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Down tools

Will scandal impact Sany Heavy Industry’s forthcoming Hong Kong IPO?

Down tools

World class products, but questions arise about Sany’s sales machine

There’s no good time to be accused of bribery, but last month’s revelations came at a particularly bad time for Sany Heavy Industry. The Shanghai-listed construction equipment maker has a Hong Kong IPO thought to be a little over a month away.

The allegations first emerged online, and were supposedly penned by a former employee. But since the China Daily wrote about the 19 pages of documents posted on the Tianya.cn bulletin board, Sany’s share price has dropped nearly 35%.

The documents break down ‘public relations fees’ that Sany’s Xinjiang subsidiary allegedly paid to win contracts.

Sany Heavy Industry had sales of $5 billion last year and is now reportedly the largest cement equipment maker in the world. It has a 50% share of the China market and also makes drills, pumps and cranes.

“Sany often bribes in order to win business deals,” the anonymous whistleblower alleged to CBN magazine, “using traditional holidays such as the Spring Festival (Chinese New Year).”

Actually, it is customary to distribute gifts of ‘moon cake’ vouchers or red packets with small amounts of money over the annual holiday, something not normally considered a bribe.

But the whistleblower alleges around $900,000 was paid to personnel at a variety of industrial firms, including cement makers and state-owned enterprises. He also alleged to the newspaper that a local Xinjiang police bureau was investigating (although the China Daily reports that officials have not looked into the claims).

Sany quickly made a complaint of defamation to the police in Hunan province (where it is headquartered).

“[The documents] are fake, and Sany is currently investigating the issue,” said a company representative, according to the Economic Observer.

But Sany’s PR team then had to respond to a series of conflicting (and potentially incriminating) messages on the weibo of the company’s president Xiang Wenbo.

In a posting that was soon taken down, Xiang appeared to admit the company had paid a ‘PR fee’.

“The breakdown of the Spring Festival PR costs posted online were only for initial review and the ultimate amount paid was just Rmb1 million or so,” wrote Xiang Wenbo, according to the Economic Observer. “For a listed company with annual sales of Rmb40 billion that appears stingy and we feel sorry for our customers.”

An attempt to defuse the situation with a joke, perhaps? Even so, Xiang went on to deny that the originally-posted documents were real, seeing instead an attempt to smear Sany (these comments were then removed too).

This debacle is unusual: far more common are the bribes that don’t hit the headlines. Shui Pi, editor of China Times, explained to news portal ifeng.com that “many companies need to give small bribes [but] if the amount is too big, it can then be construed as a crime.”

Others insist that bribes are not a necessary evil in Chinese business practice. For example, Wang Shi (chairman of property firm China Vanke) famously described himself as a ‘non-briber’ to Southern Weekly magazine. Then again, the fact that such a stance is regarded as newsworthy may go to show just how prevalent the practice is.

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