The Origins of Chinese Crony Capitalism

The UC San Diego School of Global Policy and Strategy and the 21st Century China Program are host to some of the world’s leading China watchers. In this column, China Focus blogger Chutian Zhou sits down with Minxin Pei, an expert on Chinese politics, authoritarianism, and US-China relations, and asks him several questions about China’s crony capitalism and the Communist Party of China’s governance.

This article is co-published with JIPS Blog.

Since the beginning of China’s reform period in 1978, corruption has become an increasingly salient issue. As the economy liberalized, opportunities to extract payments- especially with regards to land sales- became ever more prevalent. The issue reached a tipping point with the Bo Xilai scandal in 2012, in which Bo, a rising star and a “princeling” in the Communist Party, and his wife Gu Kailai were accused of murder, corruption, bribery, and fraud. Amid what seemed to be a spiraling vortex of corruption, China’s leader Xi Jinping vowed to wage war on all forms of corruption, whether “tigers or flies.” This crackdown on corruption is one of the defining features of Xi’s administration, and has raised great debate within and outside of China about how best to reduce corruption.

Minxin Pei remains cynical about Xi Jinping’s great volley against graft and corruption. As he argues in his latest book, China’s Crony Capitalism: The Dynamics of Regime Decay, whether Xi likes it or not, China remains trapped in a situation where crony capitalism——the marriage between power and money (权钱联姻)——is eroding the Communist Party of China (CPC). For Pei, the origins of the current situation can be found in the Tiananmen crackdown that happened more than two decades ago. Common China watchers treat this incident as a tragedy conducted by the state apparatus, focusing on the oppression and victimization of the protestors.[1] However, they may have overlooked the overarching point of the whole incident: the “liberal reformers” at the upper level of the hierarchy were purged and from then on, China started “walking on two legs” (两条腿走路).[2] On the one hand, authoritarianism was bolstered and the high-scale political liberalization was absolutely denied by the Party elders (Deng Xiaoping, Li Xiannian, Chen Yun, Deng Liqun) and their much younger “disciples” (Li Peng, Yao Yilin, Chen Xitong). On the other hand, the open market economy was unprecedentedly emphasized during Deng Xiaoping’s “South Tour” and later formally settled in the 14th Party Congress. As Pei puts it, this dual “economic development strategy under an authoritarian regime” unavoidably led to the emergence of crony capitalism.

What particularly defines China’s crony capitalism is the “collusion between political elites and private businessmen.” In a one-party state with insufficient supervision and disciplinary authority, officials’ political power can be converted into wealth quickly via “colluding partners in the private sector.” For the cadres, a position in the Party is still their top priority. They are unwilling to exit (下海) and devote themselves to the private businesses with the concern that this kind of “disloyalty” will provoke “wrath of the Party.” So a cleverer way to amass wealth is to “set up their immediate family members in business or to find partners in the private sector.” “Large tigers” hunted down in recent years such as Su Rong (former Vice-chairman of the Chinese People’s Political Consultative Conference), Bai Enpei (former Party Secretary of Yunnan) and Ai Baojun (former vice mayor of Shanghai) were all believed to have received enormous amounts of bribes through this method. In addition, it is unsurprising that many Party elites- even though they appear clean so far- have allowed their immediate family members to be involved in profitable businesses. For instance, (former Chairman of the NPC Standing Committee) Li Peng’s son Li Xiaopeng has spent many years acting as the chief executive of China Huaneng Group. Zhu Yunlai, the son of (former premier) Zhu Rongji, served as CEO of China International Capital Corporation between 2004 and 2014.

It is true that the collusion of power and money can actually be found in every country. In the United States, politicians frequently interact with interest groups, which usually consist of CEOs of big corporations. So what makes the Chinese power-money marriage so special? Pei explains it is because in China, power controls lots of money. The government intervenes in the market frequently, and there is a long list of state-owned enterprises dominating strategic and lucrative domains. The Party’s untouchable role and its spreading tentacles into remunerative arenas will eventually result in rampant “crimes committed through the use of one’s office.” (zhiwu fanzui, 职务犯罪). Pei’s statistics, presented in his latest book, show that “during the five year period of 2008–2012, the Chinese procuratorate filed 165,787 cases of zhiwu fanzui involving 218,639 individuals, including 13,173 officials holding the rank of county or chu (department) and above.”

Many top-level Party cadres featured in corruption scandals, such as Zhou Yongkang, Bo Xilai, Ling Jihua, Guo Boxiong and Xu Caihou, were daredevils as well.[3] But the interesting thing within Chinese politics is that the Party rarely executes the elites, even though they might be severely corrupt or have ulterior political ambitions. Pei’s explanation is that executions have great repercussions, which could cause other elites to no longer remain loyal to the Party.

Pei also suggests that China watchers look beyond the face value of President Xi’s hallmark anti-corruption campaign. It is true that Xi’s sweeping campaign has brought down countless cadres, including the aforementioned five tigers. However, it is noteworthy that they were all charged with “political conspiracies”  as well, suggesting that Xi’s campaign may be more about power consolidation and less about purity of the Party. Zhou Yongkang, for example, was later found to have received enormous bribes when he was the head of the China National Petroleum Corporation, Party Secretary of Sichuan and the Minister of Public Security, but he was promoted to the Politburo Standing Committee anyway (daibing tiba, 带病提拔). The extent of this corruption implies the absence of a reliable external oversight body. Relying on factional battles (i.e. Xi versus five tigers) rather than an efficacious mechanism to eradicate the corrupted cadres casts doubt on the methods of contemporary CPC internal governance. The only way to effectively solve this problem, Pei argues, is to have a discipline inspection institution with its own legal status and outside of the Party’s control.

In other words, the problem of crony capitalism in China originates from the Party’s monopoly on power combined with the quasi-capitalist design which does not have its roots in the rule of law. Pei is skeptical that China will be able to turn the corner on its corruption problems. He argues that recent policies and indoctrination efforts within the Party suggest the Party is consolidating power, and that Xi plans to rule the country for another 10 years. Instead of allowing outside monitoring, the Party is assiduously indoctrinating its subordinates in the gospel of “conditional loyalty is unconditional disloyalty” (忠诚不绝对是绝对不忠诚) [4].


[1] The CPC later considered the rampant protest as a conspiracy organized by some “people with ulterior motives” who colluded with foreign agitators to overturn the Party under the mask of democracy movement. This eventually incentivized the CPC to suppress the protest.

[2] Here I replicated the term “walking on two legs” used during the Great Leap Forward, which originally referred to the combination of simple technologies with advanced industrial technology.

[3] To be clear, the five were arrested not simply because they were greedy financially and corrupt in their lifestyles. They were also engaged in “conspiracy activities,” as the General Secretary Xi Jinping told the 6th Plenum of the 18th CPC Central Committee.

[4] The statement of “conditional loyalty is unconditional disloyalty” is put forward by (Party Secretary of Tianijn) Li Hongzhong.


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Chutian Zhou

Chutian Zhou has a multidisciplinary background in journalism, finance, political science, and data science. He graduated from the School of Global Policy and Strategy (GPS), UC San Diego in 2017, and later obtained his second Master’s degree from Columbia University with a focus on quantitative social science. His thesis examines non-violent tactics used by the Chinese leader to pre-empt domestic political challenges. At GPS, Chutian's interests lie in Chinese elite politics, cross-strait relations, and methodology. He is now based in New York working as a data analyst.

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