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DOUBLE PARADOX:

RAPID GROWTH AND RISING CORRUPTION IN CHINA

By Andrew Wedeman

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The Montréal Review, June 2012

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"Double Paradox: Rapid Growth and Rising Corruption in China" by Andrew Wedeman (Cornell University Press, 2012)

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"The central question of Double Paradox -how rapid economic development and widespread corruption coexist in China-is of major importance. Andrew Wedeman explains that the sequence of events is complex and worth careful scrutiny; there is considerable dynamism and simultaneity in any corruption/development relationship. By the end of Wedeman's book, we have learned a great deal about China, about the possible links between corruption and economic development, and about how to frame the questions we wish to investigate in China and in other societies in which corruption is extensive."

-Michael Johnston, Charles A. Dana Professor of Political Science, Colgate University, author of Syndromes of Corruption

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Since the advent of market-building reforms in the late 1970s, the Chinese economy has grown at an astounding rate. As of 2010, Gross Domestic Product (GDP) per capita had increased 13-fold, double the net gain in South Korea which trailed next behind China and nearly ten times the gain in the United States and Japan during the same period. Per capita GDP was not, however, the only thing rising in post-Mao China. As the economy grew rapidly, corruption was also increasing at an alarming rate. In 1980, the first year during which statutes governing corruption in China's 1979 Criminal Code was fully in force, state prosecutors filed charges in 9,000 economic crime cases. Nine years later in 1989, they filed charges in nearly 77,500 cases, a nearly 9-fold increase. Since then, the number of indictments has fallen steadily, with an average of just under 30,000 cases "filed" annual in recent years. The sums of money associated with this diminished number of cases have, however, exploded. Whereas prosecutors reported they recovered roughly RMB9,000 (US$3,900 at the then current exchange rate) per case in 1984, in 2006 they reported recovering an average of RMB740,000 (US$92,800) in 2006, a 24-fold increase. The number of senior officials charged with corruption, finally, rose 14-fold from 190 in 1988 to nearly 2,700 in 2009. The three-decade old Chinese economic "miracle" apparently has a dark side, one which seems to contradict current economic orthodoxy which posits that rising corruption depresses growth rates and slows development.

But the combination of rising corruption rapid growth is not the only "paradox." There have been other cases of rapid economic development concurrent with high levels of deeply embedded "systemic" corruption. Many of the other "East Asian Tigers" have histories of corruption. In South Korea and Taiwan, for example, covert financial ties between the business sector and the political right financed the formation of the political machines that provided the political stability and the pro-growth macro-economic policies that facilitated corporate profit-making and sustained economic growth. Corruption in China, however, bears little if any resemblance to the machine-style politics of the so-called developmental state. On the contrary, the pattern of corruption in China seems to have more in common with the anarchic, predatory corruption associated with "kleptocracy" (rule by thieves) in some of the worst preforming economies in the world. The political economy of corruption in post-Mao China confronts us with two critical puzzles: why was the Chinese economy able to grow even as corruption worsened and how was the Chinese economy able to withstand the sorts of plunder that has crippled many other economies?

In The Double Paradox of Rising Corruption and Rapid Growth in China, I offer three main explanations for why worsening corruption did not stifle economic growth. First, although the incidence of corruption (i.e., the number of cases) increased significantly during the 1980s, it was not until the mid-1990s when corruption truly "intensified" in the sense that the seniority of the officials involved and the sums of money dramatically increased, thus producing serious corruption. By then, economic reforms had already created dynamic economic growth, with the result that China's post-Mao economic take-off preceded the real worsening of corruption and corruption was not an insurmountable a-priori barrier to rapid growth, as is often the case elsewhere.

Second, at a very broad level economic reform in China resulted in the creation of vast new economic value and the reassignment of this new value from the state to the market. Control over land and other productive assets whose value had been minimalized in the old command economy, for instance, were transferred to economic actors who could rapidly increase value by "marketizing" these assets. Thus, when urban real estate belonging to local governments was leased out to developers, the latter could earn substantial profits by obtaining lots at low state-set prices and then either quickly reselling them at much higher market prices or developing them in to new commercial or residential property. The managers of state owned enterprises undergoing "corporatization" and hence the conversion from "productive agencies" of the state to profit-generating companies also stood to obtain large gains if they could "negotiate" the transfer process on "favorable" terms. Reform, in other words, created large windfall profits that could be "shared" between the officials who controlled the transfer process and those who stood to reap the profit. To a considerable extent, therefore, corruption feed off the creation of new value, rather than feeding on the relative fixed stock of productive value in a stagnant economy as it has in many states.

