Corruption and reform in China: An analysis of unintended consequences

Crime, Law and Social Change 19: 311-327, 1993. �9 1993 Kluwer Academic Publishers. Printed in the Netherlands.

Corruption and reform in China: An analysis of unintended consequences

TING GONG School of American and International Studies, 505 Ramapo Valley Rd., Mahwah, NJ 07430-1680, USA

Abstract. Although market-driven reforms are bringing hope for China's economic development, there has been an increasing visibility of corruption in the reform process. This article examines the relationship between corruption and reform in China by relating the corruption issue to certain reform policies. It finds that corruption results from unintended consequences of some intended reform policies, as these policies aimed at transforming China's socioeconomic structures at the same time inadvertently produce some political and economic conditions conducive to corruption. The unintended consequences are controllable, however, if a balanced reform agenda is developed.

Introduction

The phenomenon of unintended consequences has been well noticed by social scientists) Indeed, as rational actors, human beings are able to reflectively monitor and rationalize their action and have knowledge about what they are to do. However, unintended consequences always exist, for human "knowl- edgeability ''2 is always bounded. Decision making can only be based on the existing state of knowledge which may not apply to the future. Unintended consequences may also be caused by what Robert Merton called the "imperi- ous immediacy of interest, ''3 when the actor's paramount concern with immediate outcomes makes him/her overlook future or other consequences which might have been foreseen. Finally, unintended consequences may also arise from flawed policy or contradiction of co-existing policies; that is, in Aaron Wildavsky's words, "policy as its own cause. ''4

In contrast to the rich attempt at theory building, relatively little has been done on empirical studies of unintended consequences. An empirical study involves not only the effort to dearly identify unintended consequences, but also an examination of intended policies, for we cannot identify unintended consequences unless we know what is intended in the first place. It also requires an investigation of contradictions embodied in policies per se or in policy envi- ronments which give rise to unintended consequences.

This paper attempts to extend the analysis of unintended consequences to China's corruption problem in the reform period. As is well known, China's reform has amazed the world by its remarkable achievements. Since 1978 Chi-

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na's reformers have simultaneously fought on two fronts: to restructure society by adopting development-oriented economic policies, and to rebuild the state by reorganizing bureaucratic institutions and routinizing administrative procedures. Reform efforts as such have invigorated the previously stagnant economy and brought changes to the rigid bureaucratic system. Yet, on the other hand, the reform process is accompanied by consequences which were not anticipated by reformers. Among the unintended consequences is an increasing visibility of transactions between power and personal gain) Indeed, never before as in recent years there have been so many opportunities for personal gain; never before have bureaucrats been so aware of the potential of administrative authority to generate profits for themselves. Apparently, the relationship between corruption and reform merits our attention,

To proceed, this paper focuses on certain reform policies adopted by the Chi- nese Communist Party to see how these policies have generated unintended consequences which further affect the identification of corruption. The thesis proposed by this article is that notwithstanding its remarkable successes, Chi- na's reform since 1978 has unfortunately generated some unintended consequences which make for more, different, and new corruption. More specifically, this paper examines three paradoxical phenomena: - while the party has no intention of loosening its control over society, its al-

lowance for subsystem autonomy nevertheless has provided opportunities for power abuses at subsystem levels;

- while the reform tries to decentralize economic power and enhance the managerial capabilities of local authorities, the effort has nevertheless increased local patron-client networks; and

- while the reformers intend to revitalize the economy by incorporating the market mechanisms into the economy, some of the reform measures have ironically invigorated so-called "official speculation."

Subsystem autonomy and local power abuse

China's economic reform and administrative reorganization have resulted in a diffusion of state power to subsystems and facilitated the differentiation of institutional power.

Power relations in pre-reform China were quite simple: the party center controlled all. Under the banner of"the party's unified leadership" (dang de yiyan- hua lingdao), power structure was highly integrated with the party at the center giving instructions and directives outward to other government institutions and downward to local authorities. Although the party must implement its policies through these subsystems, this did not change the centralized nature of the power structure: decisions were made at the center; information flowed

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through top-down channels, and, more important, all the subsystems were under control of the party's "visible hand" through its local committees. Worse yet, the party's "unified leadership" was often turned into leadership by individual party cadres. As Deng Xiaoping himself admits:

Historically, we ourselves have repeatedly placed too much emphasis on ensuring centralism and unification by the party, and on combating decentral- ism and any assertion of independence. And we have placed too little emphasis on ensuring the necessary degree of decentralization, delegating necessary decision-making power to the lower organizations and opposing the over-concentration of power in the hands of individuals. We have tried several times to divide power between the central and local authorities, but we never defined the scope of the functions and powers of the Party organizations as distinct from those of the government and of economic and mass organizations. 6

