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News Highlights (August 23-29, 2014)

Financial Corruption & Autocracy Initiative

August 29, 2014
China to Streamline Corruption Reporting
People’s Daily
The process under which local Chinese graft inspectors report their findings will be further streamlined next year in a bid to catch more corrupt officials, the Communist Party of China’s (CPC) discipline watchdog said on Friday. According to the CPC’s Central Commission for Discipline Inspection (CCDI), local discipline inspection agencies nationwide will give reports on their work only to superior inspection agencies.They will follow instructions from superior agencies first when investigating a corruption case. Currently, each local discipline inspection agency is under the dual leadership of the CPC committee at the same level and the inspection agency of a superior level.

How Australia is Cashing in on China’s Corruption Crackdown
Business Spectator
On August 17, two weeks before it was announced to the Australian press, the Shenzhen Economic News had a big splash, with the headline “Australian state of NSW no longer requires investment in government bonds for Significant Investment Visa”. The Deputy Premier had announced to his Chinese audience in Shenzhen that his government would scrap the requirement for overseas investors to buy $1.5m out of a total $5m in government ‘Waratah’ bonds, starting in September. Earlier this year, analysis from the real estate advisory arm of Korda Mentha showed that the scheme brought in at least $440 million to the Australian economy, or around $4 million per day in 2013 (China’s Great Wall of visa money, 5 February 2014).

China Investigates Senior Legislator Amid Corruption Crackdown
Reuters
China is investigating a member of its top legislature, the country’s corruption watchdog said on Friday, the latest high-profile official to be targeted in a government campaign to stamp out graft. Bai Enpei, the ruling Communist Party’s former top official in Yunnan province and the deputy head of an environmental protection committee in the National People’s Congress, has been put under investigation, the Central Commission for Discipline Inspection said. Bai, 67, was “suspected of serious discipline and law violations”, the watchdog said in a one-line statement on its website, using party language for corruption. It gave no more details.

Lie Detector Tests for Russian Civil Servants Hailed as Success in Corruption Fight
The Moscow Times
More than 600 civil servants in Moscow have undergone lie detector tests this year— a practice that has had a positive effect on weeding out those who are liable to corruption, a city official said Friday. “By the end of the year, polygraph tests will be conducted on another 1,000 employees, from members of procurement committees and contractual services,” a spokesperson from Moscow’s department for competition policy told Interfax news agency on Friday.

Technology a Game-Changer in Fight Against Corruption
The Nation
Good governance is critical for all countries around the world today. When it doesn’t exist, many governments fail to deliver public services effectively, health and education services are often substandard, and corruption persists in rich and poor countries alike, choking opportunity and growth. It will be difficult to reduce extreme poverty – let alone end it – without addressing the importance of good governance. But this is not a hopeless situation. In fact, a new wave of progress on governance suggests we may be on the threshold of a transformational era. Countries are tapping into some of the most powerful forces in the world today to improve services and transparency. These forces include the spread of information technology and its convergence with grassroots movements for transparency, accountability and citizen empowerment. In some places, this convergence is easing the path to better-performing and more accountable governments.

Rouble Hits Record Low Against the Dollar
Financial Times
The currency weakened 0.4 per cent on Friday, with as many as Rbs37.0280 required to buy a single dollar. The fresh slide took the rouble’s loss over the week to 2.6 per cent against the US currency. Against the euro the rouble fell 0.3 per cent to Rbs48.61. Moscow faces a fresh round of sanctions from the west amid allegations it is engaged in direct military activity in the uprising in the east of the country. “Russia is likely to be the major loser from any further escalation in the conflict,” said Neil Shearing at Capital Economics. He pointed out that Russia’s economy, which was already slowing sharply before the crisis, was more vulnerable than ever.

August 28, 2014
Corrupt Chinese Hiding in Western Nations Elude Beijing’s ‘Fox Hunt’
Reuters
When Yang Xiuzhu got wind in 2003 that Chinese anti-corruption investigators were looking into her affairs, she boarded a flight to Singapore. A few days later Yang changed her name and flew to New York. China filed an arrest warrant through Interpol for Yang, a senior official who oversaw construction projects in the booming eastern province of Zhejiang. She was eventually detained in Amsterdam in 2005, but nearly a decade on, China has yet to get her back despite protracted negotiations with the Netherlands. Yang’s case and others like it underscore the challenge for President Xi Jinping as he expands his already far-reaching anti-corruption campaign to tracking down suspects who have fled abroad, often taking their ill-gotten gains with them. State media has been using the latest prong to Xi’s crackdown – dubbed the “fox hunt” by the Ministry of Public Security in July – to warn officials about absconding. But while China has extradition treaties with 38 countries, it doesn’t have one with the Netherlands, or with the United States, Canada and Australia – the three most popular destinations for suspected economic criminals, according to state media. Adding to the allure of those three countries for corrupt officials is suspicion there of Chinese law enforcement, said Chinese legal experts, along with the quality of life, world-class educational facilities and large ethnic Chinese communities.

