平和
和平
평화
CHINA
22 March 2014
080201_113

China -- rotten at the top

The revelations of the ill-gotten wealth of Wen Jiaobao's family is just the latest evidence that China is rotten at the top -- including at the top of China's new leadership. What does it mean?

The New York Times' revelations of the ill-gotten wealth of Chinese Premier Wen Jiaobao's family is just the latest in a long list of evidence that China is rotten at the top. The Times has revealed that Wen's family has accumulated a staggering $2.7 billion during his time at the top of the country's leadership. For many, this is deeply shocking because Wen has often been thought of as a good guy, and a reformer.

The Wen revelations follow closely on the heels of the Bo Xilai affair, a sordid tale of murder, violence, sex, and corruption, with at least $160 million in assets held overseas by Bo's family.

Bloomberg published an in-depth revelation of the wealth of the family of Xi Jinping, the new Chinese President, which amounts to almost $400 million.

But there is so much other evidence that China is rotten at the top. The annual 2011 Hurun report on the wealthiest Chinese people reveals that the top seventy members of the National People’s Congress are worth a combined total of $89.8 billion. According to Bloomberg News the net worth of the top 660 U.S. officials is only $7.5 billion.

China's central bank has reportedly estimated that more than $120 billion has been stolen by employees of state-owned firms since the mid-1990s.

Then there are the stories of massive capital flight. The Global Financial Integrity project estimates that China had $3.8 trillion in illegal capital outflows between between 2000 and 2011, 86% of this spirited out by misrepresenting costs and prices in international transactions. Just last year, capital flight amounted to $472 billion, or 8.3% of GDP. The Standard Chartered Bank estimates capital outflow at $80 billion in just the July-September quarter of this year.

In short, business and politics have become tightly intertwined in an entire ecosystem of crony capitalism, and economic reform is now a hostage of this.

One of the few positive things that we can note is the Wikileaks revelation that Wen Jiaobao once considered divorcing his wife because of her business dealings. But there is also the disturbing revelation that while Wen is disgusted by his family's activities, he is either unable or unwilling to curtail them. Apparently there is no family in the elite without these problems.

What are the implications of all of this?

Many debate the effects on internal stability, and the future of the Chinese Communist Party. Civil protests are rife and rising. Time magazine reports that this year protests could be double the 180,000 protest-related incidents of 2010. Despite the many controls on social media, China's 500 million Internet users are very actively criticizing the government, including on Sina Weibo, the Chinese version of Twitter.

Could this threaten the Chinese Communist Party? Most observers doubt that the Party faces any existential threat. The public has the capacity to mobilize and protest, but it is less clear that the public could organize itself into an alternative political force. The Party is very strong, with over 80 million members. And China has an immense internal security apparatus. It now now spends more on internal security than on national defense.

While the poor are protesting, large number of richer people (including Communist Pary members) are leaving China, especially to Australia, Canada and US. These countries have migration programs to attract high net worth individuals. One way that these rich people leave China is by sending their children to study in these countries, thereby establishing a family beach-head. President Xi Jinping's daughter is reportedly studying in Harvard, under a false name!

All the anecdotal evidence indicates that the reasons for leaving China are the sense of insecurity, doubts about the future of the Communist Party, the desire for better environment, and better education and opportunities for their children.

Needless to say, this "elite-drain" from China, together with the capital flight, is weakening the economic strength of the country.

A major implication of this vast network of corruption is that it means that there are very powerful powerful interest groups who will block necessary economic and political reforms. Ironically, however, widespread reforms are necessary for the Communist Party to hang on to power over the medium term.

Needless to say all of this undermines the many fantasies that exist regarding the strength of the Chinese economy, and the validity of the so-called Beijing consensus.

Most regrettably, it seems clear that the new Chinese leadership, announced today, has little intention or even capacity to tackle these profound problems.

Author

John West
Executive Director
Asian Century Institute
www.asiancenturyinstitute.com
Tags: china, New York Times, Wen Jiabao, Bo Xilai, Hurun report, Global Financial Integrity project, Chinese Communist Party

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