The Chinese mainland has initiated groundbreaking transformation in the transaction of public resources to keep potential graft in check. The effort has been brought to fruition, particularly in Guangdong province. Chai Hua reports from Shenzhen.

Lai Gaoyu, executive director and head of the Shenzhen Exchange Group’s strategic development department. (PHOTO PROVIDED TO CHINA DAILY)

Ultrasonic scalpels are widely used in minimally invasive surgical operations, but their high cost had rendered them unaffordable for many medical facilities in China.

However, a coordinated effort across 16 cities and provincial-level areas on the Chinese mainland has seen a significant drop in the prices of these instruments, with average price cuts of up to 70 percent in Guangdong province.

Merely complying on paper is insufficient — it must be seamlessly integrated into the business processes. Compliance is a management concept.

Lai Gaoyu, executive director and head of the Shenzhen Exchange Group’s strategic development department

Such coordination has played a pivotal role in breaking the intermediary chain that profits from price discrepancies of products and receives kickbacks, effectively halting potential corruption in the medical procurement and sales sector.

Shenzhen Exchange Group, officially unveiled in 2020, has been instrumental in orchestrating the groundbreaking transformation. The State-owned enterprise, with a registered capital of 2.5 billion yuan ($342.7 million), is dedicated to creating a comprehensive platform for trading in various public resources.

“The initiative is the first of its kind nationwide. Guangzhou formed its own exchange group in 2021, with similar efforts being undertaken across the country,” says Lai Gaoyu, executive director and head of the Shenzhen Exchange Group’s strategic development department.

SZEG had facilitated more than 1.36 million transactions in 2022, with their total value exceeding 1.54 trillion yuan. The group’s establishment is also part of Shenzhen’s public resource reform aimed at separating services, management and supervision of resource transactions in the public sector. Before the reform, various transaction services were offered by government departments, breeding potential misconduct and corruption.

SZEG currently manages most of the city’s public resource trade, including transactions involving land, carbon emissions, vehicle licenses, and major infrastructure projects. However, it’s a big challenge tackling various risks under a single organization. To ensure compliance within the company, SZEG has introduced a series of innovative systems. Citing the rule of transaction intervention registration applied in the construction of the group’s headquarters, Lai explains that the project manager was required to produce a list of the names of interested contractors and other parties who contacted him personally about related biddings. “If he can’t come up with the list, we will investigate. While all these contacts aren’t necessarily driven by ulterior motives, the requirement to register them helps to maintain transparency and integrity.”

While some businesses see compliance as an extra burden, Lai emphasizes the importance of integrating compliance and operations. “Merely complying on paper is insufficient — it must be seamlessly integrated into the business processes,” he says. “Compliance is a management concept.”

SZEG adopts a proactive approach in identifying and mitigating compliance risks through a digital system. Incorporating central and local government regulations and rules, the system analyzes more than 20,000 projects and 219 regulatory risks, and monitors related activities. For instance, if a business intends to procure a product and attempts to proceed ahead of the required five working days for clearance, the system automatically detects the risk and blocks further moves. Programmatic dispute resolution plays a vital role in preserving the system’s integrity, and it’s unable to make any manual operations, according to Lai.

SZEG aims to set up an overseas State-owned assets trading platform in the Hong Kong Special Administrative Region. Assets owned by the central government alone have accumulated investments worth 8 trillion yuan, and the value of their overseas investments has been growing by more than 300 billion yuan annually in recent years, according to Lai. “It’s expected that the demand for cross-border State-owned assets trading will continue to rise,” he said.

Lai said he believes the trading of overseas State-owned assets still lacks clear and unified regulations. “Simply applying the rules of domestic State-owned asset trading could create more uncertainties and trading risks, thus raising transaction costs. Trading in overseas State-owned assets also poses legal and practical challenges for buyers and sellers, as well as trading institutions. Building up an overseas State-owned assets trading platform will effectively help solve this pain point of overseas State-owned asset trading.”

Shenzhen Trade Consulting Group — a subsidiary of SZEG — is cooperating with several institutions in Hong Kong. Leveraging the opportunity to undertake projects in the SAR and tapping into the business opportunities in the Guangdong-Hong Kong-Macao Greater Bay Area, the consulting group plans to set up a services entity in Hong Kong. It will introduce standardized bidding and procurement systems applied on the mainland as a pilot initiative to serve clients. The move is aimed at further promoting the standardization and regularization of the entire procurement process for State-owned projects in Hong Kong, in alignment with the region’s specific procurement practices.

SZEG’s foray into overseas State-owned assets trading in the SAR marks a significant step toward bridging the regulatory gaps in cross-border transactions, and providing a transparent, efficient and compliant trading environment for State-owned assets.

The initiative is not only in line with the growing internationalization of Chinese State-owned enterprises, but also contributes to strengthening governance and anti-corruption efforts in international procurement practices. 

Contact the writer at grace@chinadailyhk.com