China’s decentralized kleptocracy: dynamics of regime decay


chinacrony-cap-peiIn 1989 the movement for democracy brought the Chinese Communist Party to within days of extinction, The Economist notes:

According to official reports, on one day alone, May 22nd, 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.

china-minxin-peiCorruption in the post-Tiananmen era exhibits distinct characteristics not found in the 1980s, such as astronomical sums of money looted by officials, their family members, and their cronies in the private sector, large networks of co-conspirators, and the sale of public office, writes Pei (right), a regular contributor to the National Endowment for Democracy’s Journal of Democracy:

By examining the evolution of Chinese economic and political institutions since the early 1990s, we can trace the emergence of crony capitalism to two critical changes in the control of property rights of the assets owned by the state and the personnel management of the officials the ruling Communist Party. The cumulative effects of these changes have dramatically decentralized the control of public property without clarifying its ownership and granted local party chiefs unprecedented personnel power. Consequently, local political and business elites gain greater incentives and opportunities to collude with each other in looting the assets nominally owned by the state.

“The insights from a sample of 260 cases of corruption involving multiple officials and businessmen suggest that crony capitalism in China has given birth to a decentralized kleptocracy with its own market rules and dynamics,” Pei suggests.


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