17
POLITICAL MECHANISMS AND CORRUPTION
Political leadership, national and especially local, has been the major factor of Chinese economic development or non-growth in various eras since 1949. The late 1960s saw “green revolution” (triple cropping, walking tractors, pumps) in rich rural/suburban areas. This led to quick industrial growth there after 1971 (not just 1978), the substantive beginning of “reforms.” Deng Xiaoping was vice-premier in 1973–74 and said honestly that farmers started this industrialization. Rural factories destroyed most planning by 1984–87, outbidding SOEs for inputs and manufacturing profits. Unenforceable contracts replaced unenforceable plans. Inflation led to Zhu Rongji’s recentralization and tax reforms of the 1990s. In all decades, reformers (Zhu, Deng) have conflicted with Party conservatives (oddly called “leftists,” Li Peng, Bo Xilai) – in local institutions too. Profits from leading the exploitation of labor decreased, because of demographic aging and the decline of subsistence-wage workers. Protests against overhasty development rose.
“Corruption” occurs when a larger group perceives that benefits went unfairly to a smaller group (in the state or not). Public and private corruption grow together. Corruption hinders growth by scaring ethnically foreign investors – but this effect is minor in China. Leaders note corruption is China’s biggest threat; so they should establish an “ICAC,” though it would thwart Leninist appointments. “Strike hard” campaigns are counter-effective. Family relationships, often reflected within the Party, hinder China’s economic modernization.
Politics has been the most important factor of economic growth (and non-growth) in China since 1949 – but most of this politics has been local or medial, not central. Especially since the early 1970s, when the substance of reforms began, most Chinese growth has been led by the heads of enterprises, family-like communities, and kin groups.
Think of China in a new way. The country is often conceived as if it were a homogeneous lump, with all consequential decisions taken in Beijing. Economists and political scientists alike over-concentrate on famous personages, as if behavioral power were solely national.
Yet “power” is defined by evidence that followers do what leaders want when the followers would otherwise act differently (Dahl 1961). Behavioral power occurs in non-state polities and small or medium-sized units, even firms and families, as surely as in the national state.
“All politics is local,” as US Speaker of the House Tip O’Neill famously said. Even politics among state elites is local from their viewpoint. Some politics is vertical/hierarchal; some is horizontal, as in markets that involve bargaining between equals. China now has a mixed “bureaucratic market economy” (Chow 2007), involving official commands mainly for very large firms but markets for most sectors. Each hierarchal network of any size has leaders, who maintain their power with classic Weberian means like charisma, coercion, and money (Bendix 1960).
The title of this chapter was assigned, and the author likes it because vertical politics can always imply force, which is sometimes perceived as unclean or corrupt (see Machiavelli (1532/1952) or Weber (1919/1962)). Just as important in a modern economy, politics shapes regulations that create or preserve markets by preventing markets from commodifying people, environment, and rightful earnings (Polanyi 1944/1957). Politics is implicitly coercive as well as normative, and it is the mechanism that can join humane sustainability to allocative efficiency.
So this chapter deals first with political mechanisms. It stresses the role of local powers that were not fully under state control, and it shows how they weakened socialist planning in the 1971–89 era, after which the national and medial sizes of government came to terms with markets they could partially regulate but could not wholly control. The second half of the essay deals with corruption, which is the greatest threat to the Communist Party of China (CCP) according to its own leaders.
China is now generally a “decentralized” market economy; but previously, it was socialist. Political centralism is an ancient Chinese value, and commands from Beijing still rule some economic sectors. Government is naturally the main mover in developing military industries, for example. In banking, and in activities that require heavy capitalization or materials from large point sources such as oilfields, central “politics is in command” (zhengzhi gua shuai, was a Maoist slogan). But fifty years ago, a far greater portion of China’s resources were allocated by socialist plans. The government fixed practically all prices. What caused the reform change?
The usual (wrong or incomplete, but still official) answer is that top leaders, notably Deng Xiaoping, ordered the shift in 1978. A more accurate answer is that the first reform chiefs were heads of very local economic polities such as production teams and brigades, from about 1971 (not 1978). Data to show this are below. They indicate that many local leaders, rather than a few national ones, initiated China’s reforms.
The economic history of the late 1960s and early 1970s, in rich rural parts of China such as the Yangzi or Pearl River deltas, is background to the start of the general (though fluctuating) move from central to local economic leadership. The roots of industrial reform lie in farmers’ fields: triple cropping and agricultural mechanization rose very sharply in the late 1960s. That era is famous as the Cultural Revolution; but a “green revolution” in agriculture was just as important. It gradually affected as many people as did the urban chaos of that era, although it has been omitted from practically all historical accounts. It began in traditionally wealthy rural areas. In 1965, for example, the percentage of suburban Shanghai’s then-extensive cultivated area that was tilled by machine was only 17 percent; but by 1972, 76 percent; and by 1974, 89 percent (Kojima 1978: 293–99). The wattage used by agricultural machinery in these fields rose 19 percent annually, compounded, between 1965 and 1978 (Xie 1991: 104). Such changes were quickest on rich delta farmlands along the eastern coast and then on the Chengdu plain, but even in the nation as a whole (which included many destitute regions) the number of these machines in 1978 stood at the following percentages of those in 1970: large and middle-size tractors, 355 percent; walking tractors, 631 percent; and agricultural pick-up trucks, 914 percent (Wu 1991: 53). Repair shops for these became factories, proliferating into many lines of production.
Processing raw materials is almost always more profitable than extracting or growing them. Farmer-entrepreneurs, even in the era of communes, did not miss this point (Zhou 1996). As conservative rural leaders became more aware of the popularity among their peasant-clients of this new source of prosperity, rural reformism became contagious (Gallagher 2005). Human capital for economic development has been evident in the form of rural entrepreneurship, not just tertiary education.
On the Yangzi Delta, reformer Xu Jiatun was a province-level administrator in Jiangsu during the early 1970s. He later wrote, “I tell you, we took a different road from the rest of the country”. “The planned economy was crucial, and the market economy was a supplement.” We had openly to support this, but in fact we had gone beyond it” (Xu 1993/5/6). Actually, Xu needed to do nothing but blink at what more local leaders were doing. The main province-level leader in Shanghai then, Zhang Chunqiao (1975), was by contrast a socialist-conservative desperate to preserve the Party’s planning power. He was not willing to blink at “sprouts of capitalism in the countryside.” Fei Xiaotong (1988: 5) plainly says that many rural factories in the early 1970s were “illegal” and “underground.” Radicals dominated the central administration for much of this period – although Deng Xiaoping was First Vice-Premier in 1974–75.
Political splits between reformists and conservatives have persisted at all sizes of China’s polity from that period to the present. Local leaders replaced central authorities in running most of China’s economy, especially as regards employment or the production of consumer items that socialist planners had neglected. Deng Xiaoping, unlike practically all officials or academics (either now or then), saw this change and was totally frank about it. As Deng said:
Generally speaking, our rural reforms have proceeded very fast, and farmers have been enthusiastic. What took us by surprise completely was the development of township and village industries … This was not the achievement of our central government. Every year, township and village industries achieved 20 percent growth … This was not something I had thought about. Nor had the other comrades. This surprised us.
