The dark side of China's rise

In the current article (March/April 2006) of the Foreign Policy Minxin Pei, a senior associate and director of the China Program at the Carnegie Endowment for International Peace, argues that Beijing's brand of authoritarianism is spawning a dangerous mix of crony capitalism, rampant corruption and widening inequality.

If current trends continue, 'China's political system is more likely to experience decay than democracy...and the very policies that the Party adopted to generate high economic growth are compounding the political and social ills that threaten its long-term survival'.

In his article, Minxin Pei suggest that the combination of authoritarian rule and the state's economic dominance has bred a virulent form of crony capitalism, as the ruling elites convert their political power into economic wealth and privilege at the expense of equity and efficiency.

'The state's economic dominance preserves systemic economic inefficiency as scarce resources are funneled to local elites and bureaucratic consitutencies.'

In supporting his argument Minxin argues that the World Bank estimates that, between 1991 and 1000, almost a third of investment decisions in China were misguided. The Chinese central bank's research shows that politically directed lending was responsible for 60 percent of bad bank loans in 2001-02.

The Chinese economy has fallen victim of crony capitalism with Chinese characteristics - the marriage between unchecked power and illicit wealth. 'The most corrupt sectors in China, such as power generation, tobacco, banking, financial services and infrastructure, are all state-controlled monopolies.

Various indicators, pieced together from official sources, suggest endemic graft with the state. Between 1992 and 2002, the number of 'large-sum cases' (those involving monetary amounts greater that $6,000) nearly doubled. More wealth is being looted by corrupt officials. The number of officials at the country level and above prosecuted by the government rose from 1,386 in 1992 to 2,925 in 2002. On average, 140,000 party officials and members were caught in corruption scandals each year in the 1990s and 5.6 percent of these were criminally prosecuted. In 2004, 170,850 party officials and members were implicated, but only 4,915 (or 2.9 percent) were subject to criminal prosecution.

It seems to Minxin, the ruling elites in China appears drifting and insecure. 'Fearful about what the future may hold, some officials do not want to wait even a few years to turn their power into wealth. In 2002, almost 20 percent of the officials prosecuted for bribery and nearly 30 percent of those punished for abuse of power were younger than 35. In Henan Province in 2003, 43 percent of local party bosses caught up in corruption were between 40 and 50 years old (as compared with 32 percent older than 50).'

'China has seen its future leaders, and a disproportionate number of them are on the take.'

Minxin Pei is the author of China's Trapped Transition: THe Limits of Developmental Autocracy (Cambridge: Harvard University Press, 2006)

Comments

[Michael Paton]

Discussions such as those of Pei Minxin ('The Dark Side of China's Rise' May 4) seem to occur in an environmental history vacuum. The question should be asked as to whether the corrupt officials couldn't wait to turn their power into wealth because of the worsening environmental situation, a situation that has its roots for many ceturies in what Elvin has dubbed the 'logic of short term advantage'. Whether this situation would be ameliorated by the dismantling of state monopolies is also questionable as economic markets generally work on such short term logic.

See Elvin, Mark, The Retreat of the Elephants: an Environmental History of China, (New Haven and London: Yale University Press, 2004)