FAW head Xu Jianyi is under investigation in China for serious disciplinary violations, despite having resigned from active duties.
IHS Automotive perspective | |
Significance | The Chinese government's final day of the National Party Congress (NPC) showed renewed vigour to continue its fight to remove corrupt officials and overall corruption from industry in China. |
Implications | The implications from both the final day of the NPC and the CCTV annual investigative show highlight that 2015 will continue to see scrutiny of local auto industry executives, dealers, and automakers in China. |
Outlook | The number of investigations into violations of duty have increased significantly in the last few years in China under the government's fight to clean up corruption in the country, while the state regulatory bodies work with renewed vigour to fight what they consider unjust practices against Chinese consumers, with the auto industry one of the major pillars of Chinese industry, the sector continues to be in the spotlight. |
The final day of the Communist Party of China's (CPC) National People's Congress (NPC) on 15 March was also the global Consumer Rights Day, when the Chinese state television broadcaster, China Central Television (CCTV), hosts its annual investigations into companies its reporters deem to have been eroding the rights of Chinese consumers.
Marking the conclusion of the NPC, the central government's anti-trust investigations vowed renewed energy to probe allegedly corrupt officials. State publications such as the People's Daily and the Global Times highlight that the Supreme People's Court (SPC) and the Supreme People's Procuratorate (SPC) "vowed to maintain a high-pressure anti-corruption campaign and to safeguard justice". In 2014 the number of people investigated in China for "duty-related crimes" rose to 55,101 from 51,306 people investigated in 2013. In 2012, a total of 47,338 people were investigated for duty-related crimes, which generally is understood to be corruption. The Global Times reports in a graphic supplied by the SPP that, of the duty-related crimes investigated in 2014, a staggering 68% or 37,435 individuals investigated related to bribery and corruption charges, while 5,851 were investigated for dereliction of duty, 5,450 for abuse of power, 3,331 for embezzlement, and 3,034 for other alleged offences. A total of 44,000 have been convicted and punished in 2014 mainly for bribery and embezzlement.
Also on 15 March, the CPC's Central Commission for Discipline Inspection (CCDI) released an official statement, quoted by the Xinhua news agency, stating that Xu Jianyi, chairman of FAW Group, is now under investigation and is suspected of "breaking the law". Apart from being the chairman of the fourth largest automaker in China, Xu is also CPC party chief for the FAW Group. The investigation of Xu echoes the latest anti-corruption pledge by Chinese premier Li Keqiang made yesterday (15 March), the People's Daily reports. "Li said the Party and the Chinese government are committed to combating corruption and upholding integrity and that the administrative reform will be deepened to uproot the "breathing space for corruption," the report states.
CCTV Consumer Rights Day probe
The annual gala CCTV programme has once again raised awareness of what it considers violations of consumer rights. This year the CCTV investigations were carried out together with the Chinese General Administration of Quality Supervision, Inspection and Quarantine (AQSIQ) and other government departments. The investigations concentrated mainly on car dealerships and 73% of those investigated were found to be exaggerating simple problems to get consumers to buy more parts and services. Dealerships of Nissan, Volkswagen, and Mercedes-Benz were probed in Beijing, Tianjin, Shanghai, and Hangzhou and, according to a report in state media, were "charging consumers thousands of yuan for a simple problem". The China Consumers' Association is quoted as stating that 863 consumer complaints against Shanghai Volkswagen (SVW) were reported last year.
Meanwhile, Land Rover China was also put into the spotlight by the CCTV programme, which alleged that a number of vehicle owners have complained that their vehicles have suddenly stopped, as well as having problems with the reverse gear. Reuters reports that VW, Nissan, Mercedes, and Land Rover have all issued statements.
"We have paid close attention to CCTV reporting ... and we sincerely apologise for any inconvenience caused to our customers," said VW China spokesperson Larissa Braun.
Nissan's China joint venture said it would set up a team to investigate the allegations and strengthen regulation of its service teams, according to a statement on its official microblog.
Mercedes-Benz said it would launch a probe and urged dealers to reform their behaviour. Land Rover apologised to its customers on its official microblog and said it was working to resolve the issue.
Outlook and implications
The FAW Group has already been in the spotlight with the CCDI investigating An Dewu in 2014, a retired former general manager at FAW Group (see China: 2 September 2014: Chinese regulators expand corruption investigation to include former FAW executive). This followed an announcement in July and August last year that FAW Group was part of the government's investigations, with Xinhua stating at the time that: "Inspectors will look for possible misconduct such as corruption, failure to implement the Party's frugality directives, and other policies as well as malpractice in official selection and promotion procedures, the statement said" (see China: 1 August 2014: Chinese government launches new probe, FAW targeted).
It was 2013, however, when FAW Group was first in the spotlight as part of an investigation, when Xu Jianyi resigned from active duties as chairman of the group, but retained his title and status at the state-owned automaker. At the same time, probes were launched into investigating missing state funds of over CNY10 billion (see China: 11 April 2013: FAW Group managers investigated over missing funds, FAW Car sees losses in 2012). FAW has joint ventures with VW, Toyota and General Motors in China. In 2014 the Audi branch of the FAW-VW joint venture was investigated and was fined (see China: 11 September 2014: Chinese regulator fines VW, Chrysler total of USD46 mil.).
The annual CCTV programme is influential in China and automakers have learned that the frenzy caused after the show is a serious blow to efforts of raising penetration in China. It is because of this that automakers have begun to respond with caution to the show's findings and appease viewers by stating that they will work with authorities to clean up any misdoings. This was not the case in previous years. On 15 March 2013, an investigation by the CCTV into the DSG transmission fitted in certain VW models in China caused uproar wave of complaints (see China: 18 March 2013: VW recalls DSG-fitted vehicles as consumer complaints soar across brands in China), which led to VW recalling over 300,000 vehicles (see China: 20 March 2013: VW recalls 384,000 units, JAC recalls 100,000 vehicles in China).