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China Sets Sight on Graft in Bond Deals, Herald Says

China is shifting the focus of a corruption probe in the financial industry to brokerages’ bond underwriting business, the 21st Century Business Herald reported today, citing people it didn’t identify.

Brokerages follow banks, asset-management companies and trusts as the latest target of the Chinese Communist Party’s disciplinary body, the newspaper reported. Authorities are investigating bribery in bond deals especially those involving local government officials in the latest checks, the newspaper said, citing an executive from an unidentified local brokerage.

Chinese President Xi Jinping has pledged to target both “tigers and flies,” officials at the top and bottom of the power ladder, in an anti-corruption campaign he started after taking over as Communist Party chief in November 2012. Corruption was listed second among the public’s top 10 concerns in 2014, up from third in 2013 and seventh in 2012, according to a People’s Daily survey.

Some securities companies have stopped paying to obtain information on deals as the probe widens, the 21st Century Business Herald said in today’s report. The disciplinary commission didn’t immediately respond to an e-mailed query from Bloomberg News seeking comment.

The China Securities Regulatory Commission should focus on detecting and penalizing corruption and not just developing capital markets, Wang Huimin, the secretary for discipline at the regulator, said, according to a statement on the disciplinary commission’s website on June 15.

Fixed-income transactions were the focus of an investigation last year. Some financial institutions, seeking to move bonds off their balance sheets, have asked other institutions to hold the bonds for them over a certain period for a fee, according to China National Radio. Such transactions open the door to abuses like insider trading and using client funds for trades to generate personal gains, China National Radio said.

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