Whistleblowing in the spotlight – what is happening in mainland China?

In continuation of the exercise that started in 2014, Freshfields has gathered the views of over 2,500 respondents across 13 industries in the UK, US, France, Germany and Hong Kong to assess their attitudes towards whistleblowing and to examine how this has changed since our last survey in 2017.

In this second blog post in our series on whistleblowing in Asia, we will explore the current state of whistleblowing in mainland China and consider the various legislative and cultural developments which are shaping the whistleblowing landscape here.

People in China seem more involved in whistleblowing than before 

Although our 2020 whistleblowing survey did not include China, we think that some of the trends it identified also reflect what is happening in this part of the world.

We mentioned in our first blog post that the work culture in Asia is generally perceived to be more conservative and there are cultural sensitivities around speaking up, particularly if the complaint relates to someone more senior. However, almost one in two Hong Kong respondents said they have been involved in whistleblowing in some form – higher than any of the other jurisdictions surveyed. Similarly, based on incidents of whistleblowing reported in the news as well as personal accounts from our clients, our sense is that employees in China are also increasingly inclined to blow the whistle if something is not right.

There is a number of reasons that may have attributed to the trend here.

Legislative developments and cultural shifts empower speaking up 

China does not currently have an overarching law on whistleblowing. Under several sector or industry specific regulations, individuals are encouraged to report incidents of non-compliance with the law with respect to food and drug safety, product quality, antitrust, securities, labour and employment, etc. These regulations encourage individuals to report directly to the relevant authorities, rather than report under the whistleblowing procedures within their organisation. However, these regulations have, to some extent, played a role in educating people about the importance of speaking up.

In September 2019, the State Council issued 'Guiding Opinions on Strengthening and Standardizing In-process and Ex-post Regulation' ('the Guiding Opinions'), which required, for the first time ever, provincial governments and the ministries and commissions under the State Council to establish whistleblowing systems , and to reward and protect those who report serious violations of laws or major potential risks with a view to enhancing public supervision. This was a bold move by the State Council and signified strong support by China’s central government for fostering a speaking-up culture in the country. 

The #MeToo movement also had an influence, further encouraging people in China to speak up. Our 2020 whistleblowing survey revealed that 40 per cent of respondents believe that the movement has educated them about the legitimate expectations they may have of workplace behavior and this is also true in in China.

In addition, the Civil Code of the People’s Republic of China ('the Civil Code'), which was promulgated in May 2020 and will come into effect in 2021, requires organisations and enterprises to prevent workplace sexual harassment by taking certain measures, including carefully investigating complaints of sexual misconduct by employees. This no doubt empowers individuals to speak up about inappropriate behaviour, but we think it also (indirectly) gives employees confidence to speak up about other types of concerns.

Internal whistleblowing channels may not be the first choice

While we see an increase in the number of employees using their organisations’ internal whistleblowing channels, there is also a parallel increase in the number of employees raising concerns directly with regulators and/or disclosing issues via traditional or social media.

Employers do not have clear reporting procedures in place  

One reason for this may be that organisations in China generally do not have very clear internal whistleblowing policies or procedures, so employees may not have confidence that their employer will carry out a proper investigation or that they would be protected from retaliation.

Although multinational companies will sometimes apply global whistleblowing procedures to their China operations, these are often underused because they have not been properly localised or socialised amongst the Chinese employees, meaning that individuals are either unaware that procedures exist or they find it daunting to make use of procedures that were designed in another country or culture. Language barriers may also be an issue.

Enhanced financial rewards offered by regulators further tip the balance 

Regulators in China have been incentivising whistleblowers by financial rewards. For example, a whistleblower who reports on issues relating to product quality or food and drug safety may receive a reward of up to RMB500,000 from the relevant regulator.

Local regulations further enhance the financial rewards for whistleblowers who are internal to the organisation or industry. In Shanghai, if the whistleblower is an insider of the drug, medical device or cosmetics industry, the regulator will add up to 2% to the regular financial rewards for reporting on non-compliance; for an insider of a food and beverage company reporting on serious violations of food safety laws, the reward may be doubled.

It’s therefore no surprise that when individuals become aware of or suspect issues in their workplace, the relevant financial incentives (if any) will play a huge role in determining whether they report on the issue internally or externally.

Social media has proved an effective alternative

Social media is also a powerful weapon when communication with an employer or regulator does not yield a satisfactory response. Posts on social media platforms such as Weibo and WeChat can go viral in minutes and attract public attention. Whistleblowers know that they can leverage this to pressure their organisation or the regulator to respond to the issue at hand.

Looking ahead

We expect new legislation and guidance to echo the Guiding Opinions and the Civil Code will follow shortly. This should shed more light on what organisations are expected to do in terms of internal whistleblowing channels and whistleblower protection.

Employers who want to encourage employees to report issues internally rather than going directly to regulators are advised to implement clear whistleblowing policies, setting out, amongst other things, the types of issues that can be reported under the procedures, how reports will be handled, whether anonymous reporting will be accepted and importantly, confidentiality and protection measures for employees. Employers should also consider training employees on acceptable use of social media and the need to comply with relevant confidentiality obligations.

Multinational companies looking to apply their global whistleblowing policies and procedures to their China operations should consider how best to localise these and bring them to the attention of their Chinese employees.

How can we help? 

We have extensive experience advising companies on policy issues, legal considerations in relation to implementing whistleblowing hotlines and how to navigate the practical issues that whistleblowing investigations can throw up for organisations, such as data protection concerns, regulatory notification obligations and the handling of anonymous complaints.

Please get in touch with a member of our team to see how we can best tailor our services to your needs.