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Corruption in China and the Combat Teeth of the System


As the global financial crisis and consequent economic slow down spread their shadows over China, the Chinese leadership is struck with biggest ever dilemma to combat deep-rooted corruption in the Chinese system of governance. According to a conservative estimate of China scholar Minxin Pei, over 10 per cent of Chinese government spending, contracts and transactions pass hands as kickbacks and bribes. In his studied opinion, he attributes the development to partial implementation of economic reforms, lax enforcement efforts, and abject reluctance of the Communist Party of China (CPC) to get to political reforms. He has noted that implementation of nearly 1200 laws, rules and directives to fight against corruption of different hues and denominations were spotty and ineffective. Notwithstanding, in a study, the Organization for Economic Co-operation and Development (OECD) estimated that the amount transacted as kickbacks and bribes in the People’s Republic of China (PRC) ran to 683 billion Yuan (US$84.4 billion) in 2007, which works out to be over 5% of its gross domestic product (GDP). A year back, on 15th Jan 08, in his 35-minute speech at the Second Meeting of the Central Commission for Discipline Inspection (CCDI) of the Seventeenth Plenary Conference of the CPC, the Chinese President Hu Jintao went on records to warn the party cadres and tell that rampant corruption would lead to the destruction of the CPC. 10 months later, in his message to a teleconference to mark 10th Anniversary of the issuance of the responsibility system by the CPC Central Committee and the State Council, the Chinese President urged the party and government organs to implement the responsibility system for “pushing forward the building of a clean government, improvement of the Party’s work style and the anti-corruption drive.” Nearly two months later on 26th Dec 08, as the year came to a close, the CCDI released data, which claimed, “disciplining” a total of 4960, of them, “prosecuting” 801 county and above level party officials’ different counts of corruptions since Nov 07. During the same period, the Chinese Discipline Inspection and Supervision Department (DISD) at various levels settled 144000 cases and penalized 151000 officials. Those who have been punished included Huang Songyou, vice President of the Supreme People’s Court (SPC). The Standing Committee of the Chinese National people’s Congress (NPC) voted his removal on 28th Oct 2008 on the charges of bribery, corruption and lack of moral integrity. Liu Zhihua, Beijing Deputy Mayor and the Supervisor for building and traffic projects of 2008 Beijing Olympic Games, was handed down capital punishment with a two year reprieve for taking bribes of 6.97 million Yuan (US$1.02 million) in land for money scam. Sun Yu, vice-Chairman of Guangxi Zhuang Autonomous Region, charged for taking 40 million Yuan in bribes in a water project of Lijiang River near Guilin, was given due punishment. Involvement of Chen Liangyu, the Communist party boss of Shanghai and a member of the powerful politburo, in the Shanghai pension fund scandal, had earlier made headlines. The list of corruption cases, involving persons in high positions, is incredibly high. It seems to have assumed insidious form: collusion among top to bottom officials. For example, in Heilongjiang, a scandal in 2004 brought down several hundred officials, including a former governor, several of his deputies and nearly all the prefect party bosses in the province. It is pervasive in some of China’s most vital economic sectors, such as banking, financial services, mining, energy, real estate and infrastructure. It tends to distort market forces and allows the well connected to line their pockets at the expense of the public. It is at the back of quite a few scams in most critical domains, endangering lives of thousands of people in one go and hurting China’s national esteem. Sanlu brand baby milk food scam, which exposed 53000 infants to kidney afflictions, stand out as an example. In the bargain, rampant corruption at all levels and forms tend to corrode the working of critical public institutions, such as the Chinese courts, law enforcement and public pension administrations. Notwithstanding, It has had quite demonstrable adverse impact on public confidence and social stability. The paper, in its pursuit, goes to study the Chinese institutional mechanism in place to fight corruption in public life. The broad assumptions of the study include: First, the Chinese leadership is abreast of the debilitating aftermath of the malaise, and as evident from the public statements on the issue, there is demonstrable political will to handle the problem; Second, the phenomenon of wide spread corruption in China got flip as the monolith of the CPC and its abiding dependence on cadre system in governance create over riding space for corrupt practices; and, Third, the Chinese institutional response to weed out the evil of corruption as such would remain intractable as long as the blurred boundaries