HKU948
SAY GOO
KITCHEN BEST: ETHICS WHEN DOING CROSSBOUNDARY BUSINESS IN SOUTHERN CHINA
I believe you need to set big goals that challenge people to get big results.
- Henry Chan, chief executive, Kitchen Best
Kitchen Best Appliance Co. Ltd was a home electrical appliances company based in Hong
Kong with its own manufacturing plant in Guangdong province. The company was founded
by Hong Kong businessman Chan Dong-hwa. In 2008, Chan handed the reins to his son
Henry, who immediately set some ambitious targets for the business, aiming to double
revenues over a four-year period. His plan suffered a setback in 2010 when a series of
incidents revealed personal gains made at the expense of the company and instances of
misconduct within the company that undermined its management. As chief executive, Henry
Chan had to decide what kind of internal control mechanisms he should put in place to ensure
the future success of the company.
Small- and Medium-Sized Enterprises in Hong Kong
Hong Kong’s industrialisation, which began in the 1950s, was driven by light manufacturing
and small- and medium-sized enterprises (“SMEs”) as a result of insufficient land and natural
resources for the development of heavy industries. SMEs’ agility, willingness to respond to
customers’ requirements, and cost competitiveness led them to flourish.1 At the end of 2009,
Hong Kong had some 282,000 SMEs, comprising more than 98% of business units in the
territory and providing about 48% of employment in the private sector.2 Hong Kong SMEs
were dominant in the import/export and wholesale sectors and, to a lesser extent, the retail
sector.
1
Sit, F.S. and Wong, S.L. (1989) Small and Medium Industries in an Expert-Oriented Economy: The Case of Hong Kong, Hong
Kong: Centre of Asian Studies, The University of Hong Kong.
2
HKSAR Information Services Department (January 2011) “Hong Kong: The Facts”,
http://www.gov.hk/en/about/abouthk/factsheets/docs/trade&industry.pdf (accessed 4 January 2011).
Grace Loo prepared this case under the supervision of Say Goo and based on the input of the ICAC for class discussion. This
case is not intended to show effective or ineffective handling of decision or business processes.
© 2011 by The Asia Case Research Centre, The University of Hong Kong and the Independent Commission Against Corruption
of the HKSAR. No part of this publication may be reproduced or transmitted in any form or by any means - electronic,
mechanical, photocopying, recording, or otherwise (including the Internet) - without the permission of The University of Hong
Kong.
Ref. 11/485C
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Kitchen Best: Ethics when Doing Cross-Boundary Business in Southern China
When the Chinese government adopted an open door policy in 1978, many SMEs began to
relocate their labour-intensive manufacturing operations to the mainland, especially in
Guangdong province just across the border, to take advantage of cheaper wages and operating
costs. Investment from Hong Kong businessmen made up some 90% of foreign direct
investment in Guangdong in the mid-1980s, though the ratio gradually declined to about 55%
by 2008.3 Since the 1980s, many Hong Kong businesses had transformed themselves from
manufacturers to traders or service providers, focusing on marketing, product development,
quality control and management while maintaining their manufacturing operations in China.
One of the light manufacturing industries Hong Kong SMEs had focused on was household
electrical appliances. In 2009, Hong Kong exported some US$2.3 million4 worth of household
electrical appliances primarily to the US, followed by Europe and Japan.5 The Hong Kong
electrical appliance industry comprised mostly SMEs producing small appliances, with
portfolios including kitchen, thermic, home care and lighting appliances. In 2008, Hong Kong
was the world’s third-largest exporter of food grinders, mixers and juicers.6 As competition
intensified, especially from their Asian counterparts, many Hong Kong household electrical
appliance manufacturers moved from mere original equipment manufacturing (ie, producing
to the specifications of other companies) to original design manufacturing (ie, generating
designs and carrying out manufacturing for other companies’ brands in order to provide more
added value to their customers). Electrical appliance manufacturers also had to comply with
the safety and environmental regulations of importing countries. The US and the EU had their
own standards and requirements.
The Kitchen Appliances Industry
The global kitchen appliances industry was forecasted to reach a volume of more than 900
million units and a value of US$154 billion by 2013, with cooking appliances expected to be
one of the most lucrative segments, contributing 35.2% of total industry revenue.7 Increased
market penetration in developing markets were expected to be strong drivers for industry
growth, while the need for replacement, furnishing of new homes and trade-up for new
features would continue to fuel developed markets.8 China was not only one of the world’s
largest household appliance markets but also one of the biggest exporters. As global demand
for household appliances persisted, China’s exports were expected to slow as competition
from other low-cost manufacturing countries intensified and as established Chinese
companies, such as Qingdao-based Haier, began to establish offshore manufacturing facilities.
