Bo Xilai Conviction Won't Curb Chinese Corruption

One cannot open a Chinese newspaper these days without seeing a story about corrupt officials being hauled up. Is it then the beginning of a cleansing process as promised by China's President and Party Secretary General Xi Jinping?

It sure is. China's new leadership is speeding up efforts to crack down on corruption, the most prominent example being the recent life prison sentence for a Red princeling, former Party Chief of Chongqing Bo Xilai. But chances are that bribery and corruption will continue unless China first undertakes key reforms to reduce private benefits from corruption and increase the perceived costs.

In recent decades, it's become almost routine. Each new administration starts off with a political anti-corruption campaign but without the constitutional reforms to check official power. Other than taking out a few in opposing political factions, these earlier campaigns mostly served to make corruption worse. This time can be different, but several reforms are a prerequisite.

First, China must curb the rewards from corruption, which have grown tremendously, making it hard to resist. To put this in perspective, we should note that during the Qing Dynasty, government revenue was low; for example, during the mid-18th century, the government took in about 50 million taels of silver, roughly equal to the annual income of 2 million Beijing residents.

Under the People's Republic of China, in 1995, fiscal revenue equaled the disposable income of 150 million urban residents. But, by 2012, total fiscal revenue was RMB 11.7 trillion, or US$1.91 trillion, equal to the disposable income 477 million urban residents. Thus, without taking into account land sale proceeds and state enterprise profits that went into government coffers, today's relative fiscal income is 238 times as large as that for the mid-18th century imperial Qing government and more than three times as large as just 18 years ago.

Fast-growing government budgets have unquestionably created increasingly more and larger opportunities for corruption. This is particularly true after the 2008 financial crisis, as China's RMB4 trillion stimulus package led the way to numerous infrastructure projects including high-speed railway lines, airports and subways. The amount of money controlled and spent by the government is unprecedented and so are the incentives to engage in corruption.

To reverse this trend, the power of taxation, both explicit and implicit, must be checked and balanced, which requires constitutional reforms and a free press. Without a functioning constitutional system, the ever-increasing potential rewards make corruption too attractive.

Second, positions of power and the number of employees on the government payroll have expanded significantly, creating more room for corruption. According to Ren Yuling, a member in the National Congress of Political Consultation and advisor to the State Council, the ratio between government employees and the general population was 1 to 7955 during the Han Dynasty, 206 BC to 220 AD; 1 to 910 during the late Qing Dynasty, 1644 to 1911; 1 to 67 at the beginning of recent Reforms in 1979; 1 to 40 as of 1995; and 1 to 19 in 2005.

According to an estimate by Professor Zhou Tianyong of China's Central Party School, there were more than 70 million government employees in 2005, many of whom possessed power over sizable budgets or controlled approval authority for various industries. The real estate industry, which has experienced tremendous growth and created the most wealth in the past 15 years, is particularly prone to corruption as each local government has absolute monopoly over land supply for development and no one else can sell land for, or approve, a real estate project.

There is also limited oversight on the expansion and exercise of power besides what is provided by the Communist Party committees. The Anti-Corruption Bureau, the National Auditing Bureau and other similarly intentioned institutions do not act independently of the party. Neither do the legislature and the judiciary provide independent checks and balances on offices of the executive branch. As a result, people in positions of power have often served themselves well by expanding boundaries of their power. The National People's Congress has not held any public hearing to examine or define a ministry's power.

There have been several rounds of government downsizing in the past three decades, with the most recent one during 2003-04 when then incoming Premier Wen Jiabao took charge. However, due to the lack of external check-and-balance institutions, each round of downsizing has been followed by a larger government bureaucracy and more government control.

Third, media freedom is restricted, helping to lower the private cost of corruption even further. Until recently, the widening adoption of the internet and mobile devices for news and information had provided a relatively free platform for uncovering and reporting official misconduct. Since 2009, the Chinese Twitter-equivalent service, Weibo, had been especially effective in making every user a reporter, filing short reports with pictures from everywhere they went, leading to numerous corruption-related investigations and arrests - the most important being Liu Zhijun, the former railway minister sentenced to death, with reprieve, in July for collecting bribes for more than 25 years - and putting Chinese officialdom on alert.

Unfortunately, many officials viewed Weibo-based anti-corruption efforts as political activism, threatening China's sociopolitical stability and challenging the party's rule. With the detention and arrest of online opinion leaders and activists since July, the recent government campaign to ideologically cleanse the Weibo space has succeeded in silencing critical voices, dramatically raising the cost of reporting corruption. Anyone posting a Weibo comment containing a numeric error or other false information can face a criminal charge if the comment is reposted more than 500 times or hit more than 5000 times. Given the Weibo population of more than 500 million in China, 5000 hits is not a serious hurdle by any measure.

With the threat of arrest growing, Weibo has become quieter and officials of power can go back to their old habits, without worrying about being caught on camera.

The Bo case is another telling example of how an anti-corruption trial could be conducted without affecting the fundamentals of corruption. His trial should really have been about his gross abuse of power and disregard for law during his years in offices. As the party chief in Chongqing from 2007 to 2012, he organized and led a mini Cultural Revolution, ignoring due process and legal procedures and using police and other forces to go after political opponents and disobedient business owners.

Instead, his trial was transformed into a soap opera of a "sex, love and violence" triangle affair among his wife, his Chongqing police chief and himself. The only corruption-related accusation against him was the relatively minor bribes that his wife and son were alleged to have received while he was the mayor of Dalian before 2004. The trial did little to address loopholes in the governance structure of power that have made it possible for such gross abuse of power and corruption to occur. The Bo trial was a wasted opportunity to reflect on the institutional system and ignite reforms to move China towards a functioning constitutional democracy.

Constitutional reforms, transparency and free speech are needed if China wants to fight corruption. Periodic political campaigns, even the dramatic sentencing of a top official like Bo can produce newspaper headlines but have limited lasting effect on official behavior.

(Zhiwu Chen is professor of finance at the Yale School of Management. Reprinted with permission of YaleGlobal, the publication of the Yale Center for the Study of Globalization)