(RMRB 1987/6/13, emphasis added)
Deng reached for an ancient phrase to describe his astonishment: yijun tujing (“a strange army suddenly appeared from nowhere”). A few academics also recorded this early rural industrialization (Perkins 1977) – but it was largely forgotten in post-Mao analyses even by academics. Practically everyone still writes as if economic reforms began in 1978. Yet if the term “reforms” has any substantive meaning outside official rhetoric, evidence of quick growth of rural industrial output in earlier years of the 1970s, naturally starting in rich areas of China, shows the usual discourse to be inaccurate.
By the mid-1980s, Deng’s “army” of rural factory managers was taking most raw materials and markets that had earlier been under state command. They oversaw nimble, exploitative, profitable firms that could afford to buy inputs at prices the budgets of state companies could not afford. So the government in effect had to legalize a black market; it let state factories sell items at 20 percent above the planned prices (jihua jia) after those firms claimed to have fulfilled their production quotas. This marked-up rate was euphemized as a “state-guided price” (guojia zhidao jia). But the two-price policy was, at first, unintended and unwanted by planners. It was praised as wise not just by governments, but also by many economists – who ordinarily say that a commodity of standard quality at a single time in a single-place market has just one price.
In 1985 alone, rural industries spent so much money buying raw materials and energy from state enterprises, the national companies gained at least 10.7 billion yuan – equal to at least 6 percent of total government revenues at all levels – as pure profit from speculative exchanges (Wang et al. 1992: 30). The Shanghai market price of coal in 1988 was 220 percent of the “fixed” state price; for electricity, 176 percent; for steel, 160 percent; for aluminum, 250 percent; and for timber, over 550 percent (Hu 1989: 10–15). This situation was politically led, but not by central leaders.
State clothing and cigarette factories ran short of wool and tobacco (Wu 1990: 6). The government issued a document as early as on May 4, 1981, ordering the closure of many rural enterprises that produced textiles, cigarettes, and salt (RMRB 1981/5/4). But Beijing’s decrees could not reverse local entrepreneurs’ reforms. Rural enterprises won the “tobacco war,” the “wool war,” and others.
The “unified purchasing policy,” which for decades had extracted huge coerced rents from peasants to urbanites, collapsed. Commercial small and medium enterprises, SMEs, flourished along with industrial ones. Willy Kraus (1991: 63) estimates that in the 1980s “a non-licensed “individual economy” existed which was just as large as the licensed.” The portion by value of all Shanghai factory inputs allocated by plan plummeted from about 70 percent to about 20 percent in the mid-1980s (JFRB 1988/5/15). National planners did not wish this – it meant the end of socialism in most sectors – but they could not enforce deliveries of inputs.
The number of products from Shanghai state factories under mandatory production quotas dropped in the mid-1980s, from 150 in 1984 to 37 in 1987 (SHJJNJ 1988: 90). Even then, not all the mandated deliveries were fulfilled. As a sardonic pair of local journalists observed, “Developing the commodity economy without commodities is a major vexation for many enterprises in Shanghai” (Foreign Broadcast Information Service 1986/11/26: 3).
“Contracts replace plans” thus became a mid-1980s slogan. More rule-of-contract-law surely sounds modern. But contracts at this time were no more enforceable than plans. The Leninist appointment system, under which all important posts are filled by officials chosen by Party personnel departments at a higher administrative level, did not effectively put central (or even provincial or county) managers over local managers for most economic decisions. If a rural unit failed to deliver to an urban factory a contracted amount of raw materials at the contracted price, the factory could sue. Even if the factory won in an urban court, the judge there was not appointed by the same CCP personnel department as were police in the rural jurisdiction – which might, or might not, enforce the decision.
Of all economic litigations filed in Shanghai courts during October 1988, the judges classified more than half as “unresolvable” within three months of the filing (HDXXB 1989/1/28). Some rural firms claimed to have closed, or managers absconded. Judges lacked time to spend on trials when they guessed the plaintiffs had meritorious cases but knew their decisions would remain unenforced. They responsibly defended their courts.
Centralists in 1980 pushed to have all cadre appointments approved by Party personnel departments “two levels up” (rather than having them approved just one level up, the previous norm). But this experiment failed and was abandoned in 1983, because the appointers two levels up lacked enough reliable information to make sensitive choices or to sanction their appointees (Landry 2008). This span-of-control problem stymies centralizers in such a big country.
Despite very high Chinese regard for government and for ideals of centralist hierarchy, many rural industrialists consciously competed with rival state firms – to make money for their local polities, not to undermine the Party. A mid-1980s survey of 5,600 rural enterprises suggests the managers were keenly aware of the state enterprises in their fields. Fully 48 percent responded they were in “competition” with state factories that produced the same products (and another 19 percent said they were in a mixed mode of “cooperation and competition” (NMRB 1988/9/8)). They were surely proud to be state cadres, even as their behavior was derogating power from the state to themselves.
Politics still controlled the economy, as SMEs flourished in rich parts of the mainland, but these were increasingly local non-state politics. Markets or any other means of making social decisions do not thrive without political constituencies – and in China, markets became extremely popular among both patrons and their clients in the rural places where most Chinese people lived. Markets allowed not just more prosperity and jobs, but also more freedom for local leaders to build their small polities, supporting their families and their own self-identifications (compare Shieh 1992, on local “bosses” and Taiwan’s boom).
Savvy Xi Jinping, now China’s President, when he was just 30 in 1983, resigned a cushy military adviser’s job and volunteered to work in rural Zhengding, Hebei. He emerged as a reformer in village politics. “Mr. Xi formed a clever alliance with Maoists and used his family ties in Beijing to cut Zhengding’s grain quota by one-quarter. That freed up farmers to use their land more lucratively, such as for raising fish, geese, or cattle” (Johnson 2012/9/30). New local institutions were also required, especially illegal local banks that still provide finance for dynamic SMEs (Tsai 2002).
Premier Zhu Rongji in the 1990s did his best to overcome Beijing’s 1980s loss of authority. He partially succeeded in reversing the earlier decade’s trend (Yang 2005). The point is not that free markets defeated central planners in the 1980s, but that local leaders using markets did so. Party hierarchs had been duly scared by the 1989 Tiananmen public reactions to myriad social problems, of which the main economic example was rampant inflation. Socialist conservatives, having tried to control more than they could, had forced efficiency-promoting local entrepreneurs underground. Premier Zhu Rongji could not centralize China, but he might be said to have “medialized” economic administration by urging more independence for high-medial sizes of polity such as sub-provincial cities and prefecture-level cities, whose boundaries were extended to take in more of the new suburban economic activity.
Zhu led a reform of China’s tax code, which raised central revenues. He persuaded his comrades to admit, in effect, that small firms had already been “released” into the market sea and that the state should only try to run some big corporations (zhuada fangxiao). Product quality became subject to somewhat better monitoring. Risky loans from large state banks became subject to more screening. Some bureaucrats were fired. Military entrepreneurs, who had been running many enterprises, were ordered out of the economy. Continuations of similar policies, after the start of the new millennium, changed fees to taxes and then abolished the main agricultural tax altogether.
Premier Zhu and other high-placed reformers persuaded at least some of their comrades in a nervous, control-freak-like Party that markets, which can never be fully controlled, had already brought benefits to the Chinese people that the CCP in its own interest had to preserve. He could not restore socialism, but he could adapt it to new demands of efficiency.