Nonetheless, Chinese appliance manufacturers were expected to ship more than 250 million
units in 2013.9
3
Sharif, N. and Can, H. (2010) “Innovation Strategy, Firm Survival and Relocation: The Case of Hong Kong-Owned
Manufacturing in Guangdong Province, China”, UNU-MERIT Working Paper #2010-052, Maastricht Economic and Social
Research and Training Centre on Innovation and Technology, United Nations University—MERIT,
http://www.merit.unu.edu/publications/wppdf/2010/wp2010-052.pdf (accessed 4 January 2011).
4
US$1 = HK$7.79 on 22 January 2011.
5
Hong Kong Trade Development Council (12 November 2010) “Household Electrical Appliances” Market Intelligence,
http://www.hktdc.com/info/vp/a/elec/en/1/2/1/1X006SAE/Electronics---Electricals/Household-Electrical-Appliances.htm
(accessed 4 January 2011).
6
Ibid.
7
Bharat Book Bureau (24 February 2010) “Kitchen Appliances—Global Industry Guide”, Press Release,
http://www.prlog.org/10546588-kitchen-appliances-global-industry-guide.html (accessed 26 August 2010).
8
Freedonia (January 2010) “World Major Household Appliances Market”, Press Release,
http://www.reportlinker.com/p0172663/World-Major-Household-Appliances-Market.html?request=news (accessed 22 August
2010).
9
Ibid.
2
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Kitchen Best: Ethics when Doing Cross-Boundary Business in Southern China
Kitchen Best Appliance Company Ltd
Hong Kong-based Kitchen Best Appliance Co. Ltd, founded by Chan Dong-hwa in the mid1980s, specialised in the manufacturing and marketing of kitchen appliances, especially for
cooking. Its major products included rice cookers, pressure cookers and electric water
dispensers. It also manufactured waffle makers and grills. While the company was registered
in Hong Kong and had an office and showroom in the territory, its factory was located across
the border in Foshan, Guangdong province, a city dubbed the “home appliances capital” in
China. Chan Dong-hwa was down-to-earth and worked tirelessly to meet customers’
requirements. He had close relationships with most of his senior staff and was actively
involved in all parts of the business; important decisions could not be made without his
involvement and approval. Under Chan Dong-hwa’s reign, Kitchen Best focused mostly on
serving the Asian market. Other markets, including Europe and the US, were served through
other trading companies and sourcing agents in Hong Kong.
A company is only as good as the customers it serves. By focusing on large
established European and American customers we will bring Kitchen Best to
a higher level.
- Henry Chan, chief executive, Kitchen Best
By 2003, Chan had expanded the headcount at the company from 80 to 1,500, with 30
working in management, logistics and administration in Hong Kong, and the rest at the
Foshan factory. However, with his health deteriorating, his wife persuaded their son Henry to
join the company and help run the family business. Henry Chan was educated in the US and
had graduated with a master’s degree in business administration from an American university.
He had been working for an electrical and electronic appliances company as a marketing
executive when he returned to Hong Kong and joined Kitchen Best. He was an ambitious
young man who felt that he could take Kitchen Best to the next level. Henry Chan
concentrated on expanding the company’s reach in the European and American markets,
dealing directly with customers from these regions. In 2008, Henry Chan officially took over
the management of the company as chief executive. His ambition was to double the
company’s revenues by 2012 and increase its profit margin through economies of scale and
direct deals with large European and American customers.
Core Team
Chan Dong-hwa: Founder and Chairman
I treat my employees like my family members. Many have been with us for a
long time and have stayed with us even when they could earn more
somewhere else.
- Chan Dong-hwa, founder, Kitchen Best
Chan Dong-hwa, was a Foshan native who grew up in Hong Kong. He started working at
different electronics factories after graduating from secondary school, and worked his way up
to become the manager of a home appliances factory in Guangdong that was owned by a
Hong Kong businessman. In 1985, at the age of 35, he founded Kitchen Best with his savings
and an equity investment from Li Qingyang, a relative of his wife. For the first six to seven
years, Chan personally oversaw all aspects of the business, with his wife Li Meihua working
as his personal assistant. He ran the business with a paternalistic style that was common
among Chinese small- to medium-sized family businesses, and was well-liked and respected
by his workers. During the first 10 years, Chan spent most of his time at the Foshan factory.
