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The Dark Side of China's Rise
 The only thing rising faster than China is the hype about China. In January, the People's Republic's gross domestic product (GDP) exceeded that of Britain and France, making China the world's fourth-largest economy. In December, it was announced that China replaced the United States as the world's largest exporter of technology goods. Many experts predict that the Chinese economy will be second only to the United States by 2020, and possibly surpass it by 2050.Upon close examination, China's record loses some of its luster. China's economic performance since 1979, for example, is actually less impressive than that of its East Asian neighbors, such as Japan, South Korea, and Taiwan, during comparable periods of growth. Its banking system, which costs Beijing about 30 percent of annual GDP in bailouts, is saddled with nonperforming loans and is probably the most fragile in Asia. The comparison with India is especially striking. In six major industrial sectors (ranging from autos to telecom), from 1999 to 2003, Indian companies delivered rates of return on investment that were 80 to 200 percent higher than their Chinese counterparts. The often breathless conventional wisdom on China's economic reform overlooks major flaws that render many predictions about China's trajectory misleading, if not downright hazardous. The Chinese economy is not merely inefficient; it has also fallen victim to crony capitalism with Chinese characteristics—the marriage between unchecked power and illicit wealth. And corruption is worst where the hand of the state is strongest. The most corrupt sectors in China, such as power generation, tobacco, banking, financial services, and infrastructure, are all state-controlled monopolies. None of that is unprecedented, of course. Tycoons in Russia, after all, have looted the state's natural resources. China, at least, boasts genuine private entrepreneurs who have built prosperous companies. But China's politically connected tycoons have cashed in on China's real estate boom; nearly half of Forbes' list of the 100 richest individuals in China in 2004 were real estate developers. Various indicators, pieced together from official sources, suggest endemic graft within the state. The number of "large-sum cases" (those involving monetary amounts greater than $6,000) nearly doubled between 1992 and 2002, indicating that more wealth is being looted by corrupt officials. The rot appears to be spreading up the ranks, as more and more senior officials have been ensnared. The number of officials at the county level and above prosecuted by the government rose from 1,386 in 1992 to 2,925 in 2002. An optimist might believe that these figures reveal stronger enforcement rather than metastasizing corruption, but the evidence suggests otherwise. Dishonest officials today face little risk of serious punishment. 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. The culture of official impunity is thriving in China. What's worse, corruption is now assuming forms normally associated with regime decay. Corruption involving large numbers of officials used to be rare. Now it's rampant. Regional data suggest that large-scale corruption rings account for 30 to 60 percent of all the cases of graft uncovered by authorities. In some of the worst instances, entire provincial, municipal, and county governments were found to be tainted. As ominous as the corruption itself is what these scandals are beginning to reveal about the government's legitimacy. In their confessions, corrupt officials often blame their misdeeds on a loss of faith in communism. There is anecdotal evidence that senior party officials have taken to consulting fortune-tellers about their political careers. The ruling elite in China, it appears, is 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. Posted by: Nimble Spemble 2006-02-27 |
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