Yuen Yuen Ang on the Evolutionof Corruption in ChinaWhy has China’s economy boomed despitemassive corruption? In her new book, Angexplains the ‘steroids of capitalism.’

Q & A

Yuen Yuen Ang, an associate professor of political science at the University ofMichigan, has been featured in �e Diplomat, and written for ForeignA�airs, �e Wall Street Journal and Project Syndicate. She was anAndrew Carnegie Fellow, and her book, How China Escaped the PovertyTrap, has won awards for its “game changing” research into the country’sdevelopment. Her latest book, China’s Gilded Age: �e Paradox ofEconomic Boom & Vast Corruption (Cambridge University Press)(https://www.cambridge.org/core/books/chinas-gilded-age/389BE063CCB6E75DDA144C36DABACD7A), explores the wayin which corruption has infected, and yet fueled, China’s growth. Whatfollows is a lightly edited Q&A.

BY DAVID BARBOZA — MAY 31, 2020

Q. Professor Ang, the topic of your latest book, China’s Gilded Age, iscorruption. Why did you decide to tackle this topic?

A: �e question of why China’s economy has boomed despite massivecorruption is one of the most enduring puzzles for anyone studyingChina. Many people are perplexed. We know that corruption is terribleand should impede growth. We also know that the most corruptcountries in the world tend to be the poorest countries. And thenthere’s China. Many books and articles have taken up the subject, but I

Yuen Yuen AngIllustration by Kate Copeland

wasn’t satis�ed with their explanations. A large volume of literaturetells you how corrupt China is. I found myself thinking, “�ere’s a lotof corruption. But why is this economy still growing so fast?”

What did people get wrong?

What they misunderstood was the nature of corruption, and the linkbetween corruption and capitalism. To understand this we must beginby unbundling corruption [into its di�erent types]. To explain China’spuzzle, we also need to compare it with other countries [andsituations]. We �nd similar puzzles in East Asia and in America’sGilded Age. Also, if we accept the conventional wisdom that allcorruption is bad for growth, we will hit a dead end, because, to beginwith, that assumption is �awed. We need to understand that althoughcorruption always produces harmful e�ects, not all corruption impedesgrowth.

You said there were di�erent types of corruption. What do youmean?

I lay out four di�erent types of corruption, and I collected a variety ofnew datasets so that we can go beyond anecdotes and subjectiveimpressions, which can be very misleading. �is data allows us tocompare China’s structure of corruption with other countries and traceits evolution over time.

The type of corruption I highlight is “access money,” which dominatesChina. Access money means elite exchanges of power and wealth —the exchange of power and pro�t at a high level [with government

BIO AT A GLANCE

BIRTHPLACE SingaporeEDUCATION Colorado College, Stanford UniversityCURRENT JOB Associate Professor of Political Science at

the University of Michigan, Ann Arbor

o�cials]. �is should be distinguished from embezzlement, pettybribery, and plain old extortion and thuggery. Access money canactually stimulate investment and growth, even though it also producesperverse consequences for the economy and the political system —problems that are not re�ected in annual GDP numbers.

Explain that last part again. So it actually spurs growth?

Let me give you an example. If you look at the crony ties between JiJianye [the fallen Chinese government o�cial who once served as theMayor of Nanjing] and the businessmen who paid him bribes, thatactivity doesn’t damage growth prospects. It actually encourages [boththe mayor and businesspeople] to do more business: accelerateurbanization, promote mega industrial zones and tourism, build morecondominiums, more infrastructure, and so on. All of that stimulateseconomic activity, translating into GDP.

So, the Chinese o�cials are eager to generate economic growth as ameans to develop their region and get promoted, but they can also�nancially bene�t by taking some sort of payo�. We see this manyplaces, right? But in China they have strong incentives to engage ineconomic development, not simply pocket bribes. Is that right?

Yes. Here’s the way I like to explain it. Access money is the steroids ofcapitalism. It stimulates business activity. It rewards both politiciansand businesses. Politicians are motivated to stimulate growth, whilebusinesses invest and build more. But like steroids, it produces perverseconsequences; for example, rising inequality and over-investment inspeculative sectors such as land and real estate. �ese sectors easilyallow government o�cials to convert their power into money. Overtime, there are also incentives for businesses in China to move awayfrom manufacturing into speculative activities. In Chinese the term forthis is tuoshixiangxu 脱实向虚. Premier Li Keqiang and the NDRC[National Development and Reform Commission] acknowledged thatthis is a persistent and worrisome trend.

