CORRUPTION IN CHINA – A REVIEW

ABSTRACT

This paper provides a detailed review of literature on corruption in China. We integrate the past theories and frameworks on corruption in China, while organize and summarize the existing findings in the research. Specifically, we outline an overview of corruption in China and its categories identified in the literature, detail out the antecedents/ causes as well as the consequences/ outcomes of corruption in China, and then summarize the governance mechanisms identified in the literature to reduce corruption in China. By doing this, we also highlight the limits of past research and proposing opportunities for future research.

INTRODUCTION

‘The party is at risk of failure unless we punish corruption, especially corruption at the high levels of the party’

– Deng Xiaopin (Former CCP chief)

‘If we do not firmly punish corruption, the flesh-and-blood ties between the party and the mass would be ruined, the party would be in danger of losing its ruling status and the party would suffer self-destruction’

– Jiang Zemin (Former CCP chief)

Just like his predecessors, one biggest undertakings of President Xi Jinping after he took office has been his promise to swipe corruption brutally. Such determination was known the world over, and caught much media attention, more recently highlighted by a Bloomberg article: ‘President Xi’s Anti-Corruption Campaign Biggest since Mao’.

What has made Chinese leaders for the past 3 generations so keen on control of corruption? Report from Hurun, the monitor of the wealthiest in China, suggested that in 2011, the richest 70 delegates to the NPC (National People’s Congress) had a net worth of approximately $90 billion, compared to $0.5 billion of assets of the delegates of the Indian Parliament (Bardhan, 2014). Likewise, in the USA, there is no single billionaire in the Congress, but six of China’s ten wealthiest individuals serve on either the NPC or the Chinese people’s political advisory body (Bardhan, 2014).

According to Transparency International (2004), China is a highly corrupt nation, ranking 71st out of 146 countries surveyed. Its corruption perceptions index (CPI) has been well below the full score of 10 (least corrupted) for the past few decades. In addition, China’s bribe payers index in the business sectors was one of the worst among nations surveyed (only slightly better than Russia in 2002) by Transparency International (Luo, 2006).

Corruption is the abuse of public power for private gain (Johnston, 1996; Argandona, 2003). It is recognized in academic literature that corruption is a major obstruct to growth and development at the organizational level. Moreover, at the country level, worldwide political scandals recently have strengthened the belief that wicked policies is not always the result from a lack of knowledge, but instead from decision makers’ distorting of economic policies in for self-interest (Coolidge and Rose-Ackerman, 1997; Grossman & Helpman, 1994; Krueger, 1993; Jain,).Although the literature on corruption in China has provided understandings of the causes and results, it is necessary to review, organize, and analyze the existing research in order to draw conclusions and generalize research findings on this topic. Furthermore, the various propositions and findings from prior research is scattered, focusing on many aspect of corruption, and using diverse research designs, thereby limiting the theoretical development and practical understandings of this topic. As such, this review aims to integrate the past theories and frameworks on corruption in China, while organize and summarize the existing findings with a prospect to propose avenues of future research.

This paper first begins by outlying an overview of corruption in China and its categories identified in the literature. Then we get into more depths to understand the antecedents/ causes as well as the consequences/ outcomes of corruption in China. This is then followed by the consideration of governance mechanisms identified in the literature to reduce it. The paper finishes by highlighting the limits of past research and proposing opportunities for future research. To do this, we have identified 26 articles published in mainstream journal outlets that are directly related to the topic of corruption in China, and integrated their theories, perspectives and results to provide a holistic understanding of the stage of literature on why corruption is rampant in China, what are the causes and results, and what are the governance mechanisms to control for it. Doing this, we also hope to shed light for policy makers and regulators in China, such as the central government, and department of justice, on what is the most effective governance to control for corruption.