of private and public hold good in the personal, social and official lives of Chinese leadership. The study is sequenced to focus on: the Forms and Sources of Outgrowth; the Approach and Predicament; the Combat Mechanism; and, the Future Prospect. Forms and Sources of Outgrowth In China, corrupt practices have, for long, been low risk activity. Carnegie Endowment 2007 bears out that a corrupt civil servant stands 3% chance of going to jail for corruption. Since 1982, 80% of the CCP members disciplined and punished by the party got off with a warning, while the remaining 20% were terminated and less than 6% were prosecuted. Not surprising then that the corruption in China has come to acquire quite interesting array of forms. One form of corrupt activity is “power trading”. It involves the “buying and selling of official posts and positions”. It falls in the category of “administrative” corruption. In an interview with the People’s Daily, Hu Xingdou, a Professor with Beijing University of Science and Engineering, recounted the process and spoke about four distinct features of the phenomenon. First, the person, who bought an official position at certain level, would recoup and amass wealth by selling posts and positions in larger numbers at subsequent stage. In normal cases, an official, buying a position at the provincial level, tended to sell out at least three official posts. These three local officials were, in turn, quite likely to sell out 13 official posts. As a corollary, the 13 officials were supposed to sell out 30 official posts at the county level. Second, transaction takes place in pure commercial spirit. The knock down price will vary in terms peak and lean season with special reference to location, time and reference person. Third, the medium of transaction could be in either in cash or kinds or favours. Fourth and last, the transactions have of late come to take place in broad daylight. The official will hold a meeting of leading cadres. He will take stock of the situation. He will conclude the deal on spot with give and take considerations. In a typical case, discovered in 2005, Ma De, Secretary of the Municipal Committee of poverty stricken Suihua city in Heilongjiang Province, sold 260 official positions. He was later charge sheeted for accepting 6 million Yuan (US$ 7260000) as bribe in as many as 17 cases. Of numerous other widely reported cases in the Chinese media, there is instance of Li Dalun, Secretary, Chengzhou Municipal CPC Committee in Hunan Province, who was tried for accepting bribes of a tune of 13.25 million Yuan (US$1.65 million) in lieu for selling government positions. Overseas tour and overseas education expenses were other sets of gifts. In an interview with Southern Weekly, Zhang Quanjing, former head of the CPC’s organization department, publicly bemoaned that buying and selling government posts and official titles had then become one of the main corruption in China. There is then “business corruption”. It is endemic both within the public and the private sectors. It stems virulently in all those areas of economic activities, where the Chinese state is deeply entrenched and uses discretions in the form of fang (relax) and shou (control). Strange and yet true that the phenomenon has received breeding ground in areas where the government is presently acting proactively to put the house in order. Of several forms of business corruption, the “facilitation payments” has acquired gigantic proportion. It is but a grey area as masterminds quite frequently cross the blurred boundary of otherwise legal payments and illegal gratification. Off-the-Book slush fund account serves the purpose. The business sectors, plagued most by the phenomenon are banking, financial services, public procurement and the construction sector. There are then some new areas, where public power has found voice, such as decisions on and allocation of public investment funds, assignment and pricing of land resources, regulations of levies and taxes, selection and financing of infrastructure projects, regulation of business, labour, trade and commercial disputes, and provision of social welfare in an expanding market economy. Corrupt officials expropriate public funds for their own purposes and many companies engage in corruption and pay bribes in order to maintain their place in the market. The National Audit 2007 found that RMB 7.1 billion of China’s RMB 2 trillion social security funds was being transferred as overseas investments, used as commercial loans to companies, or spent on illegal construction projects. Word Bank & IFC Enterprise Surveys 2003 showed that 73% of the companies surveyed in China expected payment of facilitation fee quintessential for their business survival in China. The scenario has since worsened. On an average, as per the survey, the facilitation payments then accounted for 2% of sales. The figure is larger for small companies. It can give rough estimate of business corruption and its direct, indirect and lateral aftermath on China’s socio-economic life. The modus operandi of Chinese players in the field is some thing an eye opener. Of several