China Makes Up Its Mind: Penalty Reform 中国终于下决心:改革惩罚制度

By newsdoug on September 1, 2011

Oil spill spotlights need for penalty reform It’s quite a slow news day as we head into the final days of summer before the new school year begins, so I thought I’d dust off my “China Makes Up Its Mind” column with a discussion of much-needed reform of China’s penality system for companies that break the law. Not surprisingly, the calls for reform, while still somewhat muted, are coming in response to violations by a foreign company, in this case US oil giant ConocoPhillips (NYSE: COP), whose leaking oil wells are causing potentially devastating damage in the Bohai Bay off the coast of Shandong province. Under the current system, ConocoPhillips will face maximum fine of 200,000 yuan, or a mere $31,000, for this environmental nightmare that has caused much more damage to the environment and people’s livelihoods. (English article) Maximum penalties for other violations, such as y copyright violation, causing business disruptions and libel, are all also ridiculously low, effectively giving a green light for companies to engage in any of these practices with little fear of serious consequences. The reason for the lightweight penalties owes to the fact that most were created when nearly all companies were state-owned, so leaders in Beijing didn’t want to burden their own companies with big fines for bad business practices. But as private companies have multiplied, there are growing calls for reform, which is sorely needed to make sure that companies — both private and state-run — behave responsibly or face serious financial consequences. At this point it’s far from clear that Beijing has the will to make this kind of needed reform, as any higher penalties would not only affect private companies like ConocoPhillips, but also their state-run partners, in this case oil giant CNOOC (NYSE: CEO; HKEx: 883). But if China really wants to develop an orderly business environment that fosters healthy competition, it needs to move forward soon with such reform, and this Bohai Bay case may provide just the impetus to move forward on this front.

Bottom line: The ConocoPhillips oil spill in the Bohai Bay could finally prompt Beijing to overhaul its outdated penalty system that levels ridiculously low fines against companies that break the law.

NOTE: “China Makes Up Its Mind,” an occasional mini-column where I look at one of Beijing’s latest macro industrial policies, its chances for success and the potential impact on industry players.

暑假即将结束，新学年即将开始，近期新闻异常清淡。所以我就拍拍案上的灰尘，重新拾起了尘封了一段时间的“中国决心已定”系列专栏。今天就来讨论一下中国亟需的对企业违规违法的惩罚体制。毫无意外，近期的改革呼吁源于外企出事，虽然声音并不大。此次具体的案例就是康菲石油(COP.O)渤海湾漏油事件。基于现行惩罚制度，康菲带来如此严重的环境灾难，对民众生活造成如此影响，但最高只需缴纳20万元人民币罚金。此外，盗版等其他违法行为的惩罚也轻得令人难以置信，实际上是为企业的此类做法开绿灯。大棒高高举起轻轻落下的原因就在大多出事企业都是国企，政府不愿让自家企业背负重罚。但是随着私企的不断增多，惩罚体制改革呼声渐起。目前远不清楚北京是否有决心来推行此类迫切需要的改革。因为重罚是会罚到康菲等类私营企业，但也会累及它们的中方合作夥伴，在本案例中就是中海油(0883.HK; CEO.N)。但是如果中国确实希望发展健康有序的经营环境，就必须推动此类改革，而康菲渤海湾漏油事件可能正好帮了一把。

一句话：康菲渤海湾漏油事件可能终于促使北京下定决定，整顿过于落後、量刑过轻的企业违法惩罚机制。

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