Why China's Corruption Is So Hard to Clean Up

Last week, during the National People's Congress in Beijing, Zhang Tongxi, the board chairman of Datong Coal Group in Shanxi, told delegates that in order to open a new coal subsidiary, he had to contact 33 government departments and sub-units, show them 147 documents of various kinds and obtain 205 different permits.

That is at least partly at the root of a system that has enabled thousands of government officials in China to steal an estimated US$128 billion and move it overseas, although nobody knows for sure just how much money actually has fled China.

Li Keqiang, the incoming prime minister, told the NPC that more than 1,700 items need administrative approval by government departments under the State Council. Li, who is considered to possess substantial fangs as a reformer, said the government is determined to cut the number of required approvals by a third during his term of office.

"We want to give the market back the hand that has mistakenly been attached to the government," Li said during a press conference after his coronation as premier. "This is to reduce power, a self-revolution which could be very hurting. We must have the determination to cut off the hand like a warrior."

Li is an acolyte of former Premier Zhu Rongji, who declared personal war on corruption during his five years in power from 1998 to 2003, and who broke up the massive Xiamen smuggling ring run by Lai Changxing. Li, like Zhu, stormed into office after being named last November with a mandate to clean house.

But whether he can cut off any hands is very much open to debate. Zhu Rongji, for all of his grim determination, made a relatively small dent in the system. Cadres reportedly have already been begging that Li and Xi Jinping, the incoming president slow their campaign against corruption because it is cutting steeply into some sectors of the economy. Some 27 top cadres have been identified and removed in the campaign against corruption.

Beijing's tough ban on officials dining and wining at public expenses or being treated by business people with fancy meals has begun to hurt badly the business of high-end restaurants across the country. As a result, the growth of business revenue of China's catering industry slowed markedly in the first two months of this year. For example, in Guangzhou, the "paradise of dining and wining," revenue of high-end restaurants dropped by 20 percent annually during the January-February period. Many such restaurants now offer less expensive menus to cater to middle- or low-end customers.

Reportedly luxury properties are being put on the market in Beijing, Shanghai and Guangzhou, according to a report by the Central Commission for Discipline Inspection, in a wave of sales that "began last November and has accelerated since December."

During this year's NPC session, deputies were also served simpler meals and were careful to leave the expensive jewelry at home and didn't arrive at the Congress site in fancy cars.

The breakup of the Railway Ministry, made official during the NPC conclave, is a case in point. The Ministry of Transportation will take over the discarded ministry's administrative functions while a private company will be created to handle commercial operations. The ministry has long been criticized as corrupt on a massive scale. In 2011, Liu Zhijun, the architect of the country's high-speed rail system, was arrested for corruption and expelled from the Communist Party, accused of accepting more than US$160 million in bribes. Liu's trial was reportedly delayed until after the NPC conference to avoid further embarrassment. He is expected to be executed, sources say.

Zhang Shuguang, the deputy chief engineer and deputy chief designer of the system, was sacked after having allegedly misappropriating even more - US$2.8 billion - into his overseas accounts in the United States and Switzerland. His wife reportedly owned three mansions in Los Angeles.

The number of corrupt officials fleeing China is a sign of the seriousness of the government's attempt to tackle corruption, according to Xin Haiguang, writing in China's Economic Observer. A 2011 report by the Bank of China, titled "How Corrupt Officials Transfer Assets Overseas, and a Study of Monitoring," using statistics compiled by the Academy of Social Sciences, estimated that as many as 18,000 Communist Party and government officials and others had fled the country with a missing RMB 800 billion.

"The Bank of China emphasized the fact that nobody, up to now, has been able to provide an authoritative figure of the exact sum pilfered, and the recent figure of 800 billion yuan is only an estimate. It is nonetheless an astronomical sum," "It is equivalent to China's total financial allocation for education from 1978 to 1998. Each official stole, on average, an estimated 50 million yuan (more than US$7 million).

"But if corruption, dereliction of duty and the abuse of power are the norm, then this escape of corrupt officials represents the corruption within a corrupt system. It highlights multiple embarrassments in China's anti-corruption campaign."

Among these embarrassments are that in a country where capital outflows are theoretically strictly controlled, officials nonetheless manage to transfer their money out, Xin writes. They are able to change their identities relatively easily, gaining authentic passports under assumed names. One arrested official had five valid passports. They escape punishment because China hasn't signed extradition treaties with the US or Canada, the main destinations, and if they do get caught, the stolen funds are rarely recovered.

Xi and Li have begun by talking tough. But, as many analysts have pointed out, they are firmly wedded to the Communist Party system, which has no intention of sharing power.

"The efficient solution would be to establish a clean system where nobody dares to become corrupt. Certain media have suggested the implementation of a property declaration system," Xin writes. "This would be like using anti-aircraft guns to fight mosquitoes. Still, at least it is a weapon that knows its target."

There seems little chance of that. Li Keqiang has said the government won't be building new offices or guest houses, that the number of government employees will be reduced and that China's version of the License Raj will shrink, presumably reducing the opportunities to collect bribes.

But the system won't change. And during his press conference, Li didn't mention reformers' calls for a regulation requiring that government officials disclose all family assets - of which outgoing Premier Wen Jiabao's family allegedly controls at least $2.7 billion according to the New York Times.

Xi Jinping's extended family controls investments in companies with total assets of US$376 million, an 18 percent indirect stake in a rare- earths company with $1.73 billion in assets; and a $20.2 million holding in a publicly traded technology company, according to Bloomberg. Forbes magazine in 2011 reported that more than 90 per cent of the 1,000 richest people in the Forbes China 400 Rich list were either officials or members of the Communist Party. China's Hurun Report lists the net worth of the five wealthiest cadres at the National People's Congress at US$34.8 billion. Hurun listed 31 US dollar billionaires among the NPC delegates this year, plus another 52 in the Chinese People's Political Consultative Committee.