As the factory operation stabilised, he spent more and more time in Hong Kong, leaving the
3
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Kitchen Best: Ethics when Doing Cross-Boundary Business in Southern China
factory operation to his trusted mainland employees and visiting only occasionally or when
problems arose.
By 2010, Chan was still involved in running the business, including managing relationships
with certain key customers and suppliers, but had to leave daily management to Henry Chan
due to his weak health.
Li Qingyang: Silent Partner
Li Qingyang, 85 years old, was the aunt of Li Meihua. She was a silent partner in the business,
with a 25% equity stake, and received annual dividends from the company. In addition, the
company paid for her domestic helper and she lived rent-free in a Hong Kong property owned
by Chan.
Henry Chan: Chief Executive
Thirty-two-year-old Henry Chan already had experience in the marketing of electrical and
electronic appliances when he joined Kitchen Best, and he played a critical role in expanding
the company’s customer portfolio, especially in the US and Europe, while he learned the other
aspects of the business. In 2008, he took up the role of chief executive and brought a more
Western and less paternalistic management style to the company. He travelled overseas
frequently to attend exhibitions and trade fairs and spent most of his time in Hong Kong coordinating with customers. Whenever possible, Henry Chan would visit the Foshan factory on
Fridays and weekends to meet with his senior management and suppliers. However, he relied
heavily on the expertise of his senior management, their close connections with the clients
and suppliers, and his father’s unofficial involvement to manage daily operations of the
mainland factory.
Ma Luk: Operations Director and Head of Greater China Business
Ma Luk, 45, was a mainlander who had been with Kitchen Best almost from the very
beginning and had worked his way up from being a labourer on the production line to
overseeing all factory operations. Ma was also a down-to-earth and hardworking man and
remained in many respects Chan Dong-hwa’s right-hand man as he moved up in the company.
Ma was responsible for opening and overseeing Kitchen Best’s China and Macao accounts
and had been very successful in generating business in these markets. Ma was based in
Foshan and reported formally to Henry Chan but was still in frequent contact with Chan
Dong-hwa.
Horatio Sze: Purchasing and Production Manager
Horatio Sze, 37, was responsible for purchasing at Kitchen Best. Sze had joined Kitchen Best
in 2000 on the recommendation of his grandmother Li. Before he joined the company, he
worked as a quality controller with a Taiwanese electrical and electronics component
manufacturer in Guangdong and had built up close connections with suppliers. He was based
in Foshan and reported to Ma Luk.
Macy Wei: Quality Control Manager
Macy Wei, 32, a mainlander from Hunan, started as a line worker at Kitchen Best. Sze had
taken her under his wing and trained her to become a quality controller. Wei quickly came to
understand the standards that were acceptable to Sze and saw him as her mentor, often
seeking his advice on important business decisions, even on quality control. Wei was based in
Foshan and reported to Ma Luk.
4
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Kitchen Best: Ethics when Doing Cross-Boundary Business in Southern China
Crises
The Shago Incident
At the end of 2009, Malaysia-based distributor Shago commissioned a European designer to
come up with a range of appliances for its 40th anniversary collection. Shago was a major
distributor of kitchen appliances in Singapore, Malaysia, Thailand and Indonesia, and Kitchen
Best had worked with Shago for about eight years. Shago placed production orders for a
number of its anniversary collection appliances with Kitchen Best. Some of these appliances
came with a special gift set of microwavable tableware. Shago asked Kitchen Best to source
these gifts and package them together with the appliances.
Shago distributed the gift sets with its appliances as soon as it received the shipment, but soon
received customer complaints that the bowls and plates in the gift sets were not microwavable.
The fault was in breach of the contract and Shago demanded both a refund and compensation
from Kitchen Best. Subsequent investigation revealed that Sze, who was Kitchen Best’s
purchasing and production manager and had been responsible for sourcing the gift sets, had
awarded the contract to a factory in Dongguan that was owned by his brother-in-law. In return
for the order, Sze and his wife were offered a free package tour to Europe. Wei, who knew
about the personal relationship between Sze and the factory owner, had not reported it in view
of their relationships with Li. When in-house testing later showed that the product was faulty,
she informed Sze, who told her he would handle it. However, no remedial action was taken
and Wei decided not to pursue the matter any further.
