Skip to main content

Advertisement

SpringerLink
Log in

Rent-seeking and economic governance in the structural nexus of corruption in China

  • Published:
Crime, Law and Social Change Aims and scope Submit manuscript

Abstract

This article examines the sources of widespread rent-seeking practices and their relations to corruption in China. It argues that rent-creation and seeking are difficult to eliminate because they have become institutionalized as the constitutive parts of economic governance. Using case studies drawn from a number of industrial sectors, this study shows that the creation and allocation of economic rents has become a major policy instrument used by various levels of governments to manoeuvre industrial plans and development priorities. At the same time, the discretionary power exercised by state agents in implementing development priorities has created mounting opportunities for exchanging rents with bribes. The result is a structural nexus between economic governance, rent-seeking and corruption that defy administrative measures aiming at achieving a clean government in China.

This is a preview of subscription content, log in via an institution to check access.

Access this article

Log in via an institution

Price excludes VAT (USA)
Tax calculation will be finalised during checkout.

Instant access to the full article PDF.

Institutional subscriptions

Similar content being viewed by others

Notes

  1. IRMA China apparently was not officially registered. It was subsequently investigated by the Ministry of Civil Affairs.

  2. The case is widely studied. See, for example, [30].

  3. See Wu Jinglian’s interview in [40], p. 13.

  4. According to Hu, the second source of corruption comes from the black market and underground economy. These include smuggling, unlicensed factories, drug trafficking, prostitution, gambling, and informal transactions such as usury. The third source of corruption derives from tax evasion, such as unfair tax relief or exemption of customs tax. The fourth relates to public expenditure. It includes corrupt practices in supplies procurement and illicit public investment. See [16], p. 39.

  5. Note that Hu considered these as “rents” rather than surpluses. He also included “rents” from smuggling, tax evasion by enterprises, unclear land rights, import and export licenses, difference in profit margins across industries, variations in fiscal retention across different provinces and cities, and the welfare privileges enjoyed by cadres. From these he calculated a rent sum of over RMB 400 billion, or 40% of the gross national income.

  6. The last update of the price control list was announced in 2001 which is still applicable to date. See [7].

  7. There is a further form of particularistic advantage, namely special favour and convenience offered by governments and officials to a few selected economic actors. It involves priority access to raw materials (such as electricity and water), permission to deviate from regulations, or simplification of bureaucratic procedures. Such kinds of advantages can exert direct bearing on business operations as they affect the level playing field in the Chinese market. They can also be exchanged through illicit practices (for example, bribery) as well as through legal and legitimate means. Since the extension of special favour and convenience often involves non-material benefits, we have excluded it here in order to simplify the discussion.

  8. For a critique of such stylized understanding of the East Asian states, see [2].

  9. A detailed account of the lobbying behind the Guangzhou Peugeot and the Beijing Jeep projects can be found in [12].

  10. Aux announced in March 2005 its withdrawal from the automobile sector due to bad sales and financial problems.

  11. Lin describes this as the logic of the political market. See [22].

  12. Except First Auto Works and Dongfeng which are directly under central government supervision and Chang’an, Hafei, and Changhe which are under the military system, most of the other automakers are within the jurisdiction of local governments. Major enterprises such as Shanghai Automotive, Tianjin Auto, and Guangzhou Auto are owned either by the provincial or prefecture city governments. There are also private enterprises which disguised themselves as collective enterprises under the consent of local governments, in a practice which often referred to as “wearing a red hat”. Brilliance China Automotive during the directorship of Yang Rong is a case in point.

  13. Montinola, Qian and Weingast describe this as Chinese-style federalism. See [26].

  14. Wu Jinglian’s interview in [43], pp 21–22.

  15. Cited in Harwit [12], chapter 2, note 55.

  16. This is the estimate given by the Department of Audit from a sample investigated in 2006. The actual percentage will undoubtedly be much higher. See [21].

References

  1. Beijing xiandai shangbao (Beijing Modern Business News), September 20, 2005.

  2. Boyd, R., & Ngo, T. W. (2005). Emancipating the political economy of Asia from the growth paradigm. In R. Boyd, & T. W. Ngo (Eds.) Asian states: Beyond the developmental perspective (pp. 1–18). London: RoutledgeCurzon.

    Google Scholar 

  3. Buchanan, J. M. (1980). Rent-seeking and profit-seeking. In J. M. Buchanan, R. D. Tollison, & G. Tullock (Eds.) Toward a theory of the rent-seeking society (pp. 3–15). Texas: A&M University Press.

    Google Scholar 

  4. Chen, Z. (narrated) & Ouyang, M. (recorded) (2005). Wo de qiche shengya (My life in the auto sector). Beijing: Renmin chubanshe.

  5. Edin, M. (2005). Local state structure and development incentives in China. In R. Boyd, & T. W. Ngo (Eds.) Asian states: Beyond the developmental perspective (pp. 110–28). London: RoutledgeCurzon.

