Anticorruption Crackdown in China

Delivering his annual report to the National People's Congress, Supreme People's Court President Ren Jianxin in late March stressed the importance of stamping out corruption. Like Prime Minister Li Peng, he emphasized that the abuse of power poses a genuine threat to Communist Party dominance.

The focus on corruption follows the arrest in February of Zhou Beifang, who is the chairman of two listed firms in Hong Kong, the Shougang Concord International Enterprises and Shougang Concord Grand. Zhou is the son of Zhou Guanwu, who heads the Beijing-based Capital Iron and Steel Corp (Shougang). The father-and-son team transformed the huge state-owned steel plant into a business empire with interests in such fields as shipping, construction, and electronics. In 1992 Zhou Beifang moved the company into Hong Kong, buying five small listed firms there and injecting Shougang assets into them.

Zhou is accused of committing "serious economic crimes," allegedly for the purchase in 1992 of an iron ore mine in Peru. He reportedly paid $120 million for it, or twice what other bidders were offering. Zhou's downfall has sent shockwaves through the Hang Seng (the Hong Kong stock exchange), where many Chinese firms with similar backgrounds are listed.

•In the first 11 months of 1994, the central government received 1.36 million complaints about corruption.

•The March annual report from the Supreme People's Court reported that over 20,000 people were jailed last year for corruption. Cases of graft exceeded 30,000, up almost 70 percent from 1993.

•In Beijing alone, 4,172 residents were convicted of embezzling public funds or taking bribes in 1994.

In the early days of the open-door policy, corruption was more discreet and less widespread. A number of factors explain the high levels of corruption since 1989:

•Deng's call for faster growth during his visit to southern China in early 1992 was a signal that "getting rich" was to be encouraged after a three-year freeze on market reform. Government officials, poorly paid but with monopolistic control over scarce resources, face great temptation to abuse their positions for personal gain. The most common forms of bureaucratic corruption are the misappropriation of public funds, price manipulation, and kickbacks from business contracts.

•The stock exchanges of Shenzhen and Shanghai are prone to insider trading, price manipulation, and other irregularities. Acts of corruption are also thought to occur when Chinese firms acquire listed companies overseas and transfer state assets to them. With limited disclosure of information, little is known about how firms spend the large amounts of money they have raised from the stock market.

•In the context of privatization, the division between private and public assets remains murky. Many state enterprises have been turned into stockholding companies. However, with limited supervision from Beijing, there is little to stop the bureaucrats in charge from understating the value of the state assets and dividing the spoils between themselves. Beijing estimates that at least 1 billion renminbi ($118.6 million) is lost in this way each year.

•Children of officials, who use their political connections to further their business interests.

•Military and police personnel who are believed to extort money from gangsters, and to smuggle computer equipment, electronic appliances, and other luxury goods. In July 1993, 43 army units involving 300 military officials were found to be smuggling cars from South Korea to the northeastern province of Liaoning.

Periodically, the Communist Party carries out corruption crackdowns. In the last major cleanup operation, in 1993, government departments at all levels were asked to expose major corruption cases and to bar cadres from business activities, including stock transactions, as a way of preventing corruption. Twenty government departments were thoroughly investigated. By the time the crackdown ended, a number of prominent officials had been arrested.

•There is no independent watchdog to fight corruption. The party relies on traditional Maoist-style political campaigns to "educate" the public about corruption, using slogans, study sessions, and mass meetings to impart its message. Corruption cases are settled internally, not in open courts. The party forbids the media from exposing corrupt officials, except in a few cases. The party has also consistently rejected proposals to set up a nonparty body to fight corruption for fear of undermining its monopoly on power.

•Sentences meted out to senior bureaucrats convicted of corruption are usually light and arbitrary. Most of those found guilty are given "administrative punishments," such as a temporary demotion. The party fears that a thorough shake-up of its bureaucracy could result in a political backlash.

•It is very difficult to catch serious offenders. This is particularly the case at the local level because of the extensive web of connections powerful political figures have built in their provinces or counties. Only when their political backers are out of favor can offenders be brought to justice.

Based on reports of Oxford Analytica, the Oxford (U.K.)-based research group.