021) (CEIC, 2021) For instance, a 2022 study found that half of households with cancer patients faced catastrophic health expenditure, constituting over 40 percent of non-food expenses (National Library of Medicine, November 10, 2022). [4]. Such failures of China’s healthcare system have led to instances of social unrest: For example, in February 2023, hundreds of people protested against medical insurance benefit cuts in Dalian, Liaoning, and Wuhan, Hubei (China Labour Bulletin, March 9). While the government is implementing regulatory reforms to reduce out-of-pocket payments, the anti-corruption drive addresses kickbacks, bribery, and other activities that illegally and unfairly contribute to healthcare expenses and provoke public protestation.

In February, the CCDI published an article on investigating hidden benefits in healthcare, signaling its intentions to launch a new round of healthcare probes (CCDI, February 2). The SAMR had found evidence of pharmaceutical companies disguising bribery as research and conference funding, paying kickbacks to hospital staff for purchasing certain medicines and medical equipment, and inflating pharmaceutical prices. [5] The National Health Commission (NHC) and other ministries held a video conference to kick off a national one-year centralized campaign to combat graft in pharmaceuticals in July (NHC, July 21).That same month, the CCDI and the NHC deployed local Discipline Inspection Commissions (DICs) to oversee the operation (MOJ, July 28).

The authorities subsequently investigated and charged a wave of high-profile figures. As of the end of September, the authorities had placed over 180 hospital chiefs under investigation nationwide. Some notable examples include Chen Minsheng, the former party secretary of Southern Medical University in Guangdong, Fan Yuqiang, the former party secretary of the First Affiliated Hospital of Tianjin University of Chinese Medicine, and Zhang Jie, former party secretary and president of Edong Medical Group (鄂东医养集团). One corollary of this drive has been to spook the financial markets. The CSI 300 healthcare index, which tracks the largest Chinese pharmaceutical and medical equipment companies, started to decline in January 2023, and lost one-quarter of its value before reaching a low point in August (CSI 300 Health Care index). The index has since recovered slightly but remains far below its value at the beginning of 2023.

Finance

The scale of the financial industry, coupled with its implicit backing by the government, makes it ripe for abuse of power. Xi can establish his control of this pillar of the economy by tackling opposing party factions who hold interests in the sector. This could lead to more centralized and homogeneous decision-making processes. Chinese banks had RMB 379.4 trillion  in assets at the end of 2022 ($55.03 trillion), while US banks had just $23.6 trillion (CBIRC, February 15; FDIC). Large commercial banks hold 41.2 percent of all assets in China, and the top commercial banks are among the largest in the world (S&P Global, April 26). These state-owned banks have implicit backing against failure from China’s central bank, the People’s Bank of China (PBOC).

The CCDI outlined its views on the sector in February 2023, stating that it needed to break links between power (or the holders of power) and capital (or the resources they control). In an article on its website, the CCDI wrote, “We must continue to increase the punishment of corruption in areas such as finance… [R]esolutely severing the link between power and capital creates a powerful deterrent to combat corruption in finance and state-owned enterprises (持续加大金融、国有企业、粮食购销等权力集中、资金密集、资源富集领域腐败问题惩治力度…坚决斩断权力与资本的勾连纽带，在金融、央企领域形成惩治腐败的有力震慑)” (CCDI, February 23).

In March 2023, following the government reshuffle of financial regulators, CCDI announced plans to inspect over 30 major state-owned firms, including the Agricultural Bank of China and China Development Bank (CCDI, March 27). During the calendar year to date, the CCDI and NCS have now probed or penalized at least 80 financial executives. These include the former central bank chairman Liu Liange (刘连舸), former chairman of China Life Insurance Wang Bin (王滨), and former chairman of state-owned financial conglomerate China Everbright Group Tang Shuangning (唐双宁). Bao Fan (包凡), founder and CEO of China Renaissance, an investment bank, was taken into custody by the CCDI in February for an investigation into suspected bribery. Bao’s detention was extended further in May, and he remains in custody (Eeo, May 31; Caixin, August 1). Charges against these men include graft, accepting bribes, non-disclosure of assets, and concealing overseas savings. Most recently, in September, Charles Wang Zhonghe (王仲何), a senior banker at the Japanese firm Nomura, was prohibited from leaving mainland China by the Chinese authorities, potentially so that he can be questioned as part of their investigation of other executives (Financial Times, September 24).

Financial institutions are heeding the signals from Beijing, and have cut pay and bonuses following government demands to rein in excessive wage growth. For example, CITIC Securities, an investment bank, cut base salaries by up to 15 percent in June (Reuters, June 19). China International Capital Corp (CICC) reduced bonuses by 30–50 percent in May, compared to the previous year (Reuters, June 19). It will be more difficult for the Party to pressure private firms to making similar moves, though as the economic growth slows, the Party will likely be increasingly opposed to profligacy and excess.

