Caixin
Jul 12, 2016 05:25 PM

Closer Look: Malfunctioning Elevators Add to the Securities Regulator's List of Headaches

(Beijing) – Most employees at the China Securities Regulatory Commission (CSRC)'s Beijing office, from the humblest tea vendor to the highest-ranking investment banker, have a common fear: riding the elevator. The eight elevators of the Focus Place office building, in the capital's affluent financial district, have long fallen into disrepair, because funds for maintenance are insufficient.

Employees tell horror stories of the elevators' frequent breakdowns. An investment banker reported that the elevators often get stuck halfway to their intended destination and then slowly descend to the basement, causing no shortage of hand-wringing and headaches for their helpless passengers.

The persistence of Focus Place's elevator woes for nearly three years, is particularly odd, given the central role of the securities regulator in China's quickly developing financial sector. Elevator malfunctions, which are a safety concern and a major annoyance, tend to be repaired quickly in Chinese workplaces and residences. But the CSRC, which oversees China's futures and securities markets, has been left with its hands tied. Over the last three years, a patchwork of repairs has repeatedly failed to fix the problem. The reason is simple: the funds for a proper overhaul don't exist.

CSRC's Beijing offices, located on Jinrong Street in Beijing's Xicheng district, have eight ThyssenKrupp elevators imported from Germany. ThyssenKrupp is one of the world's largest and most famous elevator manufacturers, along with Otis World Wide from the United States and Switzerland's Schindler. Its high-end elevators are known for their top-notch hardware and software.

The company has strict maintenance standards for its machines. All major components of ThyssenKrupp elevators must be inspected twice a month to ensure the timely replacement of any worn-out parts. Additional inspections are carried out several times a year to ensure that every part adheres to industry standards.

How, then, did problem's with CSRC's elevators turn into a chronic headache? In an effort to save money during repairs, only malfunctioning hardware was replaced with genuine ThyssenKrupp parts, a source close to the regulator revealed. Outdated software was replaced with bug-riddled Chinese counterfeits.

"It's like buying a high-end computer but using a pirated operating system," said a company insider. The long saga of broken-down elevators at the CSRC has, from the beginning, stemmed from software issues. And the repair bill for replacing all of the faulty parts in the eight ThyssenKrupp elevators will run into millions of yuan, the source said.

But the problem won't be an easy one to fix because the CSRC has faced budget cuts in recent years. Data from the regulator shows that its estimated budget for 2016 was 1.05 billion yuan, about 5.5 percent less compared to the actual expenses for 2015.

Money earmarked for administrative operations including repairs sustained the deepest cuts. The budget for housekeeping tasks fell 16.5 percent in 2015 compared to the previous year, CSRC's budget documents show. The amount reserved for repairs dwindled in the past two years, according to these figures.

The CSRC has had to tighten its belt after the National Audit Office uncovered several irregularities in its books. For example, in December 2011, the Beijing securities regulatory department decided to shift its offices without prior approval from the Ministry of Finance. The move, which became effective in March 2012, cost 55 million yuan.

In its 2015 audit of the CSRC's budget, authorities dug out problems dating back to more than 10 years ago, rapping the securities regulator for what they called "irresponsible spending" which includes using state funds to pay for private travel expenses of executives, distributing gift certificates to employees, giving out unauthorized staff bonuses and making business-related reservations in unapproved hotels.

Lack of rigorous spending controls in the past have now strained the commission's coffers. In 2015, 8.73 million yuan was allocated for maintenance throughout the CSRC's Beijing headquarters and its 38 regional branches, a figure that was inadequate to cover the costs of repairing the eight elevators at Focus Place.

(Rewritten by Francesca Lupia)

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