Haus de Metro: Testing and Certification Issues
While Henry Chan was investigating the Shago incident, he received an anonymous letter
stating that a shipment for German retail chain Haus de Metro (“HdM”) did not meet the
company’s safety requirements, contrary to the satisfactory testing report received by Kitchen
Best. Kitchen Best had subcontracted HdM’s order for electric water dispensers to Qinghua
Electrical Appliance Ltd, another Foshan-based home appliances manufacturer, as its own
production lines were fully occupied. At the end of production, Kitchen Best arranged for
Keemark Testing Services, an independent testing agency based in Hong Kong, to conduct
product testing and inspection as required by HdM.
Under Kitchen Best’s arrangement, Keemark sent its inspection team, comprising a Hong
Kong team leader and several members from the Guangdong sub-office, to conduct a site
inspection at Qinghua’s factory and collect random samples for laboratory testing. Qinghua’s
proprietor was nervous that the samples might fail to meet HdM’s Restriction on Hazardous
Substances (“RoHS”) standards. RoHS was an EU directive that restricted the use of harmful
substances, such as lead and mercury, in the manufacturing of electrical and electronic
products. With the assessment that the deviation was too minor to jeopardise consumers’
safety, Qinghua had ordered paint of inferior quality for the production of the outer casing of
the electric water dispenser in order to minimise production costs. To pass the test, Qinghua’s
proprietor closed a deal with the team leader of Keemark, who allowed Qinghua to interfere
with the sample drawing and substitute the random samples with some selected ones for
laboratory testing. In return, the proprietor deposited bribe money into the team leader’s
wife’s bank account in Hong Kong. Despite the anonymous report, Henry Chan did not
pursue the case further for fear of rocking the boat and losing the customer.
Honghua Appliances: New Management
In May 2010, just when Henry Chan had finished investigating the Shago situation, another
customer of Kitchen Best received an injection of foreign capital that led to a change in its
5
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Dec 2022.
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Kitchen Best: Ethics when Doing Cross-Boundary Business in Southern China
management style. Honghua Appliances was a Macao-based group that owned a home
appliances retail chain in southern China. Kitchen Best had worked with Honghua for about
two years, and sales generated from Honghua comprised about 5% of Kitchen Best’s revenues.
Henry Chan considered Honghua to be a key customer because the retail chain had plans to
expand to other parts of China and hence offered great potential for Kitchen Best.
We have bent over backwards to keep the Honghua account for such a long
time. Their change in management is a reality check.
- Henry Chan, chief executive, Kitchen Best
Kitchen Best had built up its relationship with Honghua through Eddie Lau, a Macao native
who served as Honghua’s general manager for greater China and was also a personal friend of
Ma. Through wining and dining and kickbacks paid into Lau’s personal account in Macao,
Ma had enticed Lau to direct Honghua’s purchasing manager to place orders of kitchen
appliances with Kitchen Best. But with the new management, Lau was no longer in a position
to accept kickbacks for fear of losing his job. Honghua’s new management found the practice
of kickbacks unacceptable and had earlier fired two managers for receiving kickbacks from
suppliers. The discovery of frequent kickbacks within Honghua also led the new management
to re-evaluate all its suppliers to ensure that they were competitive and in compliance with the
company’s policy when dealing with Honghua’s employees. Kitchen Best’s business with
Honghua was at risk of becoming insecure, as it was not as competitive in delivery time and
product development capacity as some of Honghua’s other suppliers.
Kitchen Best has been run as a family business for a long time. A certain
amount of trust is assumed among the core team members. That one of our
own tried to cheat money out of the company came as a shock.
- Henry Chan, chief executive, Kitchen Best
Kitchen Best had no clear guidelines or vetting procedures for expenses incurred from wining
and dining or entertainment provided to suppliers and customers. In fact, Ma regularly used
kickbacks, entertainment and gift-giving to open and maintain accounts, and expenses for
such activities were reimbursed to Ma through fake invoices booked as “entertainment
expenses”. Chan Dong-hwa had turned a blind eye to such practices as long as Ma was able to
generate new business relationships and maintain them. Although Henry Chan had
reservations about such practices and had never endorsed them openly, neither did he try to
stop them actively because he found it difficult to deal with mainland customers due to his
own cultural barriers, and because he saw such practices as an inevitable part of doing
business in Chinese culture. Worse still, while Henry Chan was trying to salvage the Honghua
account, he discovered that Ma had not only reimbursed the expenses but also inflated the
amount for his own personal gain. Henry did not know what to do to put things back on track.
