Hidden motives in anti-corruption
campaign By Mark A DeWeaver
For the past three years, the Chinese
government has been engaged in a massive
anti-corruption campaign. An article on the
Procuratorial Daily website on September 29 gave
the total number of people investigated for
corruption since the 16th Party Congress (in
November 2002) as "over 30,000," including over
100 at the "bureau level or higher" (ju ji yi
shang).
Over 4,000 people have been
charged with bribery, over 8,000 broke rules on
holding corporate and government positions
concurrently, over 1,000 violated rules on
official housing, and over 1,000 improperly used
state-owned vehicles.
Nationwide,
officials granted approvals for loans to friends
and relatives totaling 2.5 billion yuan (US$309
million). Numerous sensational cases have been
prosecuted, including those of 13
people at the ministry level,
three of whom received the death penalty.At the
same time, the National Audit Office has unleashed
an "audit storm", with extensive audits of
ministries and other top-level organizations. Its
findings were made public last year for the first
time with the release of the report for 2003.
The 2004 report came out at the end of
September. It covered 32 central government units,
and found many of the same problems revealed a
year ago: state funds misappropriated to purchase
everything from minivans to luxury apartments;
money disbursed multiple times for the same
project; secret accounts set up for employee
bonuses; arbitrary fees charged for services; and
so on. In all, this year's investigation
identified issues involving a total of 24 billion
yuan.
One might conclude from all this
that China's new leaders are committed to
improving governance standards. But it is unlikely
that this is their sole or even primary
motivation. A more important consideration is
probably the opportunity provided by fighting
corruption to remove people loyal to former party
chairman Jiang Zemin.
In addition, an
anti-corruption campaign is an effective way to
keep the economy from overheating, since so much
of the country's economic activity involves
violating laws and regulations with the help of
corrupt officials. While creating the illusion of
"strengthening the honesty and self-discipline of
leading cadres" (as the Procuratorial Daily
article put it), in reality the corruption
fighters are most likely battling for control of
the party and the economy.
Settling
scores with Jiang Clearly not all of the
victims of the campaign can be linked to Jiang,
but in many of the most high-profile cases, the
connection is hard to miss. Perhaps the best known
is that of the Shanghai faction, a group
of politicians and businessmen with ties to Jiang
dating back to the 1980s, when he was Shanghai
party secretary. Prior to Jiang's retirement,
this was a group that seemed to be entirely above
the law. Once the new leadership took over (at the
16th Party Congress), however, it quickly became
the focus of an investigation centering on
multi-millionaire Zhou Zhengyi. In addition to
illegally borrowing hundreds of millions of yuan
from Chinese banks (most notably the Bank of China
- Hong Kong) by bribing
loan officers, Zhou also appears to have bribed
numerous Shanghai officials to approve the
demolition of houses to clear land for property
projects.
The case had the potential to
bring down people at the highest levels of the
city government, but in the end Jiang appears to
have been able to keep the investigation from
spreading. Zhou was only prosecuted for stock
price manipulation and falsifying a company's
registered capital, while his accomplices in much
bigger crimes went unpunished.
A more
successful case was that against Tian Fengshan, a
corrupt former governor of Heilongjiang Province,
who rose to the level of minister of land and
resources before finally being removed in October,
2003. Tian appears to have owed his rise entirely
to Jiang's support, which allowed him to avoid
prosecution for crimes committed as governor and
be promoted to the level of minister (in 2000)
over the deputy minister who was originally next
in line for the job.
A recent compilation
of articles by Hong Kong reporters on the new
anti-corruption campaign, "Money and Sex Case
Files of Corrupt High Officials" (Gao Ceng Tan
Guan Cai Se Dang An), attributes Tian's
downfall to involvement in embezzling state funds
and bribe-taking.
While in Heilongjiang,
he approved over 100 loans totaling 4.8 billion
yuan for what seem to have been fraudulent
projects, later disguising the resulting losses as
"basic infrastructure expenses". He was also part
of a corrupt network of Heilongjiang officials
involved in selling official positions; as
minister, he is reported to have accepted a bribe
of 500,000 yuan to transfer someone to a post in
Beijing. The exposure of Tian led to a shakeup of
the entire provincial government, with hundreds of
similar bribery cases finally coming to light.
Anti-corruption used to cool
economy The economic rationale for
anti-corruption campaigns - preventing overheating
- is nothing new; such campaigns were a prominent
feature of the austerity programs of 1989 and
1993. Fighting corruption is an effective way to
control the money supply as it leads (temporarily
at least) to a reduction in improper lending by
the state banks and a reduction in the flow of
government funds to non-bank financial
institutions. At the same time, investment is
brought under control, as large numbers of
projects can generally be halted on the grounds
they were improperly approved or involve the
illicit sale or use of state-owned assets.
