To what degree is corruption, within the financial sector, a worry to China's credibility in the market?
The issue of corruption within China's financial system took on new importance following the emergence in 2001, of a corruption scandal within the Bank of China (BOC) that extended all the way to the top BOC leadership. Chinese economist Hu Angang estimates that publicly admitted corruption in the financial sector totaled more than 6% of the value of China's GDP in 2000.
Corruption has long been a major concern. The failure of provincial trust and investment companies in the late 1990's undermined China's financial credibility. Market rigging by fund managers, extortion of company funds by listed firms and highly complex pyramid schemes flourish in any area not brought under the PRC regulatory microscope. The prospect of opening new sectors to a large number of entrants understandably has authorities wondering whether they can cope. Already in 2002, an illegal representative office posing as a European bank was discovered and closed in Beijing. The natural inclination of regulators is to institute even more stringent documentary processes for fear that larger financial scandals could threaten the system's integrity.
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