China’s recently announced plan to restructure and consolidate its state-owned enterprises (SOEs) focuses on bolstering the private sector of its economy and creating economies of scale to allow Chinese companies to better compete internationally. It also may implicate companies’ efforts to comply with the U.S. Foreign Corrupt Practices Act (FCPA), in positive and negative ways. Although the details of the restructuring plan are still unknown, the prospect of any change to China’s vast SOE network raises potentially significant considerations for legal and compliance officials dealing with the definition of “foreign official” under the FCPA. Companies operating in China need to watch this space, as significant changes to the SOE landscape could impact anti-bribery and anti-corruption policies and procedures related to business in China.

On March 5, 2015, at the opening of China’s annual parliamentary meeting, Premier Li Keqiang announced plans to move forward with a “Made in China 2025” strategy to merge and reorganize SOEs in many key industries. Railways, nuclear power plants, auto and aircraft manufacturing, and shipbuilding are likely initial targets for consolidation. Rumors also are swirling about mergers of conglomerates in the oil and telecommunications industries. The restructuring plan, which is expected to be released by the end of the month and will be implemented by the Small Leading Group for State-Owned Enterprise Reform, is expected to create asset-holding companies (perhaps like Temasek in Singapore) to oversee China’s shareholdings in the newly reorganized and consolidated companies and to ensure more economically competitive operations. China is also likely to open its doors to foreign investment as part of the plan, in industries in which foreign investors were never before allowed to participate.

Made in China 2025 was preceded by a pilot program last year, in which six large SOEs were tapped for reforms focusing on “mixed ownership” (i.e., partial privatization), transfers of management control away from political and policy-driven oversight and toward a capital management model focused purely on maximizing shareholder value, and board-centric (rather than centrally planned) appointment of senior management. This pilot program and the reforms announced this month are being viewed as a significant effort by China to make SOEs in key industries look more like - and be more internationally competitive with - Western multinationals through improved governance and increased efficiency.

The question this raises for companies seeking to ensure compliance with the FCPA and similar anti-corruption laws by their operations in China is whether consolidation of the 112 SOE portfolio currently managed by the Chinese government into 50 or fewer SOEs (as some believe is the goal) will improve transparency of government ownership or exacerbate current challenges in understanding just what businesses are owned or controlled, in whole or in part, by the government. Consolidation may bring comfort to compliance-responsible personnel, insofar as there will be fewer SOEs to track and a more recognizable management model with increased visibility into newly consolidated enterprises’ ownership and level of government control. Such information could make due diligence efforts easier and more effective.

It is also possible that the restructuring plan will have a neutral or even negative effect, providing a less transparent view into a smaller number of now larger and more influential SOEs. Similarly, opening markets and enterprises to private investment, including foreign investment, could muddy the waters and make it more difficult to determine who or what owns or controls companies of varying sizes throughout various industries. That could be exacerbated as newly consolidated SOEs, or asset-holding companies managing portfolios of SOE investments, push investments into broad segments of the economy, creating an ever-expanding network of SOEs or SOE-affiliated entities through new public companies, joint ventures and even foreign subsidiaries. In that scenario, improved transparency at the consolidated SOE level may not carry forward to smaller entities, including otherwise private entities in which the Chinese government invests.

Regardless of the answer, there is no doubt that the Department of Justice (DOJ) and Securities and Exchange Commission (SEC) will continue to scrutinize cases involving SOEs as “instrumentalities” of a foreign government (and therefore making any employee of an SOE a “foreign official” under the FCPA), especially in light of last year’s Esquenazi decision. That is particularly true in China, which has been and remains a focal point for significant FCPA scrutiny - as evidenced by the roughly 40 companies that were actively investigating or under investigation for potential FCPA violations in China as of January 2015.

China’s efforts to promote growth in its economy provide exciting opportunities for those wanting to invest in the country. But they are also an important reminder that China is, in many respects, a country apart in terms of the level and type of involvement its government has in individual companies and entire industries. Over the coming weeks, the Chinese government is expected to share additional details about Made in China 2025. Those announcements should help us understand how focused companies should be on the impact this latest round of SOE reform could have on China-related anti-corruption compliance efforts.