Culture | China today

To have and to hold

How China’s elite has taken control of the economy—and the country

China’s Crony Capitalism: The Dynamics of Regime Decay. By Minxin Pei. Harvard University Press; 365 pages; $35 and £25.95.

IN 1989 the movement for democracy brought the Chinese Communist Party to within days of extinction. According to official reports, on one day alone, May 18th, 6m people joined demonstrations in 132 cities across the country. The party’s immediate response was to use the people’s army to crush the people by force, in Tiananmen Square. To rebuild the loyalty of those who would continue to rule in the party’s name, its leaders went on to create the conditions in which officials at all levels could loot state property. Thus, the biggest democracy movement in history was countered by the greatest opportunity for predation the world has ever seen.

China has never had a formal privatisation programme. Instead, as Minxin Pei, a professor of government at Claremont McKenna College in California, writes in “China’s Crony Capitalism”, decentralising the rights of control over state property without clarifying the rights of ownership gave those who rule “maximum advantage to extract wealth from society”. Rights of control have been separated from rights of ownership in China—and where ownership is uncertain, control is key.

Mr Pei’s book is quietly devastating. In sober, restrained language, he exposes the full gravity of corruption in China. Presenting a wealth of evidence, he shows that this is not the unfortunate by-product of rapid economic growth but the result of strategic choices by the party. With clinical precision, Mr Pei explains how corruption operates at every level, perverting each branch of the party-state and subverting the political authority of the regime. The party cannot mitigate, let alone eradicate, “crony capitalism” because, since 1989, it has been “the very foundations of the regime’s monopoly of power”, the author argues. The conclusion, he believes, is that far from saving the regime, President Xi Jinping’s anti-corruption drive may accelerate its demise by creating divisions within the ruling elite even as it reinforces strong popular resentment of corruption.

The state continues to hold the residual property rights to at least half of the net worth of the economy. Since 1978, when Deng Xiaoping launched his economic programme, the party-state has jealously guarded this walled garden for its officials and their business cronies. Throughout this time there has been some economic reform but no political reform. Thus the party, as Mr Pei points out, can only protect its interests with the full Leninist range of repressive instruments—and daily displays its willingness to do so.

This exercise of power is not subject to any of the checks and balances of a liberal democracy. China’s structure of government makes it impossible to staunch the corruption. There is a lack of probity at the highest levels of the party, as seen in the imprisonment of former members, including the former chief of security, Zhou Yongkang. The improper exercise of power is most obvious in property development, mining and the restructuring of state-owned enterprises. Corrupt officials collude with superiors as well as subordinates. Their venality has infected every province. Some regions have become mafia states. Only highly competitive sectors, where property rights are better defined, such as consumer goods and high-tech manufacturing, mostly in the private sector, are largely free of it.

Thanks to the extensive decentralisation of administrative power, local party chiefs have “acquired the authority to allocate capital, award large contracts and determine land use”. Local businessmen bribe these local bosses to their own advantage. Starting in 1994, local governments have been allowed to keep all the receipts from land sales, using them largely to finance infrastructure projects.

But lax controls have allowed officials to exploit these projects for personal enrichment. State assets are not the only area in effect to have been privatised; so too has the power of the state. Appointments and promotions in every department have been for sale for a quarter of a century. “Bribes, instead of merit, determine who is chosen,” Mr Pei writes. Mr Xi said the same to a gathering of party officials on October 16th 2014: “Corruption in personnel matters is a prominent problem…Our system of cadre management is for show only.” Court documents reveal that this practice has extended to environmental-protection agencies, the police, secret intelligence services, judiciary and the highest ranks of the armed forces.

As Mr Pei explains, anti-corruption investigations are carried out by the party itself. Courts rubber-stamp the party’s own verdicts on its own officials. The author exposes the weaknesses of the investigatory organisations and shows that only a small percentage of officials are seriously sanctioned. He goes on to point out that Mr Xi’s anti-corruption campaign is dealing only with the symptoms of the disease, not the underlying causes.

Corruption in China has been made easy by ill-defined property rights, decentralised administrative authority and the absence of democratic checks and balances, such as an independent judiciary, a free press and political competition. Only by improving all of these can it be permanently reduced. Belatedly, the party under Mr Xi has recognised that corruption poses a mortal threat to the regime, but it has, at the same time, rejected the very reforms that offer the only prospect of a remedy.

Mr Pei grew up in Shanghai and lived there in the hopeful early 1980s, but he is not optimistic now: “Even a revolutionary overthrow of the old order may not usher in the dawn of a liberal democracy. The legacies of crony capitalism…will enable those who have acquired enormous illicit wealth under the old regime to wield outsized political influence in a struggling new democracy that will have poor odds of survival,” he writes. He fears that Russia and the Ukraine may show China what can happen when a one-party dictatorship is overthrown, as it so nearly was in 1989. This book is essential reading for anyone who wishes to understand China today, or engage with it at any level, in any field.

This article appeared in the Culture section of the print edition under the headline "To have and to hold"

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