    Google Scholar 

  6. Guojia fagaiwei (State Development and Reform Commission) (2007). Guojia fagaiwei dui fangbianmian jiage chuantongan diaocha qingkuang de tongbao (Report of the State Development and Reform Commission on the investigation of the instant-noodles price conspiracy case). Guojia fazhan gaigewei xun (Newsletter of the State Development and Reform Commission), no. 16.

  7. Guojia fazhan jihua weiyuanhui (State Development and Planning Commission) (2001), Guojia jiwei he guowuyuan youguan bumen dingjia mulu (Catalogue of controlled prices set by the State Planning Commission and other State Council departments).

  8. Guojia jiwei (State Planning Commission) (1994). Qiche gongye chanye zhengce (Industrial policy for the auto manufacturing sector).

  9. Guowuyuan (State Council) (1988). Guowuyuan guanyu yange kongzhi jiaoche shengchandian de tongzhi (State Council’s notice on strict control of sedan manufacturing locations).

  10. Guowuyuan (State Council) (1989). Guowuyuan guanyu dangqian chanye zhengche yaodian de jueding (State Council’s decision on the key points concerning existing industrial policy).

  11. Guowuyuan (State Council) (1994). Guowuyuan guanyu yinfa “90 niandai guojia chanje zhengche gangyao” de tongzhi (State Council’s notice concerning the publication of the Guideline to National Industrial Policies in the 1990s).

  12. Harwit, E. (1995). China’s automobile industry: Politics, problems, and prospects. New York: M. E. Sharpe.

    Google Scholar 

  13. Harwit, E. (1992). Foreign passenger car ventures and Chinese decision-making. Australian Journal of Chinese Affairs, 28, 141–166.

    Article  Google Scholar 

  14. He, W. (1999). Xunzu jingjixue (The economics of rent-seeking). Beijing: Zhongguo fazhan chubanshe.

    Google Scholar 

  15. Heidenheimer, A. J., & Johnston, M. (Eds.) (2001). Political corruption: Concepts and contexts (3rd ed.). New Brunswick: Transaction.

  16. Hu, A. (2001). Fubai: Zhongguo zuida de shehui wuran (Corruption: China’s top social pollution). In Hu A. (Ed.) Zhongguo: Tiaozhan fubai (China: Challenging corruption) (pp. 34–66). Hangzhou: Zhejiang renmin chubanshe.

    Google Scholar 

  17. Hu, H. (1999). 1988 nian woguo zujin jiazhi de gusuan (Estimation of the value of rents in China in 1988). In Jingji shehui tizhi bijiao bianjibu (Ed.) Fubai xungen (In search of the roots of corruption) (pp. 42–55). Beijing: Zhongguo Jingji Chubanshe.

    Google Scholar 

  18. Hu, X. (2007). From surplus-seeking to rent-seeking: The political economy of transition in China. Paper presented to the workshop on Rent-seeking Politics in China, Leiden, June.

  19. Khan, M. H., & Jomo, K. S. (2000). Introduction. In M. H. Khan, & Jomo K. S. (Eds.) Rents, rent-seeking and economic development: Theory and evidence in Asia (pp. 1–20). Cambridge: Cambridge University Press.

    Google Scholar 

  20. Kwong, J. (1997). The political economy of corruption in China. New York: M. E. Sharpe.

    Google Scholar 

  21. Li, J. (2007). Guanyu 2006 niandu zhongyang yusuan zhixing he qita caizheng shouzhi de shenji gongzuo baogao (Audit report on the implementation of the central budget and other financial balances for the year 2006). Shenjishu bangongting (Department of Audit).

  22. Lin, Y. (2001). Between politics and markets: Firms, competition, and institutional change in post-Mao China. Cambridge: Cambridge University Press.

    Google Scholar 

  23. Liu, A. P. L. (1983). The politics of corruption in the People’s Republic of China. American Political Science Review, 77(3), 602–623.

    Article  Google Scholar 

  24. Liu, Z., Feng, Z., & Dong, X. (2005). Zhongguo jiaoche chanye fazhan – jiyu chanye zuzhi lilun de yanjiu (The development of China’s passenger car industry – A study based on the theory of industrial organization). Hefei: Hefei gongye daxue chubanshe, 2005.

  25. McNally, C. A., & Lee, P. N. S. (1998). Is big beautiful? Restructuring China’s state sector under the zhuada policy. Issues & Studies, 34(9), 32–38.

    Google Scholar 

  26. Montinola, G., Qian, Y., & Weingast, B. R. (1995). Federalism, Chinese style: The political basis for economic success in China. World Politics, 48, 50–81.

    Article  Google Scholar 

  27. Ngo, T. W. & Chen, Y. (2007). Changing modes of rent utilization and the development of the auto industry in China. Paper presented to the workshop on Rent-seeking Politics in China, Leiden, June.

