Sludging the Wheels

Yuen Yuen Ang, China’s Gilded Age. Cambridge, 2020.

Yuen Yuen Ang. China’s Gilded Age: The Paradox of Economic Boom and Vast Corruption. Cambridge: Cambridge University Press, 2020; Paperback, 273 pages. $33.61 CAD (paperback).

Yuen Yuen Ang’s China’s Gilded Age: The Paradox of Economic Boom and Vast Corruption provides a provocative and refreshing analysis of China’s remarkable development at the end of the twentieth century. She argues that rapid economic growth occurred despite vast corruption (i.e., the use of public authority for private gain).  

Ang’s book poses a central question: “Why has China’s economy grown so fast for so long despite vast corruption?” Although it is commonly thought that corruption stifles economic development and furthers inequality, China, since opening its markets in 1978, has sustained one of the most impressive booms in economic history, all the while remaining an “outlier” with respect to levels of corruption.

Ang’s book argues that “the rise of capitalism [in China] was not accompanied by the eradication of corruption, but rather by the evolution of the quality of corruption from thuggery and theft towards sophisticated exchanges of power and profit” (14). Ang adds that China’s evolving corruption during its liberalization is not as paradoxical or exceptional as we might think: “many of the features outlined above,” she writes, “could also describe nineteenth-century America” (18).

 Conventional wisdom, Ang asserts, says that corruption hurts economic growth and leads to the misallocation of resources. Corruption and poverty are strongly correlated. Many development agencies see the eradication of the first as a prerequisite to transforming the second. Yet China seems an outlier — a durably expanding powerhouse beset by a crisis of corruption its Communist leadership deems shocking. And that presents an unresolved paradox.

Ang begins exploring this paradox by analyzing the concept of corruption. Whereas we often think of corruption as all-enveloping, Ang argues that “unbundling corruption is a necessary first step toward revising assumptions about its relationship to capitalist wealth” (24). In some cases, the practices are even legitimized by the system, as is the case with regulated political lobby groups. Ang defines four main categories of corruption that influence political-economic projects: petty theft, speed money (petty bribery), grand theft, and access money (28). Ang further classifies these types of corruption as non-elite and elite forms. Street-level bureaucrats, officers, and other low-level agents are more likely to engage in petty theft and minor money laundering; political or economic elites are more inclined to grand theft and corruption via access money. “Corruption is not a homogeneous problem,” Ang argues (50). It takes on different shapes at different times and places.  

Ang uses these four categories as ways of measuring China’s corruption with respect to fifteen other countries (both low- and high-income). She finds that Russia and India, for example, have relatively high indices of corruption and are most influenced by speed money. Countries like Japan and Singapore have relatively low levels of corruption, although, like the United States, access money figures prominently in both (33). Based on Ang’s methodology, China is listed as having high indices of corruption like Russia, India, Nigeria, and Brazil, yet with a strong bias towards access money, rather than stealing or bribery.

Uniform residential skyscrapers, all in beige with red script on them.
“Residential buildings developed by Evergrande in Pingyuan New Area, Yuanyang” by Windmemories on Wikimedia Commons (CC BY-SA 4.0).

One might consider access money the “steroids” of capitalism. It enhances growth, but with serious side effects. From the business perspective, buying access might be considered just one of the costs of making money. Entrepreneurs bribe their way into party congresses, just as big corporations in the United States invest billions in lobbying and even in drafting legislation. Indeed, Ang often compares contemporary China to the Gilded Age in the United States, where corruption and gravity-defying economic growth went together. 

Ang provides a brief history of corruption in China, as it has evolved with Party influence and the liberalization of China’s economy. She explains China’s liberalization as having four historical phases. First, following Mao’s death in 1976, Deng Xiaoping began the country’s opening to Western markets. Ang writes, “whereas market transition in the Soviet Union spawned lawless corruption and rampant looting of state assets, which soon eroded the regime, in China corruption spread but with restraints” (55). State-Owned Enterprises and Township and Village Enterprises provided vehicles for economic development, but they also furthered corruption. As markets opened, corruption grew without central oversight. Officials used slush funds, arbitrary fines, fees, and levies, extortion, and speed money. Following the protests in Tiananmen Square, the Chinese leadership embarked upon a radical reform of the country’s markets.