NATURE OF CORRUPTION IN CHINA

Corruption by government officials of China usually includes the following forms: graft, bribery, fraud, embezzlement, extortion, smuggling, and tax evasion (Chan & Gao, 2008). Such practices can be further categorized into three types: Black corruption includesclearly illegal practices aimed to increase personal wealth, and constitute an ‘economic crime’. Grey corruption happens when the practices is done through legal, semi-legal, and illegal ways, such as profit-making by favoring clients with personal connection, or extravagance and waste in work-related expenses. White corruptionpertains to the ‘common practice’ of using favoritism and personal connections in recruitment, promotion, and resource allocation, etc(Dai, 2010; Heidenheimer, 1970; Zhu, 2008; White, 1996)

Compared to the above categorization by severity, Ko and Weng (2012, pp 720), using the Law Yearbook of China, categorized corruption by economic association. Whereas “Economic corruption includes embezzlement (tanwu贪污), bribery (huilu贿赂), misappropriation (nuoyonggongkuan挪用公款), unauthorized dispersion of state properties ( jitisifen集体私分), illegal gains ( feifasuode非法所得), tax evasion and resistance (toushuiloushui偷税漏税), counterfeit of trademark ( jiamaoshangbiao假冒商标), and illegal speculation and profiteering (toujidaoba投机倒把), non-economic corruption includes dereliction of duty (duzhi渎职), including abuse of power (lanyongzhiquan滥用职权), neglect of duty (wanhuzhishou玩忽职守), nepotistic malpractice (xunsiwubi徇私舞弊) and bigamy (chonghun重婚).” Some types of corruption peculiar to China, such as illegitimate feasting, feudal rites (cadres staging lavish, traditional-style weddings and funerals), and illegal imprisonment and torture, are also considered as non-economic corruption. Of these types, non-economic corruption accounts for around 20 per cent of all corruption cases filed by the Procuratorate, while the other 80 per cent are related to economic corruption (Ko and Weng, 2012, pp 720).

Over the years, corruption has become harder to detect. Gao (2008) found that the latency periods, the period from the year when a public official commits a corrupt act to the first time when his corruption is discovered, have increased significantly, that it only took 2 years to discover in the 1980s, but the 2000s takes eight years, suggesting corruption as a social phenomenon is becoming more serious and complex.

THE ANTECEDNETS OR CAUSES OF CORRUPTION IN CHINA

According to the literature, corruption is the result of larger institutional changes brought by the economic reform and marketization, the transition of the planned economy and state-owned enterprises, culture, and underdeveloped anti-corruption laws and institutions.

The economic reform, development, and privatization process:

Scholars attribute the surge of corruption in China since a few decades ago to the weakening of government’s ideological control in the course of economic liberalization (Yu, 2008; Hao & Johnston, 2006; Gong, 1994). As China goes through the transition from a highly centralized command economy controlled by the Communist party-state to a decentralized while incomplete market economy, the old systems are torn down but the new ones are yet to be built, creating tremendous structural opportunities for corruption (Zhan, 2012). As many Chinese economists point out, the problem is tied to the way the assets of privatized enterprises can be transformed, through a variety of means, into private assets (Gold, 1991).

Specifically, the economic reform of the state sector in China through privatization of agriculture and state-owned enterprises and banks has created opportunities for bureaucrats managing state assets, and the social development programs to take advantage of public power for private gain, including embezzlement of public funds, taking bribes from citizens needing their help in various government social and development programs. Chow (2006) offered three reasons to explain the rampant development of corruption in China since the reform: ‘First, the nature of early economic reform towards a market economy consisted mainly of privatization of farming and industrial production while current reform consists of changing the performance of the remaining large state-owned institutions that are controlled and operated by bureaucrats who could profit from their economic power through corruption. Second, as the economy has become more developed and per capita income has increased very rapidly especially in the coastal provinces government attention has shifted to the development of the relatively poor rural areas and the reduction of poverty. This requires the cooperation of the bureaucrats and provides them with more economic power. Third, as more money became available to pay for corruption in doing business beginning in the 1980s, corruption has become a culture in China and it is difficult for the central government and the Chinese Communist Party leadership to stop it’ (Chow, 2006 pp266).

