Monthly Archives: October 2017

Understanding Chinese President Xi Jinping’s Anti-Corruption Campaign

Chinese President Xi Jinping has made fighting official corruption a cornerstone of his reign.

Judging by the numbers alone, the campaign has achieved impressive results. Astonishingly, the Chinese Communist Party (CCP) has disciplined well over one million officials since Xi took power in 2012. The anti-corruption campaign has snared hundreds of high-level leaders – including, most recently, former Chongqing Communist Party General Secretary and Politburo member Sun Zhengcai.

Xi’s fight against corruption has made him enormously popular among the Chinese people. As a political scientist and close observer of Chinese politics, however, I would argue that Xi’s enthusiasm to root out corrupt officials isn’t based on his own rectitude. Indeed, Xi’s family has inexplicably managed to accumulate over $1 billion in wealth, according to reports by Bloomberg. Rather, it rests on Xi’s determination to strengthen his personal power and that of the party he leads.

We should pay attention. If Xi succeeds in centralizing his control over the world’s most populous country, the United States will be presented with an increasingly confident and formidable competitor.

Sun Zhengcai was one of the more prominent targets of Xi Jinping’s crackdown on corruption. AP Photo/Mark Schiefelbein

Managing corruption

Corruption is built into the structure of China’s governing institutions.Xi’s campaign is more about managing the scope and consequences of corrupt practices than rooting them out altogether.

As China scholar Minxin Pei has documented, corruption in China typically takes the form of organized schemes involving groups of bureaucrats and private business people to plunder state resources.

Corruption fuels job promotions, the awarding of government contracts and the transfer of public assets into private hands at fire sale prices. Corruption in China is rooted in the blurred lines that come with a system combining weak rule of law, considerable autonomy on the part of local officials and an economic model featuring opaque relations between private enterprise and a large state-owned sector.

Xi has approached the problem of corruption much like his predecessors, though with unusual vigor, scale and persistence. Periodically, the CCP leadership has undertaken highly visible campaigns against corruption. During these campaigns, teams of officers from the CCP’s Discipline Inspection Commission sweep the offices of municipal or provincial governments and party units. These efforts have succeeded in preventing corruption from overwhelming the political system and undermining the economy. But the misuse and plunder of state resources nevertheless remains pervasive.

If Xi were serious about rooting out corruption more thoroughly, deep institutional reforms would be required. In countries where corruption has been successfully addressed, these have included strengthened rule of law, greater judicial independence, democratic accountability, institutional transparency and greater space for media and civil society watchdogs.

In China, scholar Pei emphasizes the need for clearer property rights that prevent officials from exploiting public assets for private gain. Such measures would both limit the opportunities for graft and more easily expose that which does take place.

Yet Xi has shown little interest in these kinds of reforms, which would threaten the leading role of the Communist Party. Indeed, his attacks on rights lawyersindependent media and non-governmental organizations– precisely the groups that in other societies hold public officials to account – have pushed in the opposite directions.

Too many pigs at the trough

So if Xi has ruled out the most effective anti-corruption tools, why is he going after corrupt officials at all?

In The Dictator’s Handbook, political scientists Bueno de Mesquita and Alastair Smith theorize that authoritarian leaders cannot rule without the support of other powerful players, such as military generals, business leaders and key intellectuals. Their demands must be met. Such leaders survive, therefore, by channeling rewards to those supporters most essential to the leader’s maintenance of power. Over time, however, the number of individuals attached to the ruling coalition tends to grow, as does the price that each member demands for support. We might call this the “too many pigs at the trough” problem.

This may be sustainable if the economy is rapidly growing, but becomes more problematic once growth slows, as indeed it has in China in recent years. Because the monetary gains extracted by corrupt officials serve as dead weight from an economic perspective, corruption itself can become a source of worsening economic performance. The costs of paying off a bloated coalition of greedy supporters are considerable: a reduced take for the dictator himself, lagging revenue growth and declining popular legitimacy, the latter necessitating increasingly costly repression.

All of this explains why newly installed leaders move quickly to cull the number of pigs at the trough, as Xi has done since taking power in 2012. By retargeting private rewards only to those whose support is truly essential and reducing the size of payoffs to the minimum necessary to avert defection, the leader thereby shores up his power position with a smaller and more manageable ruling coalition.

Of course, culling the herd means more than simply cutting rewards to non-essential coalition members. They must be jailed or otherwise rendered incapable of retaliating. Factions organized around political rivals must be disrupted.

Such is the case with Xi’s recent uses of the anti-corruption campaign to undermine the Communist Youth League associated with Xi’s predecessor, former Chinese President Hu Jintao. Ruthlessness toward those unlucky enough to be targeted also sends a warning to the remaining coalition members.

Xi’s anti-corruption campaign is reshaping the magnitude and composition of the ruling coalition and the size of the payoffs to remaining members, thereby strengthening his own hold on power. But as long as China’s political order remains dominated by a single party, a system for funneling private rewards to members of the ruling coalition will remain essential to its functioning. Xi’s image as China’s “Mr. Clean” is more mirage than reality.

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How China’s skewed sex ratio is making President Xi’s job a whole lot harder

As odd as it sounds, China’s economic policy is being held hostage by its heavily skewed sex ratio.

China’s excess of young, unmarriageable males poses an acute dilemma for President Xi Jinping and other leaders as they set the country’s path for the next five years during the 19th Chinese Communist Party Congress, which opened on Oct. 18.

After years of heavy spending and investment to boost growth and employment, China is at risk of economic stagnation if it doesn’t restructure the economy. Yet there is peril that doing so will lead to dangerous levels of unrest among the millions of unmarried men — known as “bare branches” — who will be laid off from shuttered unneeded steel, coal and auto factories.

