Graft or Growth in China?

BEIJING – Chinese President Xi Jinping’s anti-corruption campaign, which has already brought down many high-ranking “tigers” in the government, has been widely touted as a key component of the deep structural reforms that China needs if it is to build a more sustainable, inclusive, and market-based economy. But worries abound that, in a country where government officials play a major role in promoting economic growth, rooting out corruption might undermine prosperity.

Some have cited the recent struggles of luxury hotels and restaurants (which, in China, are supported largely by government spending) as evidence that the anti-corruption campaign is discouraging growth-enhancing activity. But the decline is likely to be temporary, with new customers emerging after a period of adjustment.

A more credible concern is whether efforts to root out corruption weaken the incentive for government officials to promote growth. After all, high levels of growth translate into large rents that can, through corrupt practices, be distributed to the officials themselves, as well as to their friends and protégé. Eliminate such practices, the logic goes, and officials will be unable to reap large rewards from economic growth – and thus will be less motivated to encourage it.

But this argument is far from airtight. Among the most common forms of corruption is the “sale” of government positions – a practice that has little to do with growth, especially when it is conducted by high-ranking officers in the army, such as the Peoples’ Liberation Army generals who have been arrested during the campaign for trading promotions for bribes.