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Corruption in China
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What is corruption?
What is the connection between corruption and economic growth?
Corruption and guanxi?
How hard does the Chinese government attempt to stop corruption?
Corruption in China and illegal immigration enforcement in US?
What seems to coincide with anti-corruption campaigns in China?
Does the penalty for corruption usually include criminal charges? Party
discipline?
8. What does trust have to do with whether corruption helps or hurts economic
growth?
Shaomin Li and Judy Jun Wu
Why China Thrives Despite Corruption
Why is corruption bad for economic growth? Is it possible for corruption to be efficiency
enhancing? How can this be distinguished from predatory corruption?
IN a society with high levels of public trust – trust between strangers – corruption does
not damage economic growth and may even enhance efficiency. This is because in a
high trust society, a relatively free market for corruption emerges where the favor is sold
to high bidder who presumably can put the favor to good economic use. Each party
trusts the other to deliver on the illegal contract and so the favor giver will be able to
accept bribes from all buyers. The corrupt transaction facilitates economic activity. The
sources of public trust comes from extensive and deep sets of networked relationships –
such as guanxi. In a very low trust society, corruption becomes a form of extortion
thereby distorting the transaction away from economically efficiency and toward a
predatory exchange. The corruption exchange is restricted to those who are known the
the favor giver – friends and relatives – and the chance of enhancing economic activity is
much lower.
Compare China and Philippines in public trust
How do their economies compare?
What is the role of guanxi in Chinese society? Facilitate and protect economic
transactions? Does corruption facilitate economy activity or is it a dead weight without
any reciprocal benefit?
Guanxi plus high public trust = economic enhancement via corruption
Futures market in corruption?
Is guanxi and corruption linked to the smooth relationship of state and economy? Does
this explain why the state is able and ready to enhance competition and not give out
monopoly rents? Does this explain state entrepreneurialism?
The Logic of Anticorruption Enforcement Campaigns in Contemporary China
ELIZABETH A. QUADE*
a distinction is drawn between the economic crimes of ‘corruption’ and ‘bribery’: ‘The
former involves officials taking advantage of their positions to directly embezzle or take
illegal possession of public property under their care . . . The latter involves their taking
advantage of their positions to seek gain for others in return for payment of some kind’.
In order to establish a working definition, both of the aforementioned sub-categories—
‘corruption’ and ‘bribery’—are encompassed within the operational definition of
‘politico-bureaucratic corruption’. ‘Political-bureaucratic corruption’ can be defined
narrowly as ‘the abuse of public office for private gains’ including ‘bribery extortion,
fraud, trafficking, embezzlement, nepotism, and cronyism’.
both the emergence of corruption and the periodic, concerted attempts to slow its growth
are by-products of economic policy decisions.
This article provides an analysis of the link between corruption, inflation, and economic
growth. In so doing, three questions are addressed. First, is there a relationship between
campaign-style anticorruption enforcement and economic austerity rounds, and if so,
what is the logic? Second, what can anticorruption enforcement campaigns tell us about
the nature of central – local relations in contemporary China? And lastly, what theoretical
model of China’s political economy best accounts for my empirical findings?
Inflation is another phenomenon affecting regime legitimacy. Like corruption, the CCP
has been dealing with bouts of inflation since it assumed power. However, unlike
corruption, during the reform period, the CCP’s policy responses to inflation were direct
and swift. Controlling inflation appears to have been consistently treated as a top
priority, while anticorruption enforcement was comparatively less important.
anticorruption enforcement campaigns are a special policy choice distinct from routine
anticorruption enforcement.8 Campaigns are characterized by ‘short periods of
intensified enforcement during which corrupt officials can no longer count on the
routine substitution of party disciplinary action for criminal punishment’
a marked shift in rhetoric from a single-minded focus on economic growth to a serious
interest in anticorruption enforcement. Conversely, when announcing the conclusion of
an anticorruption enforcement campaign, top leaders espouse a rhetoric which is more
balanced, thus de-emphasizing the party’s struggle against economic crime.
increase in State media publicity of corruption control topics. Attempts are made, usually
very early in the campaign, to encourage corrupt officials to offer confessions. From the
early 1980s up until 1995, anticorruption enforcement was carried out via campaign-style
mass mobilizations.23 In 1995, the party shifted its focus, placing a new emphasis on
institutional methods and less on campaign-style mass mobilizations.
two permanent agencies, the Party Discipline Inspection Committees and the
procuratorates, for anticorruption enforcement. The overwhelming majority of cases
handled by the party’s supervisory system resulted in administrative, and not criminal,
punishment.
