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Who pays more “tributes” to the government? sectoral corruption of China’s private enterprises

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Abstract

Which industry sectors bribe the government and, in turn, are exploited by the government the most in China? Or, as commonly satirized by the people, which sectors pay the most “tributes” (shanggong) to government officials? This article attempts to answer these questions by proposing a meso-level approach, which examines corruption in China at the sectoral level. We use a firm-level survey from 1997 to 2006 in China and treat two types of payments by private enterprises—public relations–building fees (yingchou) and forced apportionment of funds (tanpai)—as indicators of potential corruption in a sector. We find that the most corrupt sectors are those that rely on scarce and less mobile resources controlled by the government. Thus, further reform in the factor markets is necessary to reduce corruption caused by government intervention in the allocation of important resources.

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Notes

  1. For example, see the Governance & Corruption Diagnostic Survey in Malawi (http://siteresources.worldbank.org/INTWBIGOVANTCOR/Resources/MalawiFinalMainReportGCBSurvey.pdf, accessed 3 July 2012).

  2. Transparency International, Bribe Payers Index Report 2011.

  3. For information on the survey and the data used in this research, see Appendix A. This is a popularly used data set on Chinese private enterprises [see [18, 19]].

  4. Thus, our data include 1996, 1999, 2001, 2003, and 2005, because the survey reflects the previous year.

  5. For example, see “Shandong liaocheng xin’ao ranqigongsi 09 niandu gonggong guanxi weihu jihua biao, shuji shizhang minglie qizhong” [“Shandong liaocheng xin’ao gas company 2009 yearly public relation maintaining plan, local party secretary and mayor are both listed”], China Economic Network (http://www.paihang360.com/phfy/xiangqing.jsp?record_id=345173&op=op_browse). In this case, yingchou expenses to local government agencies accounted for up to Y0.78 million, which is 73.1 % of the firm’s total yingchou costs. See also “Wangbao chunjie lidan she 500 yuming guanyuan, sheshi gongsi cheng zheng diaocha” [“Netizens exposed that Spring Festival gift list involved more than 500 officials, relevant company claimed that investigation is undergoing”], Chinanews.com (http://news.cn.yahoo.com/ypen/20110313/255960.html).

  6. See “Zhu Siyi ruhe bianzhi ‘guanshang da wang’ songli sanbu zou guojiefei tingzuo 5 wan” [“How did Zhu Siyi weave ‘large official-business networks’? Three steps of sending gifts, festival fees surpassing Y50,000 to bureau officials”], Nanfang Ribao [South China Daily] (http://fanfu.people.com.cn/GB/12416702.html).

  7. The central government has issued several orders to stop the “three disorders” or sanluan (i.e., improper levying of fees, luan shoufei; arbitrary fines, luan fakuan; and forced apportionment of funds, luan tanpai). These orders include the State Council, Jinzhi xiangqiye tanpai zanxing tiaoli [Tentative rule on restrictions of collecting apportionment of funds from enterprises], 28 April 1988; Zhonggong zhongyang, guowuyuan, guanyu jianjue zhizhi luanshoufei, luanfakuan, he luantanpai de jueding [Decisions of the Party center, the State Council on steadily stopping luanshoufei, luanfakuan, and luantanpai], 16 September 1990; Zhonggong zhongyang guowuyuan guanyu zhili xiangqiye luanshoufei, luanfakuan, he gezhong luantanpai deng wenti de jueding [Decisions of the Party Center, the State Council on regulating luanshoufei, luanfakuan, and various luantanpai toward firms], 7 July 1997.

  8. Even tax payments are sometimes negotiable in China, not to mention the informal fees [6].

  9. For example, for BRIBEit, the bribery of the real estate sector (RE) in 2001 is BRIBERE,2001 = (yingchouREFirm1,2001 + yingchouREFirm2, 2001 + … + yingchouREFirmN, 2001)/N, where N is the number of firms in this sector. The indicator CORRUPT also helps to capture a potential fusion of yingchou and tanpai. Sometimes there is no clear-cut between yingchou and tanpai, for examples, private firms may be forced to entertain government officials. While we cannot detect whether firms tend to count this as yingchou or tanpai, it is in the general category of corruption.

  10. However, the sales revenue seems to exert smaller effects on government extortion than on bribery. This is consistent with our previous discussion that tanpai costs are oftentimes coerced from firms regardless of profitability. Our interviews with taxation bureaus also reveal that tanpai does not necessarily correlate with firms’ revenues (interviews were conducted in January 2011 in Henan province).

  11. This percentage of GDP includes sectors with all different ownerships because contributions solely by private sectors are not available (see http://www.stats.gov.cn/).

  12. “Gaoguan tanfulu” [“High level officials’ corruption record”], Caijing Magazine, 25 October 2010 (http://magazine.caijing.com.cn/2010-10-24/110550933.html, accessed 31 August 2012).

  13. For example, see “Xi nongwei: guanyu yinfa wuxishi 2010 niandu nongye chanyehua longtou qiye fuchi zijin guanli banfa de tongzhi” [“Wuxi Agricultural Committee: About the notice of financial sponsorship management of leading firms in agricultural sector in Wuxi in 2010”] (http://www.wxagri.cn/web101/pages/nlzx/tzgg/423119.shtml).

  14. Cases include Ding Li from Agricultural Department of the State Council and Deng Cichang of Hunan Provincial Agricultural Department. See http://cpc.people.com.cn/GB/64093/64371/5868446.html and http://politics.people.com.cn/GB/14562/12494379.html.

