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Corruption fuels China’s ‘overheated’ economy
Wang Fang and Wang Zhen
7/3/2004

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Behind the Chinese economy
 
Economics expert Liao Shiming, one of China’s leading economic journalists, states that “China’s expanding economy has resulted in a massive depletion of the nation’s assets. Many of China’s ministers and committees are proposing new projects, as a project allows for readily available funds. Corrupt officials might use this money for personal means. This wouldn’t be possible without new projects.”

Liao believes that “China is developing ad hoc at present, especially in distributing the nation’s wealth. Putting the brakes on the economy will affect the nation’s asset distribution. It also will have an effect on the international financial market to a certain degree.”

The Chinese Government is limiting some local development projects. Recently, Beijing investigated a large-scale steel and iron project in Jiangsu. In 2002, a private steel company planned to build large-scale steel and iron factories in Changzhou and Zhenjiang. This company expected to produce 8.4 million tons of steel and iron annually. The total investment was approximately 10.6 billion yuan or $1.28 billion USD. As soon as the steel company was granted 4.3 billion yuan in loan funds it falsified its financial records in an effort to divert 2 billion yuan.

Zeng Renquan, another one of China’s leading journalists, said, “Corruption in China’s system reaches every level and can’t be solved. Economic corruption is the most prominent and the financial state in this corrupted system is the most horrifying.”

In an exclusive article on China’s financial problems, Zeng described the phenomenon of “busy securing funds.” A group of clever and competent people formed a team to “secure funds.” There are two main methods of “securing funds.”

The first way is to “secure funds to be distributed,” which means securing money to bribe government officials at all levels. During the process of “busy securing funds,” the funds invested may amount to around 50% of future earnings. For example, if the team spends 1 million Yuan ($120,750 USD) they may only be able to make a profit of up to 2 million Yuan. The process of “securing money” is actually the process of “carving up the loot,” a process of distributing the national wealth to those in power.

The second way is “securing funds through networking.” All relationships carry a value. This includes relationships between local authorities, Chinese central authorities, classmates, comrades in the army, teachers and students, lovers and relatives. Networking means that everyone will become a distinguished guest of the local authorities if they carry value. Even if the person is a rascal, a local ruffian, a vagrant or an idiot, he or she will still be treated as an “invaluable asset” and will be used to the fullest extent. As long as the person can “secure funds for anything, including special projects” from the districts, provinces, or even central authorities, the person will get his cut in the profits.

Then comes “spending the funds.” The profit made by the people who “securing funds through networking” are found among the leaders at all levels in the hierarchy. During the process of “carving up the funds,” very cunning methods are used, as many hands at all levels in the hierarchy are stretched out. Many devious methods are employed so no illegal traces are left. No one would suspect any wrongdoing.

Zeng Renquan explained that at the end of 2001, Huachuan County, Helongjiang Province was ranked as a national impoverished county. Therefore, the central government in Beijing approved an application by Huachuan County local government for funds to support the poor. An amount of 7,680,000 yuan ($960,000 USD) for supporting the poor was transferred to the Office of Supporting the Poor in Huachuan County. About 4,500,000 Yuan ($562,500 USD) from this fund were to be allocated to the poor families under established government guidelines. In order to prevent anyone from diverting funds for other purposes, the Office of Supporting the Poor in Huachuan County decided to buy a herd of pigs for poor peasants (“life pig production”). This allocation reduced the funds for the poor by half, as the “poor” were not the actual recipients of this portion of the allocated funds.

After the June 4, 1989 Tiananmen Square Massacre, the Chinese Communist Party began to focus on the economy, and local factions sprang up in China. Significant over-investing caused severe financial problems and the Chinese currency was devalued by 20%. At the end of 1992, Zhu Rongji became Prime Minister, and the Chinese Communist Party proposed their policy of “stability has priority.”

Today, China’s economy is again inflated. However, the China of today is very different from the China of more than a decade ago. Investments are spiraling out of control and systematic corruption permeates all of Chinese society. Whether or not the Chinese economy can implement its so-called “soft landing” is something of deep concern to those dealing in international financial markets.

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