Reporting Corruption: All Sides Bad

From Seeing: A Memoir of Truth and Courage from China's Most Influential Television Journalist by Chai Jing, trans. by Yan Yan, Jack Hargreaves (Astra House, 2023), Kindle pp. 196-198:

There are many different lessons to be learned from everything that happened in Chongqing. I learned mine. In reporting on what seemed like an isolated case of land auction manipulation, I’d failed to discover its deeper roots, which only became clear to me later.

I should have reached back all the way to the 1950s, when the planned economic system was established in China, purging capitalism and centering economic control with the state. Private property rights were soon abolished, all resources were nationalized, and the Chongqing Cosmetics Factory was founded under collective property rules rather than private ownership for the sake of idealistic utopian ideals.

The experiment failed; the factory encountered operational difficulties. After the reform of the market economy had begun, factory leadership established a new brand, Olive, in a joint venture with a Hong Kong company in 1991. Olive grew rapidly to become the only enterprise in China that could compete with Procter & Gamble, but collective property rights hobbled the company. External market competition was fierce, and everyone’s decision being counted at Olive equaled no one’s decision being enacted. It was yet another failure of the government-monopoly style of managing supply, as well as the marketing model on which it relied. Despite strong performance in the nineties, the company eventually ended up on the verge of bankruptcy due to internal leadership struggles. The government had no reform program for companies with this type of ownership.

The owners in Hong Kong finally left the enterprise. They wanted to sell the land they had bought for the factory, so as to recoup what was owed to them by the leadership in Chongqing, but because the land had been registered collectively in the factory’s name, there was a long dispute over whether they had the right to do this. The former manager from the Hong Kong company told Mr. Wu, one of their debtors, to find a buyer who would purchase the land cheaply, then resell it at market value, so as to generate proceeds that would be passed along to the Hong Kong leadership in the form of agency fees that would repay the outstanding debts.

Wu had to take this route, because he had already been borrowing money just to maintain Olive, and he couldn’t get another loan from the bank. Private companies, which contribute over 50 percent of Chongqing’s tax revenue and support over 80 percent of its employment, can use only one-third of the credit resources available to them. So Wu ended up borrowing money from Chen Kunzhi, whose loan shark resources exceeded four hundred million yuan. With an enormous amount of money coming to him from state-owned institutions as well as black market enterprises involving court presidents, police officers, and government officials, he could get loans at very low interest rates.

In short, unclear property rights and unfair financial policies gave Chen Kunzhi room to manipulate the eventual land auction through underground operations. With his connections to those in power, the big fish ate the small fish in a continuous cycle. In countries that have transitioned from a traditional planned economy to a market economy, there is often serious organized criminal activity. The absence of the rule of law stems from a government that is failing to fulfill its role as the guardian of a functional market economy.

But without sufficient analysis of these root causes, pathos and righteous indignation encourage people to pursue simple solutions with a black-or-white moralistic mentality: removing all the “bad guys” at the expense of the justice system and demonizing the privatization process in favor of a state-owned economy is a nostalgia for utopia, to narrow the gap between rich and poor.

In Chongqing, during the ten years between 1997 and 2007, the private economy rose from 22.64 percent of GDP to 45.5 percent, an average annual increase of over two percentage points; but in the four years between 2008 and 2011, when the “crackdown” was at its worst, the private economy grew by less than 1 percent per year. Many private enterprises began to flee Chongqing, taking capital along with them.

Bo [Xilai] and Wang [Lijun] were punished as “bad guys.” But it did not solve the problem. Among their successors, another Chongqing municipal party secretary and two police chiefs were jailed, all involved in corruption. If the world is divided into only two camps, black and white, moral and immoral, it becomes like a cube. Once you roll it over, it’s still the same, just with a different side facing up.