President Xi’s Anti-Corruption Campaign Biggest Since Mao

Photographer: Wang Zhao/AFP/Getty Images

Xi Jinping, China's president, talks with delegates after the opening session of the Chinese People's Political Consultative Conference (CPPCC) at the Great Hall of the People in Beijing on March 3, 2014. Close

Xi Jinping, China's president, talks with delegates after the opening session of the... Read More

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Photographer: Wang Zhao/AFP/Getty Images

Xi Jinping, China's president, talks with delegates after the opening session of the Chinese People's Political Consultative Conference (CPPCC) at the Great Hall of the People in Beijing on March 3, 2014.

President Xi Jinping’s campaign against corruption is growing into one of the broadest in China’s modern history, snaring dozens of businessmen and government officials and positioning Xi as the country’s most powerful leader in decades.

With the country’s legislature gathering in Beijing this week, Xi is sending a message that no one is beyond his reach. He has targeted a network of people associated with Zhou Yongkang, a retired member of China’s Politburo Standing Committee. Besides being a former member of the country’s highest governing body, Zhou headed the national oil company and China’s domestic security agency.

“This is the most ambitious anti-corruption campaign since at least Mao’s days,” said Anthony Saich, a professor at Harvard University’s John F. Kennedy School of Government in Cambridge, Massachusetts, who heads a training program for Chinese officials and executives.

Xi, who became president last year, is trying to unwind a culture of bribery and graft that has hurt the government’s legitimacy and jeopardized economic growth. China’s economy is projected to expand 7.5 percent this year, according to a Bloomberg survey in February, the slowest pace since 1990.

Tipping Scale

“In the past, people got tips for doing their jobs, but the effect on economic efficiency was negligible,” said William Overholt, a senior fellow at Harvard University and president-elect of the Fung Global Institute in Hong Kong. “For the first time, corruption has reached a scale that threatens to undermine economic efficiency.”

Photographer: Nelson Ching/Bloomberg

Zhou Yongkang, a retired member of China’s Politburo Standing Committee, is seen in this 2012 file photo. Close

Zhou Yongkang, a retired member of China’s Politburo Standing Committee, is seen in this 2012 file photo.

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Photographer: Nelson Ching/Bloomberg

Zhou Yongkang, a retired member of China’s Politburo Standing Committee, is seen in this 2012 file photo.

The crackdown comes as Xi moves to consolidate his power. He heads a newly created national security commission, a new group to craft national strategies on Internet security and an economic reform group that met for the first time this year. An 8,000-character article by the state-run Xinhua News Agency’s Outlook magazine on Feb. 22 lauded Xi for his big-picture vision and economic statements. It didn’t mention Premier Li Keqiang, who like his predecessors was expected to take the lead on reforming the economy.

“This is the most sustained drive against high-level corruption since the advent of economic reforms in the early 1980s,” said Andrew Wedeman, a political science professor at Georgia State University and author of “Double Paradox: Rapid Growth and Rising Corruption in China.” “Every anti-corruption campaign is an exercise in public relations. They’re trying to build legitimacy.”

Muted Reception

Delegates to the NPC meeting beginning tomorrow will find a more muted reception this year than they’ve had in the past. National People’s Congress spokeswoman Fu Ying told reporters today lavish perks are banned. Instead, delegates will have alcohol-free, self-serve buffet meals so as to set a good role model in the government’s austerity drive.

Teams from the Communist Party’s Central Commission for Discipline Inspection were dispatched in October on a two-month nationwide audit as part of a five-year anti-corruption plan. When they uncovered bid-rigging at the Three Gorges Dam on the Yangtze River, one of the world’s biggest hydro-power projects, executives remodeled their offices more modestly and downgraded to smaller-engine Audi corporate cars, Xinhua said Feb. 24.

More than 50 officials are under investigation for embezzling research funding in Guangdong province, the Guangdong Provincial Commission for Discipline Inspection announced Feb. 14, according to the website of the party-run People’s Daily.