$2.4 Billion Invested in Chinese Bad-Debt Company
New York Times
China’s biggest manager of bad debt said on Thursday that it had attracted about $2.4 billion from eight investors, including Goldman Sachs and Warburg Pincus, before an expected initial public offering here. China Huarong Asset Management, the biggest of the four state-owned companies set up in the late 1990s to take bad loans off the books of the country’s biggest banks, said it sold a 20.98 percent stake to the group of Chinese and foreign investors for 14.54 billion renminbi, or about $2.36 billion, valuing Huarong at about $11 billion. The other investors are China Life Insurance, Citic Securities, the Malaysian state investment fund Khazanah Nasional, China International Capital Corporation, the Cofco Group and Fosun International. Their individual stakes were not disclosed. (*Note that Citic Securities is headed by the son of Liu Yunshan, Politburo Standing Committee member)

August 27, 2014
Permira’s Kurt Björklund Quits Board of Russian State Investment Fund
Wall Street Journal
Kurt Björklund, the co-managing partner of London-based private-equity firm Permira, has quit the advisory board of a Russian state-owned investment fund where he sat alongside other prominent U.S. and European deal makers. Björklund’s departure increases the pressure to step down on some of America’s most prominent private-equity billionaires, who won’t publicly acknowledge advising the Russian fund, even though they’re listed as such on its website. They joined the fund to broaden their relationships in Russia, a potentially lucrative new market for deals. “I’d be surprised if there are any Western private-equity fund-managers on the board by the end of the year,” said William Browder, the chief executive officer of Hermitage Capital Management, in an interview. “Nobody in the West wants to align themselves publicly with Vladimir Putin anymore, and I am sure they are looking for an elegant way out.”

Russia Pushes Ahead With Plans for SWIFT Alternative
The Moscow Times
Russian officials have drawn up a law that would create a local equivalent of the interbank payment system SWIFT, Deputy Finance Minister Alexei Moiseyev said Wednesday in comments cited by Russian news agencies. The draft law appears to be a response to concerns that Belgium-based SWIFT, the world’s biggest electronic payments system, could become a tool for further Western sanctions targeting Russia’s financial sector over the Ukraine crisis.

Retired NDRC Pricing Official ‘Detained at Beijing Airport’
Caixin
A former senior official in charge of utility pricing at China’s top economic planner was detained shortly after retiring at the capital’s international airport, sources close to the matter said. Cao Changqing, former director of the pricing department of the National Development and Reform Commission (NDRC), was detained around August 24 at Beijing Capital International Airport, sources said. Cao retired in May. It was unclear who detained him. “The department is one of the most powerful in the NDRC,” a source in the electricity industry said. The investigation into Cao is likely linked to a graft probe going on at the National Energy Administration, another source close to the matter said.

37 Groups Said to Start Making Offers for Piece of Sinopec Sales Subsidiary
Caixin
A total of 37 financial groups started making offers to China Petroleum & Chemical Corp. (Sinopec) on August 27 to buy shares in a sales subsidiary, sources with knowledge of the matter say. Private investment company Fosun Group, Internet firm Tencent Holdings Ltd., China Life Insurance Co. Ltd., China Pacific Insurance (Group) Co. Ltd. and People’s Insurance Co. of China are among the interested parties, sources with knowledge of the matter said. The five made the biggest offers of the first round, the sources said. Sinopec set the minimum bid in second round at 3 billion yuan, and wants the final group to include less than 10 investors. The government has been keen to attract private investors to put their money into SOEs. In July, it chose six SOEs to carry a range of reforms, including the so-called mixed-share ownership. The six were State Development & Investment Corp.; China National Cereals, Oils and Foodstuffs Corp.; China National Pharmaceutical Group Corp.; China National Building Materials Group Corp.; China Energy Conservation and Environmental Protection Group; and Xinxing Cathay International Group, an industrial conglomerate with businesses ranging from metallurgy to textiles.

China’s Top Judge Lauds Zhou Corruption Probe: State Media
Reuters
China’s top judge has said the ruling Communist Party’s decision to investigate former senior leader Zhou Yongkang demonstrates clearly that no party member is above the law, the semi-official China News Service reported. The investigation “fully illustrates that in socialist China no power exists outside the cage of the system, and party members will never be allowed outside party discipline and national laws”, Zhou Qiang, president of the Supreme People’s Court, was quoted as saying on Tuesday.

