Individual Corruption

According to Carnegie Endowment 2007, the banking sector in China is rife with corruption and fraud. It is not uncommon to pay bribes to obtain a loan approval in China. It is estimated that on average borrowers pay bribes equivalent to 9% of the loan amount.

Business Corruption

Bank fraud cases are not new in China. According to a 2010 news article by The Wall Street Journal, the head of a finance company in Beijing, was alleged to have bribed officials from the Beijing Rural Commercial Bank in order to help him obtain huge loans under fake names and businesses between 2007 and 2009. According to the same source, a total of 18 people, including 8 high-ranking bank officials, were arrested in relation to the scandal.

Political Corruption

According to the National Audit Office's National Audit Report No. 8 of 2008 on the banking sector, banks lend out big quantities of falsified private mortgage loans. This manifests itself in bank officials accepting bribes in order to give loans that are larger and at a lower interest rate than regulations permit. The industry also suffers from a lack of due diligence in verifying commercial paper transactions and inadequate oversight of financial accounts. The same report also revealed and referred to the judiciary illegalities and crimes amounting to CNY 5.672 billion in state losses. For instance, from 2004 to 2006, Zheng Fenglai, Vice Governor of a branch of the Agricultural Bank of China (ABC), and Liu Fude, chief of another ABC sub-branch, through means of loans and false discounting, misappropriated a total CNY 3.1 billion of bank funds and lent the funds to some private companies and individuals for their use. In July 2006, without authorisation, Zheng and Liu granted the same companies and individuals CNY 218 million in loans to be used for paying back the misappropriated funds.

According to a 2009 news article by AFP, corruption and embezzlement in Chinese banks and other financial institutions led to an estimated loss of CNY 6 billion in 2008. Three of China's largest state-owned banks were involved in nearly half of the cases with the embezzled funds. However, most of the funds have been retrieved, according to the chief auditor of the National Audit Office.

Another corruption scandal involved the former vice president of China Development Bank, Wang Yi. According to an April 2010 news article by China Daily, Wang was accused of receiving nearly CNY 12 million in bribes from November 1999 to February 2008, in return for offering loans to companies illegally. As a result of the bribery, Wang Yi was sentenced to death with a two year reprieve.

Frequency

World Economic Forum: Global Competitiveness Report 2011-2012:
- Business executives in China give the banks the score 5.3 on a 7-point scale (1 being 'insolvent and require government bailout' and 7 'generally healthy with sound balance sheets').