The second phase of China’s liberalization occurred from 1993 to 2000, as it built its ‘socialist market economy.’ The government replaced central planning with market mechanisms and downsized state ownership; thousands of State-Owned Enterprises closed and consolidated, allowing private ownership to flourish (58-59). Ang argues that the government modernized controls and reforms to attract international investments and to expand its economic base. Corrupt practices, now with a private enterprise orientation, persisted.

 China’s third phase of liberalization in the early 2000s began with the explosion of new land development and infrastructure projects. Shadow banks and State-Owned Enterprises financed the construction of office buildings and housing, railways and transportation, and highway projects that led to mounting debt and greater financial liabilities. Local government officials, who now held more authoritarian power to “slam the table” and to “make unilateral decisions with far-reaching consequences,” further lined their pockets with high-cost infrastructure projects (62-64). While corruption through theft declined during this era, corruption involving bribery and access money became even more prominent. As Ang argues, such economic control allowed for rapid and expansive urbanization across China, but it also allowed for a hierarchy of corruption “where webs of power and wealth extend from the very top down to the lowest level” (65).

The contemporary era of China’s political-economic project began in 2012 with the election of President Xi Jinping. Committed to curbing corruption, Xi immediately began a crackdown that led to the Chinese Communist Party (CCP) reprimanding 1.5 million officials and party leaders. Xi appreciates his country’s reliance on global markets. He also argues that corruption will “doom the party and the nation” (65). Ang believes that China’s contemporary Gilded Age — a much more compressed and intense version than that of the twentieth-century United States — is nearing its end. Stricter political and financial reforms may push the Middle Kingdom into its own “Progressive Era.”     

“The durability and gigantic scale of Chinese economic expansion, juxtaposed with reports of rising and explosive corruption, cannot simply be brushed away by assertion of imminent collapse, even amid the current slowdown,” Ang argues. “How China has come this far — from an impoverished communist regime to a capitalist superpower rivaling the United States, despite a crisis of corruption that its leadership sees as grave and shocking — must be explained” (5). China’s Gilded Age guides the reader to better understand the mechanisms and inner workings of the CCP and its lower-level organizations. Ang takes time to explain the political, economic, and social structures of pay and corruption in China. She explains that reform-era China created an informal culture of profit-sharing where street-level bureaucrats would top up their salaries through incentivized projects. Using Max Weber’s definition of “prebends” or “rents,” Ang explains that China has not followed Western countries who have moved to paying high and “efficient” wages to stave corruption from public officials (87-88). Many in China, whose bureaucracy entails 50 million employees, view rents as a form of state profit sharing whereby “the relationship of staff pays and perks to local tax income is akin to a dividend system, whereas its connection to the fees and fines collected by individual departments function like a commission” (94). Ang argues that this system is not unfettered. Local departments and street-level bureaucrats realize that limiting such behaviour is necessary to their long-term economic interests. If the overall economy prospers, so do local departments, as they will collect more taxes, fines, and fees. While those who partake in the dividend system may justify their metered approach to corruptive practices, there are flaws. Not every province or city benefits. Glaring inequalities result. The dividend system also promotes more risky decisions by both elites and non-elites, as they work to secure higher dividends with more volatile investments. Nevertheless, departments allocate pay and perks based off “shared expectations” and the understanding that “curbing extraction today will benefit them over the long term” (96-97).

A group of individuals, including Xi Jinping, step off a staircase from an airplane, as a band plays to the left and flag bearers wave to the right.
“Arrival of Xi Jinping, President of China” by G20 Argentina (CC BY 2.0).

Local officials and members of the party elite have been punished for pushing their personal pursuit of profits too far. Ang cites the cases of Bo Xilai and Ji Jianye to highlight how corruption can lead to political downfall. Bo Xilai was a rising member in the CCP who was tasked with rejuvenating the municipality of Chongqing. Though Bo created development, many projects were speculatively financed, and Chongqing’s debt grew steadily. Bo’s downfall came when he was charged in connection with the murder of a British businessman. He was charged with bribery, abuse of power, and embezzlement (133-134). Ji Jianye, whom locals nicknamed ‘Mayor Bulldozer,’ also went to prison on corruption charges. Ji built a career serving various municipal administrations. He served as deputy mayor for many municipalities in Jiangsu Province and had earned a reputation for negotiating mass demolition and construction projects. While he was the Mayor of Nanjing, police arrested Ji on corruption charges. During his mayoral tenure, he razed millions of square meters of unlicensed buildings (140). He was charged with taking bribes to procure government contracts. In these cases, access money — “sludging the wheels,” in Ang’s colourful expression — stimulated economic growth. It also entailed the misallocation of resources, taking unnecessary risks, and “exacerbating inequality” (145). Ang acknowledges that access money may help cut bureaucratic red tape and facilitate short-term economic prosperity, but its long-term effects are risky and will lead to growing inequality and economic crisis (147-148).

