No shark fin soup for Christmas

Austerity measures for China's military shows how keenly Beijing wants to be seen clamping down on corruption. But proper economic rebalancing requires a far broader attack.

In 2011, Australia Post workers received a $500 Christmas bonus. Despite a 16 per cent rise in profit for the company compared to the previous year, workers were disgruntled to hear that they would only receive a $100 Christmas bonus voucher – redeemable at Australia Post outlets – and $60 worth of stamps.

If you feel some sympathy for our postal workers, spare a thought for China’s hard pressed military officers. The Chinese military budget has been growing at double-digit rates for two decades, with an 11.2 per cent growth in 2012. But senior officers of the People’s Liberation Army have been told to knuckle down by the Central Military Commission, the country’s peak military decision making body.

As official state-media Xinhua reported last week, luxury banquets and alcohol has been banned at receptions. Delicacies such as shark’s fin and turtle soup will be reportedly off limits, as is partaking in the miracle benefits of ginseng-laced concoctions. Red carpets, elaborate floral arrangements and other expensive decorations will be severely curtailed. Luxury ‘civilian’ hotels will become a rarity for officers on overseas trips, and room service and other ‘entertainment’ expenses will be cut -- even if there is no word yet on the appropriateness of first and business class travel. And to rub more salt in the wound, spouses, children and relatives will no longer share the trappings of office.

The comparison of austerity measures between Australian Post workers and PLA officers is obviously meant in jest. Slashing an already modest Christmas bonus is not comparable to Chinese banquets for military and civilian officials that can cost thousands of dollars per head. But there is a serious point to the article. The CMC's announcement was given prominent exposure in state-owned media. Fourth Generation leaders such as Premier Wen Jiabao have repeatedly warned that official corruption could mean the end of the Chinese Communist Party – a mantra repeated by the incoming Fifth Generation.

It is common to assume that the sincerity of the top leadership to clamp down on corruption is genuine. This was called into question by seemingly credible revelations in The New York Times that lead anti-corruption crusader, Premier Wen Jiabao, and his family were worth a cool $US2.7 billion. Even so, the prospect that corruption could bring down the Chinese Communist Party is real and well known to Chinese officials. The problem is that eliminating corruption among a small coterie of leaders is relatively easy. Fixing the problem when millions of officials throughout the whole governing structure have their hands in the till is far more difficult.

Official corruption comes in many different forms. The most obvious is graft, or outright theft. According to a Chinese Central bank report in July 2011, some 16,000-18,000 officials have stolen more than $US120 billion, and fled overseas since the mid-1990s. That’s around $US7 million per official, with America, Canada, Australia and Europe being the most popular places to deposit the ill-gotten proceeds.

Large as it is, officials fleeing China with public money is not the most pressing problem for Beijing. Systematic corruption – where corrupt activity and outcomes are a ‘normal’ part of doing business -- is far more insidious and difficult to root out. As anyone who does business in China would know, the CCP is at the centre of economic activity in the country. Even after three decades of reform, the CCP still largely controls the allocation (and classification) of land, capital and even labour. Party committees exercise power through rules that regulate the activities and opportunities for corporations. As a result, the CCP remains the dominant dispenser of economic and commercial opportunity in the country. In an environment in which the rule-of-Party will win out over the rule-of-law in the event of conflict, the source of systematic corruption is the intimate relationship between money and political power at all levels of government.  

It is true that the CCP is not one homogenous entity speaking in one voice. But its vast, unaccountable governing structure is part of the problem. Modern China is the second most-governed country in Asia (by number of officials per capita) after Malaysia, even if it is rated one of the poorest governed lands in the region. During the Tang Dynasty (AD 618-907), there was one official for every 2,927 people. During the more recent Qing Dynasty (1644-1911), there was one official for every 299 people. In today’s China, there are up to 50 million officials, amounting to about one official for every 27 people.

As in any country, there are many hard working and honest officials. But the decentralisation of power to millions of officials, combined with a general environment of opaqueness and unaccountability means that the temptation for millions of officials to abuse their power and enrich themselves is enormous. This temptation is even more pronounced in a political-economy in which the connection between state-owned-enterprise managers and CCP officials is intimate, and SOEs (or partially privatised but still state-controlled entities) remain dominant. Indeed, the quasi-privatisation of state assets and opportunity in the 1990s actually increased corruption since well-connected insiders were the primary beneficiaries of these moves.

Note also that CCP officials have influential and often decisive say in the allocation of capital in driving the country’s state-led fixed investment growth model. This generates rapid growth, but also expands the opportunities for kickbacks. (And for those that believe that there this is a victimless activity, wait for the true state of non-performing loans to show up on the books of banks. Beijing had to force banks to roll over at least $US1.7 trillion of maturing loans in 2011 alone, in order to prevent these loan assets from becoming classified as non-performing.)

It is no wonder that becoming an official is seen by many as a ‘lucrative’ career option. This perception is supported by numerous surveys that indicate that well over 90 per cent of the richest 1,000-10,000 people in China (depending on which survey you use) are CCP officials or their family members.

Back to the clampdown on corruption…

If China continues to grow economically, who cares? Well, the Chinese citizens care, and they are the ones voicing their discontentment through millions of uncensored blog sites among its 500 million internet users. In 2011, there were an estimated 184,000 instances of ‘mass unrest’ against government officials, according to Beijing’s own figures, most of these against officials’ corruption in various forms.

Remember also that the challenge for China is to ensure that the majority of its citizens enjoy a greater share of the country’s growing wealth. Increasing calls for ‘economic rebalancing’ towards greater domestic consumption depends on it. Systematic corruption limits the opportunities for the vast majority who are still ‘outsiders’ in the country’s state-dominated economy. Any economy wanting to emerge from the ‘middle-income trap’ needs opportunity and reward to be based on commercial merit rather than political connection. These are not economic principles based on biased Western indulgence or cultural imposition.     



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