Detroit Bureau on Twitter

About $1.5 Billion Missing at China’s 2nd-Largest State Automaker

Chairman resigns, over 100 senior managers under investigation.

by on Apr.15, 2013

The FAW scandal has touched the highest ranks of the company -- and beyond.

China’s endemic problem with corporate corruption appears to have caught up with the booming Asian nation’s second-largest state-owned automaker where as much as $1.5 billion may have been embezzled.

That has led the chairman of First Automobile Works Group, or FAW, to resign, while more than 100 senior managers have been questioned and some detained, according to reports out of China. The worsening scandal has also touched the ruling Communist Party, a deputy party secretary from Jilin province among those who have been grilled over the situation.

Be in the Know!

The scandal has been rapidly escalating in recent days though it appears to have stemmed out of concerns first raised in late 2011 when reports surfaced of a number of bribes worth about $15 million allegedly handed out in connection with parts purchasing, plant upgrades and other projects.

FAW is one of China’s so-called “Big Four,” and ranked second among the domestic makers having produced about 3.6 million vehicles last year.  Like the others in that group, it has formed a variety of foreign alliances with manufacturers including General Motors, Mazda and Toyota. But its largest alliance is with Volkswagen AG and its Audi luxury brand.

Specific details remain murky but according to numerous reports in the Global Times and other Chinese publications, as much as RMB 10 billion in capital has apparently vanished from the Jilin-based carmaker’s coffers, with a preliminary investigation suggesting it has been embezzled.

Among those under investigation are Zhou Younjiang, FAW’s deputy chief economist, who has been linked to “irregular” real estate deals.  Zhu Yanfeng, a 52-year-old former FAW president now with the provincial government, has also been subject to “shuanggui,” where party members can be detained and investigated.

As the scandal has worsened, Chairman Xu Jianyi has tendered his own resignation, though it is not clear if he has been called in under suspicion, as well.

The latest crisis comes barely a year after a senior executive in the FAW-Volkswagen joint venture was probed for corruption.

An official with FAW tried to defer the situation by suggesting the company could take action against “journalists for misreporting,” but the breadth of the news suggests the automaker is simply hoping to ride out the crisis, perhaps by having some of the potentially most serious revelations buried should they involve government officials.

But the Communist Party has allowed a number of cases involving corruption to air in the media in recent years despite potential embarrassment to government officials.

The scandal, meanwhile, is likely to scuttle what had been FAW’s plan to float an IPO in the near future. It had been working on that move for the last five years, according to analysts following the company.

Tags: , , , , , , , , , , ,

One Response to “About $1.5 Billion Missing at China’s 2nd-Largest State Automaker”

  1. heyfred3000 says:

    If they would start paying their officers and CEO’s the 120 to 350X the salaries of the work force, as in the USA, the big shots wouldn’t have to steal!