The most interesting aspect of Ang’s book is how it presents corruption. One might be challenged by her seemingly nonchalant stance towards it. Most western political thinkers, for the most part, believe that corruption is unethical. Ang’s view is rather that corruption is neither “good” nor “bad” for growth, but that it takes many forms and comes with many side effects that can influence nation-states both in the short and long term. The rise of the West, Ang argues, “went hand in hand with corruption, exploitation, and inequality” (194). China is not so much an outlier as an inheritor of an older ‘Western’ tradition of crony capitalism.  

Ang explains that China is passing through its own Gilded Age, much like the United States in the nineteenth century — “but not identical” (181). Both developed following tense political periods, both helped lift millions of people out of poverty (as well as igniting mass migration from rural to urban centres), and both “produced stark inequality.” Both saw mass investments in transportation, infrastructure, and industry, which allowed them to become “the factory of the world” (181). Both witnessed the rise of new wealth and a new class of powerful magnates and robber barons, and both saw corruption flourish, as access money flowed from capitalists to politicians.

And therein lies the daunting challenge confronting President Xi. A socialist, Xi is attempting to balance liberalized economic growth and development against Party control. Strong reforms might undermine business confidence and raise suspicions of a presidential power-grab; weak ones risk perpetuating corruption. Ang suggests that China needs a US-style Progressive Era reform movement powered by an approach critical of crony capitalism and committed to addressing the population’s most pressing needs.

Since the publication of Ang’s book, China has continued to face the challenges of unwinding corruption while trying to maintain economic growth. Many economists speak of a debt-inflated “bubble” threatening to burst — with potentially dramatic post-pandemic consequences.[1] Most notably, China’s real estate industry, which Ang argues “exposes the economy to speculative bubbles and over construction,” is a growing liability (146). The property sector accounts for nearly a third of China’s economy and is facing a growing crisis. Thousands of apartments are unoccupied. Prices of new homes are falling, while construction is slowing. There are entire ghost cities with few if any residents. China has forced companies to demolish dozens of buildings constructed with illegally obtained permits. China is also struggling with a declining growth rate and rising debt. These problems will test China’s resiliency as an emerging global power and may force more authoritarian action from its leaders.

China’s Gilded Age also obliges readers to reconsider corruption in the West, where the public power of private wealth has become a blatant element of the neoliberal order. Almost fifteen years since the 2008 financial crisis, it seems we have yet to learn its lessons. Neoliberal policies and greater financialization have fostered growing corruption, inequality, and concentration of wealth. There is little confidence that markets are fair and equitable — and even less that politicians serve the people. In both the East and the West, we find widespread transactional corruption such as massive corporate investments in parties and politicians and extraordinary lobbying campaigns on behalf of private interests. Old Cold War maps offer little insight.

Ang’s China’s Gilded Age provides an excellent primer on the economy and society of contemporary China. No history of the global neoliberal order could possibly avoid the rise of China as a central topic. The paradox of a nominally Communist state underwriting an uber-capitalist global order will long fascinate all who look upon our time, which has been so decisively shaped by a strange alliance indeed, embracing such strange bedfellows as the CCP, the City of London, Wall Street, the Federal Reserve, and whose vast transnational population of investors look to make money from poorly paid workers.  

In Ang’s approach, China’s recent history can be best grasped if it is examined using a transnational and long-range historical perspective. She reminds us that China’s socio-economic revolution is no novelty but rather shares important traits with past moments of capitalist expansion. From this perspective, capitalism and corruption are not opposing forces. Any global understanding of neoliberalism as a world-reshaping force, and of the pandemic as one of its collateral consequences, must bear Ang’s central lesson in mind.

[1] Thomas Orlik, China: The Bubble That Never Pops (Oxford: Oxford University Press, 2020).