Economy, Talking Point

The sordid price of growth?

Debate rages in China about corruption as scandals escalate

The sordid price of growth?

Ill-gotten gains

Zhang Ziyi first came to prominence in her debut film, The Road Home. She portrayed a country girl who represented a Chinese archetype of beauty and innocence. Audiences watched in delight as she indulged in a courtship of chaste glances. They wept when she came close to sacrificing her life for love, waiting for her betrothed in a snowy wilderness.

Last week Zhang was trying to rekindle some of that sweetheart image. That’s because the star was fighting scandalous rumours about her character, after a Hong Kong newspaper printed an article alleging her sexual involvement with a corrupt businessman and a fallen politician.

The Apple Daily had republished rumours that first appeared on US-based Chinese language news website These alleged that Zhang had been paid Rmb10 million ($1.57 million) to have sex with Bo Xilai, the recently purged Party secretary of Chongqing. The deal had been funded by Bo’s business crony, Xu Ming, the tycoon who controls Dalian Shide.

These incredible claims suggested that Zhang had been ensnared in the ongoing corruption investigation into Bo and Xu, both of whom have been detained by the authorities in Beijing.

How did Zhang react?

The actress flew to Hong Kong last week to prove her passport had not been seized and to demonstrate that she was not under investigation for corruption.

During her brief visit Zhang met with Hong Kong lawyers to discuss possible legal action against Apple Daily, and then called a press conference. At the event she smiled a great deal but swore she would defend herself against the rumours “at any price”.

She was categorical in her denial: “The so-called recent news is an outright lie, filled with libel and slander.”

Zhang is the latest high-profile figure to get dragged into an ever-widening series of corruption probes.

Mind you, she is also an exception to the rule: the others haven’t been in a position to call a press conference to protest their innocence.

Regular readers of WiC will know that Xu and Bo have not been at liberty since March and April respectively (see issue 145). Both appear likely to be charged with corruption, with the politician alleged to have helped the businessman get bank financing and deals. In return, the tycoon is said to have kicked back millions to Bo, as well as paying for his son’s expensive foreign education.

And that’s not all, folks…

On its own Bo’s corruption case is a massive blow to the Party’s shaky reputation for clean government. After all, until early this year he was one of the most powerful men in the country and was expected to join the nine-person Standing Committee that governs China.

But last week saw a spate of other corruption cases grabbing headlines too. That has further muddied public perceptions.

Last Tuesday the China Daily reported that former rail minister Liu Zhijun had been expelled from the Party. Admittedly, his case was not new (see WiC95) – with the 59 year-old suspected of taking Rmb1 billion ($157 million) of bribes. Although Liu has yet to appear in court, being kicked out of the Party normally implies guilt.

Another senior Party functionary was also felled last week. The culprit this time was Yang Kun, deputy governor of state-owned Agricultural Bank of China. According to 21CN Business Herald, Yang is the highest-ranking bank executive to be investigated for corruption since 2005. In Yang’s case he is suspected of colluding with the “mysterious” businessman Wang Yaohui, the property developer behind Beijing’s Blue Harbour International Business District.

The Central Commission for Discipline Inspection – the Party’s anti-corruption arm – detained Yang and later pounced on a general manager at Minsheng Bank too. According to the South China Morning Post this suggests that Yang’s web of corruption spread beyond his own bank.

Where graft cases have reached court, they’ve generated plenty of interest. For example, in late May a sacked Shandong official made an interesting revelation, reports Procuratorial Daily. He had stolen Rmb120,000 and was sentenced to 10 years for bribery and embezzlement. But the man in question – Liu Zhiwen, a former secretary of civil affairs in the city of Dezhou – hit back that he could have “made a fortune” if he had followed the usual “hidden rules”.

Liu’s defence – that he considered himself a relative model of restraint – recalls the line taken by Lord Clive when cross-examined about the wealth that he accumulated in 18th century India: “I walked through vaults which were thrown open to me alone, piled on either hand with gold and jewels! By God, Mr Chairman, at this moment I stand astonished at my own moderation!”

Clive left India in 1760 with a personal fortune of at least £300,000, an astronomical amount at that time.

How have newspapers reacted to the corruption cases?

The debate took a new twist last week when Party mouthpiece the Global Times published an editorial on the subject.

Admitting that the news about corrupt officials seemed “endless”, the newspaper quickly insisted that “corruption is much more serious” in other Asian countries such as Indonesia, the Philippines and India.

More controversially, the editors then suggested that a certain amount of graft could be tolerated. “Society needs to understand that China cannot completely suppress corruption at this stage of its development,” the newspaper noted. Sidestepping the usual orthodoxy, it argued that the key thing was to “control the extent” of graft, or keep it at a level that the public would put up with.