Third, as corruption worsened the regime responded with a sustained anti-corruption effort. Although much maligned and unquestionably flawed, China's protracted "war on corruption" stands in sharp contrast of the failure of many regimes to make even a token effort to fight corruption. All too often, rising corruption does not trigger anti-corruption drives but instead signals that the regime has become a mechanism for plunder and that officials have converted their official authority into a private means to grab a share of the state's treasure and society's wealth. In China, even though individual officials turned corrupt, the political leadership recognized that if the regime did not fight corruption, then corruption would undermine legitimacy and could ultimately threaten the Chinese Communist Party's grip on power. Early on, therefore, rising corruption was met with anti-corruption, with the result that in the long run the regime has managed to bring corruption "under control" in the sense that it has kept corruption from spiraling out of control and completely swamping the system.

The peculiar state of corruption in contemporary China is perhaps best captured in the recent case involving Bo Xilai, the former party secretary of the major city of Chongqing, former member of the Politburo of the CCP, and, until just a few months ago, widely consider a serious candidate for membership in the Politburo Standing Committee - the party's core decision making body. Bo, who had recently led a much publicized crackdown on corrupt officials and organized crime, was suddenly ensnared in a scandal involving allegations that he and his wife had raked in tens, or perhaps even hundreds, of millions of dollars in bribes over the past decade and that his wife, fearing exposure, orchestrated the murder on an English businessman who "knew too much" about her dirty dealings and how she had laundered the money into secret off-shore bank accounts. On the one hand, the fall of Bo is lurid a story of profound high level corruption that suggests that corruption has penetrated to the core of the political elite. At the same time, however, Bo's rapid demise - and his anticipated harsh punishment - implies that the regime is willing to drag out individuals involved in high-level corruption. This is not to suggest that Bo's fall was not the result of political infighting. It was undoubtedly linked to the jockeying for power in the run-up to the 18th Party Congress. Nevertheless, Bo is the third member of the Politburo to be publically charged with corruption since 1995 and one of hundreds of senior officials who have been sacked, imprisoned, or even executed for their involvement in corruption.

In sum, in Double Paradox I try to explain why we could witness the paradoxical combination of rising corruption and rapid growth in post-Mao China. Herein it is critically important to stress that I do not argue that corruption fueled or otherwise contributed to China's rapid economic growth. On the contrary, the evidence overwhelmingly suggests that corruption has had the same sorts of negative consequences in China that it has most everywhere else. And there is also every reason to believe that if corruption is not better controlled or even reduced, over the longer term it could wreck serious damage to the Chinese economy and bring growth rates down, perhaps dramatically. Nevertheless, I contend that thirty years of sustained rapid growth in the face of rising corruption, sets China apart from the much more common pattern where rising corruption has wrought crippling damage and stifled economic growth.

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Andrew Wedeman is a Professor of Political Science at Georgia State University. He previously held a similar position at the University of Nebraska-Lincoln and has been a visiting professor at the Johns Hopkins-Nanjing University Center for Sino-American Studies, as well has serving as a Fulbright Research Scholar at Taiwan National University and a visiting scholar at Peking University. In addition to his current book on corruption, he is the author of a book on the role of rent seeking in the marketization of China's economy and numerous academic articles on the political economy of corruption.

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FROM THE ARCHIVES:

THE CHINESE GROWTH MODEL: BEFORE AND AFTER THE FINANCIAL CRISIS

Nicholas Lardy

"Sustaining China's Economic Growth After the Global Financial Crisis" by Nicholas Lardy (Peterson Institute, 2012) 

It has been five years since China's Premier, Wen Jiabao, characterized China's growth as unsteady, imbalanced, uncoordinated, and unsustainable. In the intervening years Premier Wen has outlined repeatedly the economic reforms that he regards as critical to transitioning from a model relying primarily on exports and investment to generate economic growth to one reliant primarily on consumption demand.  Premier Wen has identified fiscal reform, financial reform, and pricing reforms as the critical policies to change the structure of demand...

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