INTERNET: Meituan, JD Take Anti-Corruption Fight to Trenches

Bottom line: New anti-corruption moves at JD.com and Meituan-Dianping show the cleanup campaign is moving down to the grass-roots level, in a positive development that should help the companies as many seek to go abroad.

Meituan, JD.com in new anti-corruption snares

Anyone unfamiliar with China might find it peculiar and even worrisome that near simultaneous announcements appear to show problematic internal corruption at two of the nation’s top Internet companies, e-commerce giant JD.com (Nasdaq: JD) and leading group buying site Meituan-Dianping. While the timing does seem somewhat coincidental, this kind of thing is becoming quite common these days, as China’s companies fall in behind the central government’s nearly 4-year-old anti-corruption campaign.

From an observer’s perspective, I have to say this kind of campaign is sorely needed in China’s corporate sector, both for state-run and private companies. The kinds of internal corruption detailed in these latest reports are far too common in companies, where employees regularly use their position to do things like extort money from and cheat customers, and even rip off their own companies.

The broader picture is that China’s corporate landscape is filled with unsavory practices, much the way the west was in the early industrial era before regulation and public outrage toned down and stamped out many such problems. Such practices have been behind a number of major scandals at China’s biggest Internet companies over the years, resulting in a major piracy lawsuit against leading search engine Baidu (Nasdaq: BIDU) at one point and sparking another piracy controversy against Alibaba (NYSE: BABA) more recently.

Those companies have begun to clean up their acts in response to both public outrage and government pressure, and that appears to be what’s happening in these latest two cases involving JD and Meituan-Dianping. In the first instance, JD.com has busted at least 6 people for various offenses, from accepting gifts to taking advantage of their positions to make some extra money. (Chinese article)

The latest bust appears to be the result of an ongoing company-wide sweep, and affects a wide range of positions, from middle-managers to ordinary workers, in a wide range of departments and geographic locations. The media report points out that this is the second such announcement by JD on the matter, again showing that this is an ongoing effort to root out such practices that are endemic in China’s business culture.

Ditto for Meituan

Meituan-Dianping’s announcement looks remarkably similar, saying that at least 10 employees have been netted in an internal sweep aimed at stamping out corrupt practices in the company. (Chinese article) The bust was announced in an internal company email, and again names a number of offenses by people at all levels of the company in a wide range of different departments.

The most significant thing about these latest two developments is that they show the companies are really digging down to the grass roots level to try and weed out corruption, no puns intended. Telecoms equipment giant Huawei was one of the first major private corporations to kick off the fight against internal corruption in 2014, in line with President Xi Jinping’s then nascent campaign to root out the problem in government and big state-owned companies. (previous post)

Since Huawei kicked off the private-sector clean-up, others including Baidu and real estate services provider SouFun (NYSE: SFUN) have joined the effort. But most of those efforts in the first couple of years were aimed at high-level executives, parroting the central government’s efforts that were emphasizing the more high-profile cases of corruption.

Xi Jinping said at the start of his campaign that he was targeting both “tigers and flies”, though obviously the flies don’t get much media attention due to their low-level positions and smaller sums of money involved. These latest cases show that the companies are extending their own campaigns down into the “fly” level, sending a signal that corruption of any kind won’t be tolerated.

At the end of the day, this kind of campaign should be highly beneficial to China’s private companies, especially as many get set to expand abroad and need to be careful not to export these kinds of practices, especially to western markets. I do suspect that corruption may still be continuing by some people who feel they are immune to such crackdowns due to their good internal connections. But as more of these crackdowns continue, such people will hopefully give up such practices and focus on working for the welfare of their employer rather than trying to enrich themselves through their jobs.

 

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