Martin Wolf: China crisis is just a matter of time

One-party Leninist rule allied with endemic corruption does not bode well for future

  Xi Jinping: his solutions “seem to be more Leninism and more markets, yet this is a  problematic combination”. Photograph: Ed Jones/AFP/Getty Images

Xi Jinping: his solutions “seem to be more Leninism and more markets, yet this is a problematic combination”. Photograph: Ed Jones/AFP/Getty Images


Xi Jinping, recently granted the title of “core leader” of China, is a man with two missions. The first is to purge the Chinese Communist Party of corruption. The second is to reform the economy.

These goals will, however, prove incompatible if he continues to focus his main efforts on purifying and strengthening the corrupted Leninist party-state.

In 2014, Xi described the challenge China confronts as follows: “Corruption in regions and sectors is interwoven; cases of corruption through collusion are increasing; abuse of authority over personnel and abuse of executive authority overlap; the exchange of power for power, power for money and power for sex is frequent; collusion between officials and businessmen and collusion between superiors and subordinates have become intertwined; the methods of transferring benefits to each other are concealed and various.”

This harsh indictment may be self-serving. As Minxin Pei writes in a brilliant book, China’s Crony Capitalism, it is all too easy for a would-be strongman to use the charge of corruption as a cudgel against rivals. Yet it is so effective precisely because it is plausible.

Using evidence published by the Chinese authorities, Pei shows that collusive corruption is pervasive. It distorts the economy, degrades administration and robs the party of its social legitimacy.

Corruption is indeed a cancer. Yet it did not strike by accident. The explosion of corruption since the early 1990s is the downside of successful reform.

“The emergence and entrenchment of crony capitalism in China’s political economy, in retrospect, is the logical outcome of Deng Xiaoping’s authoritarian model of economic modernisation, because elites in control of unconstrained power cannot resist using it to loot the wealth generated by economic growth,” Pei says.

Tipping point

The special characteristic of Chinese corruption is that it has coincided with a huge increase in wealth. The corruption has not prevented this. Instead, growth and corruption have gone together. They may well, for a while, have even been mutually supportive: corruption oiled growth, which funded corruption.

The main characteristics of Chinese policy over this period have been threefold: liberalisation of markets, devolution of power and contested and insecure property rights. Control of property was decentralised but did not carry secure ownership with it.

When control over property is a privilege, not a right, as in China, those with the political power have the ability to make themselves (and those they favour) vastly rich. That is just what they have done. Party servants have expropriated their own state of valuable assets, including land and minerals.

The need for collusion in so doing came from the fact that no single person controlled the means – property and permissions – needed for an economic activity. Collusive rings duly emerged. Some were managed by senior officials (yibashou) – often party secretaries – in “vertical collusion”. Some were managed by officials of similar rank, in “horizontal collusion”.

Some were managed by private entrepreneurs or even gangsters. In some localities, the outcome has been a form of “mafia state”. Corruption has even been found in the Chinese Communist Party’s disciplinary mechanisms, the security services and the People’s Liberation Army. These are all core institutions of the party-state itself.

Economic growth

First, corruption has tended to become increasingly pervasive and costly over time. Second, as the population becomes better educated and more demanding, its tolerance for corruption and the resulting administrative failings will shrink.

Third, economic growth is slowing, which makes the diversion of income into the hands of predators costlier to everyone else. Finally, growth is becoming increasingly dependent on innovative entrepreneurship, which crony capitalism is likely to throttle.

The question, however, is whether much can be done beyond putting a vast number of people in prison. Xi’s answers seem to be more Leninism and more markets. Yet this is a highly problematic combination.

The reason Deng Xiaoping promoted devolution of decision-making is that China is too vast for anything else. Today, the complexity of the economy makes centralised political control even more unworkable. It is, in practice, impossible for the centre to control the activities of all its agents. Yet it cannot make them accountable to the people either, since that would destroy the party’s monopoly of power.

The Leninist party-state cannot give a solution to the problem of governance. Yet it can offer no solution to the economic problem either. If a market economy is to be combined with reasonably non-corrupt government, economic agents need legal rights protected by independent courts.

However, that is precisely what a Leninist party-state cannot provide, since it is, by definition, above the law. The party-state may govern by law but cannot be governed by it. Thus, its agents are above effective legal recourse from private citizens.

If, as seems likely, Xi’s effort to combine restoration of Leninist discipline with market liberalisation proves unworkable, the regime will confront a deeper crisis. That might not come soon, but it seems sure to come in the end. Xi has embarked on his present course for good reasons. Whether he has good solutions is quite another matter.

– Copyright The Financial Times Limited 2016