Since 1980, China's reformers have taken important measures, structurally and functionally, to differentiate the centralized system. The party gradually abol- ished within its organization those departments that duplicated government agencies. These departments had been established to supervise their counter- parts in the government] The party also reduced administrative posts concurrently held by party cadres. With the change from "one-level legislation" (i.e., only the center had the legislative power) to "two-level legislation," provincial People's Congresses were granted the power to make laws. The party center also transferred major parts of its cadre management authority to local levels by reducing the number of cadres at its disposal from 13,000 to 5,000. 8 At the basic-level administration, the party's power retreated as the Director Re- sponsibility System (shouzhangfuze zhi) was introduced in the mid-1980s. The "Director Responsibility System" is the institutional arrangement of a power- ful administrative directing system headed by the factory director (or manager) so as to ensure the co-ordinated and highly effective advance of the various tasks of an enterprise. 9 It indicated the party's withdrawal from the domain of daily management. Under the system, enterprise managers (who are not neces- sarily party members) assume all-round responsibility for factory production, operation, and administration, as they are empowered to determine short-term or annual plans, major technological improvements, administrative personnel and employment. In rural areas, the commune systems, which had combined all the activities of the party, administration, and production, was gradually re- placed by village and township governments.

Nevertheless, from the very beginning of the reform, the party has never had the intention to loosen its political control over society. Though cautiously em- barking on political reform, the Chinese leaders have made it very clear that

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"the purpose of reforming the system of party and state is precisely to maintain and further strengthen party leadership and discipline, and not to weaken or relax them .... Without such a party, our country would split up and accomplish nothing .... ,10 This proclamation is not just a calculated reassurance to conser- vative segments within the party as some scholars favoring a "factional conflict model" of Chinese politics may suggest. It indicates the party's reserved atti- tude toward political liberalization and its reluctance to accept any challenge to the party's monopoly. Thus, political reform is instrumental in nature. That is, it is merely the means of economic reconstruction. Benjamin Ward is right when he points out that organizational change has long been used as an important instrument of economic policy in China, in contrast to capitalist economies which prefer indirect instruments such as fiscal and monetary policy. 11 Institu- tional reforms are aimed at accommodating the bureaucracy to the market- driven economy; the party's withdrawal from its previous deep involvement in administrative work is intended to free it from daily administrative affairs and therefore concentrate on effective macro-control over society and the economy. Though granting enterprises managerial power in day-to-day affairs may revitalize them as the most active components of society, it is assumed by the leadership that this will not weaken the center's control, because what enterprises are granted is not the right to own or control the means of production, but the right to manage them. la The instrumental nature of the reform becomes even clearer if one looks at the fact that the political reform has been generally limited to administrative matters which have impacts on economic development, such as decentralization of economic managerial authority to increase efficiency, institutional reorganization to reduce overlapping decision-making, and professionalization of government cadres to accomodate them to the mod- ernization program.

Contrary to the party's original intention, however, since the reform the central leadership has gradually lost its control on many occasions where authorities at subsystem levels have been well positioned to turn new rules to their own advantage. In David Lampton's term, a "cellular polity" is emerging in China todayY As the central government concedes certain powers to subsystems, the latter have begun to exercise autonomous power far beyond the center's control. Their policies sometimes not only divert from those of the center but directly contradict the center's interest. In other words, under the "cellular polity" the authority in China has become so fragmented structurally and functionally that it becomes very difficult for the party center to unify or integrate policies.

The cellularization of the state organization is first ladership characterized by proliferation of various institutions. Throughout the reform period, the center has made great effort to streamline organizations at the center, but its "organizational simplification" campaigns have a lesser impact on the local levels.

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Local governments have been reluctant to cut down their administrative bud- get. After each simplification campaign, their agencies were usually restored much faster than those at the center. According to recent statistics, 14 there are altogether more than 30,000 government agencies at the country level and above; most provincial governments exceed the authorized size by an average of 15 agencies; the situation at the lower levels of government is even worse.

A second indication of the cellular polity is the dramatic increase of administrative corporations created by ministries, bureaus, and other administrative units which have tried to diversify themselves, and various social and cultural associations established to protect and promote professional interests. These quasi-government institutions are even less controllable. As "economic enti- ties," they enjoy many administrative and economic prerogatives and, therefore, have their own economic interests to defend. Thus, it is not surprising to find that many organizations and localities become more and more reluctant to share resources with each other. They resort to various methods, legal and illegal, to protect their own markets. Man-made regulatory barriers include road- blocks, cargo seizures, and even direct highway robbery. "Although central authorities use the words 'independent kingdom' (duli wangguo) as a term of reproach, it is the sacred objective of every unit and territorial jurisdiction to achieve precisely this freedom of action. ''15