Thanks to the economic reform, ‘China’s increasing investment in infrastructural construction such as roads, railways, and airports, created added channels of corruption’ (Zhan, 2012, pp96). A famous case involving the corruption by MR. Lou Zhijun, the former Minister of Railways was an example: his opportunities for bribes came from China’s increasing investment into the “faster built, ever longer high-speed railway” (Wedman, 2012, pp4; Foo, Wu, & Chin, 2014).

Also accompanied by this transition is the income gap: whereas the income for private sector employees increased, the income for public sector employees did not. This gap, along with the public officials’ control over scare resources such as land, capital, and approving power provided them incentives for using rent seeking through corruption (KoWeng, 2012).

In addition, fiscal decentralization during the market reform provided the opportunities of corruption at local governments (KoWeng, 2012). Specifically, to stimulate local economic growth, the central government gave local governments the authority to collect taxes and expend revenues, etc, resulting to large amounts of extra-budgetary funds not controlled by the central government, providingsources of embezzlement and misappropriation of public funds by local governments (KoWeng, 2012).

Hierarchy and overconcentration of Power:

Scholars also believe overconcentration of power is a major reason for profound corruption in China, where the government exerts predatory power over the citizens. As Lord Acton’s famous saying goes: “power tends to corrupt and absolute power, to corrupt absolutely”. This is because ‘absolute power removes the constraints on power that makes corruption possible’ (ZimringJohnson, 2005, pp802). As such, scholars attribute corruption to China’s traditional history of feudalist ideas and hierarchical superiority that are deeply entrenched in the mindsets of officials who pride their authorities and power and lack the sense of self-discipline and acceptance of advice from below.

Similarly, Ren & Du (2008) observes that in China’s political system, the first in command believes ‘whatever they say is policy and should be unconditionally implemented’. For instance, the former secretary of a district committee of CCP once declared as the top official in charge of that area believed he possess absolute power, which was reflected in his ‘three-not-policy’: all decisions made by him were not subject to review by the party organization; cadres appointed by him were not going through performance appraisals; and his personnel decisions did not need consultation with the CCP commission for discipline inspection in the county’ (Ren & Du, 2008, pp49). Since top officials play vital roles in state affairs without distinct power boundaries, corruption is a natural outcome of this flowed political power system.

Savvy money-making culture after the reform:

Scholars accredit the lower level of corruption before the economic reform to the Maoist culture that condemns the rich, compliments a plain lifestyle, and reinforcements of strict rules (Dai, 2010; Yu, 2008). On the contrary, increases in official corruption is then believed to have resulted from the weakening of government’s ideological control in the course of economic liberalization (Yu, 2008), during which getting rich is no longer condemned, but commendable. ‘As reforms deepened in the economic realm, Maoist political morality became an increasingly irrelevant attribute of public office’ (Yu, 2008, pp168).

Before the economic reforms, when Maoist values prevailed, non-monetary rewards and leader benevolence were deeplyvalued in the culture of the public sector (Snell & Tseng, 2002). However, the economic reform brought about the endorsement for capitalism, or officially speaking ‘socialism with Chinese characteristics’, making communist thinking anillusion from reality. ‘Social motivations and relationship became rapidly commercialized yet a new framework of social morality has not yet arisen to replace that of the ancient regime’ (While, 2008; pp44). ‘The weakening of the party’s ideological control led to a stage of normative deregulation, and as a result, people found themselves unabashed to employ deviate means to become rich; human desires turned into the normless pursuit of economic goals’ (Yu, 2008).

Also, there emerged a culture of law violation during the unique history of the economic deprivation under central planning and the failure of the Great Leap (Chow, 2006). The lawlessness of the Cultural Revolution, the `getting rich is glorious` attitude after market reform and during a period of rapid increase in real income and the increase in power on the part of government officials and managers of government development programs, etc. has nurtured a mentality and a value system conducive to corruption (Chow, 2006).

