One cannot open a Chinese newspaper these days without seeing a story about corrupt officials being hauled up. Is it then the beginning of a cleansing process as promised by China's President and Party Secretary General Xi Jinping? It sure is. China's new leadership is speeding up efforts to crack down on corruption, the most prominent example being the recent life prison sentence for a Red princeling, former Party Chief of Chongqing Bo Xilai. But chances are that bribery and corruption will continue unless China first undertakes key reforms to reduce private benefits from corruption and increase the perceived costs.
In recent decades, it's become almost routine. Each new administration starts off with a political anti-corruption campaign but without the constitutional reforms to check official power. Other than taking out a few in opposing political factions, these earlier campaigns mostly served to make corruption worse. This time can be different, but several reforms are a prerequisite.
First, China must curb the rewards from corruption, which have grown tremendously, making it hard to resist. To put this in perspective, we should note that during the Qing Dynasty, government revenue was low; for example, during the mid-18th century, the government took in about 50 million taels of silver, roughly equal to the annual income of 2 million Beijing residents. Under the People's Republic of China, in 1995, fiscal revenue equaled the disposable income of 150 million urban residents. But, by 2012, total fiscal revenue was RMB 11.7 trillion, or US$1.91 trillion, equal to the disposable income 477 million urban residents. Thus, without taking into account land sale proceeds and state enterprise profits that went into government coffers, today's relative fiscal income is 238 times as large as that for the mid-18th century imperial Qing government and more than three times as large as just 18 years ago.
Fast growing government budgets have unquestionably created increasingly more and larger opportunities for corruption. This is particularly true after the 2008 financial crisis, as China's RMB 4 trillion stimulus package led the way to numerous infrastructure projects including high-speed railway lines, airports and subways. The amount of money controlled and spent by the government is unprecedented and so are the incentives to engage in corruption. To reverse this trend, the power of taxation, both explicit and implicit, must be checked and balanced, which requires constitutional reforms and a free press. Without a functioning constitutional system, the ever-increasing potential rewards make corruption too attractive.
Second, positions of power and the number of employees on the government payroll have expanded significantly, creating more room for corruption. According to Ren Yuling, a member in the National Congress of Political Consultation and advisor to the State Council, the ratio between government employees and the general population was 1 to 7955 during the Han Dynasty, 206 BC to 220 AD; 1 to 910 during the late Qing Dynasty, 1644 to 1911; 1 to 67 at the beginning of recent Reforms in 1979; 1 to 40 as of 1995; and 1 to 19 in 2005. According to an estimate by Professor Zhou Tianyong of China's Central Party School, there were more than 70 million government employees in 2005, many of whom possessed power over sizable budgets or controlled approval authority for various industries. The real estate industry, which has experienced tremendous growth and created the most wealth in the past 15 years, is particularly prone to corruption as each local government has absolute monopoly over land supply for development and no one else can sell land for, or approve, a real estate project.