Epilogue
2010 was a turning point for Henry Chan and Kitchen Best. A series of incidents had led
Henry Chan to take a deeper look into the company and uncover serious instances of
misconduct. His focus on expansion made it difficult to spend as much time as his father had
on other management aspects of the business. He knew he had to implement a more
systematic style of management to be able to achieve the high growth target he had set for the
company. Internal control measures that would provide some type of inbuilt check and
balance within the organisation had to be designed. What kind of control mechanisms did he
need to put in place? What kinds of risks did the practice of offering and accepting kickbacks
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Kitchen Best: Ethics when Doing Cross-Boundary Business in Southern China
pose to the company? And how could he better monitor the business operations across the
border and the conduct of staff with different backgrounds and cultural values?
7
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Kitchen Best: Ethics when Doing Cross-Boundary Business in Southern China
EXHIBIT 1: ORGANISATIONAL CHART OF KITCHEN BEST
Li Qingyang
Silent Partner
Chan Dong-hwa's aunt
25% equity stake
Chan Dong-hwa
Founder & Chairman
75% equity stake
Henry Chan
CEO
Chan Dong-hwa's son
Ma Luk
Operations Director &
Head of Greater China
Business
Macy Wei
Quality Control
Manager
Horatio Sze
Purchasing &
Production Manager
Grandson of
Li Qingyang
8
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Kitchen Best: Ethics when Doing Cross-Boundary Business in Southern China
EXHIBIT 2: RELATIONSHIP CHART OF KITCHEN BEST AND ITS SUPPLIERS AND
CUSTOMERS
KITCHEN BEST APPLIANCE
CO LTD
(Hong Kong)
KEEMARK
TESTING
SERVICES
(Hong Kong)
PRODUCT
TESTING AND
INSPECTION
KITCHEN BEST FACTORY
(Foshan, Guangdong)
HdM’S
ORDER OF
ELECTRIC
WATERDISPENSER
SUPPLIER
SZE’S BROTHERIN-LAW
(Dongguan,
Guangdong)
SUB-CONTRACTOR
QINGHUA
(Foshan,
Guangdong)
CUSTOMER
HdM
(Germany)
GIFT SETS FOR
SHAGO’S ORDER
CUSTOMER
HONGHUA
(Macao)
CUSTOMER
SHAGO
(Malaysia)
9
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Kitchen Best: Ethics when Doing Cross-Boundary Business in Southern China
APPENDIX 1: THE PREVENTION OF BRIBERY ORDINANCE
(LAWS OF HONG KONG CAP 201)
Offence
Private sector
employees
accepting bribes
Section 9(1)
Offering bribes
to private sector
employees
Section 9(2)
Employees using
false documents
to deceive an
employer
Section 9(3)
Offering bribes
to a public
servant
Section 4(1)
Offering an
unlawful
advantage to a
public servant in
the course of
business
Section 8
Summary of the Law
• Any agent
• Without the permission of his
principal
• Soliciting or accepting any
advantage to affect his doing or
forbearing to do any act in
relation to his principal’s affairs
• Any person
• Without the permission of an
agent’s principal
• Offering any advantage to the
agent
• As an inducement to or reward
for the agent’s doing or
forbearing to do any act in
relation to his principal’s affairs
• Any agent
• With an intent to deceive his
principal
• In respect of which his principal
is interested
• Using any false, erroneous or
defective receipt, accounts or
other document to mislead his
principal
• Any person
• In Hong Kong or elsewhere
• Without lawful authority or
reasonable excuse
• Offering any advantage to any
public servant
• To affect the public servant to
perform or not to perform his
duties
• Any person
• Without lawful authority or
reasonable excuse
• Offering any advantage to
public servants while having
dealings with the Government or
any public body
Key Points for Businessmen
• An employee should not solicit or accept
any advantage relating to his work without
his principal’s permission
• Before offering any advantage to a
private sector employee, make sure the
employee has the prior permission of his
employer to receive the advantage
• This is also an offence under the PBO
even though the agent has not received any
advantage
• Do not offer any advantage to public
servants in return for favours, insider
information or preferential treatment in
respect of public services
• Offering any advantage to a Government
officer or an employee of a public body in
the course of business is an offence even
though there is no intent to bribe and/or no
special request has been made
Source: Guangdong Provincial People’s Procuratorate and Independent Commission Against
Corruption, HKSAR (2007) “Integrity and Compliance with the Law: A Guide to the Prevention
of Corruption for SME Entrepreneurs Investing in Guangdong and Hong Kong”, pp 14-15.
