China’s corruption purge nears tricky second phase

July 15, 2014

By John Foley 

The author is a Reuters Breakingviews columnist.  The opinions expressed are his own.

China is entering the second stage of its colossal fight against graft. Nabbing high-profile culprits was a good start. Now, other miscreants have to believe the same could happen to them. Finally, the rewards for good behaviour must be made comparable to the spoils of wickedness. From here, things get tougher.

Enough heads have rolled since Xi Jinping became president in March 2013 to prove that the crackdown is real. A retired general and three senior officials were ejected from the ruling party in recent weeks. Provincial heads, state company chairmen, ministers and bureaucrats – from “tigers” to “flies” – have been singled out for punishment.

A campaign against banqueting and gift-giving has successfully spread the anxiety. But the bigger step is to show that purges aren’t driven by factionalism and personal grudges. So far, many cases have centred on allies of the former security chief Zhou Yongkang, who himself is under house arrest, sources have told Reuters. Investigations at broadcaster CCTV coincided with the network’s suggestion that a powerful state bank had facilitated money laundering.

Harder still is introducing carrot to go with the stick. Civil servants in China are paid little relative to other professions – in some cases as little as $4000 a year. Their perks, such as healthcare and access to pensions, are considerable. But rather than cut those back, it makes sense for a socialist country to extend them to others. Paying state-owned enterprise bosses more, but making their appointment more competitive, is starting to be discussed seriously.

The other challenge is to make sure the anti-bribery campaign doesn’t muzzle growth. Ungifted fine spirits and luxury watches won’t have much of an opportunity cost. But investment may suffer too. Even clean officials are holding back on some projects for fear that they might bring unwanted attention, or inadvertently facilitate speed payments. Lower spending, according to Bank of America analysts, might cut 1.5 percent from GDP that’s already growing at below the 7.5 percent government target.

Tackle these three challenges and Xi will be well on target. Real cultural change will take years, because it requires the building of institutions that people trust to be honest and efficient. Happily, that is further down the to-do list.

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