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City University of Hong Kong
CB 3042 China Business Environment

Final Exam

Question: Why is it so difficult to eradicate corruption even though the party and the central government have repeatedly addressed the problem and various measures over the years?

Ho Wing Yan 53819999

China’s substantial corruption challenges are deeply rooted in cultural traditions as well as the country’s complex transitory conditions. Further, corruption is increasingly growing in significance as a political issue in China, and in an international context, China’s corruption problems have attracted extensive attention.
Like any emerging market, China suffers from corruption and an often unethical business environment. What makes China different from many other national economies is the scale of the bureaucracy and the pace of economic development from a low base, both of which have created conditions ideally suited to the growth of corruption and opportunities for massive financial gain by underpaid local government of officials and by entrepreneurs eager to amass personal fortunes as quickly as possible. There are three main reasons cause this happen.
Definition of corruption
Giving or obtaining advantage through means which are illegitimate, immoral, and/or inconsistent with one's duty or the rights of others. Corruption often results from patronage.
Cultural effect in china
First, aspects of Chinese cultural traditions and norms rooted in Confucianism. The corruption in China is having a long history started from the western zhou dynasties. There was a famous corrupt official in history, He Sen, he corrupted one billion dollars in total. In addition, Confucianism is a cultural effect. It encourages corruption indirectly. Courtesy demands reciprocity. It indicates that you are being impolite if you don’t accept one’s present. It is an indirect implication. If you take the money, that implies that you need to do something back.

The relationship between corruption and economic development
China is the largest industrialized, the largest agricultural, the 2nd-largest service industry, and the fastest economic developing country.

The rise of corruption is due to economic reform which introduced in 1978 by Deng Xiaoping. It makes a huge contribution of economic development featured in opening to the market, decentralization, growth of the Non-state sector, household responsibility system and Bureaucratism.

Since economic reform began in 1978, China has become a more market-oriented economy and its real GDP has increased at an annual rate of about 9.4 percent per year while the Government target is 8% per year. The Chinese government deserves credit in guiding economic reform but the rapid growth is due to three fundamental economic factors. Given the existence of political stability, these factors are the abundance of high-quality human capital, including both the skilled and hard-working labor force and the resourcefulness of the entrepreneurs, the market institutions established even if they are imperfect and the availability of modern technology and method of management which China can adopt as a new comer. It leads to a demand and supply problem, as the economic activity of both citizens and the Government increase, people make good use of the right from the government official, e.g. Quota policy.
Anti-corruption law in China
There are several anti-corruption agencies in China nowadays, including Central and local commissions for discipline inspection, Ministry of supervision and its local branches, Supreme and local procurators and Supreme and local courts.
Under the Anti-Corruption Law (2010), it is prohibiting bribery, concealing illegal gains, tax evasion, embezzling funds and receiving gifts which valued over RMB 200 by Chinese officials. If any of the above is violated, people may receive capital offense which is a punishment by death.
But corruption still cannot be addressed since those anti-corruption agencies and Anti-Corruption Law are failed due to three reasons. They are the Anti-corruption system, Anti-corruption agencies and lack of independence juridical system.
First, about the Anti-corruption system. The Anti-Corruption Bureau is an independent law regulator department which is managed by local government. But it also has disputes involved local government. The Chinese Communist Party has taken the corruption problem very seriously. It has waged repeated campaigns to stop it by punishment. So far party discipline has had only limited success. A few people involved in certain well-known cases of corruption have been severely punished and the cases are publicized in newspapers. Several millions Party members were expelled from membership in 2005 partly because of corruption but much corruption remains.
Second, the Anti-corruption agencies. As the anticorruption power is decentralized, there is actually no rule at all. There is evidence proved by Shang Fang and Local Government intervention, most of the Shang Fang cases are still waiting to be solved. There is lack of an effective mechanism of checks and balances; therefore, it is difficult to supervise senior officials. Also, there is no political opposition in China, it is also difficult to supervise government leaders. Besides, there is lack of independence of existing anti-corruption agencies.
Third, the lack of independence juridical system. Judges protect the socialist system’s interests. Anti-corruption purpose is for the public example setting. Target and punishment is depends on the goal of leadership. China’s former President, Hu Jintao targets low level corruption. And our current president, Xi Jinping targets super power.
Effective ways against Corruption
An obvious solution is to reduce the role of the government and thus the economic power of the bureaucrats that is the source of corruption. If corruption occurs only when bureaucrats are given economic power, obviously having fewer bureaucrats working in fewer government agencies and state-owned enterprises means less corruption. State-owned enterprises, banks and publicly owned land, and the authority to grant government permits and licenses are all sources of bureaucratic power which need to be removed as much as possible except for those that are essential for the functioning of the government.
Public ownership of land is an important source of corruption. Whenever land is assigned by bureaucrats to developers, as in the cases of the recent urban development of the city of Dong Guan in Guangdong Province and the building of shopping malls along Chang-an Street in Beijing, some form of corruption is likely to occur. Land development has been speeded up because the bureaucrat in charge has only a finite term of office that he can exploited while it lasts. By reducing the role of the state, including the sizes and number of state-owned enterprises and banks, the amount of publicly owned land (to be sold by auctions for example as in the case of Hong Kong), and number of government bureaus having authority to grant permit and licenses (some of which are necessary and desirable) we can hope to reduce the amount of corruption substantially. We should understand that, in the process of privatization, corruption can occur also, as in the selling or even auction of land and perhaps in the selling of corporate assets during the privatization of the former Soviet Union.
In the process of reducing corruption by limiting the economic power of the government the economic environment facing the bureaucrats and Chinese culture are inter-related. Since the 1980s the economic environment that provided many opportunities to get rich has affected the Chinese culture in giving legitimacy and high respect to money making, even by illegal means. Now I am suggesting a change of the economic environment by reducing the economic opportunities for corruption and hope that the Chinese culture will gradually be improved by the reduced practice of corruption. As suggested in the last section on the theory of corruption, changing circumstances will change behavior which will in term leads to change in habit and social norm, i.e., change in culture.
Is the above policy recommendation politically feasible? Some Chinese Communist Party leaders and government officials already understand that corruption is derived from the opportunities available. The Chinese government has already reduced the size of the state sector and has attempted to privatize many state enterprises in recent years. Shares of state-owned banks are being sold in the New York Stock Market. The question of adopting the above recommendation is a matter of degree of privatization allowed and the speed for privatization to take place. There still remain the two basic principles of Chinese socialism: “holding on the large” and public ownership of land.
A proposal to further reduce the state-owned sector of the economy or the power of the government administration may be objectionable from the viewpoint of many members of the Chinese Communist Party either for ideological reasons as imbedded in the above two basic principles or for the protection of their own vested interests. Any significant change requires a resolution by the leadership of the Party and the Chinese government. If the Party leaders understand the roots of corruption and its harmful effects not only on many aspects of economic reform but also on the maintenance of the leadership of the Communist Party itself they can more intelligently weigh the advantages and disadvantages of reducing the size of the state sector and the size of the government bureaucracy, something that the former Premier Zhu Rongji attempted to achieve and succeeded to some extent at the very beginning of the 21st century. Furthermore in trying to reduce the role and the size of the government, the central government may encounter resistance from local government officials and face the problem of enforcement as it has faced in trying to control corruption practiced by officials of provincial and local governments. One can only hope that there are enough enlightened and determined leaders of the Chinese Communist Party and in the Chinese government to treat the problem of corruption seriously enough to reexamine their ideas about the role of public ownership.