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Politics

Seeking perspective on Xi's anti-graft campaign

As the anti-graft campaign initiated by Chinese President Xi Jinping continues to snare targets big and small, many speculate that the crackdown is going beyond a short-term push to signal a "new normal" in China. However, to fully understand the impact the initiative is having, and the resulting slowdown of business activity across the country, one needs to read behind the headlines of the high-profile arrests.

     The Central Commission for Discipline Inspection, China's top anti-graft body, announced April 19 it had punished 2,673 Chinese Communist Party members in the first three months of the year. More than 90% of these cases were at the village level. The most common offense? Misuse of official vehicles.

"Tiger" hunting

However, it is not these little "flies" but the downfall of big "tigers" that has captured the Chinese public's imagination. Since Xi launched the campaign in 2012, his anti-graft czar, CCDI head Wang Qishan, has claimed five major scalps.

   The first, and most high-profile internationally, was Bo Xilai, a former minister of commerce and later the mayor of Chongqing, whose downfall was precipitated by his wife's murder of a British businessman. Commentators have speculated that Bo's real offense was attempting to build his own power base in preparation for a grab for power at the most senior levels of government, possibly even with the ambition of snatching the top job from Xi.

     Ling Jihua, former head of the General Office of the Communist Party Central Committee and the chief political fixer for Hu Jintao when he was president, was arrested last year. His star had been on the decline since his son died when a Ferrari he was driving crashed on one of Beijing's outer ring roads. Xi's willingness to target such a close associate of Hu's has been much remarked upon.

     Among the numerous People's Liberation Army officers to have been detained in the crackdown, the biggest tiger was Gen. Xu Caihou. Xu was once the country's most senior military figure, serving as vice chairman of the Central Military Commission, China's equivalent of the U.S. Joint Chiefs of Staff.

     Another tiger to take a fall is Jiang Jiemin. He was head of the State-owned Assets Supervision and Administration Commission, the government body that oversees China's largest state enterprises, and one of the most influential commercial regulators. Jiang was previously chairman of PetroChina, and his arrest suggested that investigators' attention had turned to the state oil giant as they closed in on the biggest tiger yet to be captured.

     That takedown was finally announced in March, when Zhou Yongkang was charged with "serious disciplinary violations," a phrase often used to denote corruption. Zhou had built his power base in the state-owned oil industry as a general manager of PetroChina's parent. He went on to become minister for public security and a member of the Politburo Standing Committee, making him one of the nine most powerful people in China. He is the most senior leader to be arrested since the downfall of the Gang of Four after the Cultural Revolution.

Just how powerful?     

To an international audience, the unfamiliar names and titles can make it difficult to grasp the importance of these arrests and their impact on the Chinese political landscape. It may help, as a thought experiment, to imagine an American parallel -- although to be clear, this does not imply wrongdoing by any of them.

   If U.S. President Barack Obama were to go after "tigers" in the same way as Xi, the equivalent targets might include former Massachusetts Governor and presidential hopeful Mitt Romney; former Secretary of Defense Donald Rumsfeld; Karl Rove, a former White House deputy chief of staff and key political fixer for former President George W. Bush; Michael Mullen, the former chairman of the Joint Chiefs of Staff; and former Commerce Secretary Carlos Gutierrez -- not to mention scores of senior officers in the U.S. armed forces, leaders in state capitals and city mayors across the country.

     Seen from this perspective, the magnitude of Xi's crackdown becomes apparent.

     Some may question the partisan nature of these parallels. Does the analogy of a Democratic president arresting key Republican figures make sense when Xi is arresting members of his own party?

   The Chinese Communist Party, while unified on the outside, is riven on the inside by competing factions, with former President Jiang Zemin's "Shanghai clique" pitted against former President Hu Jintao and his Communist Youth League faction. It is notable that thus far in Xi's crackdown, no senior figures have been arrested in his own power base of Fujian and Zhejiang provinces or among the "red nobility" of which he is a member.

Far-reaching impact   

Beyond China's political elites, the anti-graft campaign is also having an impact on business.

     It is widely recognized that government activity, including the issuance of the all-important approvals that are essential to move business projects along, has slowed significantly in the face of the crackdown. This government stasis is the natural consequence of fear: fear of criticism and fear of being caught between powerful local interests and the scrutiny of the CCDI. Better to make no decision at all than to risk making the wrong decision.

     Premier Li Keqiang addressed the problem directly in his press conference at the conclusion of the annual meeting of the National People's Congress in March. "There is no room for incompetence or indolence," he said. "No government official should be half-hearted in doing their job."

     Meanwhile, corporate hospitality and entertainment, previously the lubricant for business transactions in China, have all but dried up.

     China has experienced anti-graft campaigns in the past, but none has lasted this long or claimed so many high-profile victims. Officials are used to hunkering down and waiting for the storm to pass, but as this campaign continues, it is giving all the signs of being a "new normal" for doing business in China.

     This brings with it a new challenge, for regulators and businesses, both local and foreign. In an environment where business was previously based on a long-established system of mutually supportive and reciprocal relationships, or guanxi, what are the rules now? If indeed we are looking at a new normal, business activity is likely to remain slow until all market participants learn to navigate this new landscape and to negotiate new normative rules for doing business in China.

Antony Dapiran is a Hong Kong-based partner in an international law firm.

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