Being hard hit by China’s President Xi Jinping’s crackdown on corruption has not hurt the economy of Hainan. The tropical island province, which is sometimes called “China’s Hawaii”, was lagging behind its peers before the anti-graft campain started. Now, it is beating them. Hainan weathered significant scrutiny over the first three years of Xi’s campaign given its tiny output of US$56 billion, with three dozen Communist Party officials investigated, according to a Bloomberg Intelligence analysis. Its growth slowed 1.3 percentage points amid the shake-up, less than half the average decrease nationwide of 3 per cent, the research by Bloomberg Intelligence economists Tom Orlik and Fielding Chen found. A tiger down in every province: senior official becomes first in Beijing to be probed for graft Similar trends have played out across much of China since Xi launched his unprecedented war on corruption in late 2012, the analysis found. Corruption wasn’t the grease in the wheels; it was the spanner in the works. Corruption was a tax on the productive sector of the economy, increasing the cost of doing business Tom Orlik, economist Some regions with a high number of senior officials investigated, such as Guangdong and Jiangsu, saw more resilient growth between 2013 and 2015. Others with many cases – Heilongjiang and Yunnan, for instance – posted sub-par growth in the years before the party’s disciplinary inspectors arrived. “Corruption wasn’t the grease in the wheels; it was the spanner in the works,” Orlik said. “Corruption was a tax on the productive sector of the economy, increasing the cost of doing business. It channeled resources away from efficient uses, toward whatever purposes generated the largest rents for venal officials.” The findings of the analysis may help answer lingering questions about the crackdown: did graft assist China’s decades-long economic boom, and have Xi’s efforts exacerbated the current slowdown? The campaign has snarled more than half a million party officials and continues to reverberate a year after retired security chief Zhou Yongkang – the highest-ranking party figure prosecuted for financial crimes – was sentenced to life in prison. China's disgraced security tsar Zhou Yongkang jailed for life over graft Bloomberg Intelligence compared provincial prosecutors’ reports and corruption data compiled by the Asia Society’s ChinaFile with various regional economic indicators over Xi’s first three years in power. Results were adjusted to reflect the relative size of each economy, in order to assess the regional intensity of the anti-graft campaign. The anti-corruption effort is very good for small businesses. In the past, we had to give gifts or money to the government officials, or to dine them. Now, I don’t have to do that. They won’t dare take anything Hu Yuting, Guangzhou businessman In Hainan, a Chinese tourist mecca that hosts the annual Boao economic forum, the effort unfolded much as it did elsewhere, netting powerful “tigers” – or senior officials – tied to Zhou’s vast patronage network. Former vice governor Ji Wenlin, a one-time aide to the former security boss, was sentenced to 12 years in prison in March for taking bribes worth 20 million yuan (US$3 million). There were also less-powerful “flies”, such as former deputy county party chief Lu Yong, accused of using their outsized sway over local affairs to procure riches. In September, Lu received a 15-year prison term for taking 10 million yuan in bribes, including two cases of XO cognac and 300,000 yuan stashed in oolong tea boxes, for helping a state-owned construction firm secure a hospital project, according to a copy of the verdict. “I was afraid when I took a bribe for the first time, but I later got hooked and became a slave to the money,” Lu told the court. Two top allies of China’s disgraced security tsar Zhou Yongkang jailed for corruption The southwestern metropolis of Chongqing posted China’s fastest growth last year despite the downfall of its former party chief, Bo Xilai, in 2012. Guangdong, the manufacturing powerhouse bordering Hong Kong, saw the party boss of its capital Guangzhou and eight other high-level officials investigated, but only suffered a 0.2 percentage point slowdown in growth, compared with 3 per cent nationally. “The anti-corruption effort is very good for small businesses,” said Hu Yuting, 41, whose company, Guangzhou Xieli Lighting, employs more than 90 people. “In the past, we had to give gifts or money to the government officials, or to dine them. Now, I don’t have to do that. They won’t dare take anything.” What NOT to learn from Zhou Yongkang and Ling Jihua: Fall of China’s corrupt party ‘gangs’ a lesson for its cadres Some provinces have fared worse since the anti-graft watchdogs arrived. While China’s coal heartland Shanxi saw 12 “tigers” investigated – the most outside Beijing – amid a 7 percentage-point plunge in growth, it is difficult to separate the impact of the campaign from the woes of the coal industry. Restaurateurs, hoteliers and luxury retailers have blamed falling sales on the corruption crackdown. However, the Bloomberg Intelligence analysis suggests corruption acted as an overall drag on growth. In southwestern Yunnan, where nine “tigers” were jailed, the economy grew 11.9 per cent from 2005 to 2012, compared with 12.5 per cent nationally. Xi has warned that corruption could jeopardise the party’s rule if left unchecked. The research indicated some potential factors feeding graft in China. Provinces with the highest levels of state ownership and greatest debt burdens were among those where severe corruption problems were exposed. In the impoverished northwestern province of Gansu, where the crackdown has been three times more intense than the national average, the share of industrial assets under state ownership is among the highest in China. Hainan’s debt-to-gross-domestic-product ratio was 40 per cent, compared with the national average of 27 per cent. “A more sustainable solution requires reform of the state sector and greater controls on local government borrowing,” Orlik said.