living examples, the way the Chinese officials and doctors took bribes and allowed market entry in the name of facilitation payment from three divisions of Siemens, the transportation systems (TS), power transmission and distribution (PTD) and medical solutions (MED), smacks awe. The same holds good in hundreds of other cases that have come to light in the past couple of years. This is all to suggest the tip of the iceberg. In five years from 2002 to 2007, the Chinese officials, associated with metro projects and procurement of signaling device took US$ 22 million from TS division of Siemens for in seven projects worth US$ 1 billion. Siemens, on its part had hired Chinese business consultants to facilitate bribery through off-the-books slush fund accounts and shell companies to their “partners” in China. Meanwhile, the Chinese officials, entrusted with the task of installation of high voltage transmission lines in South China took bribe of US$ 25 million from Siemens PTD division. The project was worth US$ 838 million. Supported by phony distribution contacts, the payments went through a Dubai-based business consulting firm controlled by a former Siemens PTD employee and then to several entities associated with a US based highly connected Chinese consultant. In still more bizarre instance, the Chinese officials and doctors, involved in a number of Chinese hospital projects took substantially heavy bribes. In one case where five Chinese hospitals were concerned, the Chinese officials took US$14.4 million in cash and US$ 9 million by way of favours from MED division of Siemens. The favours included study trip to Las Vegas, Miami. It was all for the projects worth US$ 295 million. In yet another instance, the concerned Chinese officials and doctors took US$ 64800 in lieu to facilitate Siemens MED division to win contract for installation of worth US$ 1.5 million MRI system. Notwithstanding, Siemens’ US subsidiaries, Oncology Care Solutions (OCS) and Molecular Imaging (MI) also paid US$ 650000 as bribes to secure sales of medical equipment to Chinese hospitals. In the PRC, the range of political corruption can take wind out of any body’s imagination. It touches all levels of government, perhaps in increasing proportion as it goes down. The People’s Liberation Army (PLA) is, interestingly, partner both in grand and petty corruptions in its own rights. When all said and done, it is but a story of illicit relations between wealth and power retold, stemming largely as an offshoot of opportunities and incentives created with reform policies. Robert Klitgaard can not be faulted for his diagnosis of the phenomenon and over above his formula- C=M+D-A: monopoly plus discretion minus accountability. Given the peculiarities of the Chinese system of governance at the top and down at every level of people’s government, transparency was concomitant to the level of commitment and discipline of over 70 million cadres, having say in different shape. It was conceived to be attained through “ideology and politics” until Deng doctrine, contained in the cliché “it does not matter whether a cat is black or white so long it catches mice”, came to put them on backburner. Studies in the field suggest that the “ideology and politics” therapy did not work for various reasons, and political corruption ruled the roost through out the yesteryears. The Chinese leadership is painfully aware of the reality, or else the 17th National Congress of the CPC must not have conceived and endorsed an array of soft and hard components of anti-corruption measures. It included a gigantic cadre-training programme. The most discernible form of political corruption in China constitute of the “misuse of political power” for “self and/ or group economic benefits and enrichments”. The Chinese leadership has been addressing only this form of political corruption. In his Work Report to the First session of the 11th National People’s Congress (NPC) in March 2008, Jia Chunwang, the procurator-general of the Supreme People’s Procuratorate, went on record that 35 officials at the provincial or ministerial level, 930 at the municipal level and nearly 14,000 at or above the county level were then investigated for embezzlement, bribery, misappropriation of public funds in the past five years. Taking part in the debate, Liu Xiorong, one of the deputies, was succinct to brand the phenomenon of political corruption in China as a “trade off” between “power and money”. The other form of political corruption, both at top national and down at all subsequent lower level is to “perpetuate and continue with” the pomp and power in the hierarchy through all means. This is but a political system related malaise, and hence opinion could vary. However, it is remains the mother of all sets of corruptions. (To be continued)

(The writer, Dr Sheo Nandan Pandey, is an expert in defence and security matters based in Faridabad,India. He had held advisory positions in the ministries of Defence and Human Resources Development of the Government of India. Views expressed in the article are his own).

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