GOOD MORNING FROM LONDON
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The following article on Corruption in China has recently appeared in Foreign Affairs
The authors are;-
BRANKO MILANOVIC is a Senior Scholar at the Stone Center on Socio-Economic Inequality at the CUNY Graduate Center and the author of Visions of Inequality: From the French Revolution to the End of the Cold War.
LI YANG is a researcher at the Leibniz Centre for European Economic
“After Chinese President Xi Jinping rose to power in 2012, his government launched a sweeping anticorruption campaign that attracted worldwide attention for its scope and determination. Powerful figures, long considered untouchable, were found guilty of bribery or of misusing funds and jailed. These punishments initially encouraged the impression among some commentators that Xi might be using the initiative to sideline or persecute his political opponents. But the effort to root out corruption has gone well beyond personal power politics. Conducted by the Central Commission for Discipline Inspection, (THE CCDI) an organ of the Chinese Communist Party, it has been the largest anticorruption campaign in history anywhere in the world. By May 2021, almost ten years into the campaign, the CCDI had investigated a total of over four million people within the government and CCP apparatus, finding 3.7 million of them guilty.
The public investigation and prosecution of corruption at such a scale occurred against the backdrop of widening inequality within China. This was not a mere coincidental correlation. Inequality in China, especially that within cities, soared after the reforms of the 1980s and then surged even more after the privatization and restructuring of many state-owned enterprises in the early 1990s. Greater productivity and wages in high-tech sectors and the increasing share of income from capital fuelled urban inequality from the top; at the bottom of the urban income ladder, the inflow of workers from the countryside—many of whom lack urban residence permits and will accept low wages—fuelled inequality from below.
With more wealth sloshing around the Chinese economy, corruption has been on the rise in recent decades. But until now, no one has studied empirically the characteristics of the people whom the CCDI has found guilty of corruption or tried to establish empirically the extent to which corruption has contributed to inequality. As it turns out, a detailed analysis of CCDI data reveals a pattern: not only was corruption among the people at the top of the Communist Party’s bureaucratic and technocratic hierarchy very high (in terms of average sums of money embezzled); it also contributed significantly to inequality, entrenching the already wealthy in an even more impregnable upper class.
THE FACTS
Thanks to the centralized nature of the anticorruption campaign and the Chinese government’s publication and systematization of relevant data, scholars can now assess the dynamics. Using the data compiled from individual conviction cases, we have constructed a database of senior Chinese officials found guilty of corruption between 2012 and 2021. The data set includes detailed information for 828 criminal cases of corruption and 686 convicted individuals (some individuals were accused and convicted of more than one crime). They are all members of the CCP, high up in the government or party hierarchy or managers in state-owned enterprises; in the language of the anticorruption campaign, they are the “tigers” guilty of the most significant crimes, as opposed to the multitude of “flies” (low-level officials) who have also been caught up in the investigations. Until the advent of Xi’s campaign, many of these figures were considered untouchable.
The CCDI categorized the convicted in order of importance as centrally managed cadres, provincially managed cadres, and central-level cadres. Centrally managed cadres are the most senior officials, such as the provincial ministers. They are appointed or removed by the CCP’s Central Committee. Provincially managed cadres are managed by the provincial branches of the CCP; their ranks include mayors and secretaries of cities. The third group includes somewhat less important officials, such as managers of state-owned enterprises. For the sake of simplicity, we shall refer to these officials respectively as national, provincial, and local nomenklatura.
An analysis of the CCDI data set reveals the scale of the corruption by rank of official. When placed alongside Chinese urban household surveys (Tigers tend to live in urban areas), the data set allowed us to estimate the lawful income of those convicted of corruption and their position in urban income distribution, revealing how important they were in ordinary economic and political life and where exactly their corruption took place. By contrasting the defendants’ estimated lawful income with the amounts they were accused of embezzling, we calculated how much corruption increased their income, how much it enabled them to climb up the ladders of Chinese income distribution, and how such corruption affected the levels of inequality in Chinese cities.
Unsurprisingly, the data have shown that the more senior the convicted figure, the more significant the scale of the official’s corrupt activities. Members of the national nomenklatura have been convicted of embezzling more than four and a half times as much money per case as members of the provincial nomenklatura and more than three times as much as those of the local nomenklatura. The most senior officials listed in the data set were accused, on average, of embezzling $14.1 million, provincial nomenklatura of embezzling $2.8 million, and the local nomenklatura of embezzling $4.3 million. (The local figures are higher than the provincial figures because they include many managers of state-owned enterprises for whom corruption appears to be particularly lucrative.) Members of the provincial nomenklatura are accused of the bulk of corruption cases (two-thirds), but since the embezzlement per case of officials in the national nomenklatura is so much greater, two-thirds of the total corruption measured in money terms is related to them.
