China’s Corruption Crackdown might be weakening China’s entrepreneurial base

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By Jacob Maslow

Corrupt businessman
an putting money in suit jacket pocket concept for corruption, bribing, paying or business wealth

You have to hand it to Chinese head honcho Xi Jinping-he delivers on what he promises. After promising a crackdown on corruption, China’s paramount head definitely let the hammer down. It seems nobody is spared from the seemingly relentless crackdown of the Communist Party leadership on erring officials. Everyone from provincial heads to national bureaucrats are feeling the seemingly unstoppable and all-seeing sting of the Central government’s need to clean house.

At first glance, this can’t help but give foreign investors in China a great reason to be optimistic. After all, judging from Singapore’s experience, one of the best ways to maintain economic growth and make sure it lifts most of the population into the middle class is a transparent system. Government shouldn’t be in the habit of picking winners and losers depending on what last name your connection has or how fat the envelopes you hand over to local officials are. The greater the transparency, the more even the playing ground, the more efficient economic transactions. The more economic activity, the more wealth, profits, and yes, jobs are created. Moreover, jobs tend to be more secure due to the predictability of the business climate. Sounds good?
Well, not so fast. First, to seasoned China observers, the recent crackdown seems heavy on actual, perceived, or suspected political rivals. Corruption is still afoot except it seems the penny ante small background noise type of corruption is getting wiped out. It appears that corruption is still happening on a macrolevel. Just don’t try it on the micro level-regardless of your party position. The bigger cause for concern, kabuki anti-corruption theatrics aside, is the impact on China’s local capital.
Thanks to the ever inquisitive all seeing eye of the Chinese tax man and anti-corruption crusaders, it appears, based solely on foreign investor immigrant visa applications, a ‘millionaire exodus’ out of China. Lots of these fortunes were made during the years when the State and the tax man turned a blind eye to collusion between local officials and businesses. Now, these entrepreneurs (albeit corrupt) are under pressure and this might be fueling a capital outflow out of China. Considering China’s potentially disastrous housing situation as well as slowing manufacturing growth, this might be the last thing China needs. Chasing out your entrepreneurial base through an overly rigid anti-corruption campaign might not be the way to go.
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