Today’s Chinese proverb: he who craves wealth joins the party

If the rich keep getting richer at the expense of the poor, China may actually need to go communist.MAYBE China’s Communist Party needs to consider a name change. Two news items this week remind us that there is nothing classless or egalitarian about the political machine ruling the most populous nation: the sentencing of Bo Xilai’s wife, and hints that China’s wealth gap is bigger than anyone thought. Both are more intertwined than meets the eye and show China has a 1 per cent problem that is holding back the other 99 per cent.
Nanjing Night Net

The Bo scandal isn’t often viewed in economic terms. When his wife, Gu Kailai, received a suspended death sentence for killing British businessman Neil Heywood, attention turned to the political fortunes of the former Chongqing party boss. Instead, it should be on the institutional rot that has befallen the party and the precarious standing of the political system after 10 years under departing President Hu Jintao.

Bo’s tale is symptomatic of the official corruption and how it stymies much-needed economic and political reform. It cast an unsparing spotlight on the obscene wealth amassed by politicians. How did Bo, with his modest government salary and a wife he claims didn’t work, live so well and send his son to such pricey schools in Britain and the United States? How did his wife’s sisters come to control a web of businesses valued at more than $US126 million ($A120 million)

The problem is, politics is proving to be an extremely lucrative field. The Communist Party is the largest political party in the world, claiming some 80 million members. At its core is the 25-member Politburo that includes the all-powerful Politburo Standing Committee. Corruption may not taint every member of the inner circle. Yet the financial empires being amassed by some and the lack of transparency about wealth require attention and, even, legal action.

US politicians are paupers in comparison. Earlier this year, an eye-popping figure was revealed in the Hurun Report, which tracks China’s wealth. The wealthiest 70 members of China’s legislature added almost $US90 billion to their bank accounts in 2011. That increase is greater than the combined net worth of all 535 members of the US Congress, the President and his cabinet and the nine Supreme Court justices. Why start a technology company, study science or work in finance when the riches are to be found by rising within the party?

As more and more politicians get rich through questionable land grabs, insider trading and old-fashioned rent-seeking, there is less incentive to retool the economy. Political will shrinks as overseas bank accounts swell. All that money conspires to widen China’s rich-poor divide.

Bo was ousted from his post in March. Yet here’s a twist: just weeks before, he warned that China’s wealth gap had reached the danger zone. He was right. On August 21, we learnt that the wealth gap in rural China approached a United Nations warning level for social unrest.

China’s rural Gini coefficient was 0.3949, slightly less than the UN’s 0.4 warning level last year, the Xinhua News Agency said, citing a survey by Central China Normal University. A reading of zero suggests equality of income distribution. The further you move towards one, the closer you are to complete inequality. As economic indicators go, this is a bad one for Hu as he steps down.

Hu’s decade in power has delivered rapid growth, but few of the reforms needed to elevate the masses from subsistence wages. China hasn’t figured out how to be more than a one-trick economy driven by exports, cheap labor and unsustainable levels of investment. It hasn’t loosened up on internet or media freedoms, raising questions about how a nation innovates while limiting access to Google. It hasn’t devised a strategy to cut pollution. It hasn’t made its leaders more accountable.

To China bulls, the Bo case suggests progress on this last front. Bo committed unspecified economic crimes for which he has been humiliated; his wife was punished, so all is well, they argue. The truth is more complicated, of course. Many believe Bo’s real crime was his ambition. Bo was the closest thing China had to a political rock star and a spoiler for plans to replace Hu with Xi Jinping. Purging Bo, it might be argued, was all about reinforcing discipline and loyalty and maintaining the status quo in a pivotal year.

That is part of the problem, especially as the world economy deteriorates. China is focused on sustaining growth at 8 per cent or more. That seems to mean giving short shrift to recalibrating a lopsided economy. The same could be said of making the political system more responsive to the needs of the 99 per cent.

If the rich keep getting richer at the expense of the poor, China may actually need to go communist.

BLOOMBERG

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