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Graft Greases the Way in China's Boom Economy : Commerce: Officials wield enormous power with few restraints. Investors are wary.

July 19, 1993|From Associated Press

BEIJING — For as long as the Communist Party has ruled China, one of the favored slogans for those wielding power has been "to serve the people."

Today, with everybody rushing to get rich under senior leader Deng Xiaoping's economic policies, that service comes with a hefty surcharge: rampant corruption.

"It's at every level, from top to bottom," grumbled a Beijing entrepreneur surnamed Zhao, who said wining and dining officials and paying them off is part of doing business.

"If you give an official a bottle of foreign alcohol, they are so happy and everything goes smoothly," a Hong Kong businessman said as he bought cognac on a train in southern China that would secure him low duties for imported goods.

With billions of dollars pouring into China during the economic boom the past year, the potential for graft has skyrocketed. Officials continue to wield enormous power with a glaring lack of legal restraints to punish corruption.

Corruption not only threatens social stability--anger over official graft helped spark the 1989 pro-democracy movement--but poses a direct challenge to China's ambitious economic growth plans.

Foreign companies should be aware of "the potential for corruption to cause an abrupt change for the worse in the business environment," Hong Kong-based consultant Bob Broadfoot recently warned clients in a newsletter.

Among the signs of corruption:

* A recent investigation of Chuzhou city, Anhui province, with a population of 420,000, found 24,807 officials and staff members had misappropriated $8.5 million in public funds. Many used the money to pay for their children's schooling. Some state enterprises were on the verge of collapse because so much money was siphoned off.

* Investors seeking to buy shares on the stock exchange in the southern boom town of Shenzhen rioted last year when local officials kept thousands of application forms for themselves.

* Many journalists at state-run media accept bribes. It's common for companies to give reporters gifts and money to ensure their stories get good coverage. "More adventurous enterprises go to newspapers to sell their stories for full-page coverage," the official China Daily newspaper said.

* Chinese media has labeled as a "corrupt phenomenon" the spending of public funds on banquets. A trip to a hotel restaurant will confirm the practice is widespread. One estimate puts the amount of money squandered at $14 billion annually, nearly twice the government's official defense budget.

A new form of graft is found among some government organs for "xia hai," which literally means to plunge into the sea, but in today's China means setting up a private business.

They are spinning off enterprises that earn money by taking advantage of administrative powers--a ministry may set up a sales company to market products it has approved for import, for example. The new companies also profit by getting land or production material at cheap, insider prices and selling them for a hefty profit.

It's not surprising that an upcoming book on China's social problems edited by Zhang Ping, a researcher at the Chinese Academy of Social Sciences, places corruption at the top of the list.

One reason is the example set by top-level officials, many of whose children hold high posts and engage in land speculation and dubious business dealings. Another is that past edicts against graft have been poorly enforced.

Last month with great fanfare, China's Communist Party and government announced it was banning officials from accepting gifts, including negotiable securities, although they were fuzzy on what punishment would be meted to offenders. It didn't mention that a similar ban was issued--and ignored--in 1989.

The Communist Party recently convened a meeting of editors to put an end to the practice of Chinese journalists demanding payment for coverage.

Meanwhile, the government set up a new Office for Checking Unhealthy Tendencies to lead the anti-corruption battle, and the national prosecutor's office set up a special center to combat economic crimes.

But officials say it has become difficult to distinguish between graft and acceptable business practices in a country that is an ever-changing hybrid of market and planned economies.

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