More important, however, is the increase of power abuses at subsystem levels which has accompanied the cellularization of the political system. With subsystem autonomy granted, more opportunities become available for various organizational and territorial players to seek private gain. With local interest having developed, the necessity of using these opportunities also increases. One of the most obvious areas is the misappropriation of public funds. In recent years, though the central government has made numerous pleas to save money, energy and other production materials, cases of misappropriation have frequently occurred. Local governments continue to spend large sums in importing luxury automobiles regardless of the fact that the country is in a shortage of foreign currency. Government officials often spend public funds on junkets in the name of inspection. ~6 Holding banquets at public expense has also become very common. It was reported that in 1988, 60-70% of the incomes of the large- and medium sized restaurants throughout the country came from banquets held at public expense. 17 Here are just a few statistics: in about 50 days in early 1987 (around the New Year and the Chinese Spring Festival), 400 work units held banquets with public funds with a total cost of approximately 410,000 yuan at nine first-class restaurants in Shanghai; TM according to a survey by Hunan Provincial Supervisory Department, in a half month from December 1 to 15, 1989, 34 work units used public funds for banquets on 92 occasions. 19

The central government has also been very upset by the practice of "small treasuries" (xiaojinku), referring to secret accounts set up by local units

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through misappropriation of state-allocated funds, extra charges of services and other illegal channels. The official view identifies these "small treasuries" with corruption because they contain illegal funds. Equally annoying to the center is that these "small treasuries" have caused a drain on state revenues since the funds are usually improperly spent. As reported by the Xinhua News Agency, 2~ for example, the Kaili Typing and Printing House in Shanghai cheat- ed the state out of more than 32,000 yuan by falsely reporting the number of staff members and workers and then putting the money into its "small trea- sury" for drinking and dining. When it was discovered, there was only 1,241 yuan left. In October 1989, the Petroleum and Natural Gas Corporation of China discovered that the "small treasuries" run by its subordinate units had taken 7,196 million yuan of state distributed funds for their own use. zl

Another commonly perceived corrupt act is the building of private houses with public welfare funds. Since 1986, 90% of the cities and counties throughout the country have disclosed cases of this nature, involving 20,100 cadres. In order to build houses for themselves or their children, some cadres take posses- sion of public production bases; others take advantage of their power to get labor and materials without compensation; still others simply use public or collective funds to buy private hourses. For example, Wang Qinghai, deputy chief of Shenyang Municipal Farm Machinery and Automobile Industrial Bureau, spent 56,000 yuan of public funds refurnishing his private house. 22 A vice chairman of a county's People's Congress Standing Committee in Guangdong built a house with 12 rooms and 4 sitting rooms for his family of four, with a per capita floor space of 106 square meters. 23 In some counties, about 98% of cadres built apartments of their own at public expense. 24 People call those places where cadres' private houses are located as "cadres' special zone" (ganbu tequ) or "cadre street" (ganbujie), or "official residence street" (guanfujie)Y

Surely, these practices also existed in pre-reform China. But when everything was under the strict central control, the opportunities for local power abuse were limited while "transaction costs" (i.e., risks) could be very high. In the reform context, subsystem autonomy increases the opportunities for corruption, while the chance of being caught is reduced due to the development of the "cellular polity."

Economic decentralization and patron-client relations

Since the reform, the most noticeable changes have taken place in the economic sphere, as the reformers seek to invigorate enterprises by relieving them of previous dependence upon the government, whereas before the reform enterprises in China were appendages to administrative organs and deprived of independent decision making power. The center has gradually relaxed its control

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over resource allocation, given great autonomy to local authorities to direct investment, and decentralized its managerial power over enterprises. Among others, one important measure is to distinguish ownership (suoyouquan) from management (l'ingyingquan). The State Council's "Provisional Regulations on Further Extending the Decision-Making Power of State Industrial Enterprises" in 1984 set a series of policies in this regard. According to the document, though enterprises were owned by the state, they enjoyed important operational rights to produce for the market after fulfilling their quotas; to sell these products as well as overstocked items and goods rejected by state purchasing agencies; to negotiate the price of marketed goods with purchasers; to choose their suppliers of state distributed materials; and to bypass the state distribution network and buy raw materials directly from producers. Other expanded powers involved the use of retained profits, and leasing and sale of surplus equipment, personnel and wage matters, and the formation of joint ventures that cut across official administrative divisions, z6 These discretionary powers aimed to enhance the managerial ability of local authorities and turn enterprises into "independent management units" (duli jingyin danwei).

The center's ability to intervene in micro-economic management has been further undermined by the contract system implemented since 1984. According to official statistics, by December 1988 more than 90% of state enterprises had, in varying degrees, practiced the contract system. 27 Under the contract system, the state contracts enterprises out to collectives or individuals who undertake full responsibility for any losses induced by ill-management; the contractor is required to turn over to the state only a fixed proportion of his or her profits, as set by the contract, and may retain the rest. China's reformers believe that the contract system is an effective way to "organizationally combine power, benefits, and responsibilities in an enterprise. ''2s The shareholding system which emerged recently represents an even bolder step to separate the government from enterprises. But it is still in the so-called "experimental stage" and therefore limited in scope.

