Corruption Driven Reform: China's Economic Reforms in the Post-Mao Period

Sizing up the Hypotheses

The key question of China’s reforms is straightforward. If there is great political resistance against the reform from below, something must have been responsible for counter-balancing it – but what exactly is this “something?” Here, this paper hypothesizes that corruption, or more specifically opportunities to gain from corruption, is one of the central pieces, if not the central piece of the puzzle. This hypothesis is set in contrast with two other hypotheses, the “local resistance did not matter” null hypothesis and the “political motives” alternate. While the null hypothesis suggests that reform in China would happen regardless of the resistance from local leaders, the second one argues that political incentives of local leaders, as opposed to personal gains, were the main counterbalance of local resistance.

Null Hypothesis: Local resistance did not matter

The paper’s main argument is that evidences from the Chinese Communist Party (CCP)’s struggle for leadership, from the Party’s institutional structure, and from observations of the provinces’ behaviors during the reform mount against the other two hypotheses, leaving the hypothesis in support of corruption’s role as the only logical possibility. Among these two hypotheses, the “local resistance did not matter” view is more multi-faceted; in many ways, it is also easier to dispel.

The basic rationale behind this hypothesis is that decision-making in reform-era China did not allow the interests of the local leaders to be heard. That happened, in turn, because (1) the reform was inevitable given the economic and political situation of China at that moment, or (2) local governments had little influence in the leadership competition process that led to Deng Xiaoping’s rise to power, or finally (3) the central government was so strong vis-à-vis the localities that it could simply do whatever it pleased.

It is not difficult to reject the first rationale. Although the economic situation right before the economic reforms was indeed devastating, reform was by no means the only option toward recovery. Indeed, while the CCP’s elites recognized more than clearly the need to recover from the damages done during the Cultural Revolution through economic progress, “there was no agreement on the means to achieve it” (Shirk, 1993, p. 23). Marketization was one possible choice, but as several members of the elite pointed out, so did the refinement of the Soviet-style central planning system that China had experimented with since its 1953-57 First Five-Year Plan (Shirk, 1993, chapter 2).

This system had historically delivered impressive results, most notable among which was the 10% average annual industrial growth rate from 1949 to 1980 (Shirk, 1993, p. 27; Statistical Yearbook, 1990). What’s more, while the Soviet’s own command economy had begun to slow down by that time, China’s had yet to reach the limits of extent growth, and could deliver even more simply by upgrading the technical planning and managerial capacity (Derngerger, 1986).

The reform was thus anything but an economic inevitability. Nor was it a political one. Commonly, the literature portrays the 1970s struggle for power as a one-sided battle between Hua Guofeng, who lacked legitimacy and who hopelessly clung on his outdated pro-Mao platform, versus Deng Xiaoping, who had in his hand popular support from the elites who wanted a departure from the Cultural Revolution era (Teiwes & Sun, 2011). Although this perspective has quite some truth, the realities of China’s power struggle did not support such a simplistic interpretation. Granted, Hua lacked legitimacy: He was a late joiner (Ting, 1980) and did not belong to the first generation of revolutionaries like Mao, Deng and many others (Vogel, 2011). It is also true that Hua’s power came more from his official titles rather than personal relationships (Vogel, 2011), and that his “two whatevers” policy line (“whatever policy decisions Chairman Mao made,” and “whatever instructions Chairman Mao gave” (Guofeng, 1977) had an unpleasant taste to the party circle, especially after the Cultural Revolution.

Nevertheless, the disadvantage that Hua suffered, while real, was not as big as typically thought. To begin with, while his unprecedented Party positions (as holder of three highest offices in the CCP simultaneously) might not automatically bring legitimacy, they gave him discretionary power over all branches of the CCP and allowed him to intervene in almost every activity of the Party. Even more importantly, despite his humble origins, Hua had amassed for himself some significant achievements and recognition during his brief rule before the 1978 showdown – while Deng at the same time still had to climb his way back from disgrace to a place within the Party elites. These achievements included the reversal of several Mao-era verdicts, the highly-praised ousting of the Gang of Four, and even the opening of China to foreign trade and technology (Ting, 1980).

