China’s crackdown on corruption is no longer a campaign but a part of its system. After purging nearly 5 million individuals, mostly party officials, over the past 10 years, Xi Jinping this month proclaimed “overwhelming victory”. Nonetheless, he’s doubling down on the fight and the decision could come at a heavy cost for the world’s second largest economy.
Xi has made progress cleaning up by Western standards, even if his efforts also helped him to remove opponents as such campaigns often do in emerging markets. China’s score on the Corruption Perceptions Index compiled by Transparency International has improved six points to 45. The gain is one point more than in lower-scoring India over the same period. Ironically, the United States has declined 4 points to 69. The index maker attributes America’s worsening position to factors including poor oversight of pandemic-related financial aid.
Xi admits the situation in the People’s Republic remains “grave and complex”. The Central Commission for Discipline Inspection (CCDI), a feared watchdog, investigated 45 senior officials last year. Among them, top executives in the central bank and state lenders. Former Bank of China (601988.SS), (3988.HK) Chairman Liu Liange was sacked last year following a CCDI probe. Their annual anti-corruption documentary, aired this month, features Li Tie, former coach of the men’s football team, who admits to offering bribes to players to throw key matches.
China’s leader is now asking officials to deepen their cleanup efforts in areas where power is concentrated and capital is intensive, including the $63 trillion finance sector which has been a target since 2019. Earlier this week, he reiterated to party cadres that strong regulation and supervision are essential in achieving his goal of turning China into a “financial power”, adding that regulators need to have “long teeth and thorns”. Over the past five years, investigators have initiated nearly 200 investigations, per Gavekal, with every major state bank and regulatory agency being probed. Foreign financial firms will be on their guard too.
Disentangling the impact of Xi’s anti-corruption crackdown on the economy from other initiatives, like his campaign to curb excessive leverage in the property sector, is hard. Yet financiers are already cautious; they are reluctant to lend despite the central government’s directives to boost housing through cheap loans. Growth of lending for non-financial activities such as industrial production and exports slowed from 13.2% in 2018 to 10.4% in 2023. China’s $18 trillion economy is not on top form. Any war against corruption, however well-intended, could become self-defeating.
CONTEXT NEWS
China’s President Xi Jinping on Jan. 16 vowed to accelerate the creation of a modern financial system with Chinese characteristics, the state-run Xinhua News Agency reported. Financial supervision should have “long teeth and thorns”, Xinhua quoted Xi as saying in a speech at the Party School of the CPC Central Committee.
Senior officials of the Central Commission for Discipline Inspection (CCDI), China’s top anti-graft watchdog, concluded the third plenary session of their five-year term on Jan. 10.
Speaking at the three-day gathering, Chinese President Xi Jinping said “an overwhelming victory” has been achieved in the fight against corruption after his anti-graft efforts over the past 10 years. Going forward Xi said it is imperative to further combat corruption in the sectors such as finance, energy and medicine where “capital is intensive, and resources are abundant”, and efforts should be intensified to punish bribe givers.
The CCDI launched investigations into a record 45 senior officials in 2023, which is 40% higher than 2022, South China Morning Post reported on Jan. 3. The watchdog has investigated 4.39 million cases and punished 4.7 million officials as of April 2022, state-run newspaper Global Times reported in June 2022.