However, decentralization of state power does not increase the autonomy of society, as commonly expected. This is because the limited autonomy of society in China is not entirely the result of a strong state. It should also be attributed to the fact that people are well organized into all-inclusive work units, where the state penetrates society. The work-unit system has subjected individuals to in- doctrination, surveillance, and administrative distribution of welfare within their own work units. To apply for the party membership and for promotion, to get a marriage certificate, to rent an apartment, to divorce, to give birth, to go abroad, all these cannot be done without the approval of one's work unit. This has then created what Andrew Walder calls "organized dependence": workers are economically, politically, and personally dependent on their work units and their supervisors. 29

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The decentralization reform has made the center rely more on local cadres to implement its routine control, thus freeing the latter from possible sanctions. It has also increased the scope of resources and benefits at local disposal. Since the reform, the proportion of profits actually retained by enterprises has increased steadily through three important measures - profit retention (lirun li- ucheng), profit contract (lirun chengbao), and tax for profit (ligaishui).30 Man- agers have been allowed to distribute bonuses out of their retained profits to reward hard workers. With the retained profits, they are now able to do many things for their employees, such as expanding their residences, creating jobs for their relatives, establishing daycare centers or kindergartens for their children, and even providing repair services for their employees. 31 Whether all these can provide strong incentives for workers to work hard remains to be seen, but they do make workers dependent upon their work units for more welfare and ex- pand the resources at local managers' disposal.

In rural areas, it is true that the household responsibility system leaves the ultimate responsibility for production, sales, and consumption of grain with each individual household. However, rural cadres maintain crucial power such as granting licenses, distributing scarce or rationed production materials, in- terpreting governmental policies, and securing loans. As Jean Oi reveals, these powers enable rural cadres to "engage in activities ranging from illegally with- holding a portion of peasant receipts from sales to the state, to imposing ad hoc surcharges, to extorting money from peasants at the purchasing station. ''32 Ac- cording to a report from the Ministry of Agriculture, for example, in recent years many farmers were asked to pay about 10% of their annual income, in addition to taxes and dues, to collectors of various funds. As a result, the State Council had to issue the Regulations on the Management and Supervision of Financial Levies and Labor Duties for Farmers in December 1991, to limit the amount of all fees a farmer paid to 5% of his/her annual income. Based on the regulations, Sichuan farmers recently sued the local authorities and got back illegally charged payments worth 50,000 y u a n . 33

An unintended consequence of the amplification of local powers as such is the revival of patron-client networks in China. Though patron-client networks existed in the pre-reform period, the contextual meanings were different. Guenther Roth distinguishes two types of patrimonial relationships: one based on belief in the ruler's unique personal qualification, and the other on tempta- tion of material r e w a r d s . 34 What we have seen in the reform period has come increase of the latter, as the material rewards at the disposal of local authorities expanded. Now in many cases, individual cadres exercise personalized authority legitimated by the "director responsibility system" and the "contract system. ''35 They act as patrons to give clients favored treatment or economic pun- ishment based on the latter's performance, while workers act as clients who try to maintain good relations with cadres in order to secure material benefits and

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personal favors. Patron-client ties also exist between cadres. Basic-level cadres often fall into the client role in front of higher level cadres.

Worse yet, together with the development of patron-client relations has come an increase of bribery activities. Clients often need to establish special connections (quanxi) through bribery in order to achieve good treatment. 36 For example, in Guangdong, two small companies spent more than 600,000 yuan on gifts and banquets in two years to bribe concerned government officials in order to secure loans. 37 Another example involved a district commissioner who was offered 19 banquets and 25 different gifts in a two-month local inspection tour. 38

In recent years, extortion of gifts or other forms of returns from local clients have also become common practices of corruption. This is because as individual units and cadres suddenly realize that the scope of resources at their disposal has expanded and opportunities for privileges and profits have increased, those officials who cannot charge money for their services find it imperative to develop non-monetary costs to impose on their clients. Anthony Downs calls this the Law of Non-Money Pricing. 39 Thus, many officials act not only as bribe-takers but also as bribe-seekers. For instance, as the reform allows enterprises to sell their above-quota products, many individual cadres use this opportunity to seek personal gains. When yarn and cloth were in a shortage several years ago, Xiong Jiaqing, the former head of Shenyang Textile Factory, extorted a good many gifts including jewelry, televisions, VCRs (worth more than 200,000 yuan) from his customers for selling them yarn and cloth produced by his factory. 4~ Private or collective enterprises are usually more vulnerable to extortion. These businesses, usually small and weak, are often forced by corrupt officials to engage in bribery in order to stay in business. For example, a private restaurant owner had to provide free dinners and gifts for officials who signed a lease to him. 41 Another interesting case was that of Gao Yuncong, the secretary of Jill District Party Committee of Luoyang City, Hunan. He forced Jill Chemi- cal Factory to buy houses, cars, and color television sets for him. When the factory refused, he instructed the local procuratorial organ to sue the factory for non-existent "problems." In the process, the procurator even summoned peasants taking part in construction of the factory and tortured them to extort confessions. 42

Partial market reform and official speculation

As we mentioned, since the reform the Chinese leadership has taken a series of measures to enliven the stagnant economy tied up by the rigid state planning system. These include the institutionalization of a household responsibility system in rural areas; the reduction of procurement quotas on enterprises; the loosening of price controls on an increasingly large number of products; the

