Stocks plagued by official corruption

Since the beginning of China's ongoing anti-corruption campaign, graft and related improprieties have been uncovered at 70 listed companies, including 18 resource businesses, six real estate firms, six financial service institutions, four pharmaceutical enterprises and three transportation outfits. To a certain extent, these results reflect weaknesses in China's economic and financial system.

The industries mentioned above have been some of the biggest beneficiaries of China's push to urbanize. Corrupt officials have found ample opportunities to profit from these industries. Many purchased shares of listed companies and then issued announcements calculated to drive their stock prices higher.

Many companies have been willing participants in such deals, which bring obvious financial benefits.

Insider trading involving officials and listed companies is a reoccurring problem, one which at least partially explains the disconnection between rising equity prices and China's slowing pace of GDP growth.

Looking into the future, market corruption must be avoided. Authorities need to create mechanisms that will punish rule-breakers. Corrupt officials and listed companies that manipulate the market should be made to pay.