corruption in china - hochschule bremen · 2. corruption in china 1. historical review 2. causes of...

Corruption in China

Causes, Effects and Counter-measures

Presentation Hochschule Bremen, 31.05.2013, by

Hannah Bayer

Katharina Kirchhoff

Leonie Zimmermann

2013 Copyright © All Right Reserved

Table of Content

1. Introduction2. Corruption in China

1. Historical review2. Causes of corruption in China3. Effects of corruption in China

3. Reactions to corruption in China1. Society2. Politics

4. Counter-measures against corruption1. Taken by politics2. Taken by international companies

5. Conclusion

31.05.2013 2Corruption in China - Hannah Bayer, Katharina Kirchhoff, Leonie Zimmermann

1. Introduction – The Topic

• Influence on people’s life

• High-level officials accused of corruption

• Declining quality of goods

• Escalating public interest

• Policy forced to take action


1. Introduction - Definition

• Corruption is

− “the abuse of entrusted power for private

gain” Transparency International 2012.

− “dishonest or fraudulent conduct by those in

power, typically involving bribery” Oxford University Press 2013.

− “the action or effect of making someone or

something morally depraved” Oxford University Press 2013.


2. Corruption in China


2.1 Historical Review

• Corruption Perceptions Index

31.05.2013

“CPI”: own illustration according to Transparency International Archive (ed.) 2011.

7,4 7,37,7

8,2 8,2 8 7,8 7,9 8 7,9 8 7,9

3,5 3,5 3,4 3,4 3,2 3,3 3,5 3,6 3,6 3,5 3,6 3,9

0

1

2

3

4

5

6

7

8

9

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Score

Years

Germany

China

6Corruption in China - Hannah Bayer, Katharina Kirchhoff, Leonie Zimmermann

2.1 Historical Review

• High-level official He Shen (1755-1799) in Qing Dynasty (1644-1911)

− Misled Emperor Qianlong who had trust in him

− Stole from public funds e.g. military

− Enjoyed full freedom of actions

− Sentenced to death by Qianlong’s successor

31.05.2013

Cultural China 2010.Roberts 2011.


2.2 Causes of Corruption in China

• Imperial China

− Weak control mechanisms

− Too few officials

− Complex tax system

31.05.2013

Kiser, Tong 1992.


2.2 Causes of Corruption in China

• Today− Lack of control over officials

− Low average salary

− “Windfall profits” created by reforms

− Low risk of punishment

− Censorship of the press

− Little separation of powers

− Guanxi

31.05.2013

Oster, Tan 2013.Qian 2012.Lane, Hoffmann 2012.


2.3 Effects of Corruption in China


2.3.1 Effects of Corruption in China: Economy

• Unfair competition

• Increase in prices and costs

• Decrease in quality

• Direct costs of corruption estimated

US$86 billion in 2003

• Corruption in infrastructure sector

31.05.2013

Pei 2007.Divjak 2008.


2.3.1 Effects of Corruption in China: Economy

• Sichuan Earthquake 2008

31.05.2013

“Sichuan Earthquake”http://www.theepochtimes.com/news_images/highres/2008-5-21-quake_81140589.jpg, accessed 16. May 2013


2.3.2 Effects of Corruption in China: Society

• Threat by declining quality of goods

− Milk powder scandal of 2009

31.05.2013

Stern de. 2009.

“Sanlu Milk Powder“:http://www.baiyjk.com/UploadFile/2008/9/13/2008091310065231.jpg, accessed 08. May 2013



• Corruption in medical sector

− Illegally produced medicine

• Rising prices

− Allocation of corruption costs

• Unemployment

• Widening gap between rich and poor

31.05.2013

Wang 2009: 34.Graeff 2002: 5.Waibl 2005: 151.





• Rising prices


31.05.2013

Wang 2009: 34.Graeff 2002: 5.

Company A Company B

No corruption Corruption

Production costs / piece 100 RMB 100 RMB

Profit margin (30%) / piece 30 RMB 30 RMB

Costs for corruption / piece 0 RMB 10 RMB

Price of sale / piece 130 RMB 140 RMB

“Allocation of corruption costs”: own illustration.





• Rising prices


• Unemployment

• Widening gap between rich and poor

31.05.2013

Wang 2009: 34.Graeff 2002: 5.Waibl 2005: 151.


3. Reactions to Corruption in China


3.1 Reactions to Corruption: Society

• Loss in loyalty and trust in politics

− Scepticism towards success messages

• Loss in trust in local producers

− Buy imported products

− Vicious circle

− Middle class has money and knowledge

• Anonymously publish cases

31.05.2013

Heberer 2006: 3.Spiegel Online (ed.) 2013: 1.