Zhu’s reforms penetrated to medial sizes of government organization within China’s political economy, including large state corporations and large collectives, but not to low or local sizes that remained very important for employment, exports, and income. Much later in 2012, an economist with IHS Global Insight in 2012, Ren Xianfang, claimed that unregistered “lending and investing networks” in China manage US$1.3 trillion. “Shadow banks” still provide immense amounts of credit to the nonstate economy. Premier Wen Jiabao explains that, “Chinese companies, especially small ones, need access to funds. Banks [official ones] have yet to be able to meet these companies” needs, and there is a massive amount of private capital. We need to bring private finance out into the open” (Bloomberg 2012/11/4).
Exploitation of labor in factories has supported both external and domestic trade. Even while PRC manufactures declined, exports still generated 31 percent of GDP in 2011. Exports supported 200 million jobs (SCMP/Reuters 2012/9/30). A riot followed a strike in a Taiyuan Foxconn electronics factory, which closed (Barboza 2012/9/24). Nonpayment of salaries to migrant workers in export factories has caused “mass incidents,” e.g. in the denim-manufacturing town of Zengcheng, Guangdong. In June 2011, Zengcheng suffered major riots in which government offices and police cars were burned. A year later, the same thing happened at Longshan, Shaxi, Zhongshan, Guangdong, where local villagers stabbed a Sichuan immigrant teenager. So “several thousand Sichuan people working in Guangdong engaged in a bloody clash with police” (Lau 2012/6/27).
By 2012, 60 percent of all villages in the export manufacturing county Dongguan, Guangdong, were running deficits. A Ministry of Finance researcher claimed that, throughout China, village debts were one-tenth of GDP – “but there is no official data … Village chiefs he interviewed had no idea how much debt they had.” In Dongguan, the CCP secretary told village heads “to stop raising money to pay dividends … Few took heed.” Townships, which are formally responsible for fire and police departments, failed to finance these services fully, and “in some counties, police would refuse to investigate a crime unless it involved more than 20,000 yuan” (So 2012/9/28). Many coastal boom towns had extracted rents from migrant workers who lacked household registrations. These workers returned inland when export factories closed. So the towns had budget shortfalls.
Environmental problems related to development have also brought large protests by citizens, e.g., in Haimen, Guangdong, 2011, where residents rioted against the air pollution that the proposed expansion of a coal-powered electric plant would have created. In Qidong, Jiangsu, 2012, fishermen opposed water pollution that a Japanese-invested paper mill would have fed into the Yangzi; so they took over the local government offices.
Large mass demonstrations erupted in all the cases listed above and many others that received less press. Police often used violence and tear gas. Afterwards, local governments and developers occasionally backed down, cancelling their previous plans.
At least 40 to 50 million peasants since 1980 have lost land to developers who had business ties to cadres or were themselves still cadres. Fully 94 percent of entrepreneurs in the CCP at the turn of the millennium went into business after joining the Party (Pei 2006: 93). The PRC Constitution gives ownership of practically all rural land to collectives, managed by town or village committees, but under a 2004 amendment, land can be switched from collective to state ownership either through “temporary” land acquisition (zhengyong) or through expropriation (zhengshou). “Expropriation” requires high-level approvals and compensation to peasants. So, local cadres have instead used “acquisition,” which becomes permanent and can in effect privatize land for their own use (Kochhar 2012/1/23).
Wukan, a village in Guangdong, erupted in protests after such a “land grab.” Peasants forced all the local officials and police to flee, and they set up an “Autonomous Body of Village Residents.” They marched to the county (Lufeng) and elected a representative, Xue Jinbo, to negotiate with the government. Xue was arrested and died in custody. Much larger demonstrations followed. The prefecture (Shanwei) then called a press conference to announce that the villagers’ demands had been mostly agreed and that their “provisional” council officially replaced the cadres who had fled. Province party secretary Wang Yang said the handling of the Wukan unrest should be an example of the right way to manage other cases (Lau 2012/5/1). But, a year later, peasants said, “We still haven’t got our land back.” The expelled officials had signed contracts granting land to developers, and these could not easily be reversed (Reuters 2012/9/22).
Migrant workers’ complaints were directed against medial rather than high levels of government. Local cadres and landlords or businesspeople were often lineage kin, providing space for factories from which they could collect rents. In July 2012, province-level authorities in Guangzhou had planned to ease registration requirements of NGOs supporting migrant workers. But these NGOs (e.g. the Shenzhen Spring Breeze Labor Dispute Service Center, Shenzhen Migrant Worker Center, Green Grass Worker Service Center, Times Female Worker Service Center) were instead shut down because of powerful opposition by “sub”-provincial local cadres. Such NGOs had trouble finding office space. One of them “moved to a new location in the outskirts of Baoan district … The landlord demolished our signboard and suspended our water and power supply” (Tam 2012/7/27). These complaints were not against “the government” in any general sense. They reflected conflict between two types of very local polities, one run by rentiers and investors, the other by migrant workers.
Arthur Lewis (1954) suggests that the supply of labor at subsistence wages may dry up after a take-off boom in any country. This is starting to happen in China. But Peking University economics professor Fan Gang (2010/8/30) is not worried that China’s rising wages will hurt its competitive advantage soon, even though he admits China’s market efficiency and innovative capacity need further development. “Wage efficiency” in other low-compensation countries such as Bangladesh or Mozambique remains less than in China. Also, one-third of China’s workforce is still in agriculture, but because older farmers seldom migrate to cities so that urban wages tend to rise.
Worker politics are thus livelier than before. Sociologist Anita Chan once condemned quasimilitary discipline in export factories – but recently, she describes less of such repression (Chan 1996, 2005). Proletarian dissident Han Dongfang, founder of the Beijing Autonomous Workers’ Federation in 1989, by 2011 wrote, “Some ACFTU [Party union] officials are trying to make a positive impact … Even the Party, which in the past only had its own interests to consider, now has to listen to the voice of the workers and respond to their increasingly clear and angry calls for change” (Han 2011). He notes a few recent decent pay packages, as well as strikes and worker riots.
China has become a pluralized country as it has developed economically. Political initiatives now start from more nodes. This pluralization is “the emergence of polities other than the state, where polity stands for any form of social organization within which (among other things) politics takes place” (Wissenburg 2009: 2). A Leninist machine for centralist control does not work as well as local mechanisms, in a country that is increasingly diversified, educated, well informed, and rich.
Five partial heresies can sum up this treatment of the political mechanisms of China’s economic development. First, powerful leadership and policy are local, not just national. Second, late 1960s China saw “green” revolution, not just “Cultural” Revolution. Third, behavioral reforms began in rich rural areas about 1971, not 1978. Fourth, the thoughts, deaths, and lives of top leaders have been deemed too exclusively influential (though Deng Xiaoping deserves credit for outstanding honesty in admitting what he had not done). Fifth, social scientists – notably economists – failed to predict China’s economic rise before it happened (as they also failed to explain Taiwan’s, or Thailand’s, or the perennial Philippine stagnancy before those events) largely because they ignored causal factors in local politics. Zooming in, to find more detail, can help us all see long-term trajectories more clearly.
