Chinese firms hit bribery and tax evasion troubles amid African corruption crackdowns
06 Nov 2019

While Chinese companies are feeling the pressure of anti-graft and tax evasion crackdowns at home, some are also facing similar campaigns abroad as African countries try to stamp out corrupt practices.

In the past three years, a number of Chinese-owned companies have landed in trouble with investigating agencies for tax evasion.

Others have been accused of bribing their way to winning lucrative infrastructure contracts, on a continent that has some of the world’s most corrupt countries, according to the Corruption Perceptions Index 2018, compiled by Transparency International, an international non-governmental organisation.

In Kenya’s crackdown on corruption under President Uhuru Kenyatta, Chinese-owned companies are among about 600 being investigated over alleged tax evasion and bribery.

There is a similar story in neighbouring Uganda, whose tax agency last year released a list of suspected cases that linked several Chinese firms to fraudulent tax activities. Of 148 firms on the list, 93 were foreign-owned, of which at least 90 had Chinese directors. The firms were accused of using fictitious invoices to indicate business transactions when there was no genuine supply or movement of goods.

Asked about the cases involving Chinese companies, the Chinese embassy in Nairobi told the South China Morning Post it “supports the Kenyan government’s legitimate actions on tax regulation”.

“As always, the Chinese government requests Chinese companies in Kenya abide by Kenyan laws, to pay taxes legally and fulfil social responsibilities,” spokeswoman Huang Xueqing said.

In mid-October, the Kenyan tax agency arrested and bailed three directors of Tianyi, a Chinese real estate company, for allegedly failing to declare and pay taxes totalling US$260,000 from the sale of 171 houses.

In another case, Gao Fei, director of New X-Tigi Technology, a Chinese mobile phone maker, was charged in Nairobi with allegedly evading US$1.94 million in value-added tax.

Other companies in the tax authorities’ cross hairs include ZTE Kenya, a subsidiary of the giant Chinese technology company ZTE, over accusations of unpaid tax, and Electric Tools Kenya, whose three Chinese directors were charged with allegedly failing to pay US$580,000 in tax.

For their part, Chinese investors in Africa complain that they are forced to bribe to do business there. A 2017 McKinsey report said that in five of the eight countries studied, corruption was Chinese investors’ top concern. In each of those countries, between 60 and 87 per cent of Chinese firms said they had paid “tips” or bribes to obtain a business licence.

According to the McKinsey report, “some members of Chinese communities in Africa have formed a strong perception that in these countries, ‘tips’ if not bribes are necessary to get anything done”.

One experienced Chinese businessman told the researchers: “There are so many random government authorities that come to my business for ‘inspections’, and I have to give them ‘penalties’ or ‘tips’ almost every time, just to get on with my work.”

On the African side, McKinsey found, there was a perception that Chinese businesses were easier targets for tips and bribes than other foreign firms. An official in charge of major government tenders told McKinsey researchers that “it’s a lot easier to get them to pay”.

In September, Kenya’s Ethics and Anti-Corruption Commission arrested directors of Erdemann Property, a major Chinese real estate firm, for allegedly colluding with directors of the Lake Basin Development Authority to inflate by US$25 million the cost of building a shopping centre in Kisumu, a city in the country’s west.

Investigators also alleged that Erdemann’s directors bribed the development authority’s chairman to the tune of US$170,000 and other benefits including flats and shops, and that the head of the finance committee received US$120,000.

By Jevans Nyabiage, South China Morning Post, 4 November 2019

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