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China, India’s rapid growth enlarges black economy

March 24, 2010

Four executives of Australian mining giant Rio Tinto’s in court admission of accepting US$11.25 million in bribes raises questions of corporate corruption, espionage and bribery in two of the fastest growing, resource hungry, ethically weak nations – China and India.

Short supplies, a high demand, government apathy and years before a case comes up in court mean that companies are resorting to black tactics at achieving immediate targets. While India was shocked last year with the Satyam Computers Scandal, where one of India’s largest IT companies fudged financial statements, China’s corporate world is being rocked by the current Rio Tinto scandal.

According to transparency International’s 2008 Bribe Payers Index (BPI) emerging economic giants such as China, India and Russia are perceived to routinely engage in bribery when doing business abroad. According to the Index, the three nations remain some of the worst bribe takers internationally. In 2008 Russia ranked last with a score of 5.9, just below China (6.5) and India (6.8). In comparison, Belgium and Canada shared first place in the 2008 BPI with a score of 8.8 out of a very clean 10 indicating that Belgian and Canadian firms are seen as least likely to bribe abroad.

Additionally, a 2009 report by the World Trade Organisation, states that the degree of non-transparency of a country is an important factor in attracting foreign investors. The statistical study reveals that on an average a country could expect a 40 percent increase in FDI from a one-point increase in their transparency ranking. And an increase in investment translates into more resources, which in turn increases social welfare and economic efficiency.

Conventionally accepted in various forms from expensive holidays to gold, bribes are very difficult to track, however India and China’s `sin economies’ comprising fake and counterfeit products, smuggled and pirated goods, unauthorized gambling, bribery and prostitution, among a host of other sinister activities that go unaccounted are estimated to constitute approximately 30-40 percent of their GDP, a major drain on the economy.

In order to beat bribery and single out the sin economy, Transparency International has released `The Business Principles for Countering Bribery’, a useful tool for companies that are dealing with the challenge and risks posed by bribery. The report which can be downloaded here studies recent best practices worldwide and provides a framework for companies to develop their own comprehensive anti-bribery programmes.

In order to discuss corruption in India and/or China and seek prudent legal corporate governance visit the Inchin Closer Forum.

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