Mon, Oct 02, 2006 page8

• China's losing battle against graft

  • By Friedrich Wu
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  China's rulers rarely wash their dirty linen in public, so the arrest of Politburo member and Shanghai Communist Party boss Chen Liangyu (陳良宇) for charges of corruption sent shock waves across the country.

  Some speculate that the arrest is really part of a power struggle, with Chinese President Hu Jintao (胡錦濤) demonstrating his authority against a local power broker who had thwarted Hu's national policy.

  Whatever the truth behind Chen's fall, and despite the widening corruption probe of other senior government officials, data and evidence recently released by the government and multilateral institutions suggest that the authorities are fighting a losing battle against a rising tide of graft.

  For evidence of the rising level of corruption, consider the grim statistics recently released by the Supreme People's Procuratorate (SPP): more than 42,000 government officials on average were investigated for corruption every year from 2002 until last year, with more than 30,000 per year facing criminal charges.

  These startling figures do not include economic crimes outside the public sector. For example, during last year alone, the China Banking Regulatory Commission (CBRC) unearthed irregularities involving misused funds totaling 767.1 billion yuan (US$93.7 billion).

  The CBRC uncovered 1,272 criminal cases and disciplined 6,826 bank employees, including 325 senior managers.

  According to Ye Feng, an SPP director-general, "almost every type of financial institution has seen the emergence of criminal cases involving the solicitation of bribes in return for loans."

  Despite the government's intermittent anti-corruption campaigns, progress in fighting graft has been slow. On the contrary, as Ye has candidly acknowledged, the number of corruption cases "has continued to rise." Indeed, international standards used to measure corruption show that the authorities may be reaching a stalemate -- or even retreating -- in their fight.

  Transparency International's Corruption Perception Index -- the most widely used benchmark to gauge the extent of corruption in various countries -- ranked China 78th out of 158 countries last year, not much improvement over China's 2000 score.

  Indeed, among the World Bank's six "Governance Indicators," China's scores on the "Control of Corruption" index have actually slipped in recent years, from -0.20 in 1998 to -0.40 in 2002 and -0.69 last year. And the World Bank ranked China 142nd out of 204 countries in last year's "Control of Corruption" index.

  While the economic toll of graft cannot be precisely quantified, indirect evidence suggests that the costs are significant. Multinational executives frequently cite China as their favorite investment destination, but many of them also complain about rampant graft.

  Hu Angang (胡安剛), an economics professor at Beijing's Tsinghua University, has estimated that corruption from 1999 through 2001 caused economic losses worth 1,293 billion yuan, or 13.2 percent of GDP.

  Not surprisingly, the financial sector suffered the most from corruption, losing 547 billion yuan, or 6.25 percent of GDP. Fraudulent public expenditure cost 2.4 percent of GDP, siphoning off funds amounting to almost 2.1 percent of GDP. Smuggling caused losses of more than 1.1 percent of GDP.

  The biggest obstacle to fighting graft in China is the weakness of the judiciary, especially at sub-national levels. Since most government corruption occurs at the county, township and village levels, it usually involves abuses of power by local officials.

  However, since these petty bureaucrats' power is almost absolute, they also control the channels for addressing grievances. Indeed, among the World Bank's six "Governance Indicators," China's score on the "Rule of Law" index has also been on a slide in recent years, from -0.28 in 1998 to -0.47 last year, when China ranked 124th out of 208 countries in this category.

  With little recourse to legal means, more frustrated victims of graft resort to extra-legal measures such as strikes, demonstrations and sit-ins in order to gain media and public attention. Some even carry their fights to the provincial and central authorities, stoking a sharp rise in the incidents of "public order disturbances" nation-wide. Whereas the Ministry of Public Security reported only 8,700 such disturbances in 1993, by last year the number had jumped ten-fold, to 87,000.

  Needless to say, government mishandling of such disturbances, or a decision to repress them with force, would only fuel further social discontent. In fact, the government's success in clamping down on corruption, especially at sub-national levels, will be a litmus test of its legitimacy.

  To fail would risk igniting a severe political backlash, including a spontaneous escalation of anti-regime activities.

  Friedrich Wu is an adjunct associate professor at the Institute of Defense and Strategic Studies at Nanyang Technological University in Singapore.

  Copyright: Project Syndicate
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