China's Crony Capitalism: The Dynamics of Regime Decay

A close-up Chinese 100-yuan note. Flickr/David Dennis

An excerpt from Minxin Pei's new book.

One striking aspect of the data provided in the fifty cases of corrupt officials colluding with private businessmen is the long duration of the corruption and the high probability of promotion for the chief perpetrators even when they are engaged in corrupt activities. The median duration of corruption (between the onset of corrupt activities and arrest) in these cases is eight years, one year more than that in cases of selling offices and collusion among SOE executives (seven years). Among the fifty chief perpetrators who colluded with private businessmen, forty-two received promotions while committing their crimes. The relatively long duration of corruption and the high probability of promotion (84 percent) indicate that the detection risk is low. Also notable is the fact that officials who collude with private businessmen, as we theorize, engage in multiline businesses that include maiguan maiguan as a sideline and, more crucially, as a means of building a collusive network. Of the fifty chief perpetrators, thirty- four (or 68 percent) were explicitly charged with maiguan maiguan. Based on the sectors in which collusion between officials and private businessmen occurs, our sample confirms our hypothesis that contested property rights and multiagency approvals necessitate collusion, both within the bureaucracy and between the bureaucracy and private businessmen. In the fifty cases, collusion is concentrated in four sectors: real estate and land transactions (in thirty-four cases); infrastructure and construction (twenty-eight); mining (thirteen); and SOE restructuring (ten). These four sectors are generally considered the most corruption-prone because of the enormous profits that can be realized through collusion. In the case of land, real estate transactions, mining rights, and SOE restructuring, the profitability comes chiefly from the severe undervaluation of the underlying assets. In infrastructure and construction, rents are embedded in the large size of the contracts, cost inflation, and substandard quality.

In terms of the last positions they occupied before they were arrested, a large number (eighteen) were county- and prefecture-level party secretaries, the most powerful politicians in these jurisdictions, and eight were mayors and executive deputy mayors, officials directly in charge of local economic affairs. Local party chiefs are well positioned to capitalize on their near-dictatorial power, as explained by our model of vertical collusion. Since they wield virtually unchallenged clout in the appointment of key officials in local administrative agencies (in many cases they give these appointments to those who bribe them, thus gaining their loyalty), they can easily ask these officials to help private businessmen who have bribed them. The only official who has direct administrative responsibility in local government is the mayor or county magistrate. Although they have the ability to collude with lower-level officials in local administrative agencies, they are less able to compel compliance from their subordinates because they do not control personnel appointments. This is the principal reason why the majority of chief perpetrators in our study of collusion among officials and between officials and private businessmen are party chiefs in counties and prefectures.

The data from the fifty cases of collusion between officials and private businessmen also confirm the overall positive correlation between seniority inside the CCP and total corruption income: Officials with higher ranks gain greater corruption income than those with lower ranks.9 Of the twenty-five individuals whose total corruption income was above the median (9.5 million yuan), six were provincial-level officials, fourteen were prefecture-level officials, and five were county-level officials. Two factors account for this disparity. More senior officials have longer durations of corruption during which they can generate more illicit income. In addition, they wield more power, allowing them to trade bigger favors for larger bribes. However, lower-level officials who can determine the disposal of valuable state-owned assets, such as land, mines, and SOEs, also have considerable capacity to raise their corruption income. Of the five county-level officials who gained above-median total corruption income, four received outsized bribes for giving state-owned assets and infrastructure contracts to private businessmen. But officials who have gained less total corruption income may have one consolation prize: lighter punishment. As usual, the severity of punishment for officials caught for corruption involving private businessmen depends mostly on the total amount of corruption income. Of the twenty-five chief perpetrators whose corruption income was at or below the median of 9.5 million yuan, only six (24 percent) received life, suspended death, or death sentences. By contrast, of the twenty- five officials with above-median corruption income, we know the sentences for twenty-two. Eighteen of them were given life, suspended death, or death sentences. What is noteworthy about the punishment of corrupt officials is that only a small number of them were actually executed because suspended death sentences are always commuted to life sentences. In our sample, only four officials, all of whom committed particularly egregious crimes, even by the standards of the CCP, received the death penalty.

Minxin Pei is Tom and Margot Pritzker ’72 Professor of Government and George R. Roberts Fellow, and director of the Keck Center for International and Strategic Studies, at Claremont McKenna College.

Image: A close-up Chinese 100-yuan note. Flickr/David Dennis

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