Falling stars illuminate China's path to reform

With the investigations of Xu Jianyi, chairman of FAW Group; of Qiu He, a senior official from Yunnan Province; and of Liao Yongyuan, general manager of the China National Petroleum Corporation (CNPC), China's anti-graft campaign is beginning to touch on the bedrock of many issues obstructing reform.

Xu is the second member of China's c-suite to be dragged under the anti-graft microscope recently. The chief of a centrally-administered state-owned enterprise (SOE), Xu's fall comes hot on the heels of that of Song Lin, former chairman of China Resources.

GOLDEN CHILD OR PRODIGAL SON?

The precise nature of Xu's transgressions remains unknown, but it can be assumed that his misconduct did not go unnoticed by the inspection team which audited discipline at FAW last year.

FAW is China's third biggest auto manufacturer, engaged in numerous joint ventures with some of the most prominent industry names worldwide, including Volkswagen and Toyota. FAW has a special status in Chinese hearts and minds, perceived as the country's firstborn domestic car maker.

According to reports on the Communist Party of China (CPC) Central Commission for Discipline Inspection (CCDI) website, inspections at FAW from July 29 to August 29 last year unearthed breaches of CPC regulations "happening from time to time" and "corruption problems" in sales and resource distribution.

The graftbusters reportedly found senior executives meddling in the approval of 4S stores. These stores -- sales, spares, service & surveys -- are effectively China's dealership network, and their efficient operation is one of the major drivers behind the enormous boom in car ownership over the last decade or so. Problems found included executives seeking personal profit from sales, purchasing and logistics. Irregularities were also found with personnel, use of funds and investment.

Xu was chosen by FAW to head up a team dedicated to investigating these problems and setting things right. The problems came to light just as the group began pursuit of an overall listing, with the strict auditing that entails. Previous audits reportedly found problems in the FAW financial system and with internal management, which, some believe, go well beyond finance and accounting.