Mon, Sep 30, 2013 - Page 8 News List

Corruption is destabilizing China

By Sushil Seth

During the trial of former Chongqing Chinese Communist Party (CCP) secretary Bo Xilai (薄熙來), the People’s Daily cryptically said: “Constant denials [of his crimes] will only bury you [Bo Xilai] deeper in a trap.”

How true! Bo was sentenced to spend the rest of his life in jail on corruption and related charges. However, his political legacy will persist, having challenged the established system from within.

By invoking former Chinese leader Mao Zedong’s (毛澤東) populism, he sought to rally the people who felt shortchanged by the system that favors the rich and powerful, building fortunes through corruption and personal connections. Bo’s populist message is likely to resonate as China’s economic growth falters. China’s economy is growing at an impressive 7 percent yearly, but no longer reaching the 10 percent growth rates it had previously. China needs a steadily high growth rate to lower unemployment and improve living standards.

There are two broad views about the country’s future economic prospects and its social and political stability. One view is that China has already set in motion a strategy to favor domestic consumption over an export-based economy. The exports and construction sectors will remain an important component of growth, but that growth will be constrained by slowing demand for Chinese goods in the US and European countries and investments in infrastructure.

Patrick Chovanec, one-time professor at Tsinghua University and now economic strategist with a US asset management company, reportedly said: “China has been growing for these last several years by adding to its capacity [like Japan did], but for growth to be real, that capacity has to be used ... [however] there’s a lot of empty ports, empty apartment buildings, empty offices [and] empty airports.”

Unless these assets are used and become profitable, they are a serious drag on the banking system.

China’s large economic stimulation package, which helped stave off recession during the global financial crisis, is now creating problems for the economy due to excessive growth in credit over the last few years. It has led local and regional administrations to push ahead with some dubious infrastructure projects. Easy credit led them to put money into shoddy financial transactions and investments, overextending the banking system. The debt-to-GDP ratio is now estimated to be above 200 percent, about the same as Japan’s.

A big chunk of the money went into real estate, creating the potential of a boom-bust cycle similar to Japan’s. Real estate prices are now beyond the means of many people. As a result, there are many empty apartment buildings.

In addition, the easy availability of credit and shoddy use of investment money has entrenched corruption even further. Corruption, especially at high levels, tends to erode the legitimacy of political systems.

Many people are becoming deeply cynical about campaigns to eradicate corruption because they rarely have show real results. When some high-level party officials are caught in these campaigns, it is generally because they have fallen out of favor with the CCP leadership, as was the case with Bo.

Bo lost his political battle with the CCP, lost his position as party secretary in Chongqing, and faced charges of abuse of power, bribery and other crimes. His wife had already been convicted of the murder of British businessman Neil Heywood and was given a suspended death sentence. It is possible that he and his family built up a vast fortune through their abuse of power. However, so have many others at the top party levels.

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