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Kitchen Best: Ethics when Doing Cross-Boundary Business in Southern China
APPENDIX 2: THE LAW ON PREVENTION AND SUPPRESSION OF BRIBERY IN THE
PRIVATE SECTOR, MACAO SPECIAL ADMINISTRATIVE REGION
Law no. 19/2009
CHAPTER I
General provisions
Article 1
Object
This law establishes the classification of bribery offences in the private sector, the
regime of prevention and the allocation of powers in this scope to the Commission Against
Corruption.
Article 2
Definitions
For the purposes of this law:
1. “Unfair competition” means any act of competition that objectively reveals itself to be in
breach of the norms and honest usage of economic activity.
2. “Functional duties” means the duties to be complied with when carrying out a certain
activity as stipulated by law or legal acts between the parties concerned.
CHAPTER II
Penal provisions
Article 3
Passive bribery in the private sector
1. Any person who, performing his professional duties, including the personnel of
management or administration of any entity in the private sector, even such entities are
irregularly established, solicits or accepts, personally or through an intermediary with his
consent or ratification, an undue pecuniary or non-pecuniary advantage, or the promise of
such advantage, for himself or a third party, as a reward for acting or refraining from acting,
in violation of his functional duties, shall be liable to imprisonment for a maximum term of 1
year or a fine.
2. If the act or omission mentioned in the preceding paragraph induces any unfair
competition, the actor shall be liable to imprisonment for a maximum term of 2 years or a fine.
3. If the act or omission mentioned in paragraph 1 is adequate to cause damage to the
health or safety of third parties, the actor shall be liable to imprisonment for a maximum term
of 3 years or a fine.
4. No punishment shall be inflicted if the actor, before the act is performed, voluntarily rejects
the offer or the promise he has accepted, or returns the advantage, or, in case of fungible
goods, its value.
Article 4
Active bribery in the private sector
1. Any person who, personally or through an intermediary with his consent or ratification,
gives or promises to give the person mentioned in the preceding article, or a third party with
the knowledge of that person, an undue pecuniary or non-pecuniary advantage, for the
purpose indicated in paragraph 1 of the preceding article, shall be liable to imprisonment for a
maximum term of 6 months or a fine.
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2. If the conduct mentioned in the preceding paragraph induces any unfair competition,
the actor shall be liable to imprisonment for a maximum term of 1 year or a fine.
3. If the conduct mentioned in paragraph 1 is adequate to cause damage to the health or safety
of third parties, the actor shall be liable to imprisonment for a maximum term of 2 years or a
fine.
Article 5
Complaint
1. In the cases prescribed by paragraph 1 of Article 3 and paragraph 1 of Article 4, penal
procedures shall only be instituted when there is a complaint.
2. In the cases prescribed by paragraph 2 of Article 3 and paragraph 2 of Article 4, penal
procedures shall only be instituted when there is a complaint; however, if the case involves
acquisition of assets and services with funding coming totally or partly from public money,
penal procedures shall be instituted even without a complaint.
3. Not exercising the right of complaint or withdrawing from a complaint against the
actor referred to in paragraph 1 of Article 3 or paragraph 1 of Article 4 will also benefit the
corresponding actors of active and passive bribery.
4. The preceding paragraph shall apply correspondingly to the cases mentioned in
paragraph 2 of Article 3 and paragraph 2 of Article 4, in which penal procedures shall only be
instituted when there is a complaint.
Article 6
Special mitigation and remission of punishment
For the crimes prescribed by this law, punishment shall be specially reduced or waived if
the actor assists in the collection of evidence crucial to the identification or arrest of other
actors or, in some way makes a decisive contribution to the discovery of the truth.
CHAPTER III
Final provisions
Article 7
Scope of activity of the Commission Against Corruption
1. The Commission Against Corruption aims, within its scope of activity, at carrying out
investigation and inquiry with regard to acts of corruption in the private sector, in accordance
with penal procedure legislation and without prejudice to the powers vested by law in other
bodies.