So far Xi has tempered reform and kept the money taps open in order to avoid political instability. As the costs of domestic economic imbalances rise and international pressures to cut excess industrial capacity grow, Xi will have to decide what to do about the bare branches strewn in his way. And that won’t be an easy task.

China’s spending spree

This dilemma has been building for almost a decade, since Chinese leaders responded to the 2008 global financial crisis by channeling massive investments into infrastructure and heavy industry to sustain economic growth and prevent political unrest.

The proportion of China’s economy devoted to investment shot up from roughly a third to close to half — a level unprecedented among modern economies (that compares with only a 20 percent investment rate for the U.S. economy in 2015). Since 2008, for example, China’s crude steel production capacity has more than doubled, reaching close to half of the world total.

This investment has proven remarkably successful, at least in the short term, helping China avoid the economic downturn experienced by Western countries. China’s investment binge also created the world’s largest bullet train network and made it a global leader in solar panel production.

This same binge, however, has also left China with a morning-after hangover that threatens to become a “national financial and economic crisis” unless it implements reforms, according to a group of Oxford-based economists. The report suggests that China focus on fewer but higher-quality infrastructure projects while accelerating a shift in demand from investment to consumption.

Yet China continues to rely heavily upon infrastructure investment to drive growth. Besides steel, the economy also remains plagued by industrial overcapacity in autos, cement, glass, solar cells, aluminum and coal. Recent efforts to close old and inefficient factories have had little effect so far.

This has international consequences as well because all that excess steel, glass and aluminum must go somewhere and often ends up in other countries, hurting domestic markets. Steel exports to the U.S., for example, surged 22 percent from August 2016 to July 2017, prompting retaliatory threats from President Donald Trump.

So why did Chinese policymakers extend the investment spree do long? Why have they been reluctant to close down factories producing excess steel, solar cells or glass or stop funding the development of uninhabited “ghost cities”?

While there are many factors at play, one deserves more attention than it has received: China’s leaders fear the consequences of high unemployment among “bare branches,” a term used in China for young, low-status men who, because they are typically unmarriageable, represent endpoints on the family tree.

Growth of the ‘bare branches’

Bare branches are a result of one of the most skewed sex ratios in the world.

China has 106.3 males for every 100 females, compared with a global ratio of 101.8 to 100. In coming years, the workforce imbalance will only worsen because there are 117 boys under age 15 for every 100 girls. This is a result of extreme gender discrimination favoring males, a tendency exacerbated by China’s one-child policy, which was in force from 1979 to 2015. Typically, unwanted female fetuses, identified through ultrasound, are aborted.

This has resulted in a surplus of young bare-branch males. Bare branches are typically low status, since better-educated and higher-income males have better odds of attracting marriage partners. Lacking either skills or the strong community ties brought on by family life, these young, unmarried men make up a large proportion of the internal migrant population that relocates from rural areas to cities in search of work.

Researchers Valerie Hudson and Andrea den Boer have established that societies with large and growing numbers of bare branches are at risk of rising crime and civil unrest. This is especially true if inadequate employment opportunities are available for unmarried young men. The skewed sex ratio is accompanied by other worrisome trends, including high income inequality and the rising number of elderly that must be supported by each working-age person. The combination may portend trouble ahead for China.

A growing risk of unrest

It’s this fear of rising unemployment and unrest that has caused China’s hesitation to carry out economic reform.

Some economists believe that China’s official unemployment rate of 4 percent understates the reality, which may be more than double that. The rate of unemployment is politically sensitive since unemployed workers are more likely to engage in civil unrest and other anti-regime activities.

And males are overrepresented in the industries that would be hardest hit by reform like construction and heavy industry. On the other hand, females make up a disproportionate share of workers in the service sector, which must expand in order to sustain economic growth as spending on infrastructure and industry slows.

China’s growth model has actually exacerbated the unemployment problem because infrastructure, construction and heavy industry are relatively capital-intensive, meaning that a given level of investment produces fewer jobs than would be the case were the same investment devoted to service sectors (which are relatively labor-intensive). In other words, a greater emphasis on services would soak up more labor overall and reduce dangerous levels of unemployment.

If China shifts to sector-led growth, the risk of unrest will grow as women find more jobs at the expense of men, especially those bare branches. So even if China manages a “soft landing” that increases employment overall, civil and political unrest could rise as well if the proportion of bare branch males among those who remain unemployed also climbs.

This helps explain why Chinese authorities have directed massive amounts of investment into those male-dominated sectors following the global financial crisis. And why, in recent years, they have been slow to implement economic reforms that they themselves acknowledge are needed for the overall health of the Chinese economy.

From the perspective of Beijing, better some inefficient investments than the political risks of tossing millions of unemployed young males into the streets of urban China.

No good options

In his opening address to the 19th Party Congress, Xi made the usual promises about deepening market reforms, reducing industrial overcapacity and shifting the economy from investment-led to consumption-led growth. Given that these promises are not new, there is room for skepticism about implementation.

But even if reform is successful, it will mean large numbers of unemployed bare branches. That is why economic restructuring must be accompanied by generous unemployment benefits, job retraining programs and support for workers who need to relocate in order to find jobs. The gender composition of the service sector must also change in order to absorb unemployed males.

In short, Xi could forestall reform, thus keeping the bare branches busily employed at the risk of an economic crisis and punitive tarriffs from trading partners like the U.S. Or he could cut investment and close thousands of factories, creating a significant risk of domestic unrest and potentially necessitating some combination of a strengthened social safety net and political repression to contain it.

Whichever path Xi picks, bare branches will be part of the journey.

Originally published at theconversation.com on October 19, 2017.

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