Party Discipline Inspection Committees ‘exercise leader- ship over both party and
government anticorruption agencies through the nomenklatura system’, which, in effect,
grants party committees authority over party and government officials one level down
plausible link between changes in macroeconomic policy and the intensification of
anticorruption enforcement. About the time when macroeconomic austerity policies are
introduced to combat inflation, the Party’s anticorruption enforcement efforts are stepped
up
From 1979 to 1998, the Chinese government imposed five rounds of economic
austerity—in 1981, 1983, 1986 – 1987, 1989 – 1991, 1993 – 1998—to combat inflation
and cool the overheated economy. Each round differed in severity and approach but all
followed a similar logic of recentralizing investment authority and then reducing
aggregate demand by cutting the rate of local-level (provincial) investment growth.
China’s central bank, the People’s Bank of China (hereafter PBOC), is nominally
independent. However, in practice from 1984, when the PBOC became the official
central bank, through until the late 1990s, the PBOC was ‘so beholden to local interests
that it was often hardly acting like a central bank at all’. At that time, the PBOC was
subject to dual leadership from both provincial and local governments because the bank
itself was geographically and fiscally decentralized, with major branches located in
provincial capitals and larger cities.
While corruption did not directly cause the bouts of inflation, evidence suggests that it
was intertwined with several of the factors that did, including excessive credit supply of
the banking sector. The number of economic crime cases (filed and investigated) tends to
peak at just about the same time as inflation is beginning to be brought under control.
‘when the central government really means business and holds coherent policy
preferences, local officials comply, sometimes at a huge cost to their own interests’.
During center instigated economic austerity rounds, some local officials comply,
others do not. Anticorruption enforcement campaigns are used as a mechanism to
rein in the non- complying local officials.
despite fiscal and economic decentralization, the center was never at risk of losing control
of the reform program, precisely because it never relinquished control over personal
policy or the nomenklatura system. During anticorruption enforcement campaigns,
local officials, especially judges and prosecutors, carry out central directives because
their political and professional futures will be determined by the center through personal
policy and the nomenklatura system.
Interestingly, there exists a telling example of an economic austerity round which failed
to achieve its objective. At the tail-end of 1987 and throughout 1988, the center
attempted, unsuccessfully, to cool China’s economy and rein-in inflation.63 This
attempted economic contraction was not accompanied by an anticorruption enforcement
campaign. Without a complementary anticorruption policy, industry grew, unrestrained,
at a rate of 20.8%
For Jiang Zemin and Zhu Rongji the task was to bring regional governments and the
financial system into line by imposing national macroeconomic controls.67
At this time, Jiang began planning a new campaign against official corruption: ‘The
reasoning, on which Jiang and Zhu concurred, was that there was a close interrelationship
between the runaway economy and abuses of power in many localities’.68 Unchecked
regional power was closely related to the unrestrained financial system. Just prior to the
1993 campaign, Jiang Zemin remarked, ‘If we want to overcome financial chaos and cool
down the feverish economy, we must combat corruption and encourage honesty in
politics’
Fubing Su and Dali Yang, ‘Political institutions, provincial interests, and resource allocation in
reformist China’, Journal of Contemporary China 9(24), (July 2000), pp. 217–218.
Corruption Threatens China’s Future
MINXIN PEI
Behind China’s dynamism, however, lurk many dangers that could derail the Middle
Kingdom’s reemergence as a great power: environmental degradation, population aging,
rising inequality, a tattered social safety net, and, above all, endemic corruption.
The experi- ences of other developing countries show that runaway corruption
undermines critical gov- erning institutions, fuels public resentment, exacerbates
socioeconomic inequality, creates massive economic distortions, and magnifies the risks
of full-blown crises. The failure to contain official corruption will inevitably en- danger
China’s economic development.
