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Corruption in China

Despite arrests and crackdowns, corruption remains a scourge in major economies

Manjit Bhatia says from Brazil and China to India and Malaysia, cosy political-business networks are a feature of some modern capitalist economies, and rooting them out is proving a huge challenge

PUBLISHED : Friday, 18 March, 2016, 1:30pm
UPDATED : Friday, 18 March, 2016, 1:39pm

In the latest phase of their investigation, Brazil’s prosecutorial authorities have been going after former president Luiz “Lula” Inácio Lula da Silva. He has been accused of corruption during his term in office between 2003 and 2010, particularly for allegedly owning a luxurious condominium in Guarujá, a posh beachside suburb in São Paulo, which he had not paid for. And between 2011 and 2014, he is alleged to have received payments totalling US$8 million.

Investigators claim the conduit between Lula and his corrupters is Petrobas, the state oil company.

In a widening investigation now going into its third year, the presiding judge, Sérgio Moro, has already snared a number of top politicians and businesspeople. Most recently, Marcelo Odebrecht, head of a major construction firm, was sentenced to 19 years’ imprisonment for corruption.

Meanwhile, Dilma Rousseff, who replaced Lula as president, is facing a growing public revolt. Millions of Brazilians have marched in the streets in more than 400 cities to show their distrust and displeasure at her incompetence and the worsening corruption in Brazil, one of the BRIC countries often lauded to lead world economic growth this century. But what is the chance that this sort of crackdown will rub off in Russia, India and China?

READ MORE: Brazil police detain ex-president Lula in huge corruption probe

Form has it that Vladimir Putin would never move against his cronies unless he has reason to permanently silence them. Nor would he allow Russian institutions to investigate him. He owns them.

Indian Prime Minister Narendra Modi would turn his customary blind eye to official corruption that’s the lifeblood of India’s mammoth and monolithic bureaucracy and business conglomerates.

But China’s president, Xi Jinping, seems a cut above his BRIC counterparts. He has taken the sledgehammer to corruption. Or has he?

READ MORE: Full coverage of Xi jinping’s anti-corruption campaign

It’s hard to get an accurate number of Chinese officials and businesspeople who have been investigated and either jailed or executed for corruption. The most high-profile so far are the former Chongqing Communist Party boss Bo Xilai and his wife, Gu Kailai. They were sentenced to life imprisonment in China’s trial of the century.

Sinologist John Lee claims nearly all 200,000 party officials investigated in 2013 were found guilty of corruption. Heavyweights like Zhou Yongkang, and scores of bureaucrats and executives of state-owned firms have so far been investigated in Xi’s campaign of “swatting flies” and “killing tigers”.

Crackdowns like this give Xi a popularity boost. But televised courtroom trials amount to “sacrificial lamb” shows, and for good reason.

The Chinese Communist Party’s longevity relies on questionable forms of political legitimacy that, in turn, depends on its members to bolster it. Thus, the party’s leadership showers upon them considerable largesse in an embroidery of patron-client networks. They reciprocate by assuring the party’s untroubled rule.

READ MORE: Uncontrolled capitalism is bringing the world to ruin, and nobody is fixing it

Nowhere is this mutual dependence more glaring than among China’s urban elite. They’re amenable to the party co-opting them, knowing the authoritarian system will yield to their material advantage.

By Lee’s reckoning, by early 2015, some 200 lawmakers were among nearly 1,300 Chinese who had accumulated US$500 billion in combined net worth. And nearly all of the 85 million party members have direct or indirect business interests.

Worse is ahead. China’s economic model looks broken. Xi will need magic powers to stamp out corruption in his party that is also poisoning the economy, particularly the state-run sector.

READ MORE: As the war cries for his ouster grow, can Malaysia’s Prime Minister Najib Razak hold on till the next election?

One country in Southeast Asia that has been exhibiting similar toxicity is Malaysia. Like Xi, Prime Minister Najib Razak has been personalising power while he endures growing pressure to resign over corruption allegations. His Malay party Umno is much like China’s Communist Party: it breeds corruption within its rank and file, with the largesse controlled by Umno’s hierarchy. Increasingly, this gives him dictatorial power, more than former strongman Mahathir Mohamad ever had.

Stability is code for certainty that the old political-business nexus will continue to flourish

As long as Najib and Umno keep dishing out the largesse, and provide jobs for Malays within an inefficient and politically pliant bureaucracy and government-linked companies, Najib will ride out the corruption storm. That’s not the same as saying that he has the stomach to staunch the manic corruption that has historically run through Malaysia’s veins. Nor would he book top politicians, bureaucrats and business cronies for corruption. Najib is content to offer piecemeal “small fish” to placate the Malay majority.

Malaysia’s businesspeople have repeatedly expressed their worries about political stability. Naturally. Stability is code for certainty that the old political-business nexus will continue to flourish. They’ll rake in billions of dollars through opaque state contracts, avoid paying taxes, and domestic capital and profits will flee to tax havens or buy questionable assets guaranteed by the state.

Modernisation has failed to bring a rigorous system of democracy and accountability to countries like Malaysia. After all, corruption is one of capitalism’s several contradictions.

Manjit Bhatia is an Australian research scholar who specialises in the economics and politics of Asia and international political economy. He is also research director of AsiaRisk, an economic and political risk consultancy