Gift-giving and guanxi-building culture:

Scholars often associate corruption to Guanxi building facilitated by gift-giving, as there is a subtle line between gift-giving and bribing. In China, Guanxi buildingis deeply rooted in Confucius thinking emphasizing status, hierarchy, authority, and loyalty. ‘The foundation of social order in Confucian values is not the law but the stability of social relations built on individuals’ fulfillment of their roles according to their status in various social relationships, and such value does not cultivate the political thinking about the relationship between public and private roles. Therefore, Guanxi often functions as the foundation for special treatment or access to valued resources, information and positions, and facilitates the exchange between money and power (Yu, 2008).

Steidlmeier (1999) accesses the cultural and moral differences between gift-giving, bribery, and corruption, and draws the roots of corruption or bribery to the Chinese culture of guan-xi building in business transaction. ‘In China, gift-giving is a natural dynamic of any relationship: it shows a relationship is valued and is a means of expressing respect and honor for the other person. Gifts express good will and gratitude and can be considered a dynamic form of social contracting’ (Steidlmeier, 1999, pp122). Though the lines between gift-giving and corruption might be a bit blurry, if one is asking one party or other to engage in behavior that is not an integral or legitimate part of the set of transactions at hand, gift-giving becomes bribery (Clinard, 1995; Steidlmeier, 1999). Guanxi network is often Chinese people’s first resort to obtain crucial information and valuable resources. By creating favors of closely related individuals over the general public, guanxiinevitably creates opportunities and means for government officials to corrupt in 3 ways: helping to identify the partners for the transaction, and greatly lowering transaction cost; building trust and thus lowering the risks of corrupt transactions; providing private channels for the transfer of secret information related to corrupt exchanges (Steidlmeier, 1999).

Inadequate control, and law and order:

Scholars believe corruption is caused by the lack of institutional support in the regulatory environment of China – ‘corruption reflects institutional loopholes, as he found newly occurring corruption cases in each year closely reflect the severity of institutional failure of that year’ Gao (2008) argues.

Such lack of regulatory support is reflected from a lack of transparency on what the Chinese managers or leaders are doing or the declaration of their wealth (Doig and Theobald, 2000). Part of this is contributed by a lack of free flow information through the Chinese press, which is an instrument of state policy for the purpose of disseminating information from the central government to the public (Johnston & Hao, 1995), and corruption is reported only after the offenders are convicted and published by the authorities (Hung, 2008).

‘All animals are equal, but some animals are more equal than others’ – the rule of law in China has less power to impose sanctions on power holders who have violated their public duties than the powerless individuals. Compared to the highly regulated developed countries, Chinese legal system does not have the prerequisite powers to independently punish party cadres, therefore making it unequal and easy for the powerful elites to skip or abuse the law for private interest (Foo, et al., 2014). Despite the widely publicized principle that government officials and senior managers of large Chinese enterprises are expected to have to a higher standard of conduct than ordinary people, the current legal system has still punished corrupt officials less harshly than ordinary citizens who commit similar crimes (Manion, 1998).

Ineffective law enforcement also contributes to corruption (Goldsmith, 1999; KoWeng, 2012).Although the sentence of corrupt crimes by law is rather severe, the chances of being caught are quite low. Song & Cheng (2002) surveyed and analyzed local corruption in cities and counties of China, they found that the ‘enforcement of both government regulations and anti-corruption rules were not satisfactory in these cities, and that people who compromised the system using corrupt deals and social connections had a better chance of prevailing’ (Song & Cheng, 2002; pp220).

THE CONSEQUENCES OR OUTCOMES OF CORRUPTION IN CHINA

Even though the debate over the causes and effects of corruption in transition economies as positive or negative is still ongoing, the prevailing view focuses on the pessimistic or negative role of corruption on a society in a variety of ways (Fan and Grossman, 2001; Li, 2005; Li, 2008)