The Road Ahead

 Based on the length of preceding regulatory crackdowns in other sectors, the current anti-corruption campaigns are likely to continue until the end of 2024. The crackdown on education has been ongoing since June 2021, while the real estate and technology sectors faced regulatory heat for the last two years. [6] In the healthcare sector, pharmaceutical and medical equipment manufacturers, healthcare service providers, hospitals, and healthcare regulators may all be at risk of being targeted over the coming months. Banks, financial service providers, regulators, and their staff are also likely targets. [7] Those convicted will not have the right to a fair trial.

There are several short-term effects of this anti-corruption drive. People could be dissuaded from working in these sectors, especially in positions of authority, for fear of reprisals or simply due to potential instability. This could also lead to paralysis in decision-making. Firms in both sectors will continue to be exposed to political risk, with attendant downsides to their valuation and abilities to raise further capital. Due to the size of these industries, any market volatility could impact the performance of Chinese and even international stock markets.

Once these campaigns wind down, the anti-corruption organs will target other areas. Judging from the readout from the CCDI’s second plenary session in January (Xinhua, January 10), these could include the judicial organs and the staple food market, which includes rice and wheat—especially given the Party’s emphasis on food security (China Brief, March 2, 2017). The CCDI also identified pensions, social security, and environmental protection as additional problem areas in their report to the NPC in October 2022 (Work report of the 19th CCDI to the 20th National Congress of the CPC, October 27, 2022). These sectors were also included in a draft Criminal Law amendment in July, indicating they could face stricter punishment for graft (China Law Translate, July 26).

 Conclusion

The CCP has long made anti-corruption drives a feature of political activity, a function of the Party’s Leninist origins. Economic growth, which used to be a major source of political legitimacy, is slowing. The Party is increasingly looking to ideology and political campaigns to ensure popular backing, placing less importance on the resulting short-term economic turmoil. Anti-corruption campaigns will continue to make the policy environment more unpredictable and will cause businesses to be increasingly risk-averse. Meanwhile, other governments and organizations will find working with the Chinese authorities more challenging as anti-corruption halts policymaking. This has already played out over the summer, with foreign delegations to Beijing having to be rescheduled as officials disappear without official explanation (Reuters, July 21). Government, companies, and other entities will therefore need to pay close attention to the CCDI’s official announcements to track the progress of the anti-graft campaigns.

 The authorities will have some success in achieving their ends in the healthcare and finance anti-corruption drives. They will convince certain groups that they are protecting the public’s interests, thereby boosting party and government legitimacy. They may eliminate opposing political factions, convict certain genuinely corrupt individuals, and prevent some future corruption through fear. However, the government’s lack of transparency makes it challenging to objectively assess the true scale of corruption over time. Without political opposition, independent courts, and free media, China lacks the robust institutions and civil society necessary to address corruption in a broad, systematic, and fair way. In particular, once the CCDI and NSC stop scrutinizing them, graft will persist in healthcare, finance, and other sectors where there is potential for the abuse of power and a concentration of capital. The authorities’ approach remains dependent on the arbitrary decisions of a small group of elite decision-makers, while the public and non-state actors do not have a reliable avenue to request accountability on their own terms.

Notes

 [1] These figures for finance only cover those working for the highest levels of the CCP, the central government, central state-owned enterprises and financial institutions.

[2] 14 ministries and commissions have taken part, up from nine in previous years.

[3] The original three mountains (三座大山) were imperialism, feudalism, and bureaucratic capitalism, Mao Zedong’s main three targets as part of his New Democratic Revolution concept.

[4] Other studies found almost four-fifths of families of lung cancer patients and two-thirds of the families of breast cancer patients had CHE: https://www.ncbi.nlm.nih.gov/pmc/articles/PMC8665572/; https://www.ncbi.nlm.nih.gov/pmc/articles/PMC8287064/

[5] The National Health Commission (NHC) and National Healthcare Security Administration (NHSA) followed up with concrete announcements of inspections in May and July; National Health Commission and others, May 10 2023, Key Work Tasks for Correcting Improper Practices in Pharmaceutical Sales and Healthcare Services in 2023 (纠正医药购销领域和医疗服务不正之风工作要点), http://www.nhc.gov.cn/ylyjs/pqt/202305/e3d690702571455dbdd301f2bc9e7a3c.shtml; National Healthcare Security Administration, July 14 2023, Notice on an Unannounced Inspection of Medical Security Funds in 2023 (2023年医疗保障基金飞行检查工作的通知), https://www.gov.cn/zhengce/zhengceku/202307/content_6892128.htm

[6] Real estate from August 2020 to November 2022. Technology from March 2021 until January 2023. Xinhua, January 7 2023, Authoritative Interview · “Strong Confidence · Seize Implementation” | Monetary policy is precise and powerful, financial services have great potential – Interview with Guo Shuqing, Secretary of the Party Committee of the People’s Bank of China and Chairman of the China Banking and Insurance Regulatory Commission(权威访谈·“强信心·抓落实”丨货币政策精准有力 金融服务大有可为——访人民银行党委书记、银保监会主席郭树清), http://www.news.cn/2023-01/07/c_1129264200.htm

[7] While the CCDI says that it investigates and convicts based on evidence of corruption, the real reason behind the probes cannot be verified, given the lack of an independent judiciary and free media. Who the authorities will target next is, therefore, hard to predict.