Wednesday, 10 October 2007

Lethal corruption?

Today's FT looks at the corruption issue in China.

The important issue to consider is that the risk-reward ratio and got out of synch.

With low level officers being able to illicitly conceal millions of yuan and the chances of being caught so slim the temptation is often too great. However, what is China to do? They already have the death penalty for corruption - that is pretty much as large a deterrent as you are every likely to get.

Whenever a country goes through such an abrupt change corruption is simply inevitable. Look at the rise of the oligarchs in Russia. Corruption is part of the growing pains. The danger is that the pains get so large as to overwhelm the country.

The question is "will good money drive out bad money" in China or will it be the other way around (with the associated high costs).

Corruption poses ‘lethal threat’ to China [FT]

Corruption costs China as much as 3 per cent of its economic output, or $86bn in 2003, and poses a “lethal threat” to the country’s economic development, according to a report by the Carnegie Endowment for International Peace.

The report by Minxin Pei, the director of the China programme at the Washington-based policy study group, says the sums of money expropriated by corrupt officials have risen “exponentially” since the 1980s and cost more than last year’s entire education budget.

Mr Pei said: “Even after adjusting for inflation, the sums of money looted by government officials today are astonishing – a relatively low-level official can amass an illicit fortune in tens of millions of yuan.

Mr Pei calculated the cost to GDP using a “conservative assumption” that 10 per cent of land revenues, investment and government spending are “stolen or misappropriated”.

This benchmark is difficult to confirm but it meshes with anecdotal evidence from a number of officials, who privately say that about 10 per cent of the value of all contracts is set aside for illicit payments.

Despite a stream of high-profile corruption cases, including the arrest last year of Shanghai’s party boss and the execution this year of the former head of the national food and drug regulation body, the report says that in reality only a “small proportion” of officials tainted by corruption are punished.

“The odds of an average corrupt official going to jail are at most three out of 100, making corruption a high-return, low-risk activity,” the report says.

Speaking to foreign journalists in late September, Chi Yaoyun, deputy director-general of the Central Commission for Discipline Inspection, the party’s anti-corruption body, admitted that graft was a serious problem, especially in the finance sector and land transfers.

“We do not deny that to some extent in certain areas there is corruption,” Mr Chi said, during a rare tour of the committee’s offices.

But he blamed the practice on the fact that “the economy is undergoing profound structural change”.

Mr Pei, however, sees corruption not just as a stage of development but as a failure of political reform.

“The Chinese government has consistently resisted steps to further reduce the role of the state in the economy, increase judicial independence and mobilise the power of the media and civil society, even though international experience shows that only such full-fledged efforts can root out systemic corruption,” he said.


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