2. Subparagraph 1) of paragraph 1 of Article 3 of Law no. 10/2000 also applies to the
prevention of bribery in the private sector, and, for this purpose, the Commission Against
Corruption shall particularly promote:
1) the formulation of standards and procedures aiming to ensure the integrity of relevant
private entities, including the codes of conduct;
2) transparency among private entities.
3. Law no. 10/2000 shall apply, with necessary adaptations, to the acts and measures
carried out by the Commission Against Corruption within its scope of activity referred in the
preceding paragraphs.
Article 8
Subsidiary Law
Provisions under the Penal Code shall subsidiarily apply to the offences prescribed by
this law.
12
This document is authorized for use only in Colin Cheung, Doreen Chong, Eugene Li, Fiona Ho, Graham England, Jasmine Chen, Kathy Sin, Levi Lam, Mariah Chan, Mark Melican, Nick
Sampson, Nora Hussin, Sandy Chan, Sylvia Hon, Yolanda Zhou 's LABU 2040 (G) Business Case Analyses at Hong Kong University of Science and Technology (HKUST) from Sep 2022 to
Dec 2022.
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Kitchen Best: Ethics when Doing Cross-Boundary Business in Southern China
Article 9
Entry into force
This law shall enter into force on 1 March 2010.
Approved on 4 August 2009.
The President of the Legislative Assembly, Susana Chou.
Signed on 7 August 2009.
To be published.
The Chief Executive, Ho Hau Wah.
APPENDIX 3: ESSENCE OF CORRUPTION AND BRIBERY OFFENCES UNDER THE
LAW OF THE PEOPLE’S REPUBLIC OF CHINA
y
y
y
y
Corruption,
embezzlement and
misappropriation
y
y
y
Corruption
and Bribery
Offences
y
y
y
y
y
y
Bribery
y
y
y
Others
y
Embezzlement by State functionaries
Embezzlement through dereliction of
duty by employees of enterprises
Illicit division of State-owned assets
Illicit division of fines, confiscated
money or property
Misappropriation of public funds
Misappropriation of a unit’s funds
Acceptance of bribes by State
functionaries
Acceptance of bribes by a unit
Offering bribes to State functionaries
Offering bribes to a unit
Introducing a bribe
Unit offering bribes
Acceptance of bribes by non-State
functionaries
Offering bribes to non-State
functionaries
Members of intermediary organizations
deliberately providing papers that
contain false testimony
Failing to explain significant excess of
property or expenditure over lawful
income
Concealing savings outside the territory
of China
Source: Guangdong Provincial People’s Procuratorate and Independent Commission Against
Corruption, HKSAR (2007) “Integrity and Compliance with the Law: A Guide to the Prevention
of Corruption for SME Entrepreneurs Investing in Guangdong and Hong Kong”, pp 36.
13
This document is authorized for use only in Colin Cheung, Doreen Chong, Eugene Li, Fiona Ho, Graham England, Jasmine Chen, Kathy Sin, Levi Lam, Mariah Chan, Mark Melican, Nick
Sampson, Nora Hussin, Sandy Chan, Sylvia Hon, Yolanda Zhou 's LABU 2040 (G) Business Case Analyses at Hong Kong University of Science and Technology (HKUST) from Sep 2022 to
Dec 2022.
