27 May 2019
China's anti-corruption campaign has netted 'tigers' as big as Yao Gang, vice chairman of the China Securities Regulatory Commission. Photo: Bloomberg
China's anti-corruption campaign has netted 'tigers' as big as Yao Gang, vice chairman of the China Securities Regulatory Commission. Photo: Bloomberg

Can we blame the anti-graft campaign for hurting China’s growth?

On taking office, President Xi Jinping vowed to crack down on “tigers and flies” — corrupt senior and lower-level officials.

Over the past three years, the anti-corruption campaign has been executed under the direction of the Central Commission for Discipline Inspection (CCDI) and its chief, Wang Qishan.

In the first 11 months of last year alone, more than 43,200 Communist Party members were scrutinized, while over 29,000 were given party or administrative disciplinary punishment.

But in early December, global financial giant BNP Paribas said the anti-corruption campaign has knocked 1-1.5 percent off the country’s gross domestic product annually over the past two years and continues to hit the economy.

The bank said the anti-corruption drive has harmed investment and gift-giving, local governments’ investment projects and foreign multinationals.

So, is the campaign against corruption really bad for economic growth?

In China, investment as a source of growth is declining while the share of consumption is increasing in relative terms.

And that has little to do with the anti-corruption drive.

Rather, it is the result of rebalancing away from investment and net exports toward consumption and innovation.

The idea that the anti-corruption campaign is curbing local governments’ investment impetus is flawed.

Instead, local governments are constrained by debt.

At the end of 2014, local debt amounted to US$2.3 trillion.

And yet, critics seem to blame the anti-corruption campaign for local governments’ risky and opaque liabilities at a time when the CCDI is targeting corrupt local government officials.

Also, gift-giving has never fueled China’s aggregate economy.

In the past, it benefited those who received the gifts and those who gave the gifts in return for favors.

The consequent “sweetheart” deals and exclusive relationships hurt government revenues and people’s livelihoods.

Finally, those foreign multinationals that respect good governance continue to invest and thrive in China, whereas those that have used corruption to further their strategic objectives — including pharmaceutical giant GlaxoSmithKline — should be penalized.

Both the private and public sector need integrity and good governance.

The claim that China’s growth deceleration is a result of the anti-corruption campaign is absurd.

Amid industrialization, most advanced economies — including the United States, Western European countries and Japan — enjoyed higher growth, which decelerated with the transition to post-industrial society.

China is no exception to the rule of growth deceleration.

But the challenge is of an entirely different magnitude because of its more than 1.3 billion people.

The CCDI began its campaigns in 2013 with the sacking of several regional leaders.

Then came the fall of several “big tigers”.

Concurrently, investigations expanded to ministries, media, state-owned enterprises and telecom giants.

Unsurprisingly, then, as anti-corruption investigations were stepped up in financial institutions after last summer’s market meltdown, the sector’s criticism of anti-corruption measures escalated.

Nevertheless, the CCDI’s targets include a dozen executives of China’s biggest brokerage, CITIC Securities, hedge fund executive Xu Xiang and the chief of a Hong Kong arm of giant brokerage Guotai Junan Securities.

Even regulators, including the vice chairman of the China Securities Regulatory Commission, have been investigated and removed.

In China, corruption, left unpunished, would doom the state, society and growth.

In the short term, the anti-corruption drive may contribute to uncertainty and, occasionally, volatility.

In the long term, however, it is critical to resilient growth.

For more of Dr. Dan Steinbock’ articles, see

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Dr Dan Steinbock is the research director of international business at the India, China and America Institute (USA) and a visiting fellow at the Shanghai Institutes for International Studies (China) and at EU Center (Singapore).

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