The last achievement in particular was notable, because while the current literature attributes Deng almost entirely to China’s door-opening policies, it was actually Hua who pioneered the effort through (among other things) his visits to Yugoslavia and Romania, and who received credits for it (Teiwes & Sun, 2011; Vogel, 2011). The hopeless uphill battle between a backward, unpopular Hua Guofeng and a rising Deng Xiaoping was thus more of an exaggeration perpetuated by the hindsight bias of “just [speak] of one person [Deng] for good things and one person [Hua] for bad things” (Teiwes & Sun, 2011) than a true reflection of the balance of power.

Compared to the first rationale of this hypothesis, the second and third were laid on no better foundation. Both arguments rested on the assumption that local politics did not factor in the decision-making of China’s central government. This assumption, however, echoes the outdated “Mao-in-command” model (e.g. Oksenberg, 1971) and the tendency to reduce China’s contemporary politics to a continuation of its historical authoritarian dynastic court. In light of the intra-party’s checks-and-balance of the CCP and China’s territorial politics, one can see how flawed such an assumption is. To begin with, China’s leadership selection structure ensured that local officials would have a say in the matter.

Here, two things should be kept in mind: one, that decision making in the CCP worked through a selectorate, and two, that it rested on the reciprocal accountability between the top leaders and their subordinates (Shirk, 1993). Selectorate refers to the 500-strong top party leaders, with the elders and PLA leaders on the informal side and the Central Committee on the formal side, who had the power to debate and vote on policies, and most importantly reject/approve the top leader candidate that the Poliburo and the preeminent leader suggested. The Central Committee in particular acted as a final veto gate: Though actual power often lied in the hands of the leader and his elder allies, all decisions still had to pass through the ratification of the Central Committee. Thus, in Shirk’s words,

Because the Central Committee holds the formal authority for choosing the leader, even if it only ratifies the choice made in a smoke-filled room in Deng Xiaoping’s house, the people in that smoke-filled room recognize they must pick someone acceptable to the Central Committee…the body is not merely a rubber stamp; the leader chosen must reflect the preferences of the committee. (Shirk, 1993, p. 81)

A look into the composition of this selectorate reveals the importance of local officials. In 1987, for example, provincial and municipal officials occupy 43% of the Central Committee (Shirk, 1993, p. 81), making themselves the largest bloc in the Central Committee.[2] Thus, even though having elite support remained crucial to winning the power competition, at the end of the day, a leader candidate still had to first win the acquiescence, if not approval, of the localities.

The second feature of China’s leadership selection, reciprocal accountability (Shirk, 1993), is an extension of this unique relationship between the Party leaders and its lower echelons. Unlike democracies, where the people elect leaders, and unlike authoritarian regimes, where leaders have ultimate sovereignty and power over the appointment of their subordinates, in China the power to appoint goes both way: Leaders can appoint bureaucrats and local governments, while local officials can also influence the choice of party leaders. With this reciprocal authority came reciprocal accountability: Both the leaders and the officials had to be sensitive of the other’s opinions, and because competition for political leadership could take place any time (Tullock, 1987), the leaders in particular must maintain a healthy relationship with the local officials throughout his tenure. This, again, gave weights to the local government’s voice in the Party’s central politics.

