China Airs Some Very Dirty Laundry - Sample Essay

Article Review #1 – China Airs Some Very Dirty Laundry by Chen Wu of BusinessWeek Online (article date – 6/28/2004) According to a June 28th BusinessWeek online article, China’s Auditor General Li Jinhua surprised lots of people by uncovering billions of dollars of embezzlement and monetary losses due to investment mismanagement and fraud in a recent annual report to the Chinese legislature. While the accusation came as no surprise, what was surprising was the level of corruption and the state-owned enterprises to which most of the corruption charges belonged.

Of the organizations that exhibited the most fraud were the state-owned Industrial & Commerce Bank of China, China Life (parent of NYSE listed China Life Insurance), The Bank of Communication, China State Power, 41 different state agencies, and the General Administration of Sports. To summarize some of the findings, at the ICBC alone, nearly $2 billion dollars of illegal loans were discovered and this on top of $8. 3 billion in fraud and financial irregularities reported in January of this year!

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A China State Power, the General Auditor’s report uncovered more than $947 million worth of losses due to bad investment decisions, illegal loans, and blind lending practices in the years from 1998 to 2002. As much as a third of that figure can be traced to a single executive who was believed to have left China two years ago under suspicion of charges of corruption! Jinhua’s report further suggests that almost $16 million in Olympic funds was spent to build private houses for the staff members of the General Administration of Sports.

It does not take a long and careful analysis of this report to realize the fact that these accusations could seriously hinder China’s foreign investment sectors. Foreign governments and private investors alike with large stockpiles of capital in Chinese banks may feel the need to move their capital elsewhere due to potential financial backlash and/or the possible collapse and re-structuring of the state-run ICBC. While the negative possibilities surely exist, there is also a positive side the report’s findings.

The BusinessWeek online article quoted Frank Peng, a professor at Tongji University’s School of Economics and Management in Shanghai as saying, “(the report) shows the resolution and confidence of the central government to fight corruption. ” The author of this review was surprised by the level of openness of Jinhua’s report and was further surprised that the findings were allowed to be exposed to the public. Such openness goes a long way in showing China’s commitment to moving away from its strong-armed Communist Party controlled politics to a more open and fair market-based economy.

Article Review #2 – More Finance Firms Move Jobs to India by Anupama Chandrasekaran of Reuters (article date – 6/28/2004) In a recent article, Reuters cited a Deloitte & Touche survey of 43 global financial companies in seven countries that said that financial companies moved information technology and customer service workers to lower-wage countries at a pace that was 38% higher than last year. Since it has a large English-speaking population, 80% of the off-shored jobs went to India.

Deloitte & Touche’s report indicated that, in 2005, among the world’s top 100 global financial companies with market caps of $10 billion or more, it expects more than $210 billion worth of off-shoring to occur to offset operating costs. They anticipate that the off-shoring efforts could result in net operating costs savings of up to $700 million per company. Deloitte’s report further predicted that by 2010, global financial institutions will have moved 20% of their operating costs to low-wage countries.

This job off-shoring trend is one that is troublesome to me as an IT professional, but one that I clearly understand from the perspective of management. The negative implications of off-shoring seem obvious: increased unemployment, job demotion, and/or lack of advancement for IT workers whose jobs are being replaced, and political and media backlash, but off-shoring has its positive sides as well as its negatives.

Companies that off-shore jobs to low-wage countries benefit from the resulting operating cost savings. The costs savings can generally be applied directly to the company’s bottom line, which results in higher net profits to the shareholders. The real question here is not whether or not off-shoring is “worth it” financially, because it clearly is. The question is whether or not off-shoring is ethically “worth-it”.

If U. S. based companies continue to send IT and CS jobs to low-wage countries at the rate they currently maintain, the unemployment rate in the US will trend upward and the displaced workers will be forced into a position where they must change accepts lower paying jobs in order to remain employed in the industry. In some cases, accepting a lower-paying job may mean that the spouse must also seek work, or if already working, more hours to supplement the lost income.

This situation will lead to greater stress in the home and will ultimately contribute to a higher divorce rate, and will cause economic slowdown in the face of rising corporate profit margins. I certainly do not advocate government mandated job quotas. Rather, I think that corporate board members and CEO’s should evaluate the potential down-sides of off-shoring more carefully rather than succumb to the immediate possibility of greater short-term profits. Article Review #3 – Latin America Lags Behind by Scott Johnson of Newsweek International Edition (7/5/2004 edition)

According to a July 5th article by Scott Johnson of Newsweek International Edition, Latin America is headed for another decade of stagnating GDP growth and political turmoil. In fact, the situation has gotten so bad that a poll taken by the UN in April of this year indicates that 53% of Latin American would rather have an “autocratic” government if it improved economic conditions! This is in stark contrast to the 1980’s when autocratic regimes were targeted for their lack of performance and replaced with privatization of state-run industries and democratic governments.

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