Trust and Corruption in China

Look at three levels of political corruption:

  1. Corrupt policy makers.
  2. Corrupt government employees, police and military.
  3. Corrupt citizens.

How can you tell if your policy makers – your government – are corrupt? Thanks to the Internet (and lots of surveys) it’s quite simple:

  1. If a majority of citizens consistently say their country is going in the right direction then their policy-makers are probably honest and competent. Policies decide a country’s direction. When citizens do not approve of their country’s direction corrupt politicians are usually responsible.
  2. Do citizens exhibit frustration with inefficiency, incompetence and, of course, corruption of local officials? This is a symptom of corruption at the administrative level: officials are not administering policies fairly or honestly.
  3. Do citizens routinely offer bribes to officials? If this is common custom and widely accepted behavior, then we’re looking at a corrupt citizenry.

According to the most recent country report on human rights commissioned by the U.S. State Department, corruption has remained a “major problem” in Vietnam. Last year, the Vietnam Provincial Competitiveness Index reported a significant jump in the prevalence of bribes. Of the nearly 10,000 Vietnamese firms who participated in a 2014 survey, 66 percent said they usually pay extra informal charges to officials to facilitate business activities; during the previous year, 41 percent of the survey’s respondents said they did so. Vietnam does not release any estimate of how much money officials are siphoning off from the public annually. Country Reports on Human Rights Practices for 2015. So it appears that there’s corruption at the population level and, probably, at Level 2: Government employees.

We also know that corruption exists at both those levels in China, though to a lesser degree, according to the the US’s Corruption Perception Index. But let’s call it a wash.

What about Level 1 corruption? Here we draw a blank for Vietnam. I suspect that the Vietnamese government is not ready to allow international pollsters to sample their citizens’ opinions. My guess is that 90% of Vietnamese citizens’ perceptions of their government depends on the growth in their personal prosperity, which is a function of GDP growth. And China’s growth at comparable stages has been twice as fast as Vietnam’s, despite the immense difficulty of administering such a huge country.

So all we can do is extrapolate from the figures we have for China: according to the Pew Charitable Trusts, “Nine in ten Chinese are happy with the direction of their country (85%), feel good about the current state of their economy (91%) and are optimistic about China’s economic future.”  Chapter 1. National and Economic Conditions.

China gets passing mark in its fight against corruption

Observers say China’s achievements in its anti-corruption campaign over the past 17 years should not be overlooked as delegates from 14 developing countries Monday concluded a visit to China to draw experiences on corruption prevention.

Delegates from Asia, Africa and Europe were invited to participate in a workshop on corruption prevention, and were given a four-day inspection tour for corruption prevention practice in South China’s Guangdong Province.

The Xinhua News Agency reported that Chinese State Councilor Ma Kai told delegates that China is willing to continue cooperation with developing countries to fight corruption.

According to chinanews.com, delegates from Algeria, Croatia and Malaysia said they had learned valuable lessons from China’s anti-corruption campaign.

News of the workshop triggered hot debates on the Internet, with Web users highlighting China’s problems in anti-corruption and expressing doubts over the meaningfulness of the workshop.

Lin Zhe, an anti-corruption expert at the Party School of the CPC Central Committee, told the Global Times that China is facing a tough battle against corruption.

“Ten years ago when people thought about corruption they would think of ministers or governors,” said Lin.

“Now the phenomenon has found its way into lower levels of government,” Lin said on Tuesday.

“The government needs to realize that we need to win this war against corruption, and win it in time,” added Lin.

Liao Ran, senior program coordinator with Transparency International (TI), a global anti-corruption organization based in Berlin, told the Global Times that China has improved significantly over the past 17 years.

“China is the only Asian country that has made such an improvement fighting corruption,” said Liao, who believes that political commitment and financial input are the two key factors in the anti-corruption campaign. –By Bai Tiantian

In discussing the economic implications of corruption in China, three issues stand out. First, most of the academic studies based on cross country experiences have shown that corruption retards economic growth. But China is the outlier. This raises an obvious question of whether China managed to grow so rapidly because of or in spite of rampant corruption. Second, the more a country develops, the more likely it is that corruption diminishes – but in China’s case the opposite seems to be happening. And third, many studies conclude that by contributing to an economic decline, corruption leads to political instability. This in turn has encouraged speculation that corruption in China might eventually lead to political liberalization.

Corruption features prominently in China’s dynastic history, but its current iteration stems, ironically, from the well‐regarded reforms launched by former Party chairman Deng Xiaoping.

