China’s Corruption Crackdown Gets Serious

For anybody who believes the crackdown on Chinese corruption by President Xi Jinping was just for show, the numbers of those who have been disciplined or arrested so far are breathtaking. According to figures compiled by the Hong Kong-based Reorient Securities Ltd, they include 24 provincial officials, 23 vice-provincial ones, 204 prefecture officials,3,003 county bureaucrats and 40,579 local government ones. In China’s command economy, the ability of officials to hand out approvals is a ticket to corruption. Virtually every license, approval, endorsement, authorization or sanction carries the opportunity to demand payment on the side. The result has been a staggering amount of money that has flowed out to gambling houses in Macau or to as far away as the British Virgin Islands, much of it round-tripped back into China as supposedly legal investment. According to a report released by the NGO Global Financial Integrity in December 2012 and entitled Illicit Financial Flows from Developing Countries 2002-2011, US$1.08 trillion was spirited out of the country illegally during the decade, a major part of it via trade mispricing in Hong Kong, where authorities finally cracked down dramatically in mid-2013 in a move that actually affected the country’s import-export figures. Throughout the administration of former President Hu Jintao and his premier, Wen Jiabao, corruption was allowed to fester beyond imaginable limits, with Wen’s own family reported to have amassed a huge fortune. Even with today’s cleanup, however, and with the tens of thousands of disciplined or arrested party officials, as long as the command economy continues to exist, the opportunity to take money on the side will exist with it. Nonetheless, Xi is determined to preserve the Communist Party system. And to do so, in November 2012 the incoming party boss ordered Wang Qishan, a brusque Politburo Standing Committee member and Secretary of the Central Commission for Discipline Inspection – and protégé of former Premier Zhu Rongji – “to go after the tigers as well as the flies.” Wang accordingly became China’s top anti-graft watchdog. Wang has fought what has been the toughest anti-corruption battle since Zhu himself came to power in 1998 with a major cleanup. The campaign against corruption appears to go well beyond any previous crusade and is reaching deeply into official and civil society. It has been widely reported that the crackdown had a dramatic effect on sales of baijiu, the fiery liquor that the late premier Zhou Enlai used to toast Richard Nixon when the latter made his historic visit to China in 1971. Sales of luxury cars to party officials have also fallen sharply. During party-wide meetings in Beijing, officials have been known to leave their expensive watches at the hotel and take taxicabs to the meetings instead of being chauffeured in gleaming black sedans. The World Wide Fund for Nature in Hong Kong estimates that sales of shark fins from Hong Kong to China have fallen by 90 percent. And while the drop in demand probably owes considerable to growing environmental concerns over shark massacres across the world, prices are also falling for abalone and birds’ nest, two other major banquet ingredients. As with Maotai, the most potent of the baijiu liquors, they are both for gifts as presents as well as for personal consumption. For months, Zhou Yongkang, former Politburo Standing Committee member for 2007-2012 and the highest-ranking Chinese official to come under suspicion, has been rumored to be about to be charged. Charging such a high-ranking official is unprecedented. Two other top officials were Liu Han, the ex-chairman of the state-owned Chinese energy conglomerate Sichuan Hanlong Group, and his younger brother, Liu Wei. Liu Han was sentenced to death for crimes including murder and leading an organized crime group. Liu Wei, received the same sentence. The Liu brothers and their associates have been charged with 15 crimes, including murder, assault, illegal detention, blackmail and operating casinos. Other officials include former Chongqing governor Bo Xilai, now serving a life sentence, and trains boss Liu Zhijun, who was given a suspended death sentence in 2012 that will likely be commuted to life imprisonment for bribery and abuse of power. Other “tigers” include Xu Caihou, former secretary of the party central committee, Song Lin, chairman of state-owned China Resources, Yi Junqing, bureau chief of the Central Compilation and Translation Bureau, Huang Baodong, manager of the Power Construction Corporation and Shen Weiuchen, Group Leader of the Association for Science and Technology. The crackdown “is so real that it is beginning to have unintended consequences,” wrote Dr Jim Walker, the head of the Hong Kong-based Asianomics Ltd., a financial advisory firm. ”The people who are not yet under investigation are running scared of becoming so. China may well be about to parallel India’s experience in the last five years in this respect. As the Manmohan Singh government became increasingly embroiled in corruption scandals, policy paralysis engulfed the bureaucracy.” Private entrepreneurs, the usual allies of a government attempting to clean up bureaucratic corruption, are frightened, Walker wrote. “While they are victims of corruption they have also, in many respects, been its beneficiaries as well," Walker wrote. “As business associates of high profile political figures are arrested this is causing smaller entrepreneurs and business people to avoid taking investment decisions or undertake dealings with various levels of government.” Local and provincial government officials are increasingly worried about approving projects in case they are accused of corruption. In India, Walker wrote, this process of policy paralysis led to a major downturn in capital spending and sharply lower growth. In China, where the fragilities in the system are even greater because the ability to service debt relies so much on fast growth, the danger of even faster economic deceleration is real.