Economy, Talking Point

A long, hard graft ahead

Wang Qishan becomes anti-corruption tsar, but will he have an impact?

A long, hard graft ahead

“Seemingly a bizarre appointment,” was the verdict of Jay Taylor, the biographer of Chiang Kai-shek. He was referring to the decision to include Du Yuesheng on a new drug control commission. The year was 1932. The problem was that Du was also the head of Shanghai’s Green Gang and a major drug lord.

His appointment symbolised the institutional corruption that dogged Chiang’s government. Interestingly, the Chinese leader was aware that graft was one of his regime’s fatal weaknesses. Taylor points out in his book Generalissimo that Chiang diagnosed as much in a speech to a military conference (again in 1932). Speaking of the enemy that would eventually defeat him in the civil war, Chiang warned: “the roots of the Chinese Communist Party lie in the inefficiency and corruption of our government machine”.

Today – after more than six decades in power – that same Communist Party faces a similar issue itelf. As with Chiang, China’s current leaders are making clear that corruption could see their own rule at risk.

Over the past decade President Hu Jintao and Premier Wen Jiabao have talked repeatedly about China’s corruption problem. But new Party boss Xi Jinping has started out in office by making one of the most dramatic statements so far. Soon after being elected general secretary of the Party, Xi gave a speech to the Politburo citing other (unnamed) regimes that had fallen from power in recent years. Pointedly, he then warned that unchecked corruption in China would spell “the end of the Party and the end of the state”.

How big a problem has graft become?

‘Endemic’ is the adjective that springs to mind. Moreover, it seems to have been getting worse, or at least much more apparent to the public eye.

As we pointed out in WiC172, sales of high-end liquor Moutai offer a decent proxy for graft – as the drink is the favoured banqueting tipple of corrupt cadres and the business folk seeking to bribe them. While most of the stocks on China’s bourses have performed lethargically, shares in Kweichow Moutai – which makes the alcoholic drink – surged 3,500% during the past decade thanks to rising demand and soaring prices (leading to calls to ban officials from drinking this costly luxury or receiving it as a gift).

Transparency International last week published its own annual corruption index. This ranks 176 countries and in a sign of deterioration, China slipped from 75th to joint 80th place, scoring just 39 out 100 (where 0 denotes ‘highly corrupt’ and 100 ‘very clean’).

A quick search of WiC’s own web archive under the term ‘corruption’ generates 154 separate articles touching on the subject. An early case we reported on was that of a Nanjing official outed by netizens, who posted photos of him wearing a $14,600 Vacheron Constantin watch (his salary was $584 a month). And last year we looked at how offenders were becoming progressively more senior, and the sums involved much greater. Former railways minister Liu Zhijun was detained for taking upwards of Rmb1 billion ($160 million) of bribes on high-speed train contracts, while the former deputy governor of Shandong province was purged on allegations that he had salted away billions more from dubious dealings (see WiC131).

In fact, hardly a day goes by without some tale of corruption emerging in the Chinese media or via Sina Weibo microblogs. Late last month a village deputy head in Guangdong was suspended after allegations that he owned 80 properties and 20 cars valued at over Rmb2 billion. This month the mayor of Lanzhou was accused of owning five luxury watches and a police chief in Xinjiang was removed when it emerged that he’d kept sisters as mistresses, giving both a place on the payroll as a reward.

Indeed, sex and money go hand-in-hand in many of the corruption cases. Take the example of Chongqing official Lei Zhengfu, who got into trouble after indecent videoclips started circulating online. It emerged that a construction company had paid an 18 year-old to have sex with Lei in return for granting it contracts. The whistleblower who revealed the case has since said that he is aware of videos featuring at least five other senior figures from Chongqing.

2012: the annus horribilis…

When Deng Xiaoping launched ‘reform and opening’ his goal was the unleashing of a more entrepreneurial market economy in China. But a seamier by-product was rising corruption, in part because officials still controlled access to the assets and opportunities that would allow companies and individuals to prosper. Over the years the general public has become disenchanted by the steady stream of cases, each unveiling a fresh example of venality.

However, the year 2012 has been altogether different, with the scandals that have emerged assuming a new scale of significance. The biggest story of the year by far has obviously been the fall of Bo Xilai, princeling and former Party boss of Chongqing. A tale of abuse of power, murder and intrigue, Bo’s case rocked the Party, exposing illicit behaviour by one of the country’s most senior politicians. The exact sums are unknown, but local media speculate that Bo and his family made fortunes in cahoots with (the now detained) Dalian tycoon Xu Ming (see WiC145). Much of that money was moved offshore.

The revelations – worthy of a John Grisham novel – would have been serious enough. But there were further blows. The New York Times produced an investigative expose into wealth accumulated by Wen Jiabao’s family (although Wen’s lawyers have disputed the article). Then there was the attempted cover up by Ling Jihua of his son’s death in a car accident. A chief of staff to Hu Jintao, Ling was destined for even higher office until it emerged that his son had smashed a black Ferrari into a wall in Beijing in March. Ling Gu died, while two semi-naked women passengers were seriously injured. A fake message sent from the son’s weibo sought to persuade media he was still alive, while a state-owned firm reportedly paid millions of dollars to the families of the girls to keep quiet. The full extent of the scandal emerged just ahead of last month’s Party Congress, and once again highlighted shocking behaviour at the government’s most senior levels.

