The Dragon Must Tame the Chicken

There is power in discretion. If you are in a position of power to enforce a rule or regulation, or to grant an authorization or award a contract, your power is inverse to the clarity of the rules and procedures in place to guide and control your actions.

That is one of the reasons why strong governments tend to write brief and imprecise rules and why liberal Western democracies often wordsmith new regulations to death. And why a strong, independent judiciary is considered essential to sustainable social and economic development.

As I have noted in the past, local politicians and regulators in China have historically enjoyed broad latitude to interpret and enforce regulations as they see fit. Or to award the spoils of government, such as public building contracts, without the transparency of strict checks and balances. While the Party has represented a political monolith the regulatory and legal tapestry of China has been extremely fragmented and localized. This both maximizes the control of the state (‘You are wrong when I say you are wrong.’) and allows for positive accommodation of local needs and/or interests (a good thing).

But in another variation of the Law of Unintended Consequences such local autonomy can both thwart the nation’s greater interests and opens the door to even greater levels of graft and corruption. Selling access and discretion occurs in every country in the world, including virtually all of the liberal Western democracies, who have simply codified the process and given it a benign name. But when even minor local officials wield extraordinary discretion the opportunity to introduce inefficiency into the governing process increases exponentially.

While the current Chinese government has amply demonstrated its willingness to cage renegade tigers (political jargon for corrupt high-ranking officials) it has also swatted the flies (corrupt low-ranking officials) who arguably do more damage to China’s civil and economic interests than the tigers themselves. There are obviously a lot more of them and they tend to touch the lives of the Chinese people in more frequent and direct ways.

While the world’s attention was on the APEC forum hosted at Yanqi Lake, a picturesque suburb of Beijing, officials in bordering Hebei province raided the home of Ma Chaoqun, former general manager of the State-owned water company in Beidaihe, a tiny city little known outside of the region.

Mr. Ma literally occupied the lowest level on the rung of China’s officialdom ladder. Yet in his home investigators found 120 million yuan in cash ($19.5 million), 37 kilograms of gold bullion, and the titles to 68 real estate properties. (If the cash alone had been in 100 yuan notes it would have weighed 1.38 metric tons.)

It is an extraordinary tale. This, after all, was a man who reportedly rode his bicycle to work and dined mostly on noodles. What is most extraordinary to me, however, is what this says about the potential magnitude of the problem, or, because I am an eternal optimist, the potential magnitude of the opportunity.

What if, as President Xi and Premier Li have promised, all of this money, at every level of government, is redeployed for the benefit of the citizenry rather than the governing establishment? The potential impact on the well-being of the average Chinese citizen is almost inconceivable. Even if it is not distributed in equal portions, the impact on the country’s general level of economic activity is almost unimaginable.

And this, I believe, is one of the reasons why the current administration is pursuing corruption with such vigor, why no ‘tiger’ has been spared, and why the 4th Plenary Session of the 18th Central Committee of the Communist Party of China recently held in Beijing was devoted to the rule of law. Whether you think of it as the rule ‘of’ law or rule ‘by’ law, the one inevitable result is that local government officials will have less discretion to interfere in or influence law, regulatory enforcement, and the granting of lucrative rights and contracts.

There is an old saying in China that ‘it is better to be the head of the chicken than the tail of the dragon.’ Said differently, the mayor of a 3rd tier city may live a better life than a vice deputy of a national bureau based in Beijing who is under a national spotlight and whose personal discretion is probably more limited.

This has created an entire industry of highly successful but largely local companies that, whatever product or service they provide, they ultimately excel in the business of government relations. They have excelled financially, but they have excelled, in part, because of the enormous benefits they have enjoyed from special access or selective treatment.

One such company with which I am familiar was recently rumored to have made a strategic decision to pivot out of a highly regulated industry in which it has prospered mightily into a completely unrelated industry in which they believe they can compete once the industry in which they currently compete becomes unregulated.

This, I believe, as is the government’s crackdown on graft and corruption at all levels of government, great news for both the country of China and the average Chinese citizen. Chinese companies are more than capable of competing in global markets without the aid of government largesse here at home.

By unleashing the economic energy and impact of the Chinese entrepreneur and small businessperson I believe President Xi and his supporters can create an economic engine unparalleled in modern history. With a strong cultural work ethic, a large domestic market on which to build, and the capital created by one of the highest savings rates in the world, a Chinese economy unfettered by the excessive manipulation of local Chinese political discretion can create enormous economic progress while remaining true to its compassionate Marxist ideals.

That, in the end, I believe, is the Chinese Dream so frequently referenced by President Xi. It can be a reality. To put it in uniquely Chinese terms, however, the dragon must first tame the chicken. There are many to tame but I believe this dragon is up to the task.

In China it is said that it is better to be the head of the chicken than the tail of the dragon.  But times are changing.
In China it is said that it is better to be the head of the chicken than the tail of the dragon. But times are changing.

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Copyright © 2014 Glassmaker in China

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