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'How Corruption Powers China's Economy'

Foreign Affairs

Malcolm Riddell

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CHINADebate

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Yuen Yuen Ang | University of Michigan

'How Corruption Powers China's Economy''How Corruption Powers China's Economy'
Interview

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BIG IDEA | ‘China has managed to sustain four decades of economic growth despite levels of corruption that even Xi has described as “grave” and “shocking.” Why does it seem to have bucked the trend?’
‘The answer lies in the type of corruption that prevails in China. Unlike the three main types of corruption – petty theft, grand theft, and speed money – China’s corruption is a more elusive variety: access money.’

Yuen Yuen Ang is an observer and analyst of corruption in China. Below are some of her key insights. For more, check out her book 'China's Gilded Age: The Paradox of Economic Boom and Vast Corruption.'

‘China is now in the midst of its own Gilded Age.’

  • ‘Private entrepreneurs are growing fabulously wealthy from special access to government privileges, as are the officials who illicitly grant them.’

‘China poses a baffling puzzle.’

  • ‘Normally, corrupt countries are poor and stay that way.’

‘But China has managed to sustain four decades of economic growth despite levels of corruption that even Xi has described as “grave” and “shocking.” ’

  • ‘Why does it seem to have bucked the trend?’
  • ‘The answer lies in the type of corruption that prevails in China.’

‘Unlike the three main types of corruption – petty theft, grand theft, and speed money – China’s corruption is a more elusive variety:’

  • ‘Access money.’

‘In this kind of transaction, capitalists offer high-stakes rewards to powerful officials in exchange not just for speed but also for access to exclusive, lucrative privileges, including cheap credit, land grants, monopoly rights, procurement contracts, tax breaks, and the like.’

‘Different types of corruption harm countries in different ways.’

  • ‘Petty theft and grand theft are like toxic drugs; they directly and unambiguously hurt the economy by draining public and private wealth while delivering no benefits in return.’
  • ‘Speed money is akin to painkillers; it may relieve a headache but doesn’t improve one’s strength.’

‘Access money, on the other hand, is like steroids.’

  • ‘It spurs muscle growth and allows one to perform superhuman feats, but it comes with serious side effects, including the possibility of a complete meltdown.’
  • ‘By rewarding politicians who serve capitalist interests and enriching capitalists who pay for privileges, this now dominant form of corruption has stimulated commerce, construction, and investment, all of which contribute to GDP growth.’

‘None of this is to say that access money is good for the economy.’

  • ‘To the contrary, like steroids, it causes unbalanced, artificial growth.’

‘Owing to Chinese officials’ power over land, collusion between businesses and the state has funneled excessive investment into one particular sector—real estate, which offers unmatched windfalls for the politically connected.’

  • ‘As a result, Chinese businesses face perverse incentives to shift their efforts away from productive activities, especially manufacturing, and toward speculative investment.’

‘Access money also exacerbates inequality.’

  • ‘Within the business world, politically connected capitalists can easily secure government contracts, cheap loans, and discounted land, giving them an enormous edge over their competitors.’

‘Recognizing the dangers of crony capitalism, Chinese President Xi Jinping is attempting to summon China’s own Progressive era—an age of less corruption and more equality—through brute force.’

‘The crusade against corruption is top-down.’

  • ‘In addition to arresting large numbers of corrupt bureaucrats, Xi has exhorted officials to demonstrate loyalty and adhere to party ideology.’
  • ‘These measures have resulted in bureaucratic inaction and paralysis—“lazy governance,” as the Chinese say—with nervous officials opting to do nothing, so as to avoid blame, instead of introducing potentially controversial initiatives.’

‘Xi’s insistence on political correctness also extinguishes honest feedback within the bureaucracy.’

  • ‘Officials’ fear of reporting bad news, for instance, may have contributed to the delay in China’s early response to the COVID-19 outbreak.’

‘In his bid to end crony capitalism, he is reviving the command system, the very approach that failed miserably under Mao.’

  • ‘After successfully controlling the COVID-19 outbreak, he appears more convinced than ever that national mobilization and top-down orders under his strongman leadership are the only path forward.’

‘But by rejecting a bottom-up approach, Xi is stifling China’s adaptability and entrepreneurship—the very qualities that helped the country navigate its way through so many obstacles over the years.’

  • ‘ “It’s like riding a bike,” an official once told me. “The tighter you grip the handles, the harder it is to balance.” ’

‘Xi is suppressing the bottom-up energy that holds the key to solving China’s current woes—and in so doing, he may end up making them even worse.’

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