Wealth and power

It's a family affair

Jun 30th 2012, 13:54 by The Economist | BEIJING

IN RECENT years China’s leaders have become increasingly concerned that the public’s awareness of the growing wealth gap could lead to social instability.

In Beijing, displays of gratuitous overcompensation are a daily reminder that some people, in keeping with a famous dictum of Deng Xiaoping’s, have indeed got rich first. Officials last year even went so far as to try suppressing ads that promote “luxury lifestyles”—lest the have-nots be inspired to rise up and storm the local Lamborghini dealership.

Perhaps even more troubling for the Party is the surge in scepticism over how such wealth seems to find its way into the hands of officials and their families, not to mention into those of their beloved Swiss bankers, English boarding schools and Australian estate agents. Particularly galling are the reports about the great number of officials who have taken to working “naked”. That is to say, many officials are working in China while their wives, children and, presumably, a chunk of the motherland’s money take residence overseas. A report released last year  estimated that as much as $120 billion may have been transferred abroad by corrupt officials. 

The Chinese media have been given greater freedom to report on corruption and the financial shenanigans of large companies of late. Which makes it all the more striking that reporting on the business activities of the Central Committee’s wives and offspring is still strictly forbidden.

An exception can be made when one of the select few falls from grace. Earlier this year, after Bo Xilai, a rising star, was cashiered from his position as the Communist Party secretary of Chongqing, authorities became notably less rigorous in censoring microblogs about his family (though to this day his case remains a taboo subject in the state media). Although formal charges against him have yet to be announced, plenty of stories have emerged in the foreign press about the almost unbelievably twisted business dealings of Mr Bo’s wife, Gu Kailai. In those reports Ms Gu, a lawyer by training and the daughter of a PLA general, has been accused of stashing assets overseas, finagling a spot for her son at the Harrow School, having affairs with two of the foreign gentlemen—Neil Heywood and Patrick Devillers—who helped her to arrange all of this and, when these economic and romantic entanglements became too sticky, orchestrating and personally supervising the November 2011 murder of one of them in a Chongqing hotel.

So one can only imagine the consternation caused by yesterday’s sensational exposé by Bloomberg, which details the financial assets belonging to the family of China’s president-in-waiting, Xi Jinping. Bloomberg was careful to note that no part of their investigation directly implicated Mr Xi, his wife, herself a famous PLA officer-cum-singer, Peng Liyuan, or their daughter, who is reportedly studying at Harvard University under an assumed name. The Bloomberg report suggests that other close relatives of Mr Xi have been blessed with abundant good fortune, to put it mildly. The article ties Mr Xi’s sister Qi Qiaoqiao, her husband Deng Jigui, and another brother-in-law, Wu Long, to assets worth hundreds of millions of dollars, or even billions. Their holdings are reported to include stakes in real estate and telecommunications, as well as the sensitive business of producing rare-earth minerals.

The government’s response to the Bloomberg report was predictable. Both the Bloomberg and Businessweek websites are currently inaccessible inside China’s “great firewall”. Although access to Bloomberg Professional, an essential tool for businesses and China’s financial elite, so far remains unaffected.

It is often speculated that families of officials at all levels of Chinese government are benefiting financially from their access to power. In a country where even a state newspaper argues in favour of allowing a “moderate amount of corruption”, should it come as a shock if some of the people in power seek to monetise their positions through favours and largesse?

Probably not, but it’s pretty appalling all the same. With social tensions rising steadily, the public’s patience with the extravagance of the official class is wearing thin. Calls for greater transparency—not to be confused with any call for Western-style democracy—are growing louder. Many people in China have come to accept corruption as a fact of life, and feel that there is little that anyone can do to fix it.

Perversely the corruption of officials and their family members can serve as something of a check, as Mr Bo found out earlier this year. It ensures that no one in the system is invulnerable. The situation is like duelling with hand grenades. If everybody in your circle of power is dirty, then it’s to your own advantage not to do anything to jeopardise your position, lest the others use what they have against you.

The system also gives those in power precious little incentive to advocate for meaningful political reform. Too many people have too much “skin in the game”. Political openness would threaten not only the Party’s grip on power, but also a whole system which provides direct and indirect financial benefits to millions of relatively well-connected individuals. Factionalism abounds of course, but the divide is less between “reformers” and “hardliners” than it is between different political power-brokers and within their networks of patronage. Such competition becomes particularly fierce in the run-up to one of these once-in-a-decade leadership transition, as in 2012.

Given the stakes involved, it would seem Chinese officialdom should have no trouble appreciating a famous admonition made by an American polymath, Benjamin Franklin, some 235 years ago this week: “We must, indeed, all hang together, or most assuredly we shall all hang separately.”

Update, 5.30am GMT: At this hour not only Bloomberg's news sites are blocked in China, but also the page that hosts the article you just read. The rest of our site seems to be unaffected. You can check its status on WebSitePulse. Try inputting www.economist.com alongside:

http://www.economist.com/blogs/analects/2012/06/wealth-and-power to see the difference.

(Picture credit: AFP)