chinese bank scandal

The Standard 31/Jan/2004
ICBC audit finds 67.1b yuan fraud

by Wu Zhong

A massive audit of thousands of China's state-owned enterprises and their relationship to Industrial & Commercial Bank of China (ICBC) has turned up as much as 67.1 billion yuan (HK$63 billion US$8 billion) in fraud and financial irregularities by as many as 36,000 senior officials, state auditors and other sources said yesterday.

At the top of the list is China Life Insurance - the nation's biggest insurer - which, according to Bloomberg News Service, was involved in corruption and irregularities totalling more than 35 billion yuan. However, the probe goes well beyond that to include clues to a total of 58 economic crimes, including embezzlement and other financial irregularities.

ICBC is China's biggest bank, serving more than 100 million customers.

Bad loans were equal to 21.3 per cent of total lending at the end of last year.

Wang Zhenning, a spokesman for ICBC, told Bloomberg in a phone interview: "I have no official comment at this point.''

Hong Kong and New York-listed China Life Insurance is not involved in the probe, officials said.

The case has disturbing implications for China's entire banking system and particularly the other ``Big Four'' state banks - Bank of China, China Construction Bank and Agricultural Bank of China. The government earlier this month injected US$45 billion (HK$351 billion) into both Bank of China and China Construction Bank in an effort to clean up huge nonperforming loans.

Another US$50 billion in foreign reserves is earmarked for the banking sector this year to clean up the balance sheets of the other two banks.

The other three remain to be audited in the wake of the ICBC probe.

All four are slated to be listed on international markets and it is crucial that their balance sheets and corporate government practices be reformed before they can be listed.

The investigation reportedly got under way two years ago when Premier Wen Jiabao, then vice premier in charge of the country's finances, ordered the National Audit Office to audit the ``Big Four'' banks, one after another, in advance of their being listed on the market this year.

In all, according to a source in Beijing, the state audited 21 branches of ICBC as well as China Life Insurance since 2002 and found thousands of irregularities.

The need for the audit was also spurred by the flight to avoid an investigation in 2002 of Gao Yan, the former head of State Power Corporation and a holder of ministerial rank, who is now widely believed to be in Australia.

Gao was suspected of serious irregularities, stealing a fortune in share buybacks and asset transfers between the state power corporation and affiliated companies that allegedly were priced improperly.

Li Jinhua, the Auditor-General, told a national conference in Beijing yesterday up to one billion yuan may have disappeared along with Gao - the highest-ranking official to flee the country since the massacre of protesters in Tiananmen Square in 1989. According to Xinhua News Agency, the national audit office so far has recovered 14.82 billion yuan and helped to save 1.01 billion yuan in budgetary allocations and subsidies, as well as returning 9.07 billion yuan to the bodies that allocated them.

Some 1,867 cases have been forwarded for prosecution.

A source in Beijing said 317 officials have been disciplined, while 264 others have been fired or demoted.

Li said the financial malpractice fell into three main categories - with individuals and units cheating on loans such as housing and car loans, state-owned enterprises cheating on huge loans by writing false bank acceptance bills, and criminals colluding with bank employees in fraudulently obtaining loans involving affiliated enterprises.

In addition, the auditors have discovered huge amounts of fraud in the country's urban development zones.

Wang Shi-yuan, a spokesman for the Ministry of Land Resources, said about 168,000 "law-abridging cases'' were found among 2,046 development zones.

So far, 738 officials have been disciplined and 134 are currently under criminal investigation.

The total land devoted to these development zones is bigger than the entire urban area of all of China's cities, officials said.