This year's Audit Office report yielded a
number of cases of both unauthorized lending of
state funds and improperly approved projects. The
Air Traffic Control Bureau audit turned up a good
example of the former. In 2003, it lent 100
million yuan at an interest rate of 2.71% to an
entity called Jinfei Civil Aviation Economic
Development Center, which then lent the money to a
property developer through a CITIC Industrial Bank
entrusted loan at 12.03%.
The loan was
paid back a year later, along with 2.799 million
yuan in interest (2.71% of 100 million yuan), with
Jinfei presumably getting the much larger sum of
9.231 million yuan (12.03% of 100 million yuan
minus the 2.799 million yuan paid to the bureau,
assuming the bank's fee didn't come out of this
amount). Unfortunately, the audit report doesn't
tell us anything about Jinfei other than its name,
so it is unclear whether or not the case involved
a conflict of interest on the part of bureau
officials.
The majority of the cases of
unauthorized financing involved money that had
been lost, suggesting that in most cases, where
money is returned after taking the intended
profit, no one is the wiser. The National Natural
Science Foundation of China, for example, lost 100
million yuan at six non-bank financial
institutions that turned out to be insufficiently
capitalized.
National Material Reserves
Bureau subsidiary Shenzhen Huachu Industries Co
guaranteed 117 million yuan in loans to three
companies and became liable for this amount when
the borrowers failed to repay it. Another
subsidiary, Shanghai Hongsheng Trade Development
Co, lent 5 million yuan to a retail property
project but got back only 200,000 yuan of this.
And the Ministry of Foreign Affairs lost 19
million yuan of a 30 million yuan deposit it made
in 1994 at an "investment company" that later
folded.
One of the most common uses for
the hundreds of millions of yuan of
misappropriated state funds mentioned in the
report was investment in property. The National
Material Reserves Bureau audit revealed several
interesting cases; indeed, the bureau seems to
have made a regular sideline activity out of
property speculation, investing 38 million yuan in
Shenzhen property from 1989 to 1994.
In
1992, the bureau's Shenzhen office also used 71
million yuan in proceeds from material sales to
purchase land and property in Hainan and Wuhan,
investments which later led to a loss of 4 million
yuan. Subsidiary Beijing Huachu Materials Co
managed an even worse return after investing a 30
million yuan bank loan in a Chengdu property
company in 1997 - 29 million yuan was lost when
the business failed. Beijing Huachu made a further
30 million yuan loss on 41 million yuan worth of
investments in unspecified property development
and expressway construction projects.
While earlier property-related cases
detailed in the report tend to involve what appear
to have been projects developed for sale, more
recent examples seem to have more to do with
buildings that could conceivably have some
"in-house" justification.
Thus the
Ministry of Agriculture made unauthorized
investments totaling 184 million yuan in a
"veterinary diagnostic center" and an
"agricultural machinery comprehensive business
building" (nongji zonghe yewu lou), while
the ministry's film and television center invested
98 million yuan in a TV production building and a
training center.
Similar misuses of state
funds included an 18 million yuan office building
and training center built by the Ministry of
Foreign Affairs, a 60 million yuan office building
built by the Foodstuffs Bureau Science and
Technology Research Institute, and a 35 million
yuan "comprehensive service building" (zonghe
fuwu lou) built by the Hydropower Ministry's
Xiaolangdi Construction and Management Bureau. The
Environmental Protection Commission also built a
35 million yuan comprehensive service building;
this one, we are told, featured conference and
training centers and even a restaurant.
There is no reason to doubt that the
recent anti-corruption campaign can help China's
new leaders achieve the twin goals of
consolidating their political power and
maintaining economic stability. But will it make
any difference in the long term to the ostensible
objective, reducing corruption?
The
historical record of such one-off attempts to
clean house is not encouraging. Consider the
campaign of 1993, when the Central Commission for
Discipline Inspection called for a crackdown on
"unhealthy tendencies" (bu zheng zhi feng).
Party members and leading cadres were to refrain
from operating private businesses, holding posts
in economic entities, buying and selling shares,
receiving gifts of money or securities, and using
public money for lavish entertainment. There was
also to be an end to the arbitrary collection of
fees and charges and the use of public funds for
foreign travel.
As the results of the
numerous recent investigations and audits make
clear, any progress that might have been made
during the 1993 campaign has since proved
illusory. All the abuses that campaign sought to
curtail continue to be commonplace. The only real
change has been in the amounts involved: they have
gotten bigger.
Mark A DeWeaver,
PhD, worked as a research analyst in
Shenzhen from 1991 - 1995, first for W I Carr and
later for Peregrine Brokerage. He manages
Quantrarian Asia Hedge, a fund that invests in
Asian equities (on the web at http://www.quantrarian.com)
and can be reached at
deweaver@quantrarian.com.
(Copyright
2005 Mark A DeWeaver. Used
by permission.)
