China on the take

Why a purge of corrupt party kingpins raises alarms for both China and its trade partners
In this Monday, Aug. 26, 2013 photo, Chinese President Xi Jinping inspects a guard of honor during a welcome ceremony for visiting Serbian President Tomislav Nikolic outside the Great Hall of the People in Beijing. Xi visits Central Asia from Tuesday, Sept. 3, 2013 amid concerns that a U.S. troop withdrawal from Afghanistan could mean a destabilizing exodus of foreign radical fighters there back to homelands closer to China’s borders. With the pullout deadline just 16 months away, China’s leaders share widespread concerns that Kabul’s own forces won’t be able to maintain security or that foreign fighters who were focused on fighting U.S. troops will now head elsewhere, including other fragile Central Asian nations or even northwestern China. (AP Photo/Andy Wong)
Alexander Yuan/Reuters
Alexander Yuan/Reuters

When Xi Jinping made his famous promise one year ago to wipe out both the “tigers and flies” of Chinese corruption, you could have forgiven the average Chinese worker for scoffing at his new president. Past anti-corruption sweeps have hauled in self-dealing officials by the hundreds of thousands—more than 182,000 punished last year alone, declared the Communist party’s disciplinary arm a few weeks ago, with McDonald’s-like triumphalism. Yet the country’s bloated ruling class continued to thrive, while the true kingpins of a system ridden with graft and kickbacks—senior party leaders—remained untouched. Historically, critics note, the authorities have been a lot more keen to swat insects than to hunt big game.

Then, not long after Xi spoke, word leaked out that the government was investigating the dealings of Zhou Yongkang, the country’s former security czar and by anyone’s definition a “tiger” of monumental proportions. At 71, Zhou is the most senior official probed for corruption in China since the 1949 revolution—a retired party heavyweight whose resumé includes stints at the top of the China National Petroleum Corp. (CNPC) and on the all-powerful standing committee of the Politburo. In the past, someone like him might have expected a placid retirement; scapegoating party elders isn’t the Chinese way. Yet last week, news trickled out that Zhou was under house arrest, and that authorities had seized what is alleged to be his vast and sprawling personal empire.

The scale of the seizure is staggering. According to a report by Reuters, the government has taken control of $14.5 billion worth of houses, securities, gold and luxury cars spanning five Chinese provinces and filling bank accounts around the globe. Those who entered Zhou’s family orbit led blessed lives—designer jewellery and bottles of expensive liquor counted among the items seized. But they won’t be feeling lucky now. As of last week, a reported 300 of Zhou’s relatives, friends, political allies and staff had been detained or questioned, including his wife, Jia Xiaoye, his eldest son from a previous marriage, Zhou Bin, and Zhou Bin’s in-laws.

Though unprecedented in scope, the Zhou investigation is the latest step in a purge of corrupt potentates that has gripped the country, with the state-controlled media cheering from the sidelines. News of the Zhou asset seizure broke just a day before it emerged that a former lieutenant general in the People’s Liberation Army, Gu Junshan, stood accused of reaping millions from the sale of military positions (among the booty seized from Gu’s house: a life-sized, golden statue of Mao Zedong). Before Zhou there was Jiang Jiemin, a past head of CNPC whose dealings are under investigation, as well as Liu Zhijun, the former railways minister sentenced to death last summer, with a two-year reprieve, for taking bribes and abusing his position. All of it follows the sensational downfall of Bo Xilai, the former party chieftain in Chongqing, whose ill-gotten fortune was revealed after his wife, Gu Kailai, was charged with the murder of a British businessman in a case that captivated the media both in China and abroad.

For many Chinese, the rush of scandal has been a welcome catharsis, casting light on skulduggery that has long been an open secret. Scores streamed last week into the eastern village of Xi Qian Tou after the Beijing-based magazine Caixin took the unusual step of identifying it as Zhou’s hometown. “I just heard about it,” shrugged one man to a reporter while gawping at the sprawling, white house where several Zhou family members had been living. “So I came to take a look.”

But for the rest of the world, dependent on Chinese growth to drive prosperity, the epic scale of fraud is cause for worry. Beijing watchers warn that Xi’s crackdown may be more about politics than ending graft—Zhou, for one, has long been associated with a faction within the party that Xi opposed. And even if it comes from a good place, what does it say about the viability of the second-most powerful economy in the world when a single official can command a fortune the size of Jamaica’s annual GDP? This at a time when the West is courting ever closer economic ties with China. “It’s a problem for everyone,” says Srirak Plipat, who monitors China for the global anti-corruption organization Transparency International.

Arrests and investigations of high-profile individuals might send a good message, he adds, but they’re no substitute for the bulwarks of transparency that Westerners take for granted: disclosure of assets by politicians; published government accounts; open courts. China might be well on its way to dominating the league of capitalist nations, observes Plipat, but where honest dealing’s concerned, it has “much, much more to do.”

These are, after all, more than mere growing pains. For his 2012 book Double Paradox, the American academic Andrew Wedeman compared the depth and nature of Chinese corruption to that of other countries and found alarming parallels to economies that were eventually crippled by pervasive, all-consuming corruption. Think Nicaragua, or Haiti. Most experts view China’s corruption problem as a developmental phenomenon, like the graft that afflicted Japan and Taiwan during their early growth phases. But Wedeman believes China is grappling with something different, the scope of which has been papered over by the good-news story of economic growth. “It’s a network that stretches, essentially, right across the country,” he says from his office at Georgia State University’s China Research Centre. “If you were to take it apart, looking at who works for whom, you’d find it tracks back deep into the leadership.”

