China anti-corruption campaign boosts corporate profits

Nearly five years after it was first announced, Xi Jinping’s anti-corruption campaign looks to have boosted the bottom lines of Chinese companies. According to the Financial Times, companies no longer have to bear the cost of banquets, under-the-table bribes, and hiring the relatives of local officials. “Think of it as a tax cut for many Chinese companies,” advises Wei Zhang, the Shanghai-based founder of investment firm Yuanhao Capital. “A tax cut of maybe 10%, which flows right to the bottom line.” This view is a sharp contrast to investors’ initial reaction to the campaign. “I think for one of our portfolio companies, the purchasing costs, logistics costs, and labor costs were all reduced by more than 25% due to the anti-corruption campaign,” says one private equity firm executive. “Now when we turn down a request or fire such political hires, we no longer get a call from officials to object.”