Anti-Corruption (反腐 or “fan fu”) in China

ImageDear Friends,

Academic Travel Abroad has a long history in China. We have run educational travel programs there since 1980. CET Academic Programs, our study abroad division, has served American students on immersive language and cultural programs in China since 1982. We have witnessed the trial of the Gang of Four and the suicide of Jiang Qing, Mao’s wife; the tanks rolling into Tiananmen Square; the deaths of Hu Yaobang and Deng Xiaoping; the building of the Three Gorges Dam; ongoing Tibetan and Uighur unrest; the panic of SARS in 2003; the glory of the 2008 Beijing Olympics; the shocking Bo Xilai corruption scandal; and this year the drop to the lowest economic growth rate in 20 years. China continues to fascinate, mystify and enthrall us. Here are some observations from a trip I made last week.

Before leaving the U.S., I had read an interview with a top Chinese economist published on the site of the “Central Discipline Inspection Commission” of the Chinese government about the effects of corruption on the nation’s economy (http://www.ccdi.gov.cn/yw/201503/t20150307_52977.html).  It made some compelling arguments from a business viewpoint. For example, corruption increases the cost of doing business, raises prices and diverts funds away from R&D, quality control, and product improvement efforts. Instead, the money is spent on wining, dining and gifting. Corruption also negatively affects business investment and operational efficiency for the same reasons. The economist points out that the anti-corruption campaign may bring some short-term pain, and compares the process to curing cancer. Chemotherapy and radiation also cause pain, but eventually lead to eradicating the cancer cells.

Image 2

In just a few days on the ground in Beijing, I observed signs of the “pain” this campaign is inflicting on the Chinese economy. A favorite neighborhood restaurant is out of business—“fan fu,” anti-corruption, is cited as the reason. Buying stocks and making investments is no longer allowed by government workers—again “fan fu.” We sat as the only three customers in a lovely courtyard restaurant in a Ming dynasty park one evening. Yes, “fan fu” hits again. Lavish meals by government cadres are things of the past, so innocent restaurateurs have suffered a substantial decline in revenue. Clearly, yanking out the corruption weeds is also killing some flowers of the economy. Fear of coming under fire is likely to stall growth further.

While this drive to purify the Chinese system and eliminate corruption can be viewed as an admirable instinct, other crackdowns are occurring that are less enlightened. Foreign NGOs have been targeted as needing to be controlled by the state police. The Wall Street Journal reported on March 6, 2015: “China has more than 500,000 registered local nonprofits, according to government statistics. State media estimate around 1,000 foreign nonprofits are active in China, with thousands more running occasional programs. Existing regulations, however, don’t permit foreign nonprofits, causing some to register as for-profit businesses to gain access to visas and driving others underground” (http://www.wsj.com/articles/china-cracks-down-on-foreign-nonprofits-1425694223). With the new tightening of control, foreigners working for worthy causes like advocating for the handicapped are being sent home and NGOs are reluctant to hire foreign employees or even unpaid foreign interns. For ATA’s study abroad division, CET Academic Programs, this has direct and negative implications. Both CET’s Beijing and Shanghai Internship programs, where we plan to place nearly 200 interns in 2015, this change in policy will limit student choices and make placements more difficult.

China has been through anti-corruption campaigns and tightening regulations before. The question is whether this time those targeted have the stomach for it or whether, as David Shambaugh stated in the WSJ recently (http://www.wsj.com/articles/the-coming-chinese-crack-up-1425659198), the Communist Party is eroding its very own support base and lurching toward a Glasnost and Perestroika of its own making, President Xi’s ultimate nightmare.

Comments are closed.