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expansion of enterprise power regarding wages, employment, trade and fi- nance; and the revitalization of private businesses. However, the leadership never intended to totally give up the state planning system. Although China's reformers openly admitted the importance of the market for China, the con- cept of"market economy" as a characterization of China's reform was not for- mally endorsed until the 14th Party Congress in October, 1992. For more than a decade, the relationship between market and state planning remained vague, as the Chinese economy was frequently referred to as "socialist planned commod- ity economy" (shehuizhuyi jihuaxiade shangpinjingji). As a result, the well- known "dual-track phenomena" emerged. Here are just a few examples:

- In the same workshop, for the same job, operating the same machine, there are two types of workers, one holds the job for life under the state job assignment system; the other is a contract worker who is hired by the factory for a certain term and on different pay and benefits systems.

- In the same steel plant, there are two prices - the state-set price and the above-quota market price - for the same product. The gap between the two could be as high as 1:2. 43

- People have started to develop dual-track vocations. During daytime, they work in factories. In the evenings, they become vendors, bicycle repair- men, hairdressers, taxi-drivers, etc. Sometimes about 50% of a person's income comes from his or her "second vocation." There are also "Sunday engineers," who work for their own factories or institutes on workdays and for some small collective enterprises during weekends.

- Some cadres are appointed through traditional procedures, whereas others have to compete for government jobs through competitive exam- inations.

- Students enrolled in the same universities are put under different systems. Those extra-quota enrolled students have to pay tuition and other expens- es by themselves or through their work units. Others enjoy completely free education. 44

The dual-track system has revitalized Chinese society by bringing more opportunities to people. However, chance usually favors party cadres and their networks. The association between the dual-track price system and official speculation is very illustrative in this regard.

Under the dual-track price system there is a mixture of several forms of prices - the state-set price, the floating price, and the market price. In theory, these prices are restricted to their respective spheres: state-set prices for the materials or products distributed or produced according to mandatory planning; floating prices for those under guidance planning; and market prices for the materials and products not subject to state control. Such an arrangement, indeed, has

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injected momentum into the economy. From 1984 to 1987, for example, China's steel plants altogether ralsed 12.4 billion yuan of funds for reinvestment by selling extra-quota products at floating prices. However, the system has also bene- fited those cadres who act as go-betweens in market exchanges. These cadres connect suppliers and consumers and extract high rents for themselves. In recent years, tens of thousands of administrative corporations have emerged to promote their business in the cracks between plan and market. The term "official speculation" (guandao) has thus developed to describe the buying and reselling practice conducted by these corporations- a novel but pervasive corruption practice in today's China.

The reform period has witnessed two major "corporation fads. ''4s The first one occurred in 1985 when the number of administrative corporations of various types all over the country totalled about 320,000. Of these corporations, quite a few were speculative briefcase companies without funds or equipment; some even did not have a fixed address. Through screening and consolidation, the number was reduced to 180,000 in 1986. 46 A second fad took place between 1987 and 1988 when the total number of corporations reached about 477,000, with an average of more than 100,000 new corporations emerging each year. 47 The corporations which emerged this time had several new characteristics: 1) most of them were run directly by government agencies; for example, the central ministries and commissions under the State Council alone operated about 700 companies; 2) they engaged many state officials and even some high ranking officials; according to statistics, about 47,900 cadres concurrently held posi- tions in government agencies and corporations, and of them, 246 were cadres at ministerial or provincial level, 2,324 were bureau heads, and 8,193 were division cadres; 48 and 3) many of these corporations were run by retired cadres who held considerable "residual power" or by children of high ranking o f f i c i a l s . 49

The prevalence of administrative corporations was actually encouraged by certain government policies. One is the policy of "creative earning" (chuang- shou). In order to accommodate government units to the market situation, the Chinese government urged all of them - especially those solely relying on government funds - to make money and, therefore, to reduce the government's financial burden. According to official rules, all the sideline earnings could be used by these work units to develop themselves or promote the welfare of their employees. This provided many government institutions with incentives to establish corporations of their own. The government also encouraged its local units to create corporations to reemploy personnel who were released by streamlining institutions, and old cadres who reached retirement ages but still wanted to remain to "bring their residual heat into play" (fahui yure).

