ESG Matters, Issue 5, April 2013 - Allianz Global Investors

THE year ofthe snake/section 424,000 officials identified as criminalsuspects and handed over to judicialauthorities. The new leadership sent asecond signal when Wang Qishan – whohas earned a reputation as an effectivecrisis manager and has a deepunderstanding of the financial system –was appointed as head of the Party’s antigraftcommission in November 2012 tocrack down on corruption. While intent tofight corruption has always been part of thepolicy announcements after leadershiptransition, his appointment may pointtowards a more serious effort to fightcorruption.While we do not expect the corruptionclean-up to have any immediate impact oncompanies, state owned companies (SOE’s)will be the first who are likely to seepressure during any clean-up as they arereliant on government contracts andlicenses. If there is greater emphasis on theenforcement of the rule of law, sectors thatmight be exposed to risk include financials,real estate, telecommunications,construction and transportation.Food safetyAnother key topic, partially caused bycorruption through the bypassing ofproduct quality control, is food safety. Thevast number and scale of food scandals inChina explain the significance of this topic.According to MSCI, Chinese regulators havediscovered 15,000 cases of sub-standardfood and closed 5,700 food businesseswithout licenses since the start of 2012.Food safety concerns more than tripledbetween 2008 and 2012, up from 12% to41% according to Pew Research (Figure 1).Another major food crisis could weakenpeople’s confidence in the new leadership.Already back in 2012, Li Keqiang called forstrict and harsh punishment in cases offood safety violations and expressed plans20