China Power

China, Russia and Corruption

A new report says China is second only to Russia in terms of bribery. But the headline masks a complex picture.

Chinese and Russian firms are the most likely to engage in bribery overseas, according to a new report by Transparency International.

According to the think tank’s Bribe Payers Index, Chinese firms were perceived as the most likely after Russians to pay bribes overseas out of 28 countries surveyed.

“Companies from Russia and China, which invested $120 billion overseas in 2010 and are increasingly active in global business, are seen as most likely to pay bribes abroad,” the report noted. “Companies from the Netherlands and Switzerland are seen as least likely to bribe.”

The report is certainly right to note that bribery has “significant adverse effects on public well-being around the world” by distorting the fair awarding of contracts, reducing the quality of basic public services and limiting opportunities “to develop a competitive private sector.”

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And such views echo the claim by Chinese Premier Wen Jiabao earlier this year that corruption is the biggest threat facing China today.

“I think the biggest risk we face is corruption,” Wen Jiabao told a news conference that marked the close of the National People’s Congress in Beijing in March. “It also means addressing people's grievances and implementing their wishes.”

Prof. Andrew Wedeman, director of the Asian Studies Program at the University of Nebraska-Lincoln, agrees that corruption is a serious problem for China. He notes, for example, that the government prosecutes an average of 35,000 cases a year and sends about 10,000 people to prison each year, half of whom get sentences of five years or more, and some of whom get executed.

“The Chinese Communist Party certainly takes the problem seriously, and over the years it has tightened controls and tried to improve its enforcement and deterrent capabilities,” he told me. “But the results of its war on corruption are mixed. By most measures, it appears that corruption in China worsened in the 1980s and 1990s. However, over the past decade, according to the Transparency International Corruption Perception Index, corruption has actually decreased somewhat, at least according to outside experts’ estimates.”

“My own work suggests that while the aggregate incidence of corruption has remained about the same in recent years, high-level corruption has continued to worsen, but at a lesser pace than was true in the 1990s. I’d argue, therefore, that the Communist Party’s anti-corruption efforts have been successful in controlling corruption in the sense that they’ve prevented significant worsening. But at the same time, they’ve failed to significantly reduce the severity of corruption. In other words, if we think of it as a war on corruption, China has fought it to a stalemate. But there’s no evidence that victory is likely to come any time soon.”

But Wedeman also cautioned about reading too much into an index that is drawn from a relatively small sample, and one that contains such a mix of advanced and developing economies.

‘The BPI doesn’t measure corruption in China, but rather the relative corruptness of Chinese companies where operating outside of China. (But) also note that while Chinese companies score ‘worse’ than, say, Taiwanese companies, they received a 6.5 out of 10, which implies that they were better than the midpoint of 5. China’s score is therefore ‘worse’ in relative terms, but we can’t tell if it’s bad in absolute terms because the sample isn’t large enough to tell us if companies from countries not covered would get scores lower than Chinese companies’ 6.5 or Russian companies 6.1.’

And Wedeman made another interesting point:

“I think it also worth noting that in Transparency International’s 2010 Corruption Barometer, when ordinary Chinese were asked if they had paid a bribe in the past year, 9 percent said they had. That’s the same percentage of Singaporeans who said they’ve paid a bribe in the past year, and yet Singaporean companies were said to be much less likely to pay bribes abroad than were Chinese companies.

“Because 2010 was the first year, I believe, that China was included in the Corruption Barometer, one has to be a bit cautious about how to interpret this figure. But it would certainly raise some very interesting questions about both the CPI and the BPI numbers.”

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