August 26, 2014
Europe will be Russia’s Hostage Over Gas Supplies for at Least Another Decade
The Telegraph
Europe will remain heavily reliant on Russian gas for at least another decade, according to a leading rating agency. Fitch said a lack of alternative sources meant policymakers would have no choice but to continue buying gas from Russia until at least the mid-2020s and “potentially much longer”. Analysts said it would be difficult for countries to secure alternative sources of supply in the medium term, leaving them at risk of being “held hostage by dominant suppliers”, including Russia.

What Putin and Russia Can Learn From China
The Moscow Times
President Vladimir Putin’s return to the Kremlin in 2012, his new reactionary course, and now the acute crisis concerning Ukraine have finally taken economic reforms off the nation’s agenda. China’s experience shows that in the triad of authoritarianism, reform and stability, reform plays the most decisive role. A rejection of reforms or their failure in practice undermines long-term stability — the Holy Grail of all authoritarian regimes.
Putin’s refusal to make economic reforms a priority and ensure the stability of his own regime could cost him dearly in the future.

Seized Assets of Russia’s Anti-Corruption Official, His Deputy Estimated at $8 Million
Russian Legal Information Agency
The seized property owned by Denis Sugrobov, who headed the Economic Security and Anti-Corruption Department at the Interior Ministry, and his deputy Boris Kolesnikov, has been estimated at over 300 million rubles ($8.3 million), Kommersant newspaper reported on Tuesday. Moscow’s Basmanny District Court issued a warrant to seize the property on Monday. Anna Fadeyeva, press secretary of the court, told RAPSI that there were 11 items of real property owned by Sugrobov on the list including apartments and parking lots. She refrained from commenting on Kolesnikov’s property.

Anti-Corruption Campaign Extends Beyond China’s Borders
People’s Daily
China and the US have conducted in-depth discussions on the issue of anti-corruption at the Senior Officials’ Meeting of the Asia-Pacific Economic Cooperation (APEC), and have expressed willingness to fight corruption together under the framework of a cooperative network, said Robert Wang, US Senior Official for APEC, at a press conference on Aug. 22 2014. According to numbers released by China’s central bank in 2011, corrupt Chinese officials who had fled the country had taken over 800 billion yuan (about $120 billion) overseas since the 1990s, presenting a huge challenge to the Chinese government in hunting the black sheep and retrieving the money. In the recently concluded APEC Senior Officials’ Meeting, relevant parties from the APEC Network of Anti-corruption Authorities and Law Enforcement Agencies (ACT-NET) convened for the first time. Experts say the network, the establishment of which was propelled by anti-corruption agencies in China, Indonesia, the US, and others, will facilitate the work of Chinese law enforcement authorities in their anti-corruption campaign.

Anne Applebaum: Obama’s Best Hope for a Foreign-Policy ‘Legacy’: Reinvent NATO
National Post
It’s also time to face the fact that Russia may have already abandoned several post-Cold War arms treaties, including those covering medium-range missiles: If that’s the case, we need to abandon them, too. Deterrence worked in the past, and it can work in the future.

Closer Look: Anti-Corruption Czar Makes Noteworthy Appearance at CPPCC Meeting
Caixin
Wang, a member of the seven-man Politburo Standing Committee and chief of the Communist Party’s Central Discipline Inspection Commission (CDIC), gave a speech at the meeting at the invitation of CPPCC chairman Yu Zhengsheng and answered questions afterward, a video on cntv.cn, the website of the state broadcaster China Central Television, shows. The meeting was held on August 25. It was not the first time a Politburo member attended the conference and gave a speech, but it was a first for the chief of the party’s graft buster. Attending the conference as chair of the party’s anti-graft commission, however, means something different. It indicates at least two points. The first is that the CPPCC has been very concerned about the progress on the anti-corruption campaign and wanted to help. It is also possible that after the CDIC netted several high-level CPPCC members, the rest of the political advisory body needs to hear directly from the man in charge of the campaign about where it is heading.

U.S., Chinese Officials to Meet at Pentagon after Jet Intercept
Reuters
U.S. and Chinese military officials will hold talks on rules of behavior at the Pentagon on Wednesday and Thursday, a U.S. official said, days after the United States denounced a “dangerous” Chinese jet intercept of a U.S. Navy patrol plane. Last Tuesday, a Chinese fighter pilot flew acrobatic maneuvers around the U.S. Navy’s P-8 Poseidon anti-submarine and reconnaissance plane, crossing over and under it in international airspace over the South China Sea, the Pentagon said. While this week’s discussions at the Pentagon were planned long before the recent incidents, they touch on issues at the core of the U.S. concerns about Chinese military behavior: that a Chinese provocation could spiral into a broader crisis sparked by a military miscalculation in the disputed territory.

China Corruption Watchdog Investigating Executives at Volkswagen JV
Reuters
China’s corruption watchdog said on Tuesday it is investigating one former and one current executive at Volkswagen AG’s Chinese venture, FAW-Volkswagen Automotive Co Ltd, for “seriously violating the law.” The announcement, posted on website of the Central Commission for Discipline Inspection of the Communist Party of China, identified the two as former deputy general manager Li Wu and Zhou Chun, deputy general manager of the joint venture’s Audi sales division.

