China Is Corrupt, but There Is More to the Story

Minxin Pei’s China’s Crony Capitalism: The Dynamics of Regime Decay is a major contribution, likely to significantly influence discussions about China and its future. He argues that China’s political economy is characterized by crony capitalism, manifest in collusion between political and business elites, leading to the fundamental decay of China’s Leninist system in its late stages. Moreover, the legacy of crony capitalism bodes poorly for a post-Leninist democratic regime in China.

There is much in this work with which I agree. Yet I have some major areas of disagreement as well. Pei uses a principal-agent framework to make his argument. In this framework, he sees lower-level officials (agents) unresponsive to the norms and incentives established by the upper levels of the political system (the principals). The agents use their ability to control and distort information as well as the limited time and resources the principals have to monitor their subordinates to evade central directives and expectations. It is certainly clear from the cases that Pei uses as evidence that there is a great deal of corruption in the Chinese political system. But does this mean that the principals are helpless or that local officials are unresponsive to the incentives established by the center? Corruption may be endemic, but is it the whole story or even the most important part of the story?

A significant amount of research has been undertaken suggesting that at least officials who want to rise to higher positions are responsive to upper-level incentives emphasizing economic growth targets, as well social stability and (perhaps until very recently) population control. While corruption has been a characteristic of party-state rule, so too has growth. Moreover, some of the activities that Pei sees as endemic corruption may also be critical to growth. As one study argued, higher land sales in one year correlate with higher transportation infrastructure spending in following years, which are correlated with higher growth. Higher transportation infrastructure spending is also correlated with higher land prices in subsequent years.¹ The allocation of land, insider trading, and “takings” of land from rural communities may all be deeply corrupt activities and an inefficient allocation of scarce resources. But it is not clear that this is as predatory and rapacious as Pei suggests, nor is it clear that the results are not in keeping with overall central (and regime) goals.

The principal-agent framework originates from writings in institutional economics and, as with many economic models, assumes that actors are maximizing their preferences or utilities. In this book, it appears that Pei believes that corrupt actors in the Chinese system are maximizing their income and/or power. But as I have suggested above, one might be both corrupt and advancing broader goals. Consider several cases. Mu Suixin was mayor of Shenyang before he was toppled in 2001, having been implicated in a bribery ring exercised by a local criminal element (p. 246). But Mu was also seen as an up-and-comer. He was featured on a PBS documentary, China in the Red, and he gave extensive access to the camera crew. He was portrayed as decisive, working hard to cope with Shenyang’s unemployment problems, at least until his arrest (also covered in the documentary). Presumably, he received approval from the Liaoning provincial party committee to have his work so publicly covered. Indeed, PBS access to Mu may have been approved by the party center. He was corrupt, but he also was seen as trying to meet popular demands and respond to central directives.

In a similar vein, we might view the situation of Bo Xilai, the former party secretary of Chongqing Municipality who was tried and convicted for corruption (and whose wife was convicted in the murder of a British citizen). Bo also appears to have challenged the leadership arrangement made for the 18th Party Congress, culminating in Xi Jinping’s ascendency. Bo is mocked for his attempts to revive “red songs and dances,” but he was an innovative leader in Chongqing, trying to address issues related to housing and...