China's banking system has basic problems with internal controls, dual control and checks and balances. This is exemplified by several recent cases of bank corruption.
The Bank of China, lost over $100 million dollars when a branch manager disappeared, with the cash. A few weeks later, dozens of employees were arrested for an internal conspiracy to steal almost $1 billion dollars. Middle managers of the China Construction Bank recently walked out of the bank, stealing with $8 million dollars.
Two weeks ago, Zhang Enzhao, the head of the China Construction Bank, resigned after accusations that he had accepted a $1 million bribe from an the U.S. Company, Alltel Information Services. Larry Lang, a professor of finance at the Hong Kong, Chinese University of Finance, said: "Corruption is pervasive in China, with many state-owned companies stripped clean of cash."
The Chinese government announced that 58,000 people had been punished for misappropriating money or of making unauthorized loans at 2 of the big four state owned banks. In 2003, the government said $8 billion was stolen from state-owned enterprises.
Sun Lijian, a professor at Fudan University in Shanghai said: "The financing system that supports China's economic growth is very fragile." This was exemplified again when the Bank of China discovered that $500 million was missing from accounts after three of its bank officers left the country.
Analysts say that fraud is more prevalent in China, than in nations such as America, because bank managers have not required "dual control" of cash accounts, and do not have good procedures in place, to double check all transactions.
One of the things that Ben Boothe and Associates, and BBA Mongolia have repeatedly stressed in our consulting and our enterprises, is that good procedures, good policies, and strict adherence to conservative standards is critical to successful financial endeavors.