However, the party center never anticipated that some of these corporations encouraged by its policies would become the transaction channels between power and wealth or that the proliferation of administrative corporations

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would trigger the practice of official speculation. Here is how the speculative activities take place: since administrative corporations are usually run by government cadres or their relatives, they are able to get state-controlled materials or products at cheaper (i.e., state-set) prices and then resell these goods to local or private enterprises at much higher (i.e., market) prices. A transaction like this can bring these corporations or concerned individual cadres staggering profits. For example, a manager working for a trading center in Xuzhou city was able to make 14,000 yuan profit by reselling 18,000 tons of state-priced coal to local companies, s~ The Qingdao Hardware Wholesale Corporation got a total of more than 1,346,000 yuan through buying and reselling some 23 million tons of state planned products such as wire rods, round steel, and rolled plate. 51

Official speculation usually involves more than just one transaction. Also, in a chain of transactions there is more than just one profiteer. As each transaction drives up the price a bit, the whole process can lead to a very high price for that material. For example, a steel pipe plant in Nanjing bought thousands tons of steel plate through its "back door" connections at a cheaper price and then sold them to 31 small factories for a profit of 1,350,000 yuan. Equally motivated by profit, these small factories resold the plate instead of using it for production. The same process went on until after 129 transactions, the price of the plate was raised from 1,750 yuan to 4,600 yuan per ton. 52 It was not a surprise either that in 1988 the price for aluminium, originally priced at 6,000 per ton, finally reached over 14,000 yuan after many speculative transactions. 53

Official speculation also takes the form of selling "purchase quotas" or "approval notices" issued by the government to allow certain factories to purchase much-needed materials or products. These documents become saleable as they fall into the hands of administrative corporations. In 1988, for example, a corporation in Heyuan Country made a profit of 560,000 yuan by selling 13 approval notices for purchasing a kind of imported plastic material. 54 Other documents such as employment quota, production contract, and exit permits 55 also become profitable. A cadre in the Labor Department of Huhehaote city was found to have received 33,650 yuan by selling employment quotas) 6 There are also numerous cases of how construction companies profiteered from subcontracting construction projects to those who had offered bribes. In Shanghai, for example, a district official got more than 10,000 yuan in bribes from those who were competing for contractingY O n many occasions, indeed, official speculation does not need any financial investment. What profiteers have are power and connections. Sometimes, a telephone call or a note can lead to a deal worth hundreds of thousands yuan. In China today, the secret of business success is thus summarized by many as "money (used for bribery)+ face (human relationships and connections)+ note (approval notices and documents)."

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Conclusion

It is obvious from the foregoing that a paradox exists in China: fourteen years of reform have had close bearing on the level and form of corruption. This has been reflected in three aspects. First, some persistent patterns of corruption such as misappropriation of public funds become even more pervasive. Second- ly, some old corruption practices such as patron-client networks have revived with different contextual meanings. Thirdly, some new forms of corruption such as official speculation have surfaced. Rampant corruption in China has discredited the leadership in popular eyes; it has also impeded the reform because many reform policies are diluted to accord with local and individual interests.

The question remains, however, who is to blame? Is there too much reform? If not, what is behind the seemingly close relationship between reform and corruption? The findings of this article suggest that though more opportunities for corruption have emerged during the reform, they come as unintended con-

sequences of reform policies. There is nothing wrong with these reform policies, given the ultimate goal of "four modernizations," and given the rigid central- ization of China's previous state planning system: it is necessary to encourage subsystem autonomy, to decentralize managerial power, and to incorporate market mechanisms into the state planning system. However, decisionmakers' immediate concern over the stagnant economy and therefore the necessity of revitalizing society made them overlook some possible byproducts of these reform policies. This is evident in the case of subsystem autonomy and economic decentralization. The party center intended its disengagement from daily administration to make its leadership more efficient and effective, but what actually happened was the weakening of its political control over localities and an increase of local power abuse. It also expected the decentralization of managerial power to provide strong incentives for the market, but surprisingly saw the revival of patron-client networks. Finally, the interaction of co-existing con- tradictory policies also brought unintended consequences. The impact of the "dual-track price system" on corruption is quite telling in this regard, as it en- ables speculative corporations to reap profits in the disparities between state- set price and the market price.

Admitting the unintendedness of corruption does not mean that corruption is irreducible or uncontrollable, however. On the contrary, identifying corruption with unintended policy outcomes makes it possible to talk about reducing corruption in practical terms, since it de-links corruption from particular cultural patterns or inherited social properties. It reminds policy makers of the importance of a balanced reform agenda. In China, the problem is that reformers have not developed sufficient mechanisms to counteract unintended policy consequences which come along with intended reform policies. For example,

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when subsystem autonomy was granted, alternative checks on excessive local power were not established; when "creative earning" was encouraged, the state lacked regulations to prevent corporations from illegal trading. Thus, as Jean Oi correctly points out, the problem is not too much reform but the incomplete- ness of the reform s8

While continuing the market-oriented reform, China needs to establish institutional mechanisms within its society as well as the state to better detect and correct the unintended consequences of policy-making. The Chinese Commu- nist Party, as the ruling party, should take the responsibility for better policies in the first place. However, as a social and political agent with its own clear agenda to rule and restructure society, the party may not be able to (and may sometimes not care to) contain the unintended consequences of its policies. Propos- als to prevent corruption may be selected in terms of their impact on other policy goals. The job is therefore left for independent political institutions and social forces to check the party power which, if left unmonitored, can easily become entrenched, all-encompassing, and a source of corruption.

Chinese society should also develop a greater awareness of and responsibility for the issue of corruption from its grass-roots level. In China, in many circumstances, the feeling of powerlessness leads the public to accept corruption as inevitable though not desirable. To change the situation, China should increase public scrutiny of the political process, give the press more freedom, and, in the final analysis, democratize its political system to allow effective public participation and surveillance.

