Jake's View | There's no proof that graft has harmed China's market development

Corruption has done immeasurable damage to China's market development. Prosperity cannot be built on a corrupt foundation.

Hu Shuli, Caixin Media

For the avoidance of doubt and just to get things straight at the very beginning, I do not approve of corruption and I regard the theft of public assets as a crime. I repeat …

But this statement of moral position misses the point. The question here is rather one of practicality. Has corruption truly done immeasurable damage to China's market development? Is it truly impossible to build prosperity on a corrupt foundation?

The first thing to bear in mind about this is that corruption is a public sector phenomenon. It happens when A deals with B on C's account, which describes expenditure in the public sector. The bureaucrat deals with the contractor on the taxpayer's account. It does not and cannot happen when A and B deal on their own accounts, which is the private sector arrangement although, admittedly, the occasional crook dealing on the company account in large companies tries it. Invariably he discovers to his dismay that the chief financial officer's department has eagle eyes.

You may, of course, accuse the private sector party of being the common instigator of bribery in dealings with the public sector. My experience as an Asian investment analyst tells me the opposite is manifestly true. Whatever the case, the fact remains that the one constant of large-scale corruption is the presence of the public sector.

Now turn to what is happening in China. Here you have any number of state enterprises engaged in uneconomic activities, all the way from a high-speed railway system that cannot even recover its operating costs, to old- fashioned metal-bashing industries that need state support to stay alive and service industries that can only exist if granted a monopoly.