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Audits find fraud is rampant among Chinese businesses
The Epoch Times
1/19/2004



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Accounting scandals in Europe and America are making headlines across the world this week, while two reports from China describing rampant accounting fraud have gone unnoticed.

In Europe, magistrates and forensic auditors are picking through the accounts of the Italian milk group, Parmalat, in the hope of tracking down billions of dollars. A forged letter from the Bank of America vouching for £4 million (roughly $6 billion U.S. dollars) is at the center of the fraud; now investigators are trying find out where all the money went.

Enron continues to make headlines, with Andrew Fastow, the former Enron finance chief, pleading guilty to conspiracy. Fastow will be sentenced to 10 years in prison, should he cooperate with investigations against other former Enron executives.

The two cases have captured the attention of investors around the world, putting into question the business ethics of corporate America and Europe. Two reports of mainland Chinese accounting malpractice put the hype into perspective. The reports, one by the China's Treasury Department, and the other by the Nanjing City Land Tax Bureau give a glimpse into the business practices of Chinese state-owned enterprises.

According to the Xinhua News Agency, Nanjing City Land Tax Bureau audited real estate firms, and found 87 of 88 real estate firms evaded property tax. Nanjing City is experiencing a property boom, and capital gains of 30-40 percent last year were common. Most firms committed outright fraud, falsifying accounts to claim no profits—or even losses—had been made. Other firms simply delayed tax payment indefinitely.

According to the Xinhua Dao newspaper, Treasury Department offices audited 152 businesses last year. All 152 firms were found to have committed fraud. Assets were misreported to the tune of 8.3 billion RMB (about $1 billion U.S.). Eighty-two of the 152 firms misreported profits by at least 10 percent.

Together, the reports portray China as a place not where business ethics are lacking in particular cases, but where business ethics are lacking altogether.

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