In short, China needs not only bold economic innovations towards a market economy, but also comprehensive political reforms to install effective control over power holders. Decentralization without democratization can only leave economic reforms vulnerable to power abuse.

Acknowledgements

The author wishes to thank John Nagle, Lily H.M. Ling, and David Rosen- bloom for their comments on an early version of this article. Any errors con- tained within, however, are the sole responsibility of the author.

Notes and references

1. See, for example, Robert K. Merton, "The Unanticipated Consequences of Purposive Social Action," American Sociological Review, No. 1 (1939), pp. 894-904; Mancur Olson Jr. (ed.), The Logic of Collective Action: Public Goods and the Theory of Groups (Harvard University Press, 1965); Raymond Boudon, Unintended Consequences of SocialAction (New York: St. Martin's

325

Press, 1982); Anthony Giddens, The Constitution of Society: Introduction of the Theory of Structuration (Berkeley, Calif.: University of California Press, 1984).

2. This term has been used by Anthony Giddens and others to refer to what actors know (or believe) about the circumstances of their actions and those of others (see Giddens, 1984, p. 375). This word is considered better than "rationality", which connotes reasoning and calcula- tion and which may not be present in all cases.

3. Merton, (1936), p. 901, 4. Aaron Wildavsky, Speaking Truth to Power: the Art and Graft of Policy Analysis (New Brun-

swick, NJ: Transaction Books, 1987), p. 62. 5. This study adopts J.S. Nye's definition of corruption as "behavior which deviates from the

normal duties of a public role because of private-regarding (personal, close family, private cliques) pecuniary or status gains; or violates rules against the exercise of certain types of private-regarding influence." See Joseph S. Nye " Corruption and Political Development: A Cost-Benefit Analysis," American Political Science Review, No. 61, 1967.

6. Deng Xiaoping, "The Reform of the Leadership System of the Party and State," Selected Es- says ofDeng Xiaoping (Beijing: Foreign Language Press, 1984), p. 312.

7. See Zhao Ziyang's Speech on the Preliminary Meeting of the Seventh Plenary Session of the 12th Chinese Communist Party Central Committee (Renmin Ribao - People's Daily, 11 No- vember 1987).

8. Renmin Ribao, 20 July 1983. 9. Jiang Yiwei, "Overall Reorganization is a Constructive Reorganization," (Part III), Jingji

Guanli, No. 5 (1982), p. 6. 10. Deng Xiaoping, "The Reform of.. ." (note 12), p. 324. 11. Benjamin Ward, "Forty Years of Chinese Socialism," in Joyce K. Kallgren (ed.), Building a

Nation-State: China afterForty (Berkeley, Calif.: Institute of East Asian Studies, 1990), p. 119. 12. Yun Xiliang, Hongqi, No. 12 (1980), pp. 22-28. 13. David M. Lampton (ed.), Policy Implementation in Post-Mao China. Berkeley (Calif.: Uni-

versity of California Press, 1987), pp. 14-17. 14. Liao Wang, 21 September 1992, p. 3. 15. David Lampton, (1987), p. 15. 16. As reported, for instance, a group of six officials went to six work units to examine product

quality. Their one-month stay cost these units 42,900 yuan (excluding lodging of 12,500 yuan). Of the sum, banquets alone cost more than 11,700 yuan. Apart from this each member of the group received presents worth 1,100 yuan (Jiefang Ribao - Liberation Daily, 20 April 1989).

17. Foreign Broadcasting Information Service, China (FBIS), 22 March 1990, pp. 24-25. 18. Su Ya and Jia Lushen, Who Is Able to Contract? (in Chinese) (Guangdong: Huacheng Press,

1990), p. 110. 19. Ming Bao, 22 March 1990. 20. FBIS, 29 November 1989, p. 30. 21. Ibid. 22. Renmin Ribao, 13 June 1989. 23. FBIS, 8 August 1989, p. 22. 24. Ibid. 25. Hu Xiaohan, "An examination of Private Houses" (in Chinese), Raicanxuanbian, No. 254

(1989), pp. 17-20. 26. Fordetailsofthesepolicies, see The Selected lmportant Works Since the Third Plenary Session

of the Eleventh Chinese Communist Party Central Committee (Beijing: People's Publishing House, 1987), pp. 207-210.

27. Shijie Jingji Daobao (World Economic Herald), 19 December 1988. 28. Liu Guangdi, "On the Experiment of the CSIS," in Reflections on Rural and Urban Reform,

326

edited by The Central Party School and the State Commission of Economic System Reform (Beijing: Economic Science Press, 1987), p. 152.

29. Andrew G. Walder, Communist Neo-Traditionalism: Work and Authority in Chinese Industry (Berkeley, Calif.: University of California Press, 1986), p. 13.