Finally, to suggest that local governments were mere pushovers when it comes to top-down directives from the central government in Beijing is to simplify a much more dynamic central-local relationship that historical evidence had suggested. In fact, a major element of this relationship is conflict. Local governments did not rubber-stamp top down policies; quite the opposite, directives from the top require local compliance. Often, they were also subject to liberal reinterpretation. Thus, in places like Guangdong, local strategy was often described as following a “red light theory:”

Go quickly when the green light is on;
Proceed immediately when the (red) light turns yellow;
Find a bypass route to proceed when the red light is on. (Li, 1998, p. 167)

The Guangdong example showed that locals had the power and tendency to bend central policies to its liking. That has yet to be the limit of the provinces’ capacity. Chang (1978) noted that they could as well bargain actively and effectively with the central government over the terms of their interactions. When the need arose, they were also capable of coordinated resistance against the center. The series of provincial attacks that came in 1976 that criticized the Beijing government for adopting a “vertical dictatorship” was one such example.

These attacks took the form of editorials and articles, and were remarkable for both their tough stance against the central ministries and the high profile of their authors, most of whom were from higher administrative bureaus of provinces and large industrial enterprises (Tong, 1989). What’s more, they were not isolated incidents. The tension between localities and center indeed was so prevalent that it caused a paradigm shift in the Chinese politics literature: Once the dominant perspective in the 60s and 70s, the “Mao-in-command” had to be abandoned in favor of alternate models like “Chinese federalism,” “structuralism” or “factionalism.”3

Alternate Hypothesis and Main Hypothesis: Political versus Corruption Motives

Local resistance mattered. With the doubts of its significance effectively settled, the key question then becomes what account for its negligible impact? In other words, what were the true motives that drove local officials to embrace reform instead of opposing it?

As stated earlier, there are two major answers to this puzzle. A big part of the literature alludes to political incentives; this paper, on the other hand, suggests illicit personal incentives of local officials. Political motives refer to officials’ sensitivity toward political reward such as endorsement from higher leaders, opportunities to promotion, or support from their constituents. These rewards allow its recipients – local cadres – to solidify their career positions, and even climb up to a higher ladder of the food chain. By contrast, corruption motives are about getting rich through illicit gains. One is said to pursue such motives when he seeks to earn from his position incomes that are beyond ordinary wages and bonuses. Admittedly, there are overlaps between the two motives: By climbing up, officials can gain incomes more easily, if not through higher wages then through more opportunity to abuse power.

Similarly, wealth can also be used when needed to pursue economic opportunities (Huntington, 1968). Nonetheless, in the grand scheme of things, a line of distinction can still be drawn. Here, we care about the primary motives. Political motives, in its very essence, are about reaching upward, whereas corruption ones are about profiting and maximizing gains out of one’s given position. Political motives are relational; corruption ones, personal and absolute.

Between these two, there is some support from the literature for the “political motives” thesis. For example, it is often suggested that economic successes in officials’ own provinces are an important determinant of cadre promotion (Lou, 1992; Wang, 1989). According to this view, local officials have the incentive to reform their provinces despite status losses because that would eventually help them further their political career. Other scholars sometimes offer another view: Local officials who embraced the reforms did not support it per se; rather, they were trying to ally themselves with the winning side of the competition (Provincial Strategies of Economic Reform in Post-Mao China: Leadership, Politics, and Implementation, 1998). Finally, there is the possibility that letting reform happen in a province would raise officials’ legitimacy in the eyes of local constituents, reinforcing their career stability.

In light of China’s system of cadre management and promotion, however, all these mechanisms of political motives can be deemed implausible. To begin with, the last suggestion can be rejected straight away, for the simple fact that local officials in China were not elected, and were under no direct accountability pressure from below. Instead, cadres in post-Mao China were appointed through the “two-level downward management system” (xialiangji guanli; changed in 1983 to one-level downward), under which officials received permissions from their immediate superiors to appoint their immediate subordinates (Huang, 1996). In effect, the system reinforced the notion of reciprocal accountability, and made it the case that provincial cadres had no need to go an extra mile to be accountable to their people’s needs.