China’s main economic recessions and successes alike have been mainly political, coming from many sizes of polity. The reform period’s major success is that local SMEs have flourished under little dictators. Nationally, the government’s stimulus package of 2009 was, in Nicholas Lardy’s words, “early, large, and well-designed.” Such benefits have been welcomed. Other politics have been less successful economically, implying major costs: the government’s low-interest-rates policy meant that Chinese families put less of their savings into banks, buying real estate and threatening a house-price bubble. Nationally, PRC civilian aircraft use twice as much fuel as do such planes in other countries, because the military makes them fly at low altitudes (Johnson 2012/9/27). So in major and minor ways alike, politics in various sizes of Chinese communities have been the most obvious crucial factors of economic development and non-development. The segue into this chapter’s next major topic is that China’s increasing wealth gap, as the country booms economically, demoralizes rather than incentivizes workers when they think political corruption causes it.
Corruption is risky behavior, and so is entrepreneurship that drives “dynamic efficiency” (Schumpeter 1911/1934, 1942). Because corruption is difficult for those not directly involved to observe directly, it is generally sought through attitude surveys. Unsurprisingly, it is correlated with the extent of “black” or “grey” economies in which business activities are not officially registered (Johnson et al. 1998). Corruption and non-registration are both common in fast-growing economies. Chinese planners may rue the rambunctiousness of firms that sell “fake” and irregularly branded goods. Yet such entrepreneurship has helped China boom.
Political scientists have tried harder to define corruption than to show how it evolves. They have reached some consensus on a definition, albeit a debatable one. Scott relies on Nye’s words, and Nye relies on Banfield’s. In this view, corruption is
behavior which deviates from the formal duties of a public role because of private-regarding (personal, close family, private clique) pecuniary or status gains, or violates rules against the exercise of certain types of private-regarding influence.
(Scott 1972: 4)
This definition salves the professional itch that social scientists have for numbers; it helps calculate costs or benefits of governmental corruption, and it implies a procedure for research. Public laws can be documented; normative duties can be imputed from attitude surveys that generate statistics. Once rules are thus set, a researcher can try to show the results of violations – and to assess the effects on political stability or economic growth.
This method mainly tells what official corruption does, but not how it changes or how it relates to corruption in private. Realism is lost in two ways: first, the focus is on public politics, as if proper authority were exercised only in government organizations and only by formally higher administrative offices over lower ones. The scope of corruption, however, is broader. Much malfeasance is secret, so that in practice corruption is almost always measured by surveying perceptions of it, not by observing behavior. Public and private infractions of norms are in practice linked. The government elites of some countries thoroughly dominate sources of data about public norms, which might more realistically be induced from all social networks. Especially in China, where many organizations become ideally governmental, any premise that public and private politics are easy to separate is far-fetched.
Second, this usual definition of corruption refers to duties that are assumed to be stable over time. This may fulfill one purpose of the definition, which is to judge the efficiency of corruption in a political economy, but it involves another loss of realism because it ignores that concepts of corruption can change, sometimes rather quickly. The standard definition has no dynamic aspect. It cannot tell why particular acts (usury is the classic case; Nelson 1953) are deemed corrupt in some periods and places, but not in others.
Corruption changes. During the first half of the 1950s in China, for example, campaigns (e.g., in the “sanfan wufan” era) were launched to alter norms of cleanliness in many fields together: in business, in cadres’ loyalty, in demands for patriotic purity among all citizens, in physical cleanliness on streets, against insect pests and schistosomiasis snails, against diseases such as smallpox (which was ended by a mandatory inoculation campaign then), against religions the Communists judged unmodern, and against foreign enemies. In the first half of the 1980s, norms in each of these fields documentably moved, again together, in exactly opposite directions to their trends in the early 1950s (White 1988).
Corruption always implies two identifiable groups. It is a claim that benefits went to one (usually the smaller network of people) that should instead have gone to the other (usually the larger network). Such networks are political; they are led. This is a definition of corruption that allows research on the full practical scope of the topic. Subjective assessments must determine whether network leaders are regarded as corrupt or clean. If the heads of enterprises or states are perceived to be successful and kind, most people think their authority is uncorrupt. Mencius said that rulers must be benign to their subjects – and if they are not, they cannot properly be called rulers. Mencius even condoned assassination of a “despised creature” whose behavior meant he could no longer be called a king (deBary 1960: 92–7).
Julia Kwong (1997) used data about ideology and institutions to argue that corruption in China had a “parabolic” trajectory: it decreased in Mao’s time because of egalitarian anti-materialistic campaigns, but during reforms it increased again as individuals and small groups concentrated on making money and the Party tried to rectify governance. Sun Yan (2004) shows that cadres and citizens obey market incentives now, though formerly they attended more to the norms of a puritan party-state.
Lü Xiaobo (2002) takes a type-of-organizational-solidarity view of corruption, seeing it as an unintended consequence of “organizational involution” during attempts to consolidate socialism. The Party did not hold together well, because its functionaries neither fully prioritized its policies (bonding the CCP through common “gung-ho” consciousness or “human organization,” to use others’ phrases) nor because their behavior together created success through legal-rational bureaucracy and markets (integration through complementarity and “technical organization”; see Schurmann 1966). Corrupt groups took rents from the Party-state that was disorganized rather than integrated.
Many social variables that are easier to observe than corruption link in a nonlinear fashion to development, especially to early modern development. For example, Charles Jones (2002: 60) offers a scatter diagram relating many countries’ GDP growth rates over four decades to the wealth index of GDP per worker. Despite a nearly random scatter of growth rates among poor countries, the averaged growth rises sharply until a middling wealth level is reached (US$7,000 by Jones’s measure c.1990). Then, for richer countries, the growth rate goes down as GDP/per capita increases, with fewer points far from it as economies “converge” into modernity. China (with India slightly behind it) is not far from the soft spot for high growth on this scatter diagram.
Pell-mell growth usually sharpens differences between rich and poor, who may perceive themselves as two groups. Arthur Lewis (1954) truly earned his Nobel Prize for pointing out that managers of capital enjoy windfall profits during a time window when they can combine modern technology and markets with labor that is still willing to work for near subsistence wages. A small group (capitalists or high cadres) can temporarily take most of the value of work by a large group (a majority who are workers). The gap can make perceptions of corruption rise.
The famous Kuznets curve suggests that income stratification usually increases during the heydays of expansion in many countries, before economies converge to lower growth at higher per-capita incomes. For example in the United States, the long sprint of growth from the late nineteenth century until 1929 was also a period of labor–capital clashes, criminal gangs, and reputed corruption (especially in the 1920s) – as well as prosperity. The Teapot Dome scandal of 1922–23 saw a secretary of the interior jailed, along with an oil company executive who had given him a multimillion dollar bribe. In Japan during an early boom time, when the Hokkaidô Colonial Office was sold on soft terms to the Kansai Trading Company, public reaction was such that “even those who had never heard the term “rights” or “popular rights” before” took notice and demanded more transparent government (Kim 2007: 288–328). Corruption has often accompanied booms.
Local “land grabs” by developers may be the most reported form of corruption in China now, but arguably, the most pervasive form comes from discrimination by established urbanites against people they disdain as unwashed peasants. Many of the latter now live in cities, although most are still in the countryside. The household registration system officially enforces this discrimination. The urban group is large, and the mainly rural group of ex-peasants is much larger, though politically unorganized across most of the nation. Use of state power to inhibit migration into cities may have positive effects on planning (fewer slums, more industrial jobs in rural areas), but it perpetuates resentments between peasants and city elites such as have contributed to rebellions in China for decades and longer. When ex-farmers are able to live in cities, their children (if education is available) are segregated into schools that established urban families do not want their offspring to attend. Wages, access to medical help, and services are worse for rural people or recently rural people than for city dwellers with permanent household registrations. Official attempts to limit migration into cities maintain income gaps. Further economic development may reduce this inequality, but change would be quicker if the state made migration easier.
