On June 1st, the 21st Century China Center at the UC San Diego School of Global Policy and Strategy (GPS) hosted an event titled “China’s Gilded Age.” The talk featured a presentation and Q&A session on China’s economic growth-corruption paradox led by speaker Dr. Yuen Yuen Ang. Dr. Ang is a Professor of Political Science at the University of Michigan and an expert on China and emerging economies. China Focus Staff Writer Alex Schiller reflects on the event and offers his perspective below.
Background
China’s meteoric rise as the world’s second-largest economy began in the late 1970s under Deng Xiaoping’s leadership with various free-market reforms. The reforms ushered in a new era of economic growth in China, unseen by any other country in modern history, but brought with it increasing corruption in the public sector. According to the Congressional Research Service, bribery, ignoring regulations, and harassing the competition of a favored enterprise remain problematic as China shifts its growth strategy towards innovation and domestic consumption. CSIS adds diversion of public funds to the list.
Through Xi Jinping’s “anti-corruption campaign,” there has been little tangible change to China’s corruption problem. China scores 40 out of 100 on the Corruptions Perception Index (CPI), ranking 83 on the list. From 2011 to 2018, China’s average score was 39.125, with a median of 39.5. The campaign, regardless of the reported successes from the Chinese government, has done little to add transparency to government actions. Transparency, a necessity in preventing and exposing corruption, remains low at all levels of government. Despite this level of corruption, China surprisingly maintained steady economic growth during that period. Dr. Ang sought to explain how.
Reflection on the Discussion
Dr. Ang presented a new, multidimensional corruption ranking, which was originally published in her paper Unbundling Corruption: Revisiting Six Questions on Corruption. She lists four types of corruption: petty theft, speed money, grand theft, and access money. These are based on two categories, elites or non-elites, and theft or exchanges. At the start of her presentation, Dr. Ang posed a question: “Why did [China’s] economy boom despite massive corruption?” The answer to the mystery was straightforward. The exchange of wealth and power among the elite, known as access money, was the dominant form of corruption in China during its three decades of fast-paced growth. Elites would pass laws to benefit each other’s businesses or use their positions to obtain cheap land and lucrative government contracts.
Interestingly, access money was not always the most significant source of corruption in China. Through the 1960s to early 1990s, petty corruption prevailed. Individuals would attempt to curry favor with officials through gifts or bribes. While it was prevalent, it was not a driver of growth. Petty bribes did enable small businesses and individuals to circumvent unjust local government enforcement of regulations, but only those who could afford it. The rise of access money began in the 1990s as senior-level officials, who could have taken petty bribes at a local level, took advantage of new reforms. As influential officials at the county and provincial jurisdictions, they were prime targets for illegal payoffs in exchange for favorable action.
As the event focused on access money, Dr. Ang briefly touched upon the effects of China’s other corruption forms. According to her original “Unbundled Corruption Index” (UCI), China also possesses elevated levels of speed money and petty theft, though not to the degree of access money. Both involve theft and exchanges of non-elites, such as local misuse of funds and petty bribery. The 2017 Global Corruption Barometer, a survey that covers the expanse of 16 countries and regions in the Asia Pacific, notes that only 25% of Chinese respondents paid bribes for essential services–Police, Courts, Utilities, for example. These results indicate that access money is not the sole issue in pervasive Chinese corruption.
Q&A and Thoughts on the Future
The Q&A session started with Dr. Victor Shih, GPS professor and Ho Miu Lam Chair in China and Pacific Relations, who suggested that the opening of the real estate sector, specifically with land sales, resulted in the shift from petty bribery and local misuse of funds to access money. Other research concurs with this assessment. State officials held control over vast swaths of land and still do today. Personal relationships, especially with the Chinese Communist Party, helped entrepreneurs gain more access to land relative to someone less connected, thus resulting in increased forms of access money being exchanged among the elite, their families, and cronies. A business could flourish with cheaply sold or leased government land.
A number of attendees expressed curiosity regarding the growth implications of corruption going forward. Dr. Ang’s response was optimistic: “If Xi Jinping’s campaign can really reduce crony capitalism, then in the long term it should be good for the Chinese economy.” The unfortunate reality is anti-corruption campaigns are not successful at lowering corruption in the long term. Historically, they have only temporarily curbed the issue. China has conducted several anti-corruption campaigns since the economic reforms: three in the 1980s, one in the 1990s, and the current campaign that started in 2012. In the mid-1990s, there was a slight change in China’s CPI, ranging from 2-3.50 on a scale of 0-10 – the score of 0 means very corrupt. Today, Xi’s campaign has equally attained little success in altering perceptions of corruption.
Data from the Unbundled Corruption Index, the Corruption Perception Index, and World Governance Indicators concur that China still faces a corruption problem. The UCI highlights elite-based corruption. The CPI shows that China, based on aggregated data, is “mostly” corrupt with a score of 41/100, a slight increase from 40/100 in 2012. The 2018 WGI ranked China in the 45th percentile for control of corruption, which is up from the 40th percentile in 2012. Taking these statistics into account, the impact of Xi Jinping’s seven-year-old anti-corruption campaign remains questionable.
Dr. Shih also asked Dr. Ang if this form of corruption was prevalent in any other industry. According to Dr. Ang, the future of access money could be in the technology sector. Technology, similar to real estate, relies on government influence to succeed. In 2019, Tencent blacklisted 16 companies that were allegedly involved in corrupt practices. Bytedance and Alibaba have each fired an executive for corruption-based charges resulting from the anti-corruption campaign. To protect themselves from becoming targets, business executives could provide similar kickbacks or opportunities for profit-sharing in exchange for protection from the campaign or favorable rulings in intellectual property disputes. As the technology sector increasingly becomes the focal point of the Chinese economy, it is ripe for similar abuses of power and money seen in real estate.
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Alex Schiller
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