3.1 Reactions to Corruption: Society

31.05.2013

Luebke 2012a: 3.

“大雪无痕“: http://ec4.images-amazon.com/images/I/41bbnwYiiwL._SL500_AA300_.jpg, accessed 21. May 2013

• Handle anger in novels, TV series

−抉择 (Juézé) by张平(Zhāng Píng)

−大雪无痕 (Dàxuě

wúhén) by陆天明(Lù Tiānmíng)


3.2 Reactions to Corruption: Politics

• Urge

− Lack of political integrity

− Demand for social equality

− Corruption undermines party's right to rule

− Growing discontent within party

31.05.2013

Botschaft der Volksrepublik China in der Bundesrepublik Deutschland (ed.) 2012.Ackeret 2013.Economist (ed.) 2012.N24 (ed.) 2013.



• Rhetorical Response

− “Maggots in cadaver“

− Against “tigers and flies“

− Determined fight against corruption

− Need to reform

31.05.2013

Ballweg 2013.Hatton 2013.Süddeutsche.de (ed.) 2013.Botschaft der Volksrepublik China in der Bundesrepublik Deutschlan (ed.) 2012.Ackeret 2013.

“Xi Jinping”: http://jto.s3.amazonaws.com/wp-

content/uploads/2013/03/p1-china-z-20130325.jpg, accessed 09.

May 2013



• Xi Jinping publicly orders officials to be moderate

• Wang Qishan new Secretary of CCP’s Central Commission of Discipline Inspection (CCDI)

• Loosen press censorship

31.05.2013

South China Morning Post (ed.) 2013.FlorCruz 2013.

“Wang Qishan”: http://news.ah361.com/d/file/video/xinwenshipin/guone

ishipin/2012-12-20/4abb84c3ad580d8b98bbdcf568883cfc.jpg,

accessed 08. May 2013


3.2 Case “Supervision by the People”

• 人民监督网 (Rénmín jiāndū wǎng)

• Founder 朱瑞峰 (Zhū ruìfēng)

• Chongqing official dismissed

• Intimidation and death threats

• Website blocked partially

31.05.2013

“Rénmín jiāndū wǎng“: www.rmjdw9.com, accessed 24. May 2013

CNN (ed.) 2013.


4. Counter-measures against Corruption


4.1 Counter-Measures Taken by Politics

• Measures taken by CCP− Central Commission for Discipline Inspection

(CCDI) formed 1979

− Intra-party supervision department

− www.jubao.gov.cn

− Provisions monitoring cadres and their families

31.05.2013

China Daily (ed.) 2006.Wedemann 2012: 6.Gong, Ren 2012: 12.


4.1 Counter-Measures Taken by Politics

• Difficulties− Most laws and regulations ineffective

− Bribe takers punished more severely than

bribe payers

− Lack of value based motivation

− One-party system

− Missing transparency

31.05.2013

Rimmele 2013.Wedemann 2012: 5.Gong, Ren 2012: 16.


4.2 Counter-Measures Taken by International Companies

• Trainings for staff

• Introduction of anonymous report system

• Background checks of business partners

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Kamp 2012: 1-4.



• Example of Siemens AG:

− Employees bribed officials

− Company’s image was damaged

31.05.2013

Kamp 2012: 1-4.

“Logo of Siemens AG”: http://upload.wikimedia.org/wikipedia/de/5/5f/Siemens-logo.svg, accessed 21. May 2013




− Measure catalogue

� Restriction of managers’ access to bank accounts

� Avoidance of cash-payments

� Engagement of > 600 compliance managers

� Arrangement of trainings

� Introduction of a point-system

� No punishment because of lost deals

� Online application to evaluate business partners

31.05.2013

Kamp 2012: 1-4.




− Compliance manager (CM) discovered new

case of corruption

− Siemens sellers bribed buyers of public

hospitals

− CM was dismissed four months after reporting

31.05.2013

Rubenfeld 2013: 1.


5. Conclusion


5. Conclusion

• Important topic− Unfair competition in economy

− Danger for society, leading to uncertainty

• Caused by− Lack of public scrutiny

− Lack of transparency

− Little separation of powers

− Inconsequent enforcement of laws and regulations

− Many governmental institutions, but no independent organisations

31.05.2013

Hille, Rabinovitch 2013.FlorCruz 2013.


5. Conclusion

• Possible counter-measures

− Higher level of transparency

� Public report on cadres’ salary

− Stricter separation of powers

− Consequent enforcement of rule of law

− Stress of prevention in addition to punishment

− Value based mindset

31.05.2013

Hille, Rabinovitch 2013.Luebke 2012b.


Thank you for your kind attention!


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