Feb
Not only is this article written from the perspective of ChinaFund.com’s managing partner (the managing partner of an entity with a hands-on experience in China which exceeds 13 years), it’s also written from the perspective of someone who grew up in Eastern Europe, in a country that became essentially (in)famous at the very least regionally for its wide-spread corruption.
As anyone who has lived in an environment where corruption runs rampant can confirm, it’s the type of phenomenon which takes over, one step at a time, until it becomes deeply ingrained in the let’s call it social subconscious.
Caught speeding? Nothing a bribe can’t fix.
Need to “convince” a government worker to speed up the process when it comes to whichever bureaucratic nuisance you are dealing with? Nothing a bribe can’t fix.
Want to motivate your doctor? Nothing a bribe can’t fix.
On the surface, the appeal of corruption is not difficult to understand because it seems like a win-win situation: the person who is bribing someone ends up making his or her life easier and the professional who accepts the bribe makes some extra money. Unfortunately, it tends to be a slippery slope because corruption… well, corrupts.
As time passes and corruption becomes a generational phenomenon or let’s say ubiquitous, a point is reached where bribes for example are not just optional but downright accepted. Before you know it, people end up “motivating” other individuals not to get preferential treatment but to get anything done at all. In the end, something that appeared to be a textbook win-win situation backfires… and everyone loses.
The end result can only be described as the type of climate in which conducting business ends up representing a nightmare due to legitimate as well as illegitimate bureaucratic barriers (corruption, to be more specific). While some brave souls (the occasional local entrepreneur, for example) still end up deciding to launch businesses, many others (especially foreign investors who would have perhaps been able to put long-term Foreign Direct Investments on the table) end up simply choosing other jurisdictions. Study after study confirms that in the long run, society as a whole under-performs in a corrupt framework. In most cases, we are not talking about under-performing as in GDP contraction but rather under-performing in terms of growth rates much lower than that of less corrupt countries.
Is the same principle valid when it comes to China?
Yes… but at the same time no.
Yes because, indeed, many business owners ultimately decided to look toward other jurisdictions due to fear pertaining to China’s corruption problem.
No because, on the other hand, corruption is only one variable in the economic viability equation. Other variables include labor force costs, infrastructure, other barriers (or lack thereof) such as environmental ones and the list could go on and on.
To put it differently, corruption frequently ended up representing a problem but not a deal breaker. A problem because it undoubtedly made the lives of entrepreneurs more difficult but not a deal breaker because there were more than enough pros on the table to outweigh the cons. Imagine weighing the pros and cons associated with doing business in China let’s say a couple of decades ago, with corruption definitely representing a major drawback but “selling points” such as labor costs at pennies on the dollar compared to the West ultimately prevailing.
However, such a status quo is anything but sustainable.
As time passed, labor costs inevitably went up in China, with other jurisdictions being more attractive from a strictly labor cost arbitrage perspective. The same way, a more and more educated general public became less willing to tolerate ridiculously high levels of pollution. Even back in the Jiang Zemin days, many voices made it clear that they were not satisfied with the idea that China is pursuing economic growth at all costs. The list could go on and on.
As some of the pros such as the previously mentioned ones gradually get eroded, China has no choice but to tackle cons such as corruption so as to balance the scale and avoid a much-dreaded capital exodus.
Does the public in China demand less corruption?
Yes, a trend which cannot be avoided in light of the fact that a better and better-educated population is bound to start making corruption-related demands.
Does the business sector demand less corruption?
For the reasons outlined previously and many others, yes.
Do China’s geopolitical interests dictate a stronger attitude with respect to corruption?
Once again, yes, with the Xi Jinping administration understanding that the country’s national security would be at risk in the absence of effective anti-corruption measures in sectors such as the military one (as explained through a previous article).
After drawing the line, all roads lead not to Rome but to Beijing… a (more) corruption-free Beijing, that is. For political as well as economically pragmatic reasons, tacking corruption is not just desirable, it is downright necessary at this point in time.
However, as explained in our article about nepotism, not even the best efforts of an administration such as the Xi Jinping one can lead to the complete eradication of generational trends such as corruption and nepotism-related ones. This is valid when it comes to large-scale corruption and perhaps even more so when it comes to “deep China” corruption, in other words the status quo in the poorer and oftentimes rural regions of China: “patience” is the operative word!