Belmont Club

The Battle of the Monsters

In the highly touted “anti-corruption campaign” being waged by the Chinese Communist Party, corruption seems to be winning. The Washington Post reports that despite a year of campaigning China is now rated by Transparency International as ‘slightly more corrupt than places like Colombia, Egypt and Liberia’, falling 20 places from its former ranking.

David Frum believes corruption will win in any case.  He Tweets “In democracies, official is accused of corruption, loses power. In China, official loses power, is accused of corruption.”  Conviction of corruption is the fate of losers. The winners are always clean.  Frum’s bon mot would be more accurate had he deleted all before “in China”.

Beijing has launched “Operation Fox Hunt”, which seeks the cooperation of the Obama administration in running to earth those suspects who are hiding from the Chinese Communist Party in the United States.

China has asked the United States to help it track down more than 100 people suspected of corruption and who China believes are in the United States, a US official said on Friday.

The official, who declined to be identified because of the sensitivity of the matter, said those on the list had Chinese names but it was not clear if they were all Chinese nationals.

“The majority of them are related to crimes of corruption or economic malfeasance,” he said. “The list is not precisely clear in terms of the details of the nature of the crimes, the evidence or the whereabouts” of the accused.

The United States is where Chinese Communists go to spend their money. Hong Kong’s South China Morning Post describes niche travel agencies, catering to Communists, which specialized in arranging luxury tours to the US.

Almost every year for more than a decade, tour group operator Carson Zhang guided a delegation of about two dozen Chinese government officials from Guangdong province’s Forestry Administration for a two-week trip through the national parks of California, Tennessee, and Georgia.

Along with presentations about forest fires and trail preservation, the officials enjoyed lobster and steak dinners, went to see Tennessee bluegrass musicians perform, and made a stop at one of Orange County, California’s shopping malls.

Zhang’s company, American Carson International, catered almost exclusively to government tour groups from Guangdong. But in the past couple of years, official tourism from there has been scaled back, and the forestry group has not visited the US since 2012, Zhang said.

President Xi Jinping’s crackdown on government corruption, which began almost two years ago, has had a profound impact on this niche of the US tourism industry.

Carson International’s tour business has declined of late. Chinese Government officials formerly out for a good time are now on the lookout for safe houses to hole up in. “The Washington-based Global Financial Integrity Group estimates that $1.08 trillion illegally flowed out of China from 2002 to 2011.” After all, a trillion here and a trillion there and pretty soon you’re talking real money — the kind of money that will either buy you friends or make you enemies.

The Chinese Communist Party isn’t fighting “corruption” as much as trying to maintain its monopoly over it. Corruption can be understood as a measure of deviation from the norm, a variation from the true signal that can be counter-acted by error detection and correction. But the Chinese Communist Party doesn’t want the truth. On the contrary, it desires a monopoly on deception.

Jonathan Laing of Barron’s Asia argues that where all the money is — or if it exists at all — is China’s deepest state secret. He interviewed Anne Stevenson-Yang, research director for J Capital, “an outfit that works for foreign investors in China doing fundamental research on local companies and tracking macroeconomic developments.” She says that the whereabouts of the lucre is anybody’s guess:

People are crazy if they believe any government statistics, which, of course, are largely fabricated. In China, the Heisenberg uncertainty principle of physics holds sway, whereby the mere observation of economic numbers changes their behavior. For a time we started to look at numbers like electric-power production and freight traffic to get a line on actual economic growth because no one believed the gross- domestic-product figures. It didn’t take long for Beijing to figure this out and start doctoring those numbers, too.

I put much stock in estimates by various economists, including some at the Conference Board, that actual Chinese GDP is probably a third lower than is officially reported. And as for the recent International Monetary Fund report calling China the world’s biggest economy on a purchasing-power-parity basis, how silly was that? China is a cheap place to live if one is willing to eat rice, cabbage, and pork, but it’s expensive as all get out once you factor in the cost of decent housing, a car, and health care.

I’d be shocked if China is currently growing at a rate above, say, 4%, and any growth at all is coming from financial services, which ultimately depend on sustained growth in the rest of the economy.

Deception is exactly what you’d expect in a system consisting of rivalry between corrupt factions, in which the goal of President Xi Jinping’s faction is to find the hidden wealth of Zhou Yongkang’s clique so that they can keep it for themselves.  The only way to conceal the abstraction of one or two trillion dollars is to cook the books and lie on an unimaginable scale.

Amy Chang of the Center for New American Security writes (http://www.cnas.org/sites/default/files/publications-pdf/CNAS_WarringState_Chang.pdf) that unlike the American cybersecurity doctrine which focuses on preserving the technical integrity of information networks, China’s information strategy is much broader.  It focuses on information control; in particular the “sovereignty of networks within its own borders”.

China’s efforts are aimed at stealing commercial secrets, blackmailing enemies, finding financial fugitives, ferreting out the secret bank accounts of Chinese Communist officials and above all, keeping the deception going. It’s an all-encompassing political strategy. The Chinese Poliburo Standing Committee, like a spider sitting in the center of a web, is fixated on controlling its information environment through a plethora of agencies.

The CNAS Chart of the Chinese Information Establishment

The CNAS Chart of the Chinese Information Establishment

China’s efforts at deception are bound to fail in the long run. The sheer scale of corruption is an admission of how badly the Politburo Standing Committee has been outflanked. Since the replacements for corrupt officials will themselves be doubly corrupt, they too will be looking to find ways to hide the loot. The more corruption changes, the more it stays the same.

The force the Chinese Communist Party will find most difficult to contain in the long run is technical innovation. The globalized world which allowed China to grow rich demands a degree of transparency and veracity to function which the Politburo is not prepared to grant. The world is on the verge of an even more revolutionary changes: the Internet of Things, pervasive location, crowdsourced data, and artificial intelligence. None of these can work well without error correction and identification. A virtual world is critically dependent, at some irreducible level, on a correspondence with the truth.

The virtual world will be the field on which 21st dictatorships either die or gain absolute power. China understands this and has stretched out its controlling hand.


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