That leadership, Wedeman adds, represents a species unseen in other industrialized countries. That is, members of a privileged elite who shuttle seamlessly between government, state-owned enterprises and the private sector. Many were put in place by parents who held influence during the late 1970s market reforms led by then-premier Deng Xiaoping, and who saw the opportunity to reward family as a perquisite of faithful service. Their children, sometimes referred to as “princelings,” are pleased to reap the rewards, yet are less concerned with public service.

From these kingpins flows a system of graft so pervasive that many Chinese accept it as standard practice. Past scandals have revealed regional party officials who sell positions to the highest bidder, and mid-level managers who take kickbacks from public contracts. Contractors, in turn, break jobs down into as many subcontracts as possible, each of which can be purchased for a fee payable to them and, even for those in the middle of the food chain, the system can be astonishingly lucrative. In an infamous case exposed two years ago, a faceless urban management official in the southern province of Guangdong was found to own 22 homes, worth a total of about $6 million. His official salary: less than $22,000 per year.

This long-standing dynamic can be overlooked so long as China’s export-driven economy is growing at 10 per cent. The trouble will arise, says Wedeman, when it tries to shift to an economy based on domestic consumption, as all industrializing countries must. “If the domestic consumption model is to work,” he says, “you have to level the playing field to increase competition.” That means passing laws to ensure the deck isn’t stacked against upstart businesses. It also means breaking up state-owned enterprises whose overseers stand to lose much should the existing, corrupt order be overturned.

From the time of Xi Jinping’s ascent last winter, reform-minded Chinese have hoped that the leader, now 60, was the man to do the job. Known for a populist touch, he used his maiden speech to highlight “corruption, bribe-taking and being removed from the people” as problems within the party. Jiang Weiping, a dissident journalist who fled to Toronto after writing a book that exposed Bo Xilai’s corruption, believes Xi’s new position empowers him to impose reforms even if entrenched opponents don’t like them. “The centralized political system in China means that no high-ranking member of the party, even if he is severely conservative, is able to act without acknowledging Xi Jinping’s view,” Jiang wrote recently on OpenCanada.org. “Reform is largely up to Xi.”

The recent crusade would seem to bear out this optimism. Zhou, Jiang, Bo and Liu could all be described as “tigers,” and unlike his predecessor, Hu Jintao, Xi seems to grasp the need to get ahead of scandals before they explode into cyberspace, further undermining the party’s reputation. But his motives, warn skeptics, are not so clear-cut. Zhou, Jiang and Bo, for instance, are closely identified with a party faction whose combined power may have represented a threat to Xi’s authority. “The party elites are never in one united group,” Xie Zhihai, a Chinese-educated political scientist now based in Japan, noted in a recent commentary. “The ongoing anti-corruption movement is inevitably intertwined with domestic political struggles.”

Then there’s Xi’s own status as a party insider whose relatives have done conspicuously well during his political rise. In June 2012, when Xi became the most likely successor to the presidency, Bloomberg published an in-depth story revealing that his extended family has piled up mining, real estate and technology assets worth hundreds of millions of dollars.

None of the assets are held by Xi, his 49-year-old wife or their daughter, but rather by Xi’s sister, his brother-in-law and his niece. And at least some of Xi’s reputation as a man of the people is justified: as a youth, during the Cultural Revolution, he was “sent down” to the countryside for re-education. Still, the scale of the fortune speaks to his own position as a princeling whose father, Xi Zhongxun, fought alongside Mao during the revolution; if he weren’t president, he would surely count among China’s super rich. And the authorities in China certainly seemed worried about how these revelations would reflect on him: not long after Bloomberg posted them, they blocked access to its website.

Whatever Xi’s motive, the recent bloodletting offers little comfort to countries and companies trading with China. Long before it started, stories abounded of Western companies who gave up trying to do business there. Some found themselves shut out of lucrative deals by the domestic crony networks. Others felt foreign companies were held to a higher legal standard. Last summer, for instance, Chinese police accused British drugmaker GlaxoSmithKline of funnelling up to $490 million in bribes to doctors to boost sales; the payments were allegedly channelled through travel agencies, disguised as charges for “conference services.”

To Transparency International’s Plipat, such stories raise concerns about China’s influence on the rest of the trading world. If pay-to-play is standard procedure in one of the world’s pre-eminent economies, he reasons, how long before everyone else us must do it? “We’re already seeing the problem of foreign bribery from this big Asian economy [migrating] to smaller ones, like those in east Africa. It’s the exporting of corruption.” To turn the tide, Beijing will need more than its haphazardly enforced regulations, which apply to Communist party members. “When people take political positions, they need to declare their assets before and after,” he says. “The party regulations should be turned into laws for everyone, and those must meet international standards.” Other remedies prescribed by Transparency International read like a dissident’s wish-list: a free press to bring public attention to wrongdoing; a thriving civil society to make leaders answer for their behaviour; an overall culture of accountability.

In short, the hallmarks of a liberal democracy—something China’s leaders show no inclination to embrace. But if history is any guide, the very rot they are protecting might someday force their hand. There was a wave of unrest in 2008 when an earthquake struck the central Sichuan region, killing more than 5,000 children who attended shoddily built schools. Some engineers pointed to substandard concrete and a lack of steel reinforcement in the schools, raising suspicion that bosses of construction companies had cut corners and pocketed the savings. Parents of the dead children were outraged, blocking crews from removing wreckage because they viewed it as evidence of a crime. News of their dissent spread quickly via social media.

Frightened, Beijing clamped down, chasing foreign reporters from the scene while mollifying parents with promises of an inquiry. That investigation either petered out or never happened. Yet it’s hard to imagine this sort of half-measure working in the long term—the new China is too wired, too savvy, too charged with outrage at its leaders’ abuses. It’s a safe bet no one in the party’s senior leadership cares to find out how many more collapsed schools it would take to upset the prevailing order. If Xi Jinping is wise, he won’t be satisfied with catching a few tigers.