The extent of sleaze and implicit corruption at the highest levels of government in Hong Kong is gradually being unmasked, contributing to the popular discontent and social unrest evidenced by a surge in local protests and confirmed by opinion surveys.

Last week the territory's Ombudsman, an official who normally contents himself with focusing on bureaucratic stupidity rather than greater evils, lambasted the administration for its failure to enforce land-use rules in the New Territories – the formerly rural areas that cover most of Hong Kong's land area.

Although the Buildings Department received 2,400 complaints of illegal structures it removed only 13 percent of them. The Lands Department received 2,161 complaints but removed only 5 percent. Incredibly, it transpires that the departments only take action if buildings are in process of construction. Once completed they are almost invariably left alone, providing a stream of profits for illegal works.

There can only be two reasons why the government so deliberately fails to enforce its own laws: either officials are being paid off, or they are afraid of the career or health consequences of challenging the clans who control much of the New Territories through a body known as the Heung Yee Kuk which is supposed to represent the “indigenous villagers.” Although these so-called indigenous villagers are now only a tiny part of the New Territories population of about 3.7 million (slightly over 50 percent of the Hong Kong total) the Kuk has immense influence not only on local administrators but at the highest level – the Executive and Legislative Councils, of which the Kuk's boss Lau Wong-fat is a member.

The scandal of failure to implement land use laws is directly linked to another scandal directly involving Lau. He was found to be the owner of a huge number of hitherto undeclared pieces of land in the New Territories. These should have been declared, according to the rules of Exco and Legco, and Lau excluded from any decisions relating to the use of any of them. In a society not run by a clutch of untouchable insiders, Lau would most likely have been asked to resign. But Lau's influence was such that he got off with barely a slap on the wrist, the failures to disclose being blamed on oversight by his staff.

The failure to enforce laws has resulted in the gradual despoliation of much of the New Territories particularly the flat land, with an unplanned mess of low rise housing, container parks and old car dumps. It has exaggerated the consequences of what is known as the “small house policy” whereby every indigenous male villager over 18 years old is entitled to build a 2,100 square foot, three-storey house on a 700 square foot plot. There is a constant supply of new 18-year-olds and endless demand, mostly by absentee “villagers”, to build houses for rent to the rest of the population.

This feudal system is presented by the Kuk as being a traditional right. In fact it dates only to 1972 and was an administrative convenience at a time when Hong Kong's urban area began to expand into the region. For reasons best known to itself the government has never even tried to change its policy despite the scourge of unplanned development which has resulted.

Meanwhile those with influence have evidently continued to get away with ignoring building regulations. One of those who was finally found out – by the media, not by officials -- was an architect cousin of Tsang who for years got away with building a huge house and swimming pool on what was supposed to be a warehouse leased from the government. This person had been, among other government-appointed posts, a member of the Town Planning Board.

Meanwhile Lau's lordship over the New Territories has been strengthened by his own political connections with an increasingly sleazy Communist Party. Lau left the Liberal party, which mainly represents business interests, to join the Communists' proxy party, the Democratic Alliance for the Betterment of Hong Kong (DAB) indicating that Lau and his landlord class and the Kuk's blatant sex discrimination now have Beijing's formal blessing.

Meanwhile another close friend of both the chief executive and Beijing is showing all the contempt for the peasantry that landlords did in pre-revolution China. That is the New World group, a group which is now a major developer and controls important utilities including government-regulated buses and ferries. New World and the government had previously been investigated by the Legislative Council for the way it had recruited an early- retiring permanent secretary for housing, planning and lands, Leung Chin-man, who had been at the centre of a controversial sale of a government housing development to New World at what seemed a cheap price.

Developers are well known for hiring former officials who either have given them breaks in the past or can be expected to use their inside influence to get future benefits for the company. New World's best known recruit before Leung was Tsang's brother, former police chief TsangYam-pui.

New World treated public and Legco criticism of the Leung episode with contempt. Although the original job offer was withdrawn, Leung has now been appointed to a consultancy with another part of the group. Meanwhile New World appears to be using its financial muscle and bully instincts against the inhabitants of Hong Kong's largest private housing estate, Mei Foo, developed as a single estate in the 1970s and 1980s. Residents there have been up in arms over consent given via the back door to New World to develop what had been a low-rise gas storage facility within the estate into a high rise block impeding views, light and air.

New World now officials claims not to own it but the new owner, Billion Star Development , shows every sign of being related to New World – though given the ease with which ownership can be hidden this is not easily proven. Billion Star is now threatening the peaceful middle class protesters with legal action for damages.

No wonder then that many of Hong Kong's long quiescent middle class property owners are angry at a government so obviously in the pocket of New World and its ilk. New World, through subsidiaries, is known to have been the largest contributor to Tsang's campaign funds for the small-circle election to chief executive in 2007. It is also thought to be one of the main contributors to the DAB's coffers – contributions to the Communist front party far exceed those of all the other parties combined.

New World's behavior may come as no surprise given its ancestry – its privately owned parent Chow Tai Fook – in the gold and gambling business in Macau. But its influence in today's Hong Kong, like that of Lau Wong-fat, is indicative of just how far the territory's political and institutional development has fallen behind its levels of income, education and enterprise. Both too attest to the Chinese Communist party's affinity with the underside of capitalism with feudal characteristics.