Chinese Corruption

Russell Flannery covering the China beat for Forbes has an interview with Chinese ethicists. This is an excerpt from the article. This is only the introductory part I recommend you read the rest.

Last week brought a reminder of China’s troubling business ethics landscape when the government was forced to investigate reports that infants who consumed milk powder supplied by Nasdaq-listed Synutra International had premature breast growth. The Ministry of Health cleared Synutra, yet the allegations recalled the sale of tainted infant formula in 2008 and a long list of product safety and other problems involving business ethics  in the country.
Ultimately, what can be done to improve business ethics in China? I talked to two professionals working at the front line of research and education here, Professor Hengda Yang and Stephan Rothlin from the Center for International Business Ethics at the University of International Business and Economics in Beijing.  Yang is the author of a pioneering Chinese book about business ethics, “The Conscience of Business.”   Rothlin is also associated with the University of Zurich and the Insead Business School in Singapore.

Wikipedia has an entry on Chinese Corruption. Below is an excerpt.

The People’s Republic of China suffers from widespread corruption. For 2008, China was ranked 72 of 179 countries in Transparency International’s Corruption Perceptions Index. Means of corruption include graft, bribery, embezzlement, backdoor deals, nepotism, patronage, and statistical falsification.

Cadre corruption in post-1949 China lies in the “organizational involution” of the ruling party, including the regime’s policies, institutions, norms, and failure to adapt to a changing environment in the post-Mao era. Like other socialist economies that have gone through monumental transition, post-Mao China has experienced unprecedented levels of corruption, making the ruling Chinese Communist Party (CCP) “one of the most corrupt organisations the world has ever witnessed,” according to Will Hutton. Public surveys on the mainland since the late 1980s have shown that it is among the top concerns of the general public. According to Yan Sun, Associate Professor of Political Science at the City University of New York, it was corruption, rather than democracy as such, that lay at the root of the social dissatisfaction that led to the Tiananmen protest movement of 1989. Corruption undermines the legitimacy of the CCP, adds to economic inequality, undermines the environment, and fuels social unrest.

Since then, corruption has not slowed down as a result of greater economic freedom, but instead has grown more entrenched and severe in its character and scope. In popular perception, there are more dishonest CCP officials than honest ones, a reversal of the views held in the first decade of reform of the 1980s. China specialist Minxin Pei argues that failure to contain widespread corruption is among the most serious threats to China’s future economic and political stability. Bribery, kickbacks, theft, and misspending of public funds costs at least three percent of GDP.

Corruption as a key factor in the collapse of the former Soviet Union and its Eastern European client states. While there are no numbers to tell us the gravity of the problem in economic terms, it would a reasonable to conclude that only the rapid growth of manufacturing, the huge quantity of national resources, and the highly favorable media portrayal of China have prevented an accurate perception of the problem.

But there are stories of economic corruption in real estate and manufacturing. There are troubling accounts of disasters both natural and artificial concealed from the West and unreported in China itself.

I predict that by the end of this decade, corruption in China will become a brake on foreign economic investment.

James Pilant