I have long warned Western compliance officers to avoid the use of articles in the Chinese press for due diligence purposes, due to the country's institutional censorship practices. Now, the arrests of a number of Chinese newspaper editors and journalists, charged with extortion, constitute an additional ground to steer clear of any content generated in the Chinese media. Journalists, and their supervisors, have reportedly been leaning on Chinese companies to pay them to run favorable articles in their newspapers.
The companies are also subject to receiving threats about publishing negative news stories about their corporate business, should they fail to pay up. The money is cleverly designated as advertising costs, but flows into the pockets of newspaper management, as well as the rank-and-file, according to published reports from China, which is trying to clean up the rampant corruption which pervades many sectors of the country's economy, as well as its government agencies.
A troubled Chinese corporation could buy favorable coverage, and deceive the casual due diligence investigator who relies solely on Chinese print media for negative information. Conversely, a good corporate credit risk, who fails to cooperate with the greedy extortionist/journalist, might be disqualified by inaccurate articles filed out of malice. Some companies, on the verge of an initial public offering, or some other important event, have been specifically targeted, due to their vulnerability.
This is but an additional reason to seek independent information sources, when performing due diligence inquiries on Chinese nationals, or entities. I have often suggested using competent investigative agencies, based outside the Peoples' Republic, in Hong Kong, Taiwan (Republic of China) or Singapore, whose staff are fluent in not only China's official language, Mandarin, but also the regional dialects used by the subject company.
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