The cost of corruption in China

Widespread corruption in China is not only eating away at the Communist Party’s legitimacy, it’s also threatening the vitality of the Chinese economy.

When the former NSW premier Barry O’Farrell was forced to resign over a bottle of $3000 Grange Hermitage, it was greeted with disbelief as well as admiration in China.

Chinese citizens admire Australia’s system of political accountability, which holds senior politicians responsible for what other countries may regard as trivial matters.  Many have also made references to Chinese officials’ voracious appetite for fine wines such as Lafite from Chateau Rothschild in Bordeaux and Maotai Chinese liquor.  Paid for by taxpayers, naturally.

In fact, when a senior Chinese military commander was arrested early this year, military police found hundreds of cases of Maotai in his palatial home that is modelled after the Forbidden Palace.  It took four military trucks to load them up.

Widespread corruption in China is eating away whatever is left of the Chinese Communist Party’s legitimacy. Realising the seriousness of the problem and its potential to topple the party, the new Chinese rulers have started a campaign to rein in corruption.

Some media organisations have described it as the most serious anti-graft campaign since China ended the Cultural Revolution more than three decades ago.

The Central Discipline Inspection Committee, the party’s anti-graft watchdog, has arrested 317 senior and middle level officials including more than a dozen ministers and senior executives of state-owned enterprises since 6th of December 2012.

Party chief Xi Jinping, whose own relatives have been embroiled in accusations of graft, has staked a lot of his own political capital to catch "flies" as well as "tigers" in this campaign.  Though the unprecedented crackdown has been warmly greeted by citizens, there are questions about how sustainable the campaign is and whether corruption can be eradicated in a one-party state.

One of China’s leading experts on corruption, professor Qiao Xinsheng from Southwest University of Law and Finance said he was not optimistic about the sustainability of the anti-graft campaign, according to Caixin.

"We don’t know how long this campaign will last -- especially as it approaches the inner sanctum of political power in China. People should not be surprised if this amazing campaign stops due to political compromises within the party," he said.

After all, the anti-graft campaign is a form of political interest exchange and it is a form of redistribution of political power.

Indeed, the campaign so far has exposed how wide and embedded the corruption problem is.  The collapsing empire of the former security tsar Zhou Yongkang reveals a vast network that cuts across so many government departments, party organisations and industries. Yet the Party has been hesitant to go public about the fall from grace of a former member of the standing committee of the Politburo, the most powerful ruling body in China.

Some party members and even economists have made absurd arguments that corruption is a necessary lubricant for economic development in order to urge Xi and his top anti-graft tsar Wang Qishan to go easy on their campaign. They argue that Chinese economic development could drop as much as 1.5 per cent due to the dampening effect on consumption.

But what is blatantly clear is that corruption is posing the greatest threat not only to the ruling party but also to the vitality of the Chinese economy. Corruption increases transactional costs for businesses, undermines the rule of law and also reduces the entrepreneurial spirit in society.

The Chinese Communist Party has to continue the campaign but more importantly, it must improve the country’s institutional settings to constrain the growth of corruption. The city-state of Singapore, which is under effective one party rule, shows it is possible to maintain political paternalism at the same time as eradicating corruption.

As interim measures, the party should relax its grips on the reporting of corruption cases, allowing the media -- especially more independent media outlets -- to expose corruption. A former deputy editor of Caijing effectively ended his career after he publicly exposed a corrupt vice-minister from the powerful National Development and Reform Commission.

The Party should allow the legal process to punish corrupted officials instead of secretive internal party disciplinary procedures.  Doing so will serve to strengthen the rule of law in the country.

The ruling party has been building up some goodwill from its efforts to crack down on corruption. There is no turning back now even if internal opposition within the party wants to derail the process. Chinese citizens are getting increasingly tired of the ubiquitous corruption that pervades many aspects of their life.

As an avid reader of Alex De Tocqueville’s The Old Regime and the French Revolution, China’s top anti-graft leader Wang Qishan must know that the price of inaction is popular revolt. The country is not only at the threshold of reforming its economic structure, people are also crying out for a fair society that includes a clean officialdom.

Peter Cai will appear at The Australian’s “Australia in China’s century conference” on Friday May 30.  For tickets click

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