Many people have wondered whether the idea of corruption inChina is shaped or in�uenced by aspects of Chinese culture. Chinahas a strong gift giving tradition, for example, and that might makeit more di�cult to build a business culture or a legal system thatrestricts these cultural tendencies. In other words, some of what wein the U.S. de�ne as a corrupt activity might be dealt with di�erentlyin China. Is this true?

It’s not that the Chinese people in general accept bribery; they knowit’s wrong, and [citizens] are angry about it. But if there is a culturaldi�erence, it may be a willingness in Chinese society to see corruptionas indispensable to the operation of a capitalist economy. �ere is a

(https://www.cambridge.org/core/books/chinas-gilded-age/389BE063CCB6E75DDA144C36DABACD7A)

heightened sense of dilemma. On the one hand, bribery is bad and weshould get rid of it. On the other hand, it rewards politicians andcapitalists for jointly embracing capitalism.

Is that di�erent from what you’d �nd in the U.S., for example?

Yes. �e conversations are very di�erent here because in the U.S. thenature of corruption is institutionalized and legalized. We rarely evenuse the word “corruption” [to describe some of the activities meant tohelp �rms gain an advantage]. Maybe we use the word “in�uence.”People can lobby and in�uence in legal ways.

But in China, the state has extraordinary control over the people andbusinesses. How does that shape the corruption story?

China is a much more bureaucratic and regulated economy than theU.S., and there are two factors behind that. First, there’s a macro factor:China is a state-dominated economy. �ere’s just one party in power,and it has to transition from a planned to a market economy. So, thegovernment plans extensively and carries out industrial policies. Just bythe nature of this state-dominant economy, commercial activities willbe more regulated. �en there’s a micro factor, which is the incentivesthat individual bureaucrats have to create regulations. �e moreregulations and power bureaucrats create, the more likely businesspeople will pay [bribe them] to buy their regulatory in�uence. So, it’s acombination of the two.

But there’s a third point I’d like to add, as you’re talking about permits.Although China is a bureaucratic and regulated economy, this is, at thesame time, mediated by another key political feature: local leaders havestrong personal stakes in promoting economic growth. �us, you often�nd con�icting situations where local agencies want to imposeregulations, but local leaders stamp them out, because leaders do notwant bureaucratic harassment or petty bribery to impede theirdevelopment ambitions. �at makes China very di�erent from sayIndia, which also has an excessively regulated economy but withabundant petty bribery.

In China, then, does it make sense to consider a bribe simply as ahidden tax? Something that companies agree to pay in order toimprove their position?

Many political economists assume corruption is a tax. And I disagreewith that because they are focused on petty bribery or bribes paid toovercome the regulatory barriers that you just described, which is tosay: “I would not need to pay this bribe if you didn’t set up thisunnecessary regulatory barrier! So it is a tax, and having to pay thesebribes and fees and �nes obstructs my business.” But when you look ataccess money corruption, like the company shares that Ji Jianye’scronies gave him in exchange for years of monopoly control overprocurement contracts, those payments are an investment. It’s like, “I’mpaying you a certain amount of money and in exchange I’m gettingmuch more.” �at’s why I make a distinction between speed money,which is a tax on all businesses, and access money, which is aninvestment that gives some businesses great deals and thus stimulateseconomic activities.

Has the nature of the system in China — how bribes or payo�s aredelivered — changed much?

I’m glad you asked because this is core to the argument. In one chapter,I look at the evolution of corruption patterns since the 1980s. Usingdata on corruption investigations, I show a stark reversal of trends in

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bribery versus embezzlement. In the 1990s, embezzlement, misuse ofpublic funds, and low-level bureaucratic extortion were all rampant inChina, while bribery was much less prevalent. By 2016, the patternswere completely �ipped. Bribery, especially on a grand scale andinvolving high-level o�cials, has exploded, while corruption with theftand extortion plummeted. If you live in China, you would sense thatdaily public administration is quite e�cient, yet grand corruptionscandals �ll the press.

In addition, the words that Chinese people use to describe bribery havechanged over time, which indicates that corruption strategies wereevolving. Entering into the 2000s, new phrases were coined. One ofthem is “naked o�cial” (luoguan裸官), which refers to o�cials whohave amassed immense wealth overseas while appearing poor at home.Another is “rent-seeking” (xunzu 寻租), which is new to the Chineselexicon and imported from the western capitalist world. Undercommunism, people did not use these words. Another popular term is“elegant bribery” (yahui雅贿), that is, corruption evolved to the point ofgiving art in lieu of cash. Presently, access money has probablyadvanced to even more sophisticated forms.

