Thursday, August 21, 2014
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Wooing China’s Princelings

CLAREMONT, CALIFORNIA – China’s “princelings” – the offspring of senior Chinese officials who benefit from lavish privileges in education, employment, and business – are coming under scrutiny as never before. Bo Xilai, the son of one of Mao’s comrades and a supposed “immortal” of the revolution, was recently sentenced to life in prison after his conviction on charges of corruption and abuse of power.

Outside China, princelings are feeling the heat as well. Not long ago, the United States Securities and Exchange Commission announced that it was investigating JPMorgan Chase’s hiring of princelings in Hong Kong, who apparently delivered lucrative underwriting deals for the bank.

While recent scandals have put China’s princelings under a harsh media spotlight, they have been hot commodities for Western companies seeking to capitalize on their guanxi (connections) in order to secure multi-billion dollar transactions. The list of financial institutions that have engaged in such hiring practices reads like a who’s who of investment banking.

Of course, it is premature to conclude that JPMorgan violated the US Foreign Corrupt Practices Act by employing children of Chinese officials who oversaw companies that retained the bank to underwrite their stock offerings. Nonetheless, the case highlights a broader trend: the wooing of China’s princelings by prestigious Western educational institutions and businesses for the purpose of advancing their parochial interests in the burgeoning Chinese market.

The unseemly race to recruit princelings starts at the world’s leading colleges and universities. Because China has no universities that rival the Ivy League or Oxford and Cambridge, senior Chinese officials prefer to send their children to these schools.

Given the opacity surrounding admission to these highly selective institutions (where the acceptance rate typically is as low as around 8%), it is impossible to tell whether princelings get in on the basis of merit or family background. But it is notable that princelings are not found in the most prestigious doctoral programs, where professors, not administrators, make admissions decisions. Likewise, MIT and Caltech, where only the truly gifted survive, have a dearth of princelings.

Indeed, the sheer number of princelings, including children of incumbent Chinese leaders, now attending Ivy League universities clearly points to the importance of family ties. President Xi Jinping’s daughter, for example, studies at Harvard under an assumed name, and Bo Xilai’s son has been a student at Oxford and Harvard’s Kennedy School of Government; he is now studying at Columbia Law School.

Simply put, elite Western colleges and universities, having identified China as a top market for fund-raising and high-end network-building, regard the princelings as a valuable investment. Nurturing ties with China’s political elite is good business, and the princelings can help open doors.

But preferential treatment for princelings at elite universities (and business schools) has real social costs, because admission to these institutions is zero-sum. A place awarded to a less-qualified princeling is a place denied to a more qualified applicant.

Worse still, this injustice is self-perpetuating. Western investment banks and multinationals can use princelings’ elite academic credentials to justify hiring them, even if the real reason is the hope that putting a princeling on the payroll will give the company a rainmaker in China.

Defenders of this practice insist that princelings are well educated and highly qualified. Undoubtedly, some of them are; but many are not. Apologists also claim that nepotism is universal, citing examples of children of American politicians and business leaders who have graduated from Ivy League universities and secured coveted private-sector jobs.

But hiring Chinese princelings is not the moral equivalent of American-style nepotism. The political and social environments in which the two practices occur are completely different. In the US, nepotism is difficult to hide, and public scrutiny helps to check its most blatant manifestations. The democratic process, particularly the role played by a free press, constrains rent-seeking by children of government officials.

In China, by contrast, pervasive corruption, the absence of a free press, and state capitalism mean that princelings’ conduct is unconstrained – and typically shrouded in secrecy. Chinese censors methodically suppress news coverage of princelings’ business dealings. Most important, as part of its strategy for regime survival, the Chinese Communist Party favors princelings for appointments in government and state-owned enterprises.

Now, in the wake of Bo’s fall from grace, and in light of the controversy over JPMorgan’s hiring of Chinese princelings, Western academic and business leaders must ask themselves a tough question: Do they want to be complicit in helping the Party perpetuate its hereditary rule?

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