China’s Robber-Baron Ways

By Steven Hill, September 23, 2008, New York Times

Only a short time after China’s magnificent Olympic coming-out party, the land of Mao’s successors found itself making less celebratory news.

“Tainted Milk Formula Sickens Thousands of Chinese Infants” read one of many recent headlines. Twenty-two companies that produce or distribute milk powder had been secretly adding melamine, normally used for making plastics and glue, into milk powder, making thousands of infants sick and causing several deaths.

It is one of the puzzling questions about China: How can a country that organized such a splendid Olympic splash be the same country that produces deadly food scares on a regular basis?

The answer says a lot about today’s China. In its March to modernity, Beijing’s ruling Communist Party took off the economic shackles of the Mao years and relaunched the country as a capitalist-communist state – a real oddball coupling, if ever there was one. Part of this process involved the radical devolution of economic power to over 30 provinces, fostering a kind of anarchic federalism.

As with American federalism, the national government in China is responsible for certain duties and the country’s provincial governments are responsible for others. But in China, none of this arrangement is written down or spelled out anywhere, as it is in the U.S. Constitution.

Instead, it is still a work in progress, with provincial officials taking as much rope as they dare. Power at the provincial level is still vested in the local Communist Party, but also intertwined with personal and family networks, motivated by the former leader Deng Xiaoping’s maxim, “to get rich is glorious.”

That’s an odd motivation for the heirs of Karl Marx, and in practice it’s led to lots of cronyism and corruption.

The scale of corruption in China is startling. The Chinese researcher Sun Yan has written that the average “take” in the 1980s was $5,000, but now it is over $250,000. The number of arrests of senior Communist Party members quadrupled between 1992 and 2001. Four provincial governors and one provincial party secretary recently were charged with corruption.

Even at the level of the central government, corruption has been debilitating and helps set the national tone. High-level officials, including the mayor of Beijing, a vice chairman of the National People’s Congress, the former president of the Bank of China, the vice governor of the People’s Bank of China and the director of China’s foreign exchange administration, were arrested and imprisoned for embezzlement and fraud. One of them eventually was executed, and another leaped to his death.

To put that in perspective, says the author Will Hutton, it would be as if the mayor of New York, the speaker of the House of Representatives, and the chief executives of Goldman Sachs and Citibank, along with a governor of the Federal Reserve, were all either imprisoned for fraud, executed or committed suicide.

The Chinese economist Hu Angang has estimated an annual economic loss due to corruption of approximately 15 percent of GDP. In this climate, cutting foreign substances into milk formula, pet food or medicine becomes standard operating procedure, like a drug dealer looking to maximize the street value of his stash by mixing in filler material.

To be fair, not all the provinces and not all the business people or bureaucrats engage in such illicit behavior. And China’s leadership has taken steps to crack down. Punishments have been increased, tougher laws have been passed. Officials now are forbidden to enter business relationships with family members. Audits and anti-corruption screenings have been introduced.

But when I questioned a Chinese official about corruption, his defense – “we’re not as bad as Burma” – was hardly convincing.

Yes, the central government in Beijing can use its authoritarian power to pull off a brilliant Olympics party. And over the past 30 years, the Chinese leadership has accomplished the remarkable feat of lifting 400 million people out of poverty. But China is still very much a developing country, plagued by a mess of contradictions.

It is difficult to imagine how the country’s anarchic, robber-baron ways will serve China well for the next 30 years. Either political reform and accountability will slowly take root, or China’s modernization will falter.

Previous Article
Next Article