  15. This is possible especially when considering that most agricultural firms in the survey are located in east China.

  16. See, for example, “Anhui: liang qiyejia xinghui dangshang de renda daibiao daibiaole shui?” [“Anhui: two entrepreneurs bribed to be People’s Congress representatives; who do they represent?”], Zhongguo Qingnian Bao [Chinese Youth Post], (http://fanfu.people.com.cn/GB/12343333.html).

  17. See “Liu Wei: zhongguo xuyao yaosu shichanghua gaige” [“Liu Wei: China needs marketization of factors”], Wangyi [NetEase], 15 March 2011, (http://money.163.com/11/0315/17/6V736IMT00254LK2.html).

  18. According to the Transparency International Bribe Payer Index’s 2008 report, internationally, public works, contracts/construction, real estate and property development, oil and gas, and heavy manufacturing and mining bribe officials in their business dealings more often than other industries.

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Acknowledgments

The authors appreciate the valuable comments from Prof. Ting Gong, Dr. Jing Vivian Zhan, Xin Sun, the three anonymous reviewers, and participants of the Bi-week Forum at Zhejiang University of Finance and Economics and the Conference of Local Government Building in the New Era at Nankai University. All errors remain responsibilities of the authors.

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Authors and Affiliations

  1. Department of Politics and Public Administration, Faculty of Social Sciences, The University of Hong Kong, Pokfulam Road, Hong Kong

    Jiangnan Zhu

  2. School of Public Economics and Administration, Shanghai University of Finance and Economics, 777 Guoding Road, Shanghai, China

    Yiping Wu

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Correspondence to Yiping Wu.

Appendices

Appendix A About the survey

We obtained survey data from the Universities Service Center (USC) at Chinese University of Hong Kong. This survey has been conducted every 2 to 3 years since 1991, in cooperation with the ACFIC, the Chinese Academy of Social Sciences, the United Front Work Department of the Central Committee of the CCP, and the State Administration for Industry & Commerce (SAIC). A full description of the survey appears on the USC website (http://www.usc.cuhk.edu.hk/DCS/DCS31-16.aspx). In this research, we use the publicly available data from the surveys conducted in 1997, 2000, 2002, 2004, and 2006. The sample ratio ranges from 0.16 to 6.37 %, and the sample sizes are 1,946 firms in 1997, 3,073 firms in 2000, 3,258 firms in 2002, 1,613 firms in 2004, and 3,837 firms in 2006. The majority of private firms are randomly sampled in the five surveys with a proportionate stratified sampling procedure, which takes the 31 provincial units in China as the strata. According to the USC website, the data from 1997, 2000, and 2002 also include a small portion of tracking data from previous surveys. For example, the 1997 survey tracked 268 firms surveyed in 1995, the 2000 survey tracked 168 of the 268 firms tracked in 1997, and the 2002 survey tracked 839 firms surveyed in 2000. The 2004 and 2006 surveys also include some data obtained from the fixed observation points of the SAIC. For example, in 2006, 1536 firms were surveyed in this way (the website does not provide the exact number for 2004). Therefore, most of the data are collected by probability sampling. However, the total sample is not purely representative, because a small portion comes from tracking data and the SAIC’s fixed observation points. The data also suffer from missing values, which we discuss subsequently. Despite these drawback, in general the survey is informative and, to the best of our knowledge, the only one of its kind available for the public use. Although extant research has published fruitful findings based these surveys, the data are limited, and thus our findings are suggestive rather than conclusive. Table 2 below provides the number of firms classified by industries.

Table 2 Number of firms classified by industries in the sample
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Missing values in this data set deserve attention. Together, the 5-year survey collected corruption-relevant data from 6622 of the 11,617 firms effectively sampled. To address the concern that missing corruption data may cause selection bias, we follow Svensson’s [31] technique and check whether the groups of respondents and nonrespondents differ on observables. In total, 2,400 of the 2,571 firms not responding to the main questions on yingchou and tanapi also declined to answer other sensitive questions (e.g., about employees and profit), while the remaining 171 firms specifically declined to answer only the main questions on yingchou and tanpai. In Table 3, we report a set of regressions using observable firm characteristics, such as number of employees and profits as dependent variables. In the first set of regressions, the regressor is a dummy variable that takes the value of 1 if a firm has missing data on corruption. In the second set of regressions, the regressor is a dummy variable that takes the value of 1 if a firm only has missing data on corruption. The results in Table 3 show that the coefficients of both dummy variables are not statistically significant. As is evident, the former group of firms (2,571, reported in column 1) and the latter group of firms (171, reported in column 2) do not differ significantly in observables (in the number of employees and profits) from the group of corruption-reporting firms. The regressions suggest that at least for employment size and profits, the sample of 6,622 firms is still representative of the whole sample.

Table 3 Comparison of firms reporting and not reporting corruption (i.e., yingchou and tanpai) data
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Appendix B

Table 4 Overall corruption distribution across sectors
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Appendix C

Table 5 Ordinary least squares regressions of average sectoral sales revenues on tributes
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Appendix D

Table 6 Sectoral overall corruption measured by ratios
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Appendix E

Table 7 Average, frequency, and levels of sectoral corruption measured by ratios
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Appendix F

Table 8 Regional distribution of sectoral corruption
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Zhu, J., Wu, Y. Who pays more “tributes” to the government? sectoral corruption of China’s private enterprises. Crime Law Soc Change 61, 309–333 (2014). https://doi.org/10.1007/s10611-013-9504-4

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