Based on the conservative assumption that 10 percent of the land lease revenues, fixed
investments, and government spending is stolen or mis- used, the direct costs of
corruption in 2003 could be 3 percent of GDP, roughly $86 bil- lion, an amount
exceeding the government’s entire spending on education in 2006.
Corruption in China is concentrated in the sectors with extensive state involvement:
infrastructural projects, sale of land user rights, real estate, government procurement,
financial services, and heavily regulated industries. A 2006 study of 3,067 corruption
cases found that about half of the officials or individuals engaged in corruption related to
infrastructural projects and land transactions. Kickbacks for loan approval, massive theft
by insiders, misuse of funds, and large-scale fraud are routine in Chinese banks,
brokerage houses, insurance compa- nies, and rural credit cooperatives.
Endemic corruption in China originates in the country’s partially reformed economy, lax
enforcement efforts by the government, and the CCP’s reluctance to adopt substantive
political reforms.
Yet appearances are deceiving. Despite severe punishment against officials in highprofile cases, official enforcement data indi- cate that Beijing punishes only a very small
proportion of party members and government officials tainted by corruption.
nearly 80 percent of the 130,000–190,000 CCP members disciplined and punished by the
CCP annually since 1982 got at most a warning. Only 20 percent were expelled from the
party. Less than 6 percent were criminally prosecuted. In recent years, half of those convicted of corruption received suspended sen- tences and did not serve any jail time.
It is tempting to discount the deleterious effects of corruption on China. To many,
China’s high economic growth despite rampant corruption proves that corruption does
not always limit economic growth. Others may point to the re- cords of China’s East
Asian neighbors—South Korea, Japan, and Taiwan. They all experienced varying forms
of crony capitalism dur- ing similar stages of rapid growth but apparently suffered no
serious consequences. One may even argue that corruption in the Chinese context might
be the proverbial grease for the bureaucratic wheels of an otherwise unmotivated state:
productive economic transactions might not have occurred without it.
How does Pei respond to Shaomin Li? Is China’s corruption better than in other nations?
Unfortunately, such views do not correspond with either Chinese reality or historical fact.
First, the total costs of corruption in China are huge. The direct economic loss owing to
corruption represents a large transfer of wealth—at least 3 percent of GDP per year—to a
tiny group of elites. This annual transfer, from the poorer to the richer, is fueling China’s
rapid increase in socioeconomic inequality and the public’s perception of social injustice.
Second, the indirect costs of corruption—efficiency losses; waste; and damage to the
environment, public health, education, the credibility of key public institutions, and the
morale of the civil service—are incalculable. The high price China is already paying is
ample evidence that the toll of corruption is not theoretical.
But corruption has lowered the quality of China’s economic growth because its economic
expansion has been accompanied by assorted social ills, many of which will require
heavy investment to correct. With a lower level of corruption, China would have
achieved growth of a higher quality, with much less damage to the environment,
economic efficiency, public health, and social stability. High-quality growth is more
sustainable than low-quality growth.
South Korea, Thailand, and Indonesia experienced spectacular financial collapses during
the Asian financial crisis a decade ago, in no small part because of the massive corruption
in their financial and corporate sec- tors. Japan’s economy stagnated for a decade, also
because of systemic corruption in its corporate sector and political process. Taiwan’s
growth performance has lost its momentum in the past decade, and corruption scandals
have caused financial strains in the banking sector and tainted almost the entire political
establishment.
True, corruption has not yet derailed China’s economic rise, sparked a social revolution,
or deterred Western investors. But it would be foolish to conclude that the Chinese
system has an infinite capacity to absorb the mounting costs of corruption. Economically,
runaway corruption stifles commerce, investment, and innovation, as recent academic
research has established.
The most dangerous threat of corruption is actually invisible. Endemic corruption steadily
increases a country’s systemic risks. As a result, its financial system is fragile, its environment degraded and vulnerable, its law enforcement establishment tainted and ineffective, its infrastructure insecure, its public health system irresponsive, and its regulatory
system creaky.
China’s Trapped Transition
Are Chinese political elites seen by the Chinese people as: “irredeemably
rapacious.”