Corruption and Government Integrity in Mainland China and

Corruption and Government Integrity in Mainland China and Hong Kong Professor Ting Gong Department of Public Policy City University of Hong Kong

What is Corruption? “Everyone knows what corruption is; but it is difficult to define it in exact terms. ” --- M. Halayya

Contemporary definitions n Law-centered definitions (Nye, 1067; Ekpo, 1979) n n Public-interest-centered (Friedrich, 1966) n n What is “public interest”? Public-opinion-centered (Heidenheimer, 1970) n n n Objective but what if legal systems are not well established? “Black corruption”, “grey corruption”, “white corruption” Is public opinion homogeneous? Personal-gain-centered ((Brooks, 1974; Mac. Rae, 1982) n Does corruption always involve personal gains?

Defining Corruption in China n n A narrow definition → ordinary citizens n “abuse of public power for private interests” n Key elements: 1) abusing public office; 2) relying on legal standards A broad definition → public officials n behavior that violates not only legal but also moral conventions

Difficulties in Defining Corruption difficult to draw distinction between "public" and "private“ – “grey areas” n intangible, long-term, widely dispersed gains n loopholes in a legal system n cultural impact n

Eight Questions about Corruption (by Jakob Svensson) n n n n What is corruption? What are the common characteristics of countries with high corruption? What is the magnitude of corruption? How to measure it? Does corruption adversely affect growth? Do higher wages for bureaucrats reduce corruption? Can market competition reduce corruption? Why have there been so few (recent) successful attempts to fight corruption? Is corruption eradicable ?

Forms and Characteristics of Corruption in China

Corruption by consumption n “Cash corruption” -- embezzling and extravagantly consuming public funds Often seen in position-related consumption Examples Lavish eating and drinking n Misuse and abuse of government vehicles n Sightseeing tours disguised as duty trips n

Capital Corruption n n Meaning: “unsanctioned transfers of state assets into private hands of government officials Differs from “corruption by consumption” in that it aims at seizing production capital which will bring in more money n is a more rapacious form of encroachment on state property with more sophisticated tactics n

Example: Illicit transfers of state assets in ownership diversification n In corporate restructuring: lowering the value of the state assets in an asset assessment process n setting higher dividend rates for individual shares than state shares n split individual shares only, not those owned by the state n establishing “shadow companies” n

Collective Corruption n n “Collective corruption“: government officials collude with each other or with people outside the government in corruption Collective corruption takes place under certain conditions: n n n when concerned value or anticipated benefit is high; when the technical difficulty of corruption requires greater cooperation; and when the stake is so high that divided responsibilities among collaborators help reduce risks

Cross-border Corruption n. Transnational corruption: cross-border collaboration of corrupt government officials with overseas individuals or organizations n. Opportunities expanded as China becomes more integrated into the global economy n. Examples: n smuggling n Transnational money laundering n Overseas Flight of Corrupt Officials

Controlling Corruption: Institutional framework & policy tools

n Klitgaard’s formula: corruption = monopoly + discretion – accountability

Controlling Corruption: three pronged approach Reducing opportunities: as authority devolves from upper levels, local officials become the ultimate authorities in determining who gets what, how and when; n Reducing incentives: the deep involvement in local business affairs place economic interests at arm’s length of local officials n Enhancing supervision: multiple entrustment chains of power make it difficult to monitor bureaucratic behavior n

Anticorruption Agencies The Central Discipline Inspection Commission of the CCP and its local branches n The Supervision Ministry n Anti-corruption Bureau of the People's Procuratorate n The National Bureau of Corruption Prevention n

Number of Official Regulations Enacted Each Year, 1979 -2009 17

n Roughly 173 regulatory provisions have been adopted in the past three decades; more than half were made in the last decade alone. 1980 -1989 28 1990 -1999 55 2000 -2010 90 18

Integrity regulations include n n Provisions against bribery, illegal gratuities, and improper gains Provisions on the disclosure of information about conflicts of interest Provisions setting forth specific procedures for dealing with conflict of interest situations Provisions specifying accountability mechanisms and penalties to ensure compliance 19

Two challenges n n How to implement the rules more effectively? How to engage the public and enhance downward accountability? 20

Hong Kong’s Successful Experience

Hong Kong’s success q q Hong Kong is regarded as one of the cleanest societies in the world, ranked 14 th by TI’s CPI among 182 countries in 2012 Hong Kong’s ICAC is taken as a model of a powerful and independent anticorruption agency 22

The Old Days (1960 s-1970 s) Rampant corruption as a way of life, not just a fact of life Police corruption -“Rent seeking” through public services (fire control, inspection, public hospitals, immigration office, etc. ) -Other social problems: mafia, gambling, etc. - 23

n Peter Fitzroy Godber was a former Chief Superintendent of the Hong Kong Police. He engaged in a bribery scandal shortly and then fled to the UK. He was extradited back to Hong Kong and subsequently convicted for corruption. 24

Independent Commission Against Corruption in Hong Kong • Established in 1974 • Independent – answerable to Chief Executive • 3 – Pronged Strategy • Enforcement – Operations Department • Prevention – Corruption Prevention Department • Education – Community Relations Department 25

Zero tolerance for corruption 26

Willingness to report suspected corruption Are you willing to report? 2008 2009 2010 2011 yes 81. 3% 75. 9% 77. 2% no 6. 2% 8. 1% 5. 3% 4. 7% depends 12. 4% 13. 5% 15. 9% 15. 5% Don’t know 0. 1% 3. 1% 2. 9% 2. 6% 27

The power of the ICAC l l l Right of arrest Right of investigation Right of search Right of getting information on property Right of investigating unexplained property 28

Institutional Building against Corruption 1. 2. 3. 4. 5. Market economy Judicial independence Freedom of speech Civil service (effective and efficient) Rule of law 29

CPI-TI 95 Singapore Hong Kong Japan Taiwan S. Korea China Total 3 17 20 25 27 96 7 18 17 29 27 97 9 18 21 31 34 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 9. 1 9. 2 9. 3 9. 4 9. 3 9. 2 8. 7 7 7 6 4 5 5 5 4 4 3 1 5 5 7. 8 7. 7 7. 9 8. 2 8. 0 8. 3 8. 1 8. 2 8. 4 7. 7 16 15 15 14 14 14 16 15 15 14 12 12 13 12 14 5. 8 6. 0 6. 4 7. 1 7. 0 6. 9 7. 3 7. 6 7. 5 7. 3 7. 7 7. 8 8. 0 7. 4 25 25 23 21 20 21 24 21 17 17 18 17 17 14 17 5. 3 5. 6 5. 5 5. 9 5. 6 5. 7 5. 6 5. 9 5. 7 5. 6 5. 8 6. 1 29 28 28 27 29 30 35 32 34 34 39 37 33 32 37 4. 2 3. 8 4. 0 4. 2 4. 5 4. 3 4. 4 5. 0 5. 1 5. 6 5. 5 5. 4 5. 6 43 50 48 42 40 50 47 40 42 43 40 39 39 43 45 3. 4 3. 1 3. 5 3. 4 3. 2 3. 3 3. 5 3. 6 3. 9 52 58 63 57 59 66 71 78 70 72 72 79 78 75 80 85 99 90 91 102 133 146 159 163 180 180 178 182 176 30