Yu Jianrong and Li Renqing (2012), both in the Rural Development Institute of the Chinese Academy of Social Sciences, suggest reforms to reduce these gaps. They suggest that peasants should have rights to own land they use, that more low-income housing should be built in cities, that rural and urban social security systems be linked, that ex-peasants’ children in cities receive better schooling, and that peasants and ex-peasants should receive more government support. Hirschman (1973) speculates that growth, when it produces resentments, is likely to do so with some delay. China may currently be in such a hiatus.
Corruption (measured as a perceived variable) usually correlates with fast growth, but the situation is complex. There are plausible arguments that on purely domestic grounds corruption hinders economic growth (Chow 2006); more empirical research on this link is needed. Corruption sometimes hinders growth, and hardheaded research shows that a reason in most developing countries is the desire of foreign investors to avoid paying bribes (Rose-Ackerman 1999: 3). Low corruption, as perceived, can be linked statistically with capital inflows (in many countries), and this relationship is robust when controlled for per-capita income, domestic savings rates, and raw materials exports. The scatter diagram relating inflows to perceived corruption in many countries is revealing. When perceptions of corruption are graphed against productivity (the ratio of GDP to capital stock), there is even more scatter than in a diagram relating corruption to inflows (Lambsdorff 2004: 311–12). Corrupt rake-offs discourage influxes of foreign capital, lowering that factor of growth. Bribes act like a tax on FDI.
Foreign investor-entrepreneurs, however, may discount this cost if they expect an economic “rise” to continue and want to establish themselves early in a national market, notably China’s. Yet on domestic grounds alone, it remains unclear whether corruption hinders growth. Also, China has been fortunate in recent decades because large portions of its external capital have come from ethnically Chinese places (Hong Kong, Taiwan, Singapore – and startlingly large amounts from the Cayman Islands and the British Virgin Islands, much of which is probably recycled from the mainland). So would Chinese “foreign” investors, who can more easily develop “social capital” with PRC entrepreneurs, be less deterred than other foreigners if they get more benefit for the bribes they pay? Are Chinese domestic investors less deterred from corruption too? Reliable research on these questions is difficult to conduct. Sociopolitical trust aids growth, and it also abets corruption.
As a businessman said, “There are two kinds of corruption. The first one is where you pay the regular corrupt price and you get what you want. The second is where you pay what you have agreed to pay, and you go home and lie awake every night worrying whether you will get it or if somebody is going to blackmail you instead” (see Lambsdorff 1998: 83). Predictable corruption of the first kind probably does not impede investment and entrepreneurship, but dangers of blackmail impede growth.
When is a bribe a bribe, and when is it a gift or tip? The World Bank tries to estimate amounts of corruption, defining it by “perceptions of the extent to which public power is exercised for private gain, including both petty and grand forms of corruption, as well as “capture” of the state by elites and private interests.” (Such a definition suggests that corruption always involves the government; unrealistic premises are rife in studies of this subject.) The Bank surveyed various respondents, ranking all countries from corrupt (0) to clean (100). In 1996, the Bank’s number-crunchers put China on this scale at 43 (e.g., as compared to 97 for Canada, 39 for India, or 10 for the Republic of Congo). By 2010, China’s perceived rank was down to 33 (still 97 in Canada, 36 in India, and 11 in Congo; World Bank 2012). Definitions, sources, and methods vary and are debatable; so changes in such indicators may be almost as meaningful as their levels. High Chinese growth correlated with rising corruption.
Corruption also varies within countries. Ideological democrats, e.g. in the US, sometimes fail to stress that elected officials can be corrupt; some analysts suggest stringent rules are appropriate for appointees, but lax ones for politicians who win votes and make laws. This approach is faulty. Thailand has laws allowing police to investigate officials who are “unusually rich” – but corruption still flourishes there, in part because private citizens are generally exempt from prosecution. Pasuk and Sungsidh (1997) attempted an econometrics of Thailand’s corruption, and they found that leakage by their definition was between 3 and 5 percent of total government spending during a period of quick Thai growth under six premiers (ending with Chattichai) before 1991. This estimate did not include all types of bribes. The Philippines almost surely has higher rates of corruption, both public and private, although that country has not enjoyed fast growth (Florintino-Hofileña 1998; Chua 1999; Coronel 2000; Hutchcroft 2000).
Corruption is a behavioral, not national, phenomenon. “Cultural” norms are causal in this, though not determinative; and the “culture” word despite its proper uses irritates so many allergies among so many social scientists, it may be unnecessary to cite. Corruption is a moral phenomenon too; but when an elite has lost most of its charisma (as the CCP has), corruption’s remedy is likely to be institutional.
An exemplar institution for China is not hard to find. Hong Kong once had flagrant corruption (Elliott/Tu 1971). But the city is now famous for its Independent Commission Against Corruption (ICAC), established in 1974 when the British colonial government responded to extensive malfeasance in its own police force (led by an Englishman, aided by Chinese). The ICAC has staff and authority to arrest anyone – officials (including police) or non-officials (including businesspeople) – to face corruption charges in regular courts. Secret societies’ violence and bribery to private businesses have been rightly perceived as corrupt, with or without any involvement of officials.
The ICAC reports to the head of government but is not part of the civil service; its sole role is to fight corruption. So it is unlike Party discipline committees, procurators, or police on the mainland. Such an organization would be incompatible with Leninist appointment institutions that still prevail in China. Equal enforcement of serious laws in politically independent courts is also crucial for ICAC effectiveness. Hong Kong’s 1971 Prevention of Bribery Ordinance allows courts to consider “unexplained income or property.” As Manion (2004: 2) says, “Hong Kong has sustained a consistent ranking as one of the “cleanest” countries of the world since 1980, on a par with established liberal democracies. Mainland China, by contrast, experienced an explosion of corruption in the early 1980s.” Both societies are now thoroughly Chinese.
The corruption sore continues to bleed so severely in China that Hu Jintao, opening his last Party Congress, said it could become fatal to the CCP. Yet as Academy of Social Sciences historian Zhang Lifan moaned, “They could punish their men, such as Bo [Xilai] or [Railways ex-minister] Liu, but they don’t want any supervision from outside the Party” (Zhai 2012/11/8). As long as the CCP handles most cases of corruption internally or controls non-Party judges tightly, Leninist appointment norms prevent effective corruption control.
Judges and procurators who deal with major corruption cases in China have potentially dangerous jobs. In 2003, thirteen heads or deputy heads at the very high province/ministry level were convicted of corruption. So was the former chairman of the Kiyang enterprise group in Shenyang, who was sentenced to death for giving big bribes and owning weapons for criminal gangs. Then, surprisingly, an intermediate court overturned his sentence. It was reinstated only by China’s supreme court. As two Chinese researchers write, “The general public was not informed about what motivated the vacillations over his sentence” (Transparency International 2005: 132).
