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A new regulation seeks to further restrict the business activities of senior officials’ relatives – and experts are already pointing out loopholes

By Zhou Qunfeng Updated Sept.1

On June 19, the Communist Party of China (CPC) issued a new regulation on curbing the business activities of senior officials’ “spouses, offspring and their spouses.” Released ahead of the 20th National Party Congress of the CPC scheduled to be held in the second half of the year, the most important event in China’s political calendar, experts believe the regulation signals that anti-corruption, which has been a major political priority under the leadership of Chinese President Xi Jinping, will continue to top the Party’s agenda.  

China has issued regulations on the business activities of family members of senior officials since the 1980s. Experts said that compared to previous regulations, the new one covers more officials, extended family and types of business, particularly finance.  

On July 4, the Central Commission for Discipline Inspection (CCDI) announced on its website that Zhang Huayu, who resigned as deputy president of China Everbright in 2018, is alleged to have been involved in corrupt practices. Besides bribery, he arranged jobs for dozens of his relatives at China Everbright Group, the State-run conglomerate and majority shareholder of the bank, including his son, brother and son-in-law, the CCDI said. Zhang is under criminal investigation. 

Kin to Corruption 
Under the new regulation, officials ranked as department and bureau chiefs and above are required to make annual reports on the business activities of their spouses, sons and daughters, and sons- and daughters-in-law. Their close relatives are forbidden not only from owning businesses, but also from working as senior executives in private or foreign enterprises, private equity fund markets, or as consultants.  

By specifying these official ranks, the regulation essentially covers all mid- and high-ranking officials, said Professor Zhuang Deshui, deputy director of the Research Center for Government Integrity-Building at Peking University in Beijing. “It sends a powerful message about the central leadership’s determination to carry on the anti-graft drive and to promote social justice,” Zhuang told NewsChina.  

China’s first regulation to forbid officials’ relatives from engaging in business passed in June 1985, when central authorities targeted immediate family members of senior officials ranked above county chief. In 2001, the CCDI issued rules that demanded that spouses and offspring of provincial and prefectural leaders pull out of any business investments. 
According to Professor Mao Zhaohui, director of the Center for Anti-corruption and Clean Government at the Renmin University of China in Beijing, the regulation aims to tackle recent trends in corruption cases. “Since central authorities launched their high-profile anti-corruption campaign, the spouses and offspring of some officials took advantage of the ‘soft power’ they have to engage in ‘hidden’ corruption,” Mao told NewsChina.  

In some cases, family members of senior officials are “preyed” upon by businesspeople, Mao added. “If an official is believed to have potential for promotion, those seeking to establish a connection with them start building business relationships with their family members,” Mao said. 

A number of high-profile corruption cases involving officials’ families and relatives have come to light in recent years. For example, relatives of Lü Xiwen, the former deputy Party secretary of Beijing who in February 2017 was sentenced to 13 years for taking 18.8 million yuan (US$2.8m) in bribes, had helped him funnel money, according to the court ruling.  

A more typical case is Zhao Zhengyong, former Party chief of Shaanxi Province, who was sentenced to death with a two-year reprieve in July 2020 for corruption-related crimes involving 717 million yuan (US$107m). According to media reports, Zhao’s daughter worked for several State-owned banks, and was paid over 20 million yuan (US$2.9m) in both salaries and commissions for “attracting bank deposits.”  

According to Zhu Lijia, a professor at the National Academy of Governance in Beijing, the role of senior officials’ sons- and daughters-in-law has become more prominent in recent cases, which prompted local authorities to expand supervision.  

After Shanghai authorities targeted this group in their anti-graft regulation in May 2015, authorities in Beijing, Chongqing, Guangdong Province and Xinjiang Uygur Autonomous Region followed suit. The new anti-corruption regulation is the first at the national level that specifically includes sons- and daughters-in-law of senior officials.  

In January 2017, Su Rong, former deputy chairman of the 12th Chinese People’s Political Consultative Conference, was sentenced to life in prison for corruption. His wife, son, daughter, brother and other relatives were involved in the case. Ten months later, his son-in-law Cheng Danfeng, former vice mayor of Zhangjiajie, Hunan Province, was sentenced to eight years in prison for taking bribes through Su’s influence. Su’s case exemplifies “family-based” corruption. 

Private Finance 
In 2007, the CCDI released a document requiring senior officials to report their finances regularly, including the investment activities, stocks, funds and property holdings of their immediate family members. Under the new regulation, close relatives of senior officials are prohibited from serving as executives in private equity funds, as well as engaging in paid social intermediary and legal services.  

The new rules go beyond the traditional economic investment to include financial markets and consultant agencies, Zhuang said.  

To evade tighter controls, relatives of some senior officials have moved into financial markets and consultant work. Wielding access to inside information and political connections, they are prized by private equity funds and consultancies that work closely with the government, such as environmental assessment agencies, qualification organizations and law firms. “This has led to unfair competition and undermined the overall rule of law,” Zhuang said.  

Professor Mao pointed out that financial market-centered corruption has increased over the past year, especially in the relatively new private equity funds industry. Li Hanbiao, former vice mayor of Guiping, Guangxi Zhuang Autonomous Region, was put under investigation in August 2021. According to a report of the newspaper under the CCDI on November 28 that year, Li held stakes in several private companies through his nephew.  

Liu Liang, visiting professor at the China Academy of Management Science in Beijing, called for private equity institutions to carry out more thorough background checks of candidates. In his recent commentary for news portal National Business Daily, Liu said that there are no technical barriers to conducting these checks. 

Not Enough 
According to a Xinhua News Agency report on June 22, authorities “rectified” the business activities of more than 4,700 close relatives of government officials between 2015 and 2021. The new regulation includes the supervision of business activities of officials’ relatives in official performance reviews.  

But experts warn that the new rules alone are not enough. According to Professor Zhuang, corrupt officials and their family members still have plenty of room to hide their economic activities.  

“Corrupt officials can file a fake divorce, or they can register their businesses, investment and properties under the names of their cousins, nephews and nieces, while they serve as the real bosses,” said Zhuang, adding that many existing regulation requirements are mere formalities that lack real teeth.  

For Professor Mao, while the new regulation expresses stronger political will and general guidance, it lacks specifics over a wide range of problems. For example, the new regulation stipulates that officials’ relatives cannot engage in business activities in areas where the officials are posted. This fails to cover central government officials.  

While it stipulates that officials’ spouses and children must cease business activities under threat of the official losing their position and other punishments, it does not specify punishments for violations.  

Mao said authorities should have a concrete implementation plan they can pilot in a city before taking it nationwide.  

“Only when the people see it actually being implemented, will they truly believe in the central leadership’s resolve to fight corruption. The regulation will be an actual deterrent only when officials see it implemented,” Mao said.