Is change afoot?

Xi, whose own family has also been a target for investigation by Bloomberg, was quick to signal his disapproval at cases of abuse of power. He has demanded that Party members take a resolute stand against corruption, including abuse by relatives. “Recently, our Party has had serious discipline and legal cases of a despicable nature which has had a bad political effect and shocked people,” Xi said, without naming any individual incident.

Xi’s initial weeks in power have also suggested an attempt to present a new, more ascetic style. Government officials have been told to cut back on costly banqueting, and there are to be “no welcome banners, no red carpets, no floral arrangements or grand receptions for officials’ visits”. He emphasised instead that cadres should focus on thrift, efficiency and less verbose meetings.

Xi also sought to live up to the directives on a visit to Shenzhen last week. Weibo postings made much of the fact that the usual pomp was absent as he toured the city, laying flowers by a statue of Deng Xiaoping and visiting private sector internet giant Tencent. In fact, there was general surprise that, contrary to the usual practice, local roads were not closed as his entourage drove across town. This spared local motorists the usual tailbacks. Nanfang Daily quoted one netizen: “I followed his bus to Tencent Plaza. It was around 4.17pm. There was no special police patrol on the streets, not even traffic police. Traffic on Shennan Avenue was as normal. I think the wind may truly have changed this time.”

Reports in the China Daily – which called Xi a “man of the people” and said that he had made “little fuss on his first official visit” – were clearly designed to show the new chief setting a new tone.

“In China it is very important for the central leadership to set an example because it sends a strong signal to officials at the lower levels,” thought Ma Huaide, a law professor at China University of Political Science and Law.

The other significant aspect of the trip was its destination. Visits to Shenzhen conjure memories of Deng’s famed 1992 ‘Southern Tour’, leading some analysts to say that Xi was signalling that he favours further economic reforms.

A new broom?

The man Xi has selected to be the new anti-graft tsar is Wang Qishan. It’s an interesting choice, not least because the New York Times reports that Wang has no children, which eliminates a key conflict of interest (there is always the temptation for the offspring of senior officals to cash in on parental connections).

Known in China as ‘the fireman’, Wang has frequently been assigned to trouble spots. In the nineties he was entrusted with turning round one of the big state banks, then mired in bad debt. When GITIC, the main fundraising arm of the Guangzhou government, blew up in 1999, causing a furore among foreign lenders, Wang was sent in to fix that too. Later he was made Mayor of Beijing to oversee the Olympic preparations. And most recently his portfolio has including dealing with Sino-American ties and the fractious issue of the renminbi’s exchange rate.

The editor of WiC met Wang personally in 1997, interviewing him for an hour in the period when he was head of China Construction Bank. It was immediately obvious that Wang was no standard bureaucrat. There were no slogans or lists of statistics. Instead, he listened closely to questions and answered them in a refreshingly direct manner. In short, he was extremely impressive.

At the time of the interview, Construction Bank had just entered into a joint venture with Morgan Stanley. As the meeting wound up, Wang made what seemed like an outlandish forecast. Maybe in 10 years time we’ll buy Morgan Stanley, he said. It came close to fruition: during the 2008 financial crisis, the US investment bank desperately courted a Chinese buyer (though unsuccessfully).

We cite this anecdote to make a simple point: when Wang speaks it makes sense to listen. This is not an individual given to empty talk. And he seems to have started his anti-graft campaign with a senior scalp. Last week it emerged that Li Chuncheng, the deputy Party secretary of Sichuan province had been detained for “disciplinary violations”. Li is a vice-ministerial level official and is thought to be implicated in a scandal at Chengdu Industry Investment Group, a state-owned firm.

The markets also seem to have taken the view that Wang is serious. Stocks associated with the more insidious side of China’s banqueting culture have dropped. Listed liquor brands such as Kweichow Moutai have plunged 20% or more.

Also significant: Macau casino stocks have retreated after reports that Beijing sent agents to the territory to investigate cases of money laundering involving senior government officials. It’s also rumoured that Wang plans to probe China’s junket operators (who finance the gambling habits of mainland cadres in Macau, and are often said to be a core channel by which ‘dirty’ renminbi is converted into ‘clean’ Hong Kong dollars).

But the jury is still out?

The sheer enormity of China’s corruption problem makes Wang’s job one of the toughest on the planet. Cynics (or realists, perhaps) say he is doomed to fail and that a web of powerful vested interests will block his progress. Harvard historian and Party expert Roderick MacFarquhar said as much during a recent speech in Hong Kong. He recounted: “The former chief editor of the People’s Daily said to me that in the forties – which he lived through as an adult – corruption helped to undermine Chiang Kai-shek, but that it was peanuts compared to the present problem. Now he said the sky is the limit and it’s everywhere.” The author of Mao’s Last Revolution seems to think the problem too big to fix. “Where do you start?” asks MacFarquhar.

For those who dare to be more positive, Xi’s first month at the helm has at least offered a welcome change of style. Moreover in Wang he has selected one of the most qualified men to oversee the battle ahead. That leads to a rather more worrying leap of logic: if ‘fireman’ Wang isn’t able to win the war against graft, then probably nobody can.

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