China's Red Nobility and the Non-Rule of Law

The scandal involving Chinese Politburo Princeling Bo Xilai is shaking up the autocratic elite coaltion that runs China. Bo and his wife are accused of abusing their political position to massively enrich themselves and their family. Bo's wife is also being investigated for murdering a British expat with whom she had business dealings. Her crime was reported by a former ally of Bo, Chongqing police chief Wang Lijun, who was so afraid of retribution that he even sought protection at the U.S. consulate.

As numerous reports make clear, Bo is far from being the only member of the Red Nobility to use political power to enrich themselves. Last week, the New York Times reported on how the children of Politburo members extract wealth from businesses eager to operate in China:

For example, Wen Yunsong, the son of Prime Minister Wen Jiabao, heads a state-owned company that boasts that it will soon be Asia's largest satellite communications operator. President Hu Jintao's son, Hu Haifeng, once managed a state-controlled firm that held a monopoly on security scanners used in China's airports, shipping ports and subway stations. And in 2006, Feng Shaodong, the son-in-law of Wu Bangguo, the party's second-ranking official, helped Merrill Lynch win a deal to arrange the $22 billion public listing of the giant state-run bank I.C.B.C., in what became the world's largest initial public stock offering.

Much of the income earned by families of senior leaders may be entirely legal. But it is all but impossible to distinguish between legitimate and ill-gotten gains because there is no public disclosure of the wealth of officials and their relatives. Conflict-of-interest laws are weak or nonexistent. And the business dealings of the political elite are heavily censored in the state-controlled news media.

The spoils system, for all the efforts to keep a lid on it, poses a fundamental challenge to the legitimacy of the Communist Party. As the state's business has become increasingly intertwined with a class of families sometimes called the Red Nobility, analysts say the potential exists for a backlash against an increasingly entrenched elite. They also point to the risk that national policies may be subverted by leaders and former leaders, many of whom exert influence long after their retirement, acting to protect their own interests….

"This is one of the most difficult challenges China faces," said Mr. [Minxin] Pei, [an expert on China's leadership and professor of government at Claremont McKenna College in California]. "Whenever they want to implement reform, their children might say, 'Dad, what about my business?' "

There are also growing concerns that a culture of nepotism and privilege nurtured at the top of the system has flowed downward, permeating bureaucracies at every level of government in China. "After a while you realize, wow, there are actually a lot of princelings out there," said Victor Shih, a China scholar at Northwestern University near Chicago, using the label commonly slapped on descendants of party leaders. "You've got the children of current officials, the children of previous officials, the children of local officials, central officials, military officers, police officials.We're talking about hundreds of thousands of people out there — all trying to use their connections to make money."

China is a "natural state" still run by patron-client networks in which patrons distribute a bit of looted wealth to clients as a way to obtain their support if factional fighting breaks out among the elites. However, if a patron looks like he or she is going to lose a factional fight, clients will head for the hills. The Times today details just such a hasty retreat by former supporters of the fallen princeling Bo. Three leading businessmen with close ties to Bo tried to smooth over the rift between Bo and his police chief Wang Lijun. They failed, so they fled abroad. As the Times reports: 

The most famous of the three [Bo associates], Xu Ming, 41, listed by Forbes as China's eighth-richest person in 2005, had flown in on his private jet. He and the others held separate meetings with Mr. Bo and Mr. Wang. The damage was irreparable. The former intelligence agent, Yu Junshi, rushed home and stuffed a bag with 1.2 million renminbi, or nearly $200,000, to take to a bank with Ma Biao, the other businessman, known for his girth. Then all three fled to Australia within days, fearful of the fallout from a possible investigation of Mr. Bo.

Unfortunately for these Bo clients, they decided to return to China 10 days later when it looked like their patron would weather the scandal. They are now being held by the authorities as chief witnesses in the investigation against Bo. 

For more background see my column, China Needs the Rule of Law, detailing why this scandal bodes very ill for China's future political and economic prospects.