  28. Ngo, T. W. (2002). Development imperative and spoliatory politics: A comparative study of mainland China, Taiwan, and Hong Kong. In L. Tomba (Ed.) East Asian capitalism: Conflicts, growth and crisis (pp. 193–220). Milan: Feltrinelli Editore.

    Google Scholar 

  29. Pei, M. (2006). China’s trapped transition: The limits of developmental autocracy. Cambridge, MA: Harvard University Press.

    Google Scholar 

  30. Shieh, S. (2005). The rise of collective corruption in China: The Xiamen struggling case. Journal of Contemporary China, 14(42), 67–91.

    Article  Google Scholar 

  31. Shirk, S. L. (1993). The political logic of economic reform in China. Berkeley: University of California Press.

    Google Scholar 

  32. Sit, V. F. S., & Liu, W. (2000). Restructuring and spatial change of China’s auto industry under institutional reform and globalization. Annals of the Association of American Geographers, 90(4), 653–673.

    Article  Google Scholar 

  33. Gong, T. (2006). Corruption and local governance: The double identity of Chinese local governments in market reform. Pacific Review, 19(1), 85–102.

    Article  Google Scholar 

  34. Gong, T. (1997). Forms and characteristics of China’s corruption in the 1990’s: Change with continuity. Communist and Post-Communist Studies, 30(3), 277–288.

    Article  Google Scholar 

  35. Tullock, G. (1980). Efficient rent seeking. In J. M. Buchanan, R. D. Tollison, & G. Tullock (Eds.) Toward a theory of the rent-seeking society (pp. 97–112). Texas: A&M University Press.

    Google Scholar 

  36. Wade, R. (1990). Governing the market: Economic theory and the role of government in East Asian industrialization. Princeton: Princeton University Press.

    Google Scholar 

  37. Wan, A. (1999). Zhongguo jingji zhuanxing shiqi de zujin goucheng ji zhuyao tedian fenxi (An analysis on the composition and major characteristics of rents during the period of economic transformation in China). In Jingji shehui tizhi bijiao bianjibu (Ed.) Fubai xungen (In search of the roots of corruption) (pp. 56–97). Beijing: Zhongguo Jingji Chubanshe.

    Google Scholar 

  38. Waterbury, J. (1989). The political management of economic adjustment and reform. In J. Nelson, et al. (Ed.) Fragile coalitions: The politics of adjustment (pp. 39–57). Brunswick: Transaction.

    Google Scholar 

  39. Wedeman, A. (2004). The intensification of corruption in China. China Quarterly, 180, 895–921.

    Article  Google Scholar 

  40. Wei, L. (1999). Yi quan mou si, genyuan hezai (The root cause of abusing power to seek personal gains). In Jingji shehui tizhi bijiao bianjibu (Ed.) Fubai xungen (In search of the roots of corruption) (pp. 8–18). Beijing: Zhongguo Jingji Chubanshe.

    Google Scholar 

  41. Wu, Y., & Jin, B. (2007). Rent seeking and the development of the Chinese beer industry. Paper presented to the workshop on Rent-seeking Politics in China, Leiden, June.

  42. Wu, Y. (2004). Zhongguo qiche chanye guanzhi shibai yanjiu (A Study on the Failure to Control China’s Auto Industry). Dissertation, Fudan University.

  43. Xing, X. (1999). Zaitan genzhi fubai (Further discussion on an effective cure for corruption). In Jingji shehui tizhi bijiao bianjibu (Ed.) Fubai xungen (In search of the roots of corruption) (pp. 19–28). Beijing: Zhongguo Jingji Chubanshe.

    Google Scholar 

  44. Zeng, Y. (2007). 2006 nian zhongguo fanfu redian zongshu (A survey of the anti-corruption targets in 2006). Zhengfu fazhi (Governmental Legal System), 1, 14–17.

    Google Scholar 

Download references

Author information

Authors and Affiliations

  1. Sinological Institute, Leiden University, Postbox 9515, 2300 RA, Leiden, The Netherlands

    Tak-Wing Ngo

Authors
  1. Tak-Wing Ngo
    View author publications

    You can also search for this author in PubMed Google Scholar

Corresponding author

Correspondence to Tak-Wing Ngo.

Additional information

This study is part of a research project on the Politics of Rent-seeking and Economic Privileges in China. The project is funded by the Royal Netherlands Academy of Arts and Sciences and supported by the Chinese Ministry of Education.

Rights and permissions

Reprints and permissions

About this article

Cite this article

Ngo, TW. Rent-seeking and economic governance in the structural nexus of corruption in China. Crime Law Soc Change 49, 27–44 (2008). https://doi.org/10.1007/s10611-007-9089-x

Download citation

  • Accepted:

  • Published:

  • Issue Date:

  • DOI: https://doi.org/10.1007/s10611-007-9089-x

Keywords

Search

Navigation