Secondly, the suggestion that provinces bandwagoned on Deng’s reformist camp in hope of securing the winner’s favor seems more plausible, but it remains still on the questionable side. While choosing-the-right-side makes sense, its logic does not necessarily explain several of the provinces’ behavior patterns. The Deng vs. Hua competition, as we know it, was not a one-sided battle, and had provinces been trying to get into the winner’s camp, they would be almost as likely to denounce reforms (i.e. join Hua’s camp) as to embrace it (i.e. join Deng’s faction). In addition, since the competition outcome was uncertain and the cost of choosing the “wrong” alliance real, it would be reasonable to expect considerable ambivalence in the provinces’ commitment to their faction. In two-party election campaigns like in the United States, for example, big donors often made contributions to both sides, so as to remain in the winners’ good book no matter who they eventually are.4 Indeed, in China’s case, a pattern of ambivalence should have been even more pronounced, given the lessons that cadres had learned from the last episodes of sudden policy reversal and brutal persecution of the opposition during the Cultural Revolution and the preceding Hundred Flowers’ Campaign.

What were observed during the reform years, however, reflected a totally opposite picture. Localities, to start off, embraced reforms enthusiastically: While many provinces, like Guangdong, Anhui, Shandong or Shanghai acted as pioneers to advocate reforms ahead of the government’s directives (Jae, 1998; Li, 1998) (Jae 1998; Li 1998), others were very quick to follow, to the extent that they actually demanded permission to reform (Zhang, 2011). Ambivalence was rare: provinces in fact moved beyond accepting the reform agenda, to taking matters into their own hands through the adoption of local developmentalist policy (Oi, 1995). Of course, there were “resisters” e.g. Heilongjiang (Jae, 1998), as well as slower adopters of reforms; however, they were concentrated regionally at the northeastern “Stalinist rust belt” of China (Hurst, 2004).5 Their resistance of reform, therefore, seemed to reflect either practical consideration of the provinces’ own economy or their proximity to the center (which demanded more caution), rather than a conscious political choice between joining the reformers’ and the conservatives’ side.

Finally, the idea that economic performance factored into cadre promotion and drove officials toward reform can be refuted. Even when there is evidence to support a role of economic performance in provincial cadres’ evaluation, such evidence was not consistent through times. In fact, “the criteria for cadre promotions are highly sensitive to changes in general political and ideological environment” (Huang, 1996). It should be noted, as an illustration, that just a few years prior to the reforms, ideological adherence to Maoist principles was still the main and only criterion for cadre evaluation.

Even when economic performance mattered, once again, it would not necessitate the localities’ reform mindset. The command economy, after all, was still a viable option, and more likely than not, what constituted “economic performance” by the time of the reform would still have a lingering central-planning flavor e.g. meeting production quotas, or ensuring workers’ livelihood, etc. The reform, after all, did not change everything in one day, and that did not exclude the Party’s conceptualization of economics and economic successes.

A more compelling evidence against the significance of economic consideration can be found in the cadre management principles of China. In short, these principles perpetuated an assessment that heavily emphasized political background/orientation at the expense of other performance-related factors. The ganbu kaohe (cadre evaluation) procedures were institutionalized by the Chinese leadership in 1979 to be a comprehensive evaluation system that included both performance review and an opinion poll (Ministry of Personnel,1986 [1983]; 1980 [1979]). In reality, however, it was largely employed as a security check to screen out cadres with undesirable political affiliation: These reviews included only perfunctory remarks on officials’ economic activity, but often went in great details on cadres’ activities during events like the Cultural Revolution or the 1976 Tienanmen incident (Huang, 1996, p. 95).

Similarly, other monitoring and disciplinary institutions, such as the provinces’ General Offices or the Central Discipline Inspection Commission, were also preoccupied more with collecting administrative information and investigating moral/political transgressions rather than with economic evaluation (Ministry of Personnel, 1987 [1986]). In short, although other things may have changed, the post-Mao Chinese Communist Party’s idea of a “good” cadre was still as fixated on political correctness and loyalty as it has ever been during the Mao era. The room for economic consideration, as a result, remained minuscule.Continued on Next Page »