Lai See | Mainland corruption crackdown poses risks for foreign investors

Every cloud, as the saying goes, has a silver lining. Xi Jinping's corruption crackdown has been bad news for those that were caught up in the 53,085 investigations by the Central Commission for Discipline Inspection that occurred in 2014 alone. As a result of these investigations, the CCDI has disciplined 71,748 cadres and "severely disciplined" a further 23,646.

But the crackdown is surely good news in a sense for the likes of Steve Vickers & Associates that specialise in advising businesses how to navigate through this minefield. In a report that contained a stark warning to businesses, SVA said yesterday the campaign was without precedent in recent Chinese history and was a major risk for foreign businesses, "as it is rooting out longstanding patronage networks, altering accepted working practices and dampening sentiment in key markets." Crucially, "It has turned some well-connected individuals into liabilities."

In addition to the penalties incurred in China, these investigations can trigger further investigations by the US and UK authorities among others, SVA warns. The report points to businesses such as Kaisa Group that have run into difficulties after losing political protection. The troubles encountered by GlaxoSmithKline last spring were important, "because GSK's activities were illegal but had been topical."

SVA chief executive and founder, Steve Vickers told Lai See that the crackdown was a major source of concern for businesses, and that his company had seen an increase in enquiries. "Companies are asking, 'okay, we went into China with the support of a Chinese official, are we still good or has something changed?'" He added that the enquiries were mainly at board level, looking for independent advice since the accountants and managers on the ground were inclined to maintain the status quo.

Foreign investors therefore need to identify how exposed any current business partner or corporate executive might be. A second step is to identify upcoming risks such as a new investigation: who it involves and which businesses will be affected? On the flip side it would obviously be handy to see who benefits from the campaign. "Any business that can identify winners could easily forge links providing a real competitive advantage," says SVA.