The article went viral online after internet giant Tencent republished it with the headline: “The public should understand and allow moderate corruption.” (Tencent would later apologise for altering the editorial’s original title, the considerably less punchy “Anti-corruption is a tough battle for China’s social development”.)

What followed was unusual: the Global Times was attacked by another state newspaper. The China Youth Daily dismissed the original editorial as “a ridiculous point of view” and said there could be no compromises in the fight against graft. “Corruption is not the lubricant of economic development,” it argued. “Corruption can never be eradicated unless we implement democracy and proper institutions.”

As New Express Daily pointed out, this “deviated from the professional ethic whereby newspapers [in China] do not attack each other”. Other newspapers were quick to follow the China Youth Daily’s lead. The Economic Observer mocked the logic of the Global Times’ view: “Can you tell me the amount of annual corruption that is tolerable: Rmb100 billion or Rmb1 trillion?” 21CN insisted that zero tolerance for corruption remained society’s “insurmountable bottom line”.

Not surprisingly, the row became one of the most discussed subjects on Sina Weibo, China’s Twitter-equivalent. Wang Wei – who has 1.42 million followers and is chairman of the Chinese Museum of Finance – said the article revealed the “collapse of government ethics” and even demanded a public apology from the Global Times.

How bad is the problem?

The extent of the corruption epidemic was underlined by a statistic published by Xinhua: that 18,464 cases of bribery were uncovered last year. In the cover story in the most recent issue of Seeking Truth, the Party’s magazine, 10 different types of corruption were identfied that need to be tackled, from bribes through to illegal land seizures. The author was no hack either – He Guoqiang, a member of the all-powerful Standing Committee and head of the Central Commission for Discipline Inspection.

Perhaps, not surprisingly, there is no definitive data for the amounts of money involved, although the central bank reckons that 18,000 bureaucrats have fled China in the past 15 years with $123 billion of illegal assets (see WiC112). That figure is from a year ago and is likely to keep getting bigger.

Last December we reported on the arrest of the deputy governor of Shandong province. The unconfirmed rumour was that Huang Sheng had accumulated $9 billion (Xinhua’s website picked up on this sum, suggesting it wasn’t as outlandish as it might seem).

So it seems fair to say that corruption is commonplace, and at all levels of government. One of WiC’s correspondents spoke with a 33 year-old official in Inner Mongolia, who said a key problem is that government jobs are sold to prospective applicants. Speaking anonymously he said: “You buy your position from your superiors, that’s how people get promoted. Once you have the job, you make back what you paid for it through corruption.”

His view on the problem: “It’s hopeless. It’s everywhere. They might catch some people, but then the new leaders become as corrupt as the old ones.”

There’s an added dimension too: politics. As we reported in WiC131, corruption purges are often less about the underlying problem (venal bureaucrats) than eliminating your enemies. The sheer number of cases coming to light this year are likely a reflection of the once-in-a-decade power transition underway in Beijing. Rivals are seeking to better their positions, all the way up to the Standing Committee itself.

Pinning a corruption charge on a rival’s underling is a good way of weakening them. As we’ve pointed out before there’s even an old Chinese proverb to describe this: beat the dog and watch its owner.

The infighting has its own dynamic but the upshot – more corruption purges – can only further damage public trust in the system.

As the award-winning author Yu Hua observes, the sheer scale of China’s corruption has escalated since the eighties, and become ever more apparent to the populace.

Yu – who wrote the acclaimed novel To Live – writes in his latest book (China in Ten Words) that: “Since 1990, corruption has grown with the same astounding speed as the economy as a whole.” That explains, he says, why “society simmers with rage”.

It’s a problem that’s not going away – and, frankly, only seems to be getting worse.

Keeping track: first off, a further scandal in the banking sector, following last week’s corruption story (Talking Point, WiC153). This time news has emerged that the president of Postal Bank, Tao Liming, has been taken into custody for “economic crimes”. That is a blow to the bank, which had indicated it wanted to IPO later this year. Meanwhile, Zhang Ziyi carried out her threat and filed libel suits against The Apple Daily and a US website over claims they’d made about her being paid to have sex with ex-Chongqing boss, Bo Xilai. The actress said the claims were a “calculated and concerted effort” to defame her, and has sued for damages. June 15, 2012

© ChinTell Ltd. All rights reserved.

Sponsored by HSBC.

The Week in China website and the weekly magazine publications are owned and maintained by ChinTell Limited, Hong Kong. Neither HSBC nor any member of the HSBC group of companies ("HSBC") endorses the contents and/or is involved in selecting, creating or editing the contents of the Week in China website or the Week in China magazine. The views expressed in these publications are solely the views of ChinTell Limited and do not necessarily reflect the views or investment ideas of HSBC. No responsibility will therefore be assumed by HSBC for the contents of these publications or for the errors or omissions therein.