Career: Associate | White and Case | Shanghai, China
A Chinese Paradox: High Corruption, High Growth
“For the past several years, wealthy Chinese officials, businessmen, bookies and gangsters have been cutting a golden path to the casinos of Las Vegas, losing vast sums of money, much of it not theirs. Their exploits combine capitalist-style excesses of the rich and famous with post-Communist sleaze, and Vegas’s glitter with China’s ancient fascination with gaming, while reflecting China’s mind-boggling corruption and its record-breaking economic growth.”
At first glance, most readers would find it hard to believe that this passage from The Washington Post on March 26, 2002 is talking about mainland China. However, like other former socialist economies that have undergone massive transformation, China has experienced unprecedented levels of corruption. Yet this corruption, which has continued to grow, seems to have not hampered China’s economic strides over the past two decades at all. Annual growth rates of China’s economy have averaged 8 to 9 percent during this period, the highest in the world.
If corruption can hinder economic development as asserted by most economists, how does China maintain its record economic growth in the face of massive, widespread corruption?
Two main possibilities come to mind when trying to account for this paradox: a) the most destructive forms of corruption in China have not affected the economy at the national level, and b) the most productive sectors of the economy have not been seriously affected.
Discussions of corruption at the national level often invoke either the kleptocracy model or the bilateral monopoly model. In the kleptocracy model, state officials expand their personal wealth at the expense of the population. This is common in many African states. In the bilateral monopoly model, the ruler and other state official share the spoils with a few private interests. An example of the latter is the arrangement between Boris Yeltsin’s political cronies and the economic oligarchs during his presidency in Russia in the 1990s. In the end, Yeltsin himself came to depend on economic oligarchs for his electoral fortunes. This rendered his government vulnerable to the group’s demands for economic and political concessions.
In China, the top leadership at the national level has remained relatively clean and devoted to national development. The children of Deng Xiaoping, the man who instituted China’s reform program, and those of party leader Zhao Ziyang were tarnished in the first period of reform in China, and this was a main complaint of the Tiananmen protesters. But the leaders themselves remained clean and willing to ban family members from doing business, unlike the case for Yeltsin in Russia or Suharto in Indonesia.
The difference between the Chinese case and that of others may be attributed to Chinese Confucianism, communism, nationalism, or some combination of these. Confucianism has long instilled an ethos of rule by moral mandate. The communist ethic has reinforced discipline, and unlike Russia, the top leadership has not depended on the exchange of official favors for political survival. At the same time, the country’s top communist leadership has been at its core a group of nationalists devoted to he nation’s modernization and revival.
A second major way to explain the seeming paradox of high corruption, high growth in China is that China has avoided serious corruption in its most productive sector – the non-state economy.
A competitive model characterizes the dominant patterns of Chinese corruption in non-state economy sector. In the competitive model, non-state enterprises only desire to acquire advantage over other rivals in economic terms rather than to grab political power. In addition, the predictable delivery of services by corrupt state officials ensures a stable, if less than optimal, business environment under this model of corruption. The Chinese word “Guanxi” (“personal connection”) not only represents respect for social relations but also for reciprocity. Reciprocity means that services are still performed after payoffs are offered or made.
Despite China’s high economic growth, corruption remains a top concern of the general public and government, but mainly because it has long been viewed as a cause of polarization of Chinese society.
A large portion of the Chinese population is comprised of farmers and State Owned Enterprise (SOE) workers whose incomes have not increased at the same speed as the Chinese economy, and they have witnessed many episodes of corruption and enrichment of local officials and managers of SOEs. This is one of the most important reasons for the many episodes of local unrest during recent years.
With the development of Chinese society, the general public is longing for equity and justice more than ever. In this context, delivering on the economic development front is no longer a sufficient basis for the legitimacy of the Chinese government. This is the reason it is determined to fight against corruption even though China has
been able to maintain such an impressive rate of economic growth. This is a battle China cannot afford to lose!