Author’s Response: A Corruption Market More Sophisticated Than You Think

The criticisms and comments of the three distinguished participants in this roundtable cover a wide range of issues, and it is impossible to address all of them here. In the space below, I respond to three main concerns about China’s Crony Capitalism: The Dynamics of Regime Decay raised in their reviews: (1) theoretical framework and arguments, (2) empirical evidence and interpretation, and (3) implications of the findings.

Theoretical Framework and Arguments

The book’s main theoretical contribution is to offer an institutional explanation for the emergence of a particular type of corruption—collusive corruption perpetuated mainly to enable political and business elites to loot nominally state-owned assets at steep discounts or no cost. It traces the rise of this type of looting to a series of changes in China’s property rights regime in the post-Tiananmen era that significantly decentralized control rights without clarifying ownership rights. The main theoretical argument itself is straightforward. In the context of other significant decentralizing institutional changes that have granted local-level officials enormous discretion (most critically power over personnel appointments), the combination of decentralized control rights and unclear ownership rights (or, strictly speaking, the absence of real owners) creates an ideal environment for political and business elites to collude and loot valuable assets such as land, mining resources, and assets in state-owned enterprises (SOE). Collusion is necessitated by both the decentralization of control rights (with multiple officials empowered with approval authority) and unclear ownership (which attracts multiple claimants). The same logic and institutional conditions also apply to the widespread collusive corruption in infrastructure investments.

This theoretical framework offers an original explanation for the rise of collusive looting in the post-Tiananmen era. It does not, however, claim to explain all forms of corruption, as Yan Sun implies. The type of corruption she identifies is best characterized as garden-variety theft or petty corruption, not looting. So the analytical framework centered on property rights does not explain garden-variety theft. But how do we account for the rise of collusion in corrupt activities that do not involve the looting of state-owned assets? In the book, there are three sets of cases where property rights are not directly involved: the purchase and sale of public office, collusion between law enforcement and organized crime (although in at least 20% of the cases crime bosses gained undervalued land and mines with the help of local officials), and collusive corruption in courts and regulatory agencies. It is instructive to note that in these cases the median corruption income of the chief official perpetrator ranges between 510,000 and 760,000 yuan—a fraction of the median corruption income of the chief official perpetrator colluding with businessmen (9.5 million yuan) and the median corruption income of the chief perpetrator of collusive corruption in SOEs (6.4 million yuan) (pp. 120 and 155). The huge disparity in corruption income confirms the importance of property: officials engaged in garden-variety theft get paid for services, whereas those engaged in collusive looting are rewarded much more handsomely for obtaining undervalued or costless public assets.

The purchase and sale of public office constitute a critical linkage in the formation of collusive networks in the Chinese political system. Sun does not believe that China’s Crony Capitalism provides evidence showing that party chiefs sold offices to subordinates explicitly to facilitate their corrupt activities (including doling out undervalued state-owned assets to their business cronies). This is not true. Of course, due to the limited information revealed in the official media and court documents, it is impossible to build an overwhelming case demonstrating this connection. Nevertheless, two pieces of evidence support this conclusion. Some cases included in the book show that the party bosses (or chief perpetrators) took bribes from subordinates who later did their bidding. In addition, the majority of officials (86%) caught for engaging in selling public offices also engaged in collusion with private businessmen, while 68% of officials caught for colluding with businessmen sold public offices—two telling indications of the connection between the practice of buying...