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So you’ve described a situation where the government is fairlye�cient or business minded, and yet corrupt. And it drives growth?It’s the win-win situation that I heard almost every day I was inChina!

But bear in mind that not everyone wins! Yes, corrupt o�cials andtheir cronies win, and overall, the economy grows feverishly, but as Istressed, there are perverse consequences. For example, access moneysends real estate investment into overdrive. Mansions pop up all overthe country yet a�ordable housing is seriously lacking for ordinary

Chinese people. �is is a big social problem, but it does not getre�ected in growth statistics. GDP is simply a crude measure ofeconomic activities; it says nothing about the quality of development.

In other words, I’d put it this way: China’s political economy isparadoxical. And if we want to understand it, we must accept theseparadoxes rather than put China into one or another binary category,as either corrupt or meritocratic. Some analysts argue, “�is is aConfucian style meritocracy where o�cials are promoted according tocompetence and virtue.” But we know that’s not true. �e other sideargues, “China is all cronyism and it’s going to collapse soon.” �is alsoisn’t true because corrupt Chinese o�cials can be simultaneouslycompetent. Some of the most famous examples include Bo Xilai, theformer Chongqing party secretary who fell dramatically in 2012, and JiJianye, former mayor of Nanjing.

Bo Xilai on trial Credit: CCTV screenshot(https://www.youtube.com/watch?v=EJovPI1urFE)

My argument goes beyond saying that corruption and meritocracy inChina coexist — rather, they feed o� each other. To be a competentleader, can you really do it without any corruption? To be a corruptleader who collects lots of bribes, can you do it without beingcompetent? �at is the distinguishing feature of China’s politicaleconomy. �e political system is designed to be paradoxical. And so isthe economy: rapid growth has lifted 700 million people out of poverty,but it has also produced a grossly unequal society.

And where is this political and economic system headed?

Since the 1990s, we see a clear pattern of China evolving toward amore sophisticated capitalist economy, where corruption evolves fromthuggery, lawlessness and embezzlement to ever more access money. Itis clearly on this evolutionary path.

So, access just becomes more and more important? Does that meanit’s closer to the U.S. system?

That’s why the book is called China’s Gilded Age.(https://www.cambridge.org/core/books/chinas-gilded-age/389BE063CCB6E75DDA144C36DABACD7A) We can takelessons from America’s Gilded Age. But I don’t see a future whereChina’s political economy becomes just like the U.S. �ere are certainenduring di�erences between the two countries. �e biggest one is thatChina’s political system is highly personalist. It’s centered on individualleaders. Xi Jinping is the supreme leader. By comparison, the U.S.system is institutional; institutions are more dominant than individuals,though it’s di�cult to say this in the Trump era [laughs]. But generally,U.S. leaders are constrained by checks and balances, whereas in China,power is concentrated in the hands of particular o�cials. For thisreason, corruption in China will remain personalist even though it isbecoming more sophisticated in the way it is carried out.

What do you make of the sweeping anti-corruption campaign thathas been carried out under Xi Jinping? So many people ask: is this areal anti-corruption campaign aimed at rooting out corruption, or is

it an e�ort to purge opponents of the country’s top leaders? Or is itboth?

Both. �e campaign is not just a purge of Xi Jinping’s enemies. Youhave clients of the top leaders who fell even though their patrons are�ne. And you also have clients who are �ne even though their patronsfell. So it’s more than just a purge even though I get that this is apopular argument.

So, Xi’s campaign is a real e�ort to reduce corruption, but alsoperhaps a way to seize power and �ght o� competitors?

Exactly. It’s a genuine e�ort at tackling the corruption problem. �ereason why Xi has to take this so seriously is partly because he came too�ce during a corruption scandal that involved Bo Xilai, whichexposed the full gravity of access money and cronyism. �is type ofcorruption worried him greatly, not mainly because it impedes growth,but because it feeds powerful [political] factions. And that underminesparty integrity at the highest level.

Access money also threatens the legitimacy of the Party. Whenordinary citizens perceive that corrupt o�cials and connectedcapitalists have rigged the system and bene�ted disproportionatelyfrom capitalist growth, this leads to popular anger over unfairness andinequality, not unlike in this country. �at’s why anticorruption andpoverty alleviation are two of Xi’s signature domestic policies. �ey gotogether logically.

David Barboza is the co-founder and a sta� writer at �e Wire.Previously, he was a longtime business reporter and foreigncorrespondent at �e New York Times. @DavidBarboza2(https://twitter.com/davidbarboza2?lang=en)