Development requires contracts, for which officials often demand kickbacks. In 2000, China passed a Tendering and Bidding Law, and many cities have established “tangible construction markets” where contracts are supposed to be auctioned. But Transparency International claimed these remained “under-resourced and under-utilised.” In 2005, five provinces (Jiangsu, Zhejiang, Sichuan, Chongqing, and Guangxi) established blacklists of contractors who had been convicted of bribery (Transparency International 2005: 131). Companies on the blacklists might, however, change their names. Kickbacks on contracts were especially common in the Railway Ministry. A Guangzhou terminus that had been budgeted for US$316,000,000 finally cost seven times as much (Osnos 2012/22/10: 50). Large agencies had large contracts; so public scandal about totals of rake-offs (when discovered) was great. Yet corruption on millions of medium and smaller contracts may well have been cumulatively greater.
Privatization could sometimes give new owners market incentives to use resources more efficiently than the state does. When local authorities are given a great deal of regulatory power that they can use in ways they can hide from the public, corruption can grow. As Gregory Chow (2006: 265) writes, “Reducing the size of the government sector is a basic solution to the corruption problem in China, while attention should be paid to the privatization process.” It is hard to assure transparency in that process. Transferring ownership is fraught with opportunities for corruption.
Reformers have tried to adapt from agriculture a “responsibility system,” which gives industrial and commercial managers full responsibility for running firms. Yet when the managers abuse this power, they can create a corrupt irresponsibility system, stealing public or collective property. In semi-state and nonstate polities, especially companies and local business networks, Chinese hierarchal traditions often trump the lively Chinese traditions of transparent bargaining.
“Private” and “collective” are often hard to distinguish behaviorally. Management can be more important than legalities, not all corruption involves officials, private firms can be as anticompetitive as local or large “state” firms, and the variety of sizes of companies in an immense nation creates myriad sorts of semi-private management (compare Burnham 1944).
Corrupt officials have been a top concern of Chinese people surveyed during recent reforms, second only to inflation. (Food safety concerns were third on the worry list – up three times during the 2008–12 period; Pew Research 2012.) Despite the high priority that surveyed citizens give for fighting corruption, they are legally inhibited from being whistleblowers. PRC laws against publicizing state secrets are broadly written. If anyone senses that a listed corporation in China has committed an accounting fraud, no agent may file a lawsuit until after the China Securities Regulatory Commission has already punished the company (Opper 2005: 210). So the Party group in this Commission, rather than any court, has first authority to penalize fraud; other actors are not supposed to act.
Campaigns to “strike hard” (yanda) against corruption, such as Bo Xilai led in Chongqing – or former Premier Thaksin Shinawatra in Thailand – have been suspect as factional struggles. They can catch criminals while also purging local rivals of apparently puritanical populist demagogues, who themselves are later found to have been very corrupt. Use of a campaign (yundong) suggests that regular, reliable legal punishments must be ineffective. During these temporary movements, courts become clogged with many cases – so much that Manion claims (2004: 207), “Campaigns were effectively peaks of leniency, not punishment.”
Corruption in the military is particularly difficult to subdue. Liu Yuan, a deputy head of the Army’s Logistics Department (and as son of Liu Shaoqi, a high princeling), gave a 2012 Chinese New Year speech favoring a “do or die” fight against corruption in the PLA. Shortly thereafter, one of his fellow deputy heads in the same department was indicted for selling Army property illegally and was jailed. There are detailed “Regulations on the Performance of Official Duties with Integrity by Leading Cadres with Party Membership in the Armed Forces” – but it is difficult to enforce rules on powerful soldiers (Mulvenon and Ragland 2012).
“Zero tolerance” rhetoric against corruption may be somewhat useful, but the optimal level of corruption is arguably not zero. Manion (2004: 4) quotes Anechirico and Jacobs, who write that, “not only is corruption control costly, but the “pursuit of absolute integrity’ is quite dysfunctional…” (Mulvenon and Ragland 2012).
Measures that seem aimed to reduce corruption can have the opposite result. For example, when Wenzhou’s city government in 2012 suffered decreased revenues because of the global economic slowdown, it sold 215 fancy cars and planned to sell or auction another 1,300 vehicles by the end of the year. This may have seemed a sensible, even puritanical, measure to reduce cadre luxury. (One in every five German Audis in China is government owned, some police cars are Porsches, and a Maserati has been spied with PLA plates; Rabinovitch 2012/1/25.) But it is unclear who buys cars that abstemious local governments sell, at what prices, and with what funds.
A whole state may undertake arguably corrupt acts that it can legalize. A massive example in China was investment in the “Great Third Front” (da san xian), when two-thirds of the entire 1964–71 state construction budget was squandered on non-productive inland factories (Naughton 1991). This was and is not clearly perceived as corruption; the aims of economic Maoists at that time may have seemed patriotic, and the egregious waste might be considered just a mistake. But this extravagance, following the whims (“preferences”) of a small ideological group, objectively and severely hurt a very large group, the population of China. It was at least comparable to corruption, even though it was also an act of state. This gargantuan waste of capital delayed China’s economic rise and prolonged poverty for many, because the money did not regenerate itself. (Earlier, the PRC’s worst economic depression followed the 1958 “Great Leap Forward.” The accompanying famine caused so many deaths, this event is better conceived as a tragedy than a corruption; money is less important than people. Two groups, i.e., Maoist zealots and the general population, are nonetheless identifiable – and Chinese have recently begun to allow exploration of what they did to themselves – see Yang 2012; Dikötter 2010.)
Liberal economist Wu Jinglian, formerly an adviser to Deng Xiaoping, in 2012 said that corruption is holding China back. Wu described China’s stock market as a “casino.” “When you play cards, you should not know what cards are in your rival’s hand, but in China’s stock market information asymmetry is a very big and serious problem.” He said many top leaders agree with him, although some princelings and “special interest groups” did not. Wu protested that “ridiculous” amounts of government money go into huge infrastructure projects – and into SOEs that “decide to expand aggressively, even outside their own industries. They pour a lot of money into the real estate sector, and then you see ordinary Chinese complaining about rising property prices” (Chen and Chen 2012/26/3).
“Rebalancing” consumption and investment, i.e., promoting consumption, was by 2012 a major economic policy of China’s reformers. Many actors resist this, however, because their budgets would suffer from it. Cross-national research suggests that portions of public investment in GDP can be correlated with a perceived-corruption index that is restricted to state (rather than nonstate) abuses. This public investment portion can also be linked to low-quality investment: paved roads in bad condition, electricity losses as a proportion of total power output, faulty telecommunications, and low proportions of railway engines in working order (Tanzi and Daavodi 1997). In China, the increased independence of many collective and private market actors could reduce corruption, even though the PRC government still calls itself socialist. And this same independence allows them to engage more easily in corrupt acts.
The 2011 Wenzhou train crash became iconic for those who felt China was running too fast. Computers at Sinaweibo soon counted 26 million tweets, especially about bureaucrats’ hasty efforts to bury a railcar that had fallen from a high viaduct (Wines and LaFraniere 2011/7/29). A state TV newscaster broke from his script: “Can we drink a glass of milk that is safe? Can we stay in an apartment that will not fall apart? Can we travel roads that will not collapse?” The reformist journal Caixin called the Railway Ministry “a broken system” and paraphrased Lord Acton: “since absolute power corrupts absolutely, the key to curbing graft is curbing power” (Osnos 2012/22/10: 47).