The convicted officials hail almost entirely from the higher parts of the Chinese urban income distribution. More than half of them would be in the top five percent of the urban income distribution with their legal incomes only; some six percent would be in the top one percent, with annual incomes greater than about $30,000 per person (or $120,000 per household if the household consists of four members).
Through corruption, however, the median defendant made from four to six times as much as their legal earnings. The defendants thus climbed to the very top of China’s urban income distribution. Factoring in their illegal income, 82 percent of those guilty of corruption were among the top one percent of city dwellers, and almost all were in the top five percent.
Corruption itself was heavily concentrated in the upper echelons, with the top ten percent of cases responsible for 58 percent of the total sum embezzled. By contrast, the top ten percent of earners in urban China make 33 percent of total income. The concentrated nature of corruption—and the fact that it benefited people who were already among the wealthiest in China—shows that corruption, in its revealed part, is an important contributor to Chinese urban inequality.
THE PUBLIC PURSUIT OF PRIVATE GAINS
These results demonstrate the enormous extent of corruption at the very top of China’s urban income distribution. Even people with high legal incomes can multiply their incomes, on average, by a factor of four to six—and some, obviously, by even more. The results imply that real income inequality in the country is much greater than recorded levels of inequality. Corrupt incomes, after all, are not reported to the tax authorities, and they are unlikely to be reported in household surveys. Nevertheless, the conspicuous consumption of members of the elite and their way of life make the corruption evident to observers. Xi’s campaign, whatever its political motivation, is likely reducing income inequality and, perhaps more important from the authorities’ point of view, curbing excessively high income and the concurrent flaunting of such wealth.
That outcome might explain the campaign’s popularity. Anticorruption campaigns, especially if they don’t shy away from going after the very rich and powerful, can be useful for autocratic regimes to boost their populist credentials. Russian President Vladimir Putin’s recent purge of corrupt generals in the midst of a war was unusual, but it follows under-the-radar anticorruption moves that began simultaneously with the invasion of Ukraine. The Angolan government’s case against the businesswoman and former political scion Isabel dos Santos likewise proved very popular. Vietnam recently engaged in a similar “cleansing” campaign at the very top of its Communist Party.
Observers have found Xi’s anticorruption campaign to be ruthless and often vindictive in its targeting of potential rivals. But overall inequality in China, as measured by the Gini coefficient—which runs from zero, a hypothetical case of full equality in which every person earned the same amount, to 100, another hypothetical case in which a single individual made all the income—has come down in the last decade from a peak of 43.7 in 2010 to 37.1 in 2020, according to World Bank data. Whatever its sins, the anticorruption campaign has sought to strike both symbolically and in real terms at the rampant inequality in the country.”
GRAHAM PERRY COMMENTS;-
There is a context. Briefly, the period of the Cultural Revolution (1966-1976) was very bad news for China. A policy of Egalitarianism pursued by the very Left Gang of Four brought China almost to a standstill. Wages were frozen. Universities ceased to teach. Red Guards roamed the country exacting life and death revenge on academics, intellectuals, capitalists and particularly political opponents of the Mao Tsetung endorsed policy of “Bombard the Headquarters of the Capitalist Roaders. “
China was in a frenzy. The standing of the Communist Party with the People fell to an all-time low. The Left experiment failed big time and there was country-wide celebration in China when the then Party Chairman, Hua Guofeng, ordered the arrest of the Gang in October 1976 – the Four being Wang Hungwen (m), Chiang Chunchiao (m), Yao Wenyuan (m) and Jiang Ching (f) – the wife of Mao who died weeks before the Gang’s arrest.
The situation in China was quite desperate and action was needed to restore faith in the Communist experiment. People needed Prosperity not Politics. China’s saviour was Deng Hsiaoping. The era of Reform was introduced and the focus was on Economics as well as Politics. The Party knew that if it was not to be blown away it needed to show the People that “Things could get Better”. The people of China had to see progress – more clothes, better housing, travel and consumer goods on which to spend their hard-earned cash.
The symbol of the turnaround was Deng’s famous slogan first publicised in 1962 which gathered popularity in a tour he took in 1992 to the Special Economic Zones – “Planned economy does not equal socialism and market economy does not equal capitalism. Socialism can have market mechanisms as well, and government planning and market are both economic means. Development is of overriding importance”. Deng famously added “It does not matter if it is a black cat or a white cat so long as it catches the mouse”.