Raiding Brothels

The Communist Party’s internal disciplinary organ said it punished 182,000 officials for corruption and abuse of power nationwide last year, 13 percent more than in 2012. This year, police raided brothels in the southern factory town of Dongguan and removed the police chief for failing to stop the spread of prostitution in the city.

Foreign companies have been caught up in the anti-graft campaign. Last year, China intensified a crackdown in the health-care industry, accusing the U.K.’s largest drugmaker, GlaxoSmithKline Plc (GSK), and Danone, the world’s biggest yogurt maker, of paying medical staff to promote their products and boost sales. Danone’s Dumex baby nutrition unit said it would take disciplinary measures and strengthen governance in China, while Glaxo said it implemented additional anti-bribery controls in emerging markets.

Goodbye Gucci

The crackdown has cut into the sale of high-end goods, from Gucci bags and Ferraris to the white spirit baijiu served at Chinese banquets. Spending on luxury goods increased about 2 percent in 2013, the slowest pace since 2000 and down from 7 percent last year, according to the consulting firm Bain & Co.

Ronnie Chan, a developer of high-end malls, said Chinese officials used to clamor to join his ground-breaking ceremonies and now they stay away over concerns that associating with even a reputable real-estate investor is risky.

“This is more severe than anything I’ve ever seen,” said Chan, chairman of Hong Kong developer Hang (10) Lung Group Ltd., which has invested $8.5 billion in China.

The recent arrests of Zhou’s associates have raised questions about whether Xi is willing to break a long-standing taboo to go after a member of the party’s innermost circle, risking the possibility of upsetting party elders and destabilizing the balance among the party’s factions.

Security Budget

Zhou was among the most powerful people in the country, holding positions in the past that were roughly equivalent to the director of the U.S. Federal Bureau of Investigations, chief executive officer of Standard Oil Co. and a member of a U.S. president’s cabinet. Under Zhou’s watch, China’s internal security budget grew to be more than the national defense budget. In 2013, it was 769.1 billion yuan ($125.1 billion).

At least five people with ties to Zhou are now under party investigation. They include his one-time aide, the vice governor of Hainan province and a former vice-minister of public security.

There are also reports that Zhou himself has been targeted. The probe of Zhou is in its “final stage,” the South China Morning Post reported Jan. 29, citing two unidentified people. Zhou’s eldest son, a businessman with extensive ties in the oil industry and in Sichuan, has been formally detained, the South China Morning Post said Jan. 10.

Rankless Punishment

Asked to comment on media reports about Zhou’s fate, Lu Xinhua, a spokesman for this year’s annual meeting of the Chinese People’s Political Consultative Conference, responded that guilty officials will be punished regardless of their rank.

Given the opaque nature of China’s political system, it’s impossible to tell how much of the anti-corruption campaign is directed against Zhou for his support of ousted Politburo member Bo Xilai, said Dali Yang, a professor of political science at the University of Chicago. Bo, whose populist style broke with the leadership’s consensus-driven approach, was sentenced to life in prison for corruption in September last year.

In the meantime, Xi has cultivated his image as a man of the people. Last month, he visited a busy shopping street in downtown Beijing, the Beijing News reported. In December, the state-run People’s Daily posted photographs on its website of Xi ordering steamed dumplings at a restaurant in the capital and chatting with customers.

Xi needs to address the cynicism of a public that cites corruption as one of its biggest concerns. The Communist Party requires the courage of a man ready to chop off his own snakebite-poisoned hand to save his own life, he said in a speech in January.

“Every Communist Party official should keep in mind that all dirty hands will be caught,” he said. “Senior officials should hold Party disciplines in awe and stop taking chances.”

To contact the reporters on this story: Shai Oster in Hong Kong at soster@bloomberg.net; Liza Lin in Shanghai at Llin15@bloomberg.net

To contact the editor responsible for this story: Peter Elstrom at pelstrom@bloomberg.net

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