Around 1980, Deng began to open China’s economy, paving the way for a hybrid socialist‐market economy. Economies are particularly prone to corruption during such a transition, as we also saw in the former Soviet republics in Central Asia. Deng’s allegedly famous saying that “to get rich is glorious” removed any moral qualms about making money legally or (as it turns out) illegally.

The creation of a “dual‐track economy” with parallel markets and state‐driven activities created the incentive for corruptive interaction among three key players. One is the private entrepreneur who saw the potential to prosper by providing a better product but lacked the resources to do so. Enter player two: a representative of a state enterprise who could provide the resources, especially financing from state‐owned banks. Both, however, needed the blessing of player three, the local official, who almost always was also a party member and had the authority to make the collaboration politically acceptable.

For this process to work there had to be the potential for considerable gain since their interactions were not strictly legal and there were few existing rules or regulations to guide the process. This gave rise in the early stages of China’s opening up to the development of township‐village enterprises (TVEs) – a marriage of private interests with resources controlled by local authorities to establish small‐scale manufacturing activities. These TVEs have been described as pioneering examples of economic reform in China’s initial phase of industrial development. Thus, early on, it was hard to differentiate budding reform initiatives and examples of corruption.

Corruption and growth went hand in hand. In other countries, corruption typically retards growth because it represses investment and investment is the primary determinant of growth. But China is different; if anything, investment has been growing too rapidly rather than too slowly. In the early stages, forms of cooperation such as the TVEs made it possible for more productive investment to occur in a system where the state controlled the totality of resources. Later, corruption in China helped to navigate around excessive regulations and controls in an overly centralized bureaucracy; corruption made it easier to do business. Together, it is easy to understand why, early on, corruption facilitated the growth process rather than impeding it.

But how does one explain why such corruptive behavior did not lead eventually to excessive waste as was the case in Eastern Europe, elsewhere in Asia – notably India, Bangladesh and Indonesia – as well as in Africa and Latin America, not to mention the fragile states in the Middle East?

Unique Administrative System

The explanation lies in China’s unique governance structure. Read more…

Read more at: http://carnegieendowment.org/2015/05/29/truth-about-chinese-corruption/i99k

Recent academic papers begin the formal work of proving that CEOs and giant corporations face a completely different legal system than the rest of us, one in which their vast resources are used to insure that they can safely ignore laws and rules applicable to small fry. One study looked at the influence of corporate lobbying on fraud detection.Corporate Lobbying And Fraud Detection, 46 Journal of Financial and Quantitative Analysis 1865 by Frank Yu of Barclays Global Investors and Xiaoyun Yu of Indiana University available here. From the abstract:

We find that firms’ lobbying activities make a significant difference in fraud detection: compared to non-lobbying firms, firms that lobby on average have a significantly lower hazard rate of being detected for fraud, evade fraud detection 117 days longer, and are 38% less likely to be detected by regulators. In addition, fraudulent firms on average spend 77% more on lobbying than non-fraudulent firms, and spend 29% more on lobbying during their fraudulent periods than during non-fraudulent periods. The delay in detection leads to a greater distortion in resource allocation during fraudulent periods. It also allows managers to sell more of their shares.

Claims that people at her level have avoided execution since the Cultural Revolution ignore some history. In 1983 Zhu De’s grandson was executed for rape (朱德孙子在1983年严打被判死刑) and in 1995 Yan Jianhong, the wife of Guizhou Party Secretary Liu Zhengwei, was put to death for corruption (权力背后的罪恶—阎健宏重大经济犯罪案剖析与思考). According to Hong Kong media Liu was close to Hu Jintao but Jiang Zemin personally intervened to ensure his wife was made an example of (明鏡新聞網: 胡錦濤青睞的劉正威,妻子被江澤民下令處决). Liu Zhengwei just died last month, and his career never recovered (贵州省委原书记、省人大常委会主任刘正威去世). (Sinocism)

The murder of Sunny Sheu:
http://truth-out.org/news/item/10943-the-death-of-sunny-sheu

Other Articles:

  1. China vows to strengthen anti-corruption cooperation with developing nations
  2. China calls for Asia-Africa anti-corruption co-op
  3. ‘Global effort needed to fight corruption’
  4. South Africa should learn from China’s anti-corruption experience: official
  5. Efforts needed to fight corruption: Wang
  6. Premier vows to fight corruption of govt officials
  7. Cross-border corruption emerges in China
  8. China calls for closer int’l cooperation on fighting trans-border corruption
  9. The fight against corruption needs to open a new front
  10. China issues first anti-corruption white paper

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