China's Twin Paradoxes:
Rapid Growth and Rising Corruption
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According
to conventional wisdom, rising corruption reduces economic growth. And
yet, between 1978 and 2010, even as officials were looting state
coffers, extorting bribes, raking in kickbacks, and scraping off rents
at unprecedented rates, the Chinese economy grew at an average annual
rate of 9 percent. This paradoxical trend was the subject of a lecture - China: Rapid Growth and Rising Corruption in China
- in the Rising Power Initiative's Asian Economic Challenges series.
Andrew Wedeman, professor of political science at Georgia State
University, was on hand to talk about his recent book Double Paradox: Rapid Growth and Rising Corruption in China
and why the Chinese economy performed so well despite widespread
corruption at almost kleptocratic levels. You can listen to the event's
audio here.
Defying Conventional Economic Wisdom
Professor Wedeman argued that by any reasonable measure China has had a long standing serious problem with corruption. Transparency International,
an organization that ranks countries by their levels of corruption,
identified China as the second most corrupt nation in the world on their
1995 list. Wedeman highlighted a number of China's high-profile
corruption cases over the years ranging from dishonest real estate deals
and massive smuggling operations to pension fund thefts and the most
recent Agatha Christie-like murder-bribery story of Bo
Xilai. The conventional wisdom
of economic theory would predict a strong negative correlation between
corruption and economic growth. As the rate of extortion, bribes,
kickbacks, and looting increased in a nation, one would expect economic
growth to suffer. Professor Wedeman pointed out that in China, however,
GDP per capita was unaffected by persistent corruption and grew rapidly
since the early 1980s.
How Did China Do It?
China was able to defy this conventional wisdom thanks to three major reasons:
Timing
China's twin paradox of
corruption and economic growth is unique in Asia: rapid growth through
economic reforms came first and then corruption rose in response as a
byproduct. As economic reforms in the 1980s produced a great deal of new
wealth in the country, party officials asked themselves a simple
question: should this new wealth go to entrepreneurs in this new economy
or to the policymakers whose decisions drove reforms? The rapid
intensification of corruption in China during the 1990s showed that
party officials and budding capitalists decided to comprise and trade
government economic favors for monetary gain.
Nature of reform
Chairman Deng Xiaoping ,
China's leader during most of the 1980s, undertook a series of economic
reforms, including the transfer of assets such as property from the
state to entrepreneurs, that fostered economic growth but also became an
important source of corruption. At the time, the leasing of state
property was a relatively new concept. The individual party official who
priced the lease and picked the clients could write deals that promised
to give the official a "piece of the action." Hustling entrepreneurs
stood to make a tremendous sum of money if they could secure a favorable
lease and were more than willing to send a few kickbacks to the party
official who could make it happen.
Anticorruption Campaign
Top Chinese leadership has been
engaged in a three decades struggle against corruption. Wedeman
contrasted China's corruption origin story with that of other "Asia
Tigers" such as the Republic of Korea, Japan, and Taiwan. In those
cases, political parties used corruption as a tool to forge a strong
political machine to hold together the economy and rise up to political
power. The Chinese Communist Party (CCP), on the other hand, already
held sway in the country before economic reforms in the 1980s. The CCP
justified reforms on the need to boost economic growth to ensure the
party's political legitimacy in the minds of the Chinese population.
Seen through this lens, corruption posed a danger to economic growth and
thus party control.
Therefore
Deng Xiaoping declared a "war on corruption" in 1982 that is still
echoed by China's leaders today. Wedeman believes that Beijing's
anti-corruption efforts are misunderstood and unfairly discounted by a
Chinese citizenry whose judgment is based only on newspaper reports on
the total number of corrupt officials caught, tried in court, and
sentenced. He found that CCP leaders were serious about enforcement and
punished many corrupt officials with long prison sentences, loss of
desirable government jobs, and - in over 1,000 cases - the death
penalty. Indeed, China's ranking in Transparency International has
continued to improve in recent years and is where Wedeman would expect a
developing country at China's level to be
located.
Conclusion
Professor
Andrew Wedeman's research revealed factors that helped China experience
rapid economic growth despite widespread corruption: the timing of
economic growth before corruption took hold, the specific nature of its
economic reforms, and genuine anticorruption efforts. His future
research will examine why today's corruption in China is trending away
from public officials extorting private industry and more towards
insider trading within the expanding private sector.
By
Timothy Westmyer, Research and Program Assistant, Rising Powers
Initiative, Sigur Center for Asian Studies, the George Washington
University
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