The Party is still largely a family affair, and old elites enjoy their power whether they are corrupt or not. Mao Xinyu, the sole surviving grandson of Mao Zedong and the youngest general in PLA history, publicly admits that his lineage helped his career. He is not known to be very rich. Other princelings are so, however. Yang Jisheng, a CCP journalist, probably overstates when he claims that
The corruption in China is more severe than at any time in history, and what we have today is a market economy ruled by power – every business activity needs assistance or approval from people with power. Say your father is the provincial governor, one word from you means government approval for a real estate deal, followed by several hundred million [renminbi]. What’s the big deal if I give you renminbi 100 million [US$15.7 million] back?
This report adds that
It doesn’t matter if an official’s son is well-behaved or not. Even if you sit tight at home, people will knock on your door and give you money, and businesses will offer you a sinecure. Your name is the shortcut to getting bank loans, land, and other resources. This is caused by the bad system, not necessarily by princelings themselves.
(FT 2012/7/10)
Influence-peddling cannot always be kept secret. Firms needing political relationships (guanxi) retain princelings as “consultants.” A Hong Kong court case arose because of a dispute about the “consulting fee” that Tian Chengang, son of former Politburo Standing Committee leader Tian Jiyun, wanted from Beijing Henderson Properties (or from its parent company in HK) to “build a bridge” to the State Administration of Foreign Exchange. The HK judge wrote that Tian “tried to project an air of superiority … His attitude was contemptuous and disrespectful” when he was asked to explain his demand for a fee of US$5.5 million (Higgins 2012/24/4).
From 2007 to 2011, Chongqing among China’s cities had the fastest growth of multimillionaire residents (Guardian 2012/10/5). Bo Xilai was Chongqing Party chief from 2007 until 2012, when the central government sent a team to investigate “the Bo family’s connections and the alleged huge amount of assets held by the family in Hong Kong.” Bo’s elder brother used an assumed name (Li Xueming) when serving as executive director of HK’s China Everbright International Corp. Bo’s sister-in-law held directorships in at least nine HK companies over more than two decades. Xu Ming, a billionaire in Dalian, the city that Bo governed before moving to Chongqing, helped Bo’s wife to transfer assets overseas (SCMP Staff 2012/23/4). Understandably, the HK government made no comment on the work of this investigation team from the mainland. Strong circumstantial evidence suggests that HK and Dalian actors helped Bo in corrupt activities.
Bo’s family also bought apartments in London’s classy South Kensington district, with ownership technically vested in a shell company called Golden Map, Ltd. No bank loan was needed. Michael Marks, son of Lord Marks of Broughton and descendant of the “Marks & Spencer” company founder, arranged the sale. The Chinese and British aristocracies thus cooperated (Gainsbury 2012/6/27).
Shortly after Bo’s downfall, the party’s official Xinhua News Agency, together with the People’s Daily and China Youth Daily, all published commentaries calling for the political system to be “restructured,” albeit not in a “Western” way. Government news organs called for efforts to “deepen political reform, ensuring that the people are the masters” – and they implied consensus among top leaders at that time (Huang 2012/4/24). But China has many scopes and types of polity, and conservative resistance to such change was strong in medial administrative layers and perhaps among some soldiers. Bo Xilai’s demise was not mainly caused by his corruption. He was purged because his populist policies threatened liberal policy groups and other sixth-generation leaders. Political and economic reform might be somewhat helped by the fall of Bo Xilai (Hu 2012/10/11). Yet his populism (like Thaksin’s) struck some observers as quasi-democratic, despite his anti-liberalism. Other high leaders united against Bo quickly.
Bo wanted power, and he caused a reset of elite politics without determining future policy trends. As Cheng Li (2012/11/4) writes:
All of Bo’s earlier activities were really directed at acquiring a seat on the Politburo Standing Committee or even higher because he sensed – perhaps earlier than others – that the old promotion game was over. [The Bo case] also served as a wake-up call for the party: more systematic institutional mechanisms are needed to deal with corruption, introduce intra-party democracy and demonstrate a real commitment to the rule of law. The leadership also needs to eventually allow for an open and independent media.
These personnel and policy questions go beyond one person’s corruption, even though it was egregious and (except for his wife’s conviction on murder charges) typical of other cases. Hong Kong analyst Willy Lam claimed that, “Compared to other families in the Party, the corruption problem of Bo’s family is not necessarily very serious… And they face the risk of expanding the problem to other Party members” (Richburg 2012/6/15).
Government officials have found myriad ways to take abroad some of the money they have received as bribes in China. In 2004, the former head of the Bank of China in Kaiping, Guangdong, was extradited from the US back to China, after having embezzled US$485 million. Transparency International guessed that “cases such as this one may well be just the tip of the iceberg: research indicates that there may be as many as 4,000 others suspected of corruption or bribery who are still abroad [in 2005]. The total sum of money stolen may amount to 5 billion yuan (US$600 million), according to official sources” (Transparency International 2005: 132).
That was an estimate for just one year, by one NGO. Another NGO called Global Financial Integrity ventured in a report that, over the first decade of the millennium, Chinese took US$3.8 trillion in money out of their country. Presumably the main mechanism for such transfers would be various accounting devices that the Beijing government could not easily trace. That NGO’s director claimed that “The magnitude of illicit money flowing out of China is astonishing.” According to this report, “the outflow – much of it from corruption, crime or tax evasion – is accelerating: China lost 472 billion US dollars in 2011, equivalent to 8.3 percent of its gross domestic product, up from 204.7 billion in 2000” (Dawson 2012/10/25). It is hard to be sure whether these immense figures are correct. It is not at all hard to observe essentially anecdotal confirmations of financial outflows.
VIP rooms in Macao casinos, including those run by Americans Steve Wynn and Sheldon Adelson, attract rich Chinese, many of whom are apparently cadres or cadre-associated entrepreneurs. The origins of the gamblers’ opulence are unclear. It is only clear that their number is considerable, and their purses are full.
Hong Kong’s “Cyberport” was originally billed as South China’s answer to Silicon Valley’s research parks. The local government gave the son of the territory’s richest tycoon (Li Ka-shing) scarce reclaimed land for Cyberport, on which high-rise luxury apartment buildings with a fancy French name (‘Residence Bel-Air’) are now more obvious than research labs. Many of the apartments have reportedly been bought by rich mainlanders. Similar money is flowing into flats and office spaces in the “West Kowloon Cultural District,” still under construction, where an art museum is planned – but the main business there is clearly real estate. Both corrupt and non-corrupt wealth from the mainland has affected Hong Kong and Macao, which are magnets for money flowing into the mainland and out of it.
Some rich PRC citizens move their residences abroad. Three-quarters of applicants for US green cards, under the investor-immigrant program (EB5 visas) in 2011 came from China. Green cards can be had for investments of US$1 million, if they lead to ten full-time jobs in the US within two years (or for half as much, if the jobs are in high-unemployment areas). Canada on July 1, 2011, announced a tranche of 700 available investor applications for the next fiscal year – but the quota was filled within a week. Of the 700 applicants, 697 were Chinese (Chow and Loten 2012/11/5). The sources of the investment money were undoubtedly various.
