China's flawed system breeds IPO hush money

Launching an initial public offering in China has always been an expensive process, but has become even more costly recently as companies try to ease their path to market by bribing the media to quash any negative reports.

This practice of paying off the local press has become rampant in recent years, fuelled by the fierce competition for funding in China, where listings are still seen as a source of scarce and much-desired capital. Most of the illicit payments are made under the guise of a legitimate transaction.

“Placing a commercial advertisement is the preferred channel,” said one securities industry insider, who added that publishers are often...