What did it mean? The significance of Deng Xiaoping’s quote lies in its pragmatic approach towards problem-solving and decision-making. By focusing on the ability of a cat to catch mice, rather than its colour, Deng highlights the importance of effectiveness and results over political grandstanding. A leader’s effectiveness in bringing about positive change should be the primary concern, rather than his/her adherence to preconceived ideology.
Quite simply “It does not matter if is a planned economy or a market economy so long as it brings prosperity”. This was the new priority and it was not the Little Red Book. It was growth, development and affluence. Either the Chinese system of Government was best for the people or it wasn’t. The system had to work. People had to experience the benefits. They needed to be able to eat out, go to department stores and see choice and variety, travel on clean buses and trains and enjoy a diet of entertainment that was not all politics.
It was a step back from the popularly understood meaning of socialism. The new priority was Progress not Politics. And it worked. Things did get better. People’s life style improved; one billion people were lifted out of poverty. People had more choice; more consumer goods to choose from; more colour, more designs, more popular films. The Party delivered.
And now an important phrase – “the Party knew what it did not know”. The Party had strengths. It could ring the changes, adjust priorities and meet people’s needs. But very importantly the Party knew its weaknesses. Party people were not business people. They were Marxists not Capitalists. But China needed business people to bring their skills, initiative and instincts to the task of improving the people’s standard of living. And so, entrepreneurs were given their heads. They were encouraged to lead the way and build companies that would oversee the dramatic surge in living standards in the years following the end of the Cultural Revolution.
And it worked. China grew. Living standards rose. People born in China in the 1960’s enjoyed a far higher standard of living than those born in 1949 – the year that the People’s Republic of China was inaugurated. The Cultural Revolution and its Left political ideology was a thing of the Past
But Capitalists assumed influence at a cost. There was a downside. Business people were shrewd, creative and inventive. They liked money and they liked making money even more. There was a positive and a negative. The big plus was a rise in living standards, better cities, improved transport, even a greener environment. But there was a negative and that was the downside of the money incentive – cheating, deception, misrepresentation, financial accumulation, favours for friends, double dealing and the corruption that power and authority can brings.
In the short term, economic growth was the priority and capitalists came to the fore. But capitalists would always overreach, extend themselves too far and fall prey to corruption. “Power Corrupts” – said Lord Acton, the British Military Historian, in a letter to Bishop Mandell Creighton in 1887. He added “And Absolute Power Corrupts Absolutely.”.
On assuming power in 2013 Xi Jinping focused on the key relationship in China – that between the People and the Party. If People perceived the Party to be corrupt; to be feathering their own nest at the expense of their duty to serve the People – China would fail. It was quite simple. Exposing Corruption was the #1 Goal of his administration. Xi appreciated that the People would turn against the Party if the People saw the senior members of the Party benefitting from their powerful status and position within the Party – especially the Central Committee.
One example suffices. There was an earthquake in Central China. Some cities were flattened. In one of the cities, just one building remained secure and standing. It was the building in which members of the local Party lived. Their accommodation was made of sturdier building materials than those used in the construction of buildings that housed the ordinary city population – In the UK this is known as “The Grenfell Effect”
Initially Xi’s Anti-Corruption Drive was seen as settling party scores with Xi’s political opponents being viewed as the target. Xi was, Western commentators claimed, disposing of his rivals in order to secure his own position. This is disregarded in the attached Milanovic/Li article but Western commentators will persist in making the argument that the anti-corruption drive is motivated by Xi’s desire to weaken his rivals. It is how they see things. This is the way things are done in the West and “power is power” the world over. China, they assert, is no different. Xi is just bumping off his rivals.
Persisting in this fundamentally flowed argument is part of the Western narrative about China. They “have seen it all before”. China is just like the USSR, they say, and just as the USSR failed – and it did – so will China fail. Only the future will tell us but hitherto China has made a success of “being different”.
Looking ahead China faces problems – the rising expectations of the people is perhaps their biggest challenge. But Corruption will not simply fade away. Self-interest and greed is part and parcel of the capitalist mentality and China still embraces aspects of capitalism so corruption will be a clear reality. China’s response will be to focus on continuing to promote prosperity with the aim of reaching its oft-declared target of making China – by 2049 – “a prosperous society”. At the same time it will continue to expose corruption especially in high places. Heads will continue to roll – not because the culprits are challenging Xi Jinping’s leadership – but because people in high places will become infected with the spirit of greed, deception and wealth accumulation. But overall inequality in China, as measured by the Gini coefficient which has come down in the last decade from a peak of 43.7 in 2010 to 37.1 in 2020, according to World Bank data will continue to fall as the anti-corruption campaign continues to focus on corrupt behaviour at the heart of power. Heads will continue to roll.
GRAHAM PERRY