11/485C
Kitchen Best: Ethics when Doing Cross-Boundary Business in Southern China
APPENDIX 4: IMPORTANT SECTIONS RELATED TO BRIBERY AND
CORRUPTION OFFENCES UNDER THE CRIMINAL LAW OF THE PEOPLE’S REPUBLIC
OF CHINA
Offence
Embezzlement
through
dereliction of
duty by
employees of
enterprises
[Article 271 (1)]
Misappropriation
of a unit’s funds
[Article 272 (1)]
Acceptance of
bribes by a unit
[Article 387]
Offering bribes to
Statefunctionaries
[Article 389, 390]
Offering bribes to
a unit
[Article 391]
Introducing a
bribe
[Article 392]
Unit offering
bribes
[Article 393]
Summary of the Law
Key Points for
Businessmen
• Any employee of a company, enterprise or any
other unit
• taking advantage of his position
• to take possession of the money or property of
his own unit unlawfully
• Any employee, whether posted
from Hong Kong or employed on the
Mainland, can be the subject of the
offence
• Any employee of a company, enterprise or any
other unit
• taking advantage of his position
• to misappropriate funds of his own unit for
personal use
• or in order to loan them to another person, if the
amount is relatively large and the funds are not
repaid within three months
• or if the funds are repaid within three months and
the amount is relatively large
• for profit-making activities
• or for illegal activities
• Any State organ and State-owned company,
enterprise, institution or people’s organization
• extorting or illegally accepting money or property
from another person
• for securing benefits for the person
• and where the circumstances are serious
• Any State organ, State-owned company,
enterprise, institution or people’s organization
• in economic activities
• secretly accepting off-the-book rebates or service
charges of various descriptions
• Any person
• for the purpose of seeking illegitimate benefits
• offering money or property to State functionaries
• Any employee, whether posted
from Hong Kong or employed on the
Mainland, can be the subject of the
offence
• Any person
• in economic activities
• in violation of State regulations
• offering money or property to State functionaries
• where the amount is relatively large
• or in violation of State regulations
• offering rebates and service charges of various
descriptions to State functionaries
• Any person
• being blackmailed
• offering money or property to State functionaries
• has obtained illegitimate benefits
• Any person
• for the purpose of securing illegitimate benefits
• offering money or property to State organs, Stateowned companies, enterprises, institutions or
people’s organizations
• or in violation of State regulations
• offering rebates and service charges of various
descriptions to the above units
• Any person
• introducing a bribe to State functionaries
• the circumstances are serious
• Any company, enterprise, institution, authority or
organization offering bribes to secure illegitimate
benefits
• or in violation of State regulations
• offering rebates or service charges to State
functionaries
• where the circumstances are serious
• The request for bribes, rebates or
service charges of various descriptions
from a State organ or State-owned unit
should be refused, and the incident
should be reported to the proper
authorities immediately
• Never bribe State functionaries to
secure illegitimate benefits
• It may still be an offence even if a
person is being blackmailed into
bribing
• Offering an advantage to State
organs, State-owned companies,
enterprises, institutions or people’s
organizations may constitute the
offence of offering bribes
• Anyone who lines up any bribery
racket commits a criminal offence
• A bribe offered to State
functionaries in the name of a company
or an enterprise remains anoffence
14
This document is authorized for use only in Colin Cheung, Doreen Chong, Eugene Li, Fiona Ho, Graham England, Jasmine Chen, Kathy Sin, Levi Lam, Mariah Chan, Mark Melican, Nick
Sampson, Nora Hussin, Sandy Chan, Sylvia Hon, Yolanda Zhou 's LABU 2040 (G) Business Case Analyses at Hong Kong University of Science and Technology (HKUST) from Sep 2022 to
Dec 2022.
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Kitchen Best: Ethics when Doing Cross-Boundary Business in Southern China
• Employees whether posted from
Hong Kong or employed on the
Mainland must not take advantage of
their position to solicit or accept bribes
Offering bribes to
non-State
functionaries
[Article 164]
• Any employee of a company, enterprise or other
unit
• taking advantage of his position
• demanding or illegally accepting money or
property from another person
• in return for the benefits he seeks to provide for
such person
• Any employee of a company, enterprise or other
unit
• in economic activities
• in violation of State regulations
• accepting rebates or service charges in various
descriptions and taking them into personal
possession
• Any person
• for the purpose of seeking illegitimate benefits
• offering money or property to any employee of a
company, enterprise or other unit
Members of
intermediary
organizations
providing
papers containing
false testimony
[Article 229(1), 229(2)]
• Any member of intermediary organizations who
provides legal, accounting with auditing, verification
services, etc.
• demanding or illegitimately accepting money or
property from another person
• deliberately providing documents containing false
testimony
• Do not follow illegal advice
provided by intermediaries
Acceptance of
bribes by
non-State
functionaries
[Article 163]
• Bribing the employees of any
company or enterprise on the Mainland
is an offence
Source: Guangdong Provincial People’s Procuratorate and Independent Commission Against
Corruption, HKSAR (2007) “Integrity and Compliance with the Law: A Guide to the Prevention
of Corruption for SME Entrepreneurs Investing in Guangdong and Hong Kong”, pp 37-45.
15
This document is authorized for use only in Colin Cheung, Doreen Chong, Eugene Li, Fiona Ho, Graham England, Jasmine Chen, Kathy Sin, Levi Lam, Mariah Chan, Mark Melican, Nick
Sampson, Nora Hussin, Sandy Chan, Sylvia Hon, Yolanda Zhou 's LABU 2040 (G) Business Case Analyses at Hong Kong University of Science and Technology (HKUST) from Sep 2022 to
Dec 2022.