30. See, Wang Hongmo, et al., The Course of Reform and Openness (Henan: Henan People's Pub- lishing House, 1989).

31. Some analyses consider it a mystery why Chinese managers are so anxious to keep their workers happy. A possible reason is, since the cadre system reform, the political "survival" of basic- level cadres (i.e., their continuing to stay in power) not only relies on their loyalty to the center, but also (perhaps more importantly) depends on their job performance decided by mass as- sessment and economic productivity of their work unit. For instance, see Susan Shirk, "The Politics of Industrial Reform," in Elizabeth J. Perry and Christine Wong (eds.), 7"he Political Economy of Reform in Post-Mao China (Cambridge: Harvard University Press, 1985), p. 202.

32. Jean Oi, State and Peasant in Contemporary China: The Political Economy of Village Govern- ment (Berkeley, Calif.: University of California Press, 1989), p. 227.

33. China Daily, 14 September 1992. 34. Guenther Roth, "Personal Relationship, Patrimonialism, and Empire Building," in R. Bendix

and G. Roth (eds.), Scholarship and Partisanship (Berkeley, Calif.: University of California Press, 1977), pp. 156-169; also quoted in Barrett L. McCormick, Political Reform in Post-Mao China: Democracy and Bureaucracy in a Leninist State (Berkeley, Calif.: University of Cali- fornia Press, 1990), p. 20.

35. This is because both systems hold individual cadres responsible for the making and execution of enterprise policies.

36. Jean Oi (1989, p. 128-130) has a nice discussion of the patronage relationship between brigade leaders and team leaders in China's rural areas.

37. Wang Jinye, "China's Loudou Phenomena" (in Chinese), Liao Wang, No. 36 (1989), pp. 6-7. 38. Renmin Ribao, 2 June 1989. 39. Anthony Downs, Inside Bureaucracy (Boston: Little & Brown, 1967), p. 188. 40. Wu Haimin, The Republic Gave An Ultimatum: How 50,000 Corrupt Officials Turned Them-

selves In (in Chinese) (Beijing: Xueyang Publisher, 1990), p. 73. 41. China Daily, 30 June 1987. 42. Renmin Ribao, 22 July 1988. 43. For example, in 1987, the state price for a ton of thread rolled steel was about 700 yuan, whereas

the non-planning price was 1,400. Of the 43.85 million tons of steel produced that year, 22.8 million tons (52%) were distributed at the state-fixed price; the prices of the rest were simply determined by the market (Yang, 1988: 10).

44. Yang Jisheng, "The Dual-Track Phenomena" (in Chinese), Liao Wang, No. 37 (1988), pp. lO-2. 45. As I am writing this article, another wave of creating corporations is underway. It was stimulat-

ed by Deng Xiaoping's much-publicized tour of the southern "special economic zones" in January and February, 1992. The trip signaled Deng's determination to end the party's preoc- cupation with ideology in favor of a new emphasis on economic development. Soon after the tour, the party's central committee issued a statement promising to continue reform policy for 100 years. As the party leadership appeared more willing to accept those market mechanisms such as free price and private enterprise, more and more people began to practice "capitalism"

- setting up private shops, enterprises, and corporations. It was reported that in Beijing alone, more than 2,000 new businesses emerged each month in early 1992; by the end of July, Beijing Bureau of Industry and Commerce had run out of business licenses (Open Magazine, August, 1992, p. 26). Different from the previous "fads", however, this wave involves not only government cadres but also ordinary people. It is too early to tell the impact of this new development on China's economy. This paper therefore does not include a discussion on this subject.

327

46. Renmin R!bao, 7 July 1990. 47. Ibid. 48. Renmin Ribao, 30 August 1989. 49. For example, Deng Xiaoping's son was once the chairman of the board of the Kang Hua Devel-

opment General Corporation. The corporation had 171 subsidiaries. Many of them were found engaging in illicit activities, such as tax evasion, speculation on scarce resources, profiteering from importing limousines. The corporation was disbanded during the campaign of cleaning corporations in 1989 (Remnin Ribao, 31 July & 1 August 1989). It was reported that other party and state leaders such as former party general secretary, Zhao Ziyang, former chairman of the National People's Congress, Peng Zen, and former members of the party's politburo, Hu Qiao- mu, all had children engaging in business (Zhengming 3.1988).

50. Renmin Ribao, 14 May 1989. 51. FBIS, 28 October 1988, p. 49. 52. Renmin Ribao, 22 June 1988. 53. Renmin Ribao, 22 November 1988. 54. As a special measure of control after the June 4th Incident, Chinese people who are going

abroad must apply for "exit permit" from the government. 55. Wenhui Bao, 23 June 1989. 56. See, for example, Wenhui Bao, 13 November 1988; Fazhi Ribao, 21 November 1990. 57. Jean Oi, "Partial Market Reform and Corruption in Rural China," in Richard Baum (ed.),

Reform and Reaction in Post-Mao China: The Road to Tiananmen (New York: Routledge, Chapman and Hall, Inc., 1991), pp. 143-161.

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Corruption and reform in China: An analysis of unintended consequences