August 25, 2014
Fair Russia Suggest Depriving Corrupt Officials of State Pensions
Russia Today
A leftist MP is urging changes to the law that would bar people convicted of corruption from official posts and receiving increased pensions. MP Oleg Mikheyev of the Fair Russia parliamentary caucus told reporters that the new bill concerns those who commit crimes “against the state authority, the interests of civil service and the interests of municipal power bodies.” The politician further explained it meant bribery and graft. The bill also bans the employment as civil servants of anyone who had been sentenced to five or more years in prison for economic crimes. “Officials must completely lose the opportunity to capitalize on their posts,” the MP said.

China Resources Holdings’ Ex-Audit Director Questioned in Corruption Probe-Official Media
Reuters
Chinese police are questioning the former audit director of China Resources Holdings Co Ltd as part of a broad investigation into suspected corruption in the state-owned company, a government newspaper reported on Monday. The Economic Information Daily said Huang Daoguo, who retired this month, was believed to have illegally obtained an audit report on China Resources Holding, which he passed on to the company’s now sacked chairman, Song Lin. China’s National Audit Office has so far found irregularities at 11 state-owned conglomerates, including PetroChina Co Ltd’s parent China National Petroleum Corp and China Resources (Holdings) Co Ltd , ranging from misrepresentation of assets to illegal property development, highlighting the challenges the government faces in overhauling the public sector, according to its audit report released in June.

Cabinet Approves Rescue Package for 2 Major Sanctions-Hit Russian Banks
The Moscow Times
The Russian government on Monday said it would pump 239 billion rubles ($6.6 billion) into two major state-controlled banks to help them cope with an economic slump and Western sanctions over Ukraine that cut their access to foreign capital markets.

In Georgia, Echoes of Ukraine
The Global Post
As armed conflict rages in Ukraine over that country’s Western orientation, Georgia has announced that the architect of its own pro-Western shift a decade ago is wanted on charges of abuse of office. Since his party lost power in 2012, the new Georgian government has charged Former President Mikheil Saakashvili and several former cabinet members and advisors with malfeasance, alleging that his government engaged in brutal authoritarian tactics and crony capitalism during its eight-year reign.

August 24, 2014
Putin Profits Politically from Wars and Western Apologists
Financial Times
Mr Putin, the former KGB spy, is a master at giving his western apologists room to manoeuvre; at putting a case out there, no matter how implausible. This was true from the very start of his rule, when I was a correspondent in Moscow for The Washington Post and he was launching his crackdown on independent media and on tycoons such as Mikhail Khodorkovsky. His western apologists were happy to take Mr Putin at his word, that he was merely cleaning up the mess left by Boris Yeltsin, his predecessor, while failing to account for his efforts to dismantle the admittedly flawed democracy he inherited. “If by democracy, you mean the dissolution of the state, we don’t need it,” he once told western correspondents. Few paid attention at first.

Chinese Intercepts of U.S. Planes Expose Limits of Warming Ties
Financial Times
U.S. Navy planes have had a series of dangerously close encounters with Chinese fighter jets during routine patrols above the South China Sea, U.S. officials said, in what they described as an alarming trend that may involve rogue pilots. The Pentagon on Friday made public what it characterized as a particularly aggressive encounter on Tuesday. U.S. officials later said that at least three similarly provocative incidents occurred earlier this year in the same general location, all in international airspace. The earlier incidents prompted the U.S. to issue démarches, or diplomatic protests, to Beijing, U.S. officials said. Some analysts have said that China may be preparing to declare an air defense zone in the airspace above the South China Sea similar to one it announced last November for the East China Sea. A U.S. national security official has said such a move would be provocative and destabilizing.

As Russia and U.S. Struggle, China Rejoices
Moscow Times
China is already cashing in on Russia’s impasse with the West as long-planned deals are finally clinched in its favor. In May, just as the conflict in Ukraine was gaining momentum and Russia’s relations with the West were deteriorating into what is now being called the worst standoff since the Cold War, Russia signed a $400 billion gas deal with China that had been under discussion for a decade. “This deal has shown that China is a tough negotiator. [The deal] was discussed for years before being signed only in the wake of a difficult political situation,” said Sergei Grinyayev, head of Moscow-based Center for Strategic Estimates and Forecasts, a nongovernment foreign affairs and national security think tank. Apart from future gas supplies, Moscow and Beijing recently agreed on increasing crude oil imports from Russia, and on the construction of new reactors at the Tianwan nuclear power plant on China’s east coast. Also, as Russian companies now have limited access to Western technology because of the sanctions, many of them are turning to China for supplies, a market they are likely to stay in long term.

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