PRC reformers worked in a structure they could not fully control. Premier Wen Jiabao, for example, was the highest official of his era to speak often of a need for liberal reforms. He had a good reputation for hard work and public sympathy, popularly called “Grandpa Wen,” not deemed personally corrupt. But his son, mother, daughter, younger brother, and brother-in-law reportedly “controlled assets worth at least 2.7 billion US dollars,” accumulated during his period in China’s top leadership. A US State Department 2010 confidential cable, released by Wiki Leaks, “suggested Mr. Wen was aware of his relatives’ business dealings and unhappy about them” (Barboza 2012/10/25). But many wealthy Chinese so revered the state – and the even more important political unit of the family – they intuitively entrusted money to a premier’s relatives. Wen was unable or unwilling to stop them, because family norms (which are sources of power) trumped state norms. This documented corruption was in a collective network that apparently did not include the most famous member. It is rumored by some in China that other leaders’ relatives have stashed away larger amounts of corrupt money more artfully, so that news reporters cannot file stories about them.
Xi Jinping earned a reputation for anti-graft work in China’s most entrepreneurial province, Zhejiang, in 2002. Xi spoke against graft in a 2004 conference call: “Rein in your spouses, children, relatives, friends and staff, and vow not to use power for personal gain.” By 2007, Xi was promoted to Shanghai party chief, after a scandal under his predecessor Chen Liangyu, whose administration had misappropriated US$582 million in Shanghai pension funds.
Bloomberg reporters found public documents showing that Xi’s extended family (but not he or his immediate family) had acquired interests including
minerals, real estate, and mobile phone equipment, [and] investments in companies with total assets of 376 million US dollars; an 18 percent indirect stake in a rare-earths company with 1.73 billion US dollars in assets; and a 20.2 million US dollars holding in a publicly traded technology company. These figures don’t account for liabilities and thus don’t reflect the family’s net worth. No assets were traced to Xi… his wife Peng Liyuan, 49, a famous People’s Liberation Army singer, or their daughter… There is no indication Xi intervened to advance his relatives’ business transactions, or of any wrongdoing by Xi.
(Forsythe 2012/6/29)
The reporters wrote that, “While the investments are obscured from public view by multiple holding companies, government restrictions on access to company documents, and in some cases online censorship, they are identified in thousands of pages of regulatory filings.” They also claimed the extended family (not Xi’s immediate family) owned US$55.6 million in Hong Kong real estate. His elder sister Qi Qiaoqiao (a.k.a. Chai Lin-hing), her husband, her daughter, and a brother-in-law were mostly responsible. Their relationship is not just to Xi Jinping, but also to his father the revolutionary general Xi Zhongxun (1913–2002). Many other old leaders’ family trees became bases for economic trust relationships that were very profitable.
“Princeling” sons and daughters form social groups, often riven between reformers and conservatives. Sometimes they dine with each other at fancy hotels. A Chinese magazine editor rephrased Mao: “Right now, revolution is precisely a dinner party.” These post-revolutionary elites recognize their shared status but do not all agree with each other (Wines 2012/7/17). As Pareto explained long ago, any elite such as the CCP has functional reasons to circulate, balancing its need for adaptive reform with its need to know who in each locality is legitimate to sit at a decision table (Pareto 1901/1979; or Shirk 1993: 116–28). Corruption in China will be reduced when elite reformers trump elite conservatives not just at the top of the polity, but in many smaller political units.
This analysis has attempted new approaches to the study of corruption, which can be summarized as “partial heresies” like the ones posited near the end of the earlier subsection about political mechanisms. First, corruption and quick economic growth have a complex relationship. In many countries, as in China today, high corruption and quick growth have been concurrent. Both involve entrepreneurial willingness to take risks for which social trust is the collateral. But truly “foreign” involvements, e.g. by non-Chinese (or perhaps by puritanical Singaporeans), involves less “social capital” and militates against corruption at least in international commerce and investment, where many of the fastest-growing firms have been exporters. Corruption correlates with some sources of growth, and corruption hinders other sources of growth.
Second, corruption can best be defined as always involving two identifiable groups, one of which receives benefits that many people believe should have gone to the other. Corruption is inherently a subjective, perceived variable – not just because an attitude survey is usually the sole practical way to measure it. As Kuznets noted and Lewis explained, periods of quickest growth (as in China recently) tend to stratify income, creating rich groups that may be seen as corrupt if they are not also seen as virtuously led.
Third, perceived corruption changes over time in terms of the many sorts of uncleanness (usury, embezzlement, lax patriotism, religious heresy, dirty streets) that tend to vary together. Criminologists’ “broken windows theory,” which asserts that obvious minor vandalisms create conditions in which major infractions arise, applies to corruption as well as to neighborhoods.
Fourth, and relatedly, corruption by officials is by no means the only kind. Corruption by cadres of “the state” and many “local states” flourishes during blooms of corruption by unofficial citizens among themselves (and with cadres). Temporary campaigns against corruption are counter-effective. Permanent institutions to combat corruption should have powers to arrest any officials or non-officials on whom they have evidence about violations of impartial laws. They should be independent of all other governmental functions in their regions. Such an institution, the ICAC, already exists in Hong Kong. If it existed in other parts of China, Leninist mechanisms for choosing all state and nonstate leaders on the mainland would be threatened.
A key to cleaning politics is transparency, spreading information. An optimal (not maximal) amount of struggle between interests can achieve this goal. An ICAC on the mainland, more legitimacy for independent lawyers and reporters, well-monitored privatization of companies that remain accountable and transparent to large publics, and similar institutional reforms would regulate China’s boom – and would be resisted by many Party conservatives.
Hu Jintao constantly repeated a mantra about stability (wending) as his main policy. Transparent information about power abuses and corruption can indeed threaten instability, which under some conditions can harm a regime (Huntington 1968) . While the CCP in its present form would eventually suffer from further liberal reform and democracy, China would benefit. China is the most populous nation on earth, and it is in no danger of collapse, even though some of its leaders have an interest in speaking as if the apocalypse were coming. Conservatives may dominate the Politburo Standing Committee even as Xi has replaced Hu (Shi 2012/11/5). It is unclear they can solve China’s many economic problems: the needs to promote consumption and imports, to obtain enough energy and water, to pay for clean-ups of pollution, to continue growth while the portion of the population in the work force declines, to reverse trend of income inequality, and to fight corruption.
Party diehards often beat gongs of paranoia, but long ago a reactionary Italian count advised his fellow conservatives:
In a country in which the parties are strong and well-organized, there is a chance that, since each guards itself against the others … scrutinizers who are morally sound and absolutely independent will be obtained; but it is clear that these guarantees would disappear were a single party so organized and constituted above the rest as never to need worry about them … What do you want to keep, in a world which is being transformed and changed? Do you believe that only you will be allowed to remain immobile? Only you will be allowed to violate with impunity the eternal principles that support creation?
(Pareto 1872/1980: 16–17)
CCP conservatives would serve both their and China’s interests by heeding reformers in their midst, who see dangers in excessive control and fewer dangers in lively enterprise.
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Barboza, D. (2012/10/25) ‘Billions in hidden riches for family of Chinese leader’, <http://www.nytimes.com/2012/10/26/business/global/family-of-wen-jiabao-holds-a-hidden-fortune-in-china.html?ref=world&pagewanted=all>. All <http://…> notes in this chapter bibliography were accessible on 2012/11/13 by entering article titles in Google from a US computer – but this 2012/10/25 note was reported non-accessible from China.
Barboza, D. (2012/9/24) ‘Foxconn factory in China is closed after worker riot’, <http://www.nytimes.com/2012/0/technology/foxconn-factory-in-china-is-closed-after-worker-riot.html>.
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