Socialist Worker

China Crisis: Bo Xilai, corruption and looming economic slowdown

China’s economic miracle long since passed, writes Charlie Hore, and now the country’s ruling class is threatened by new social explosions

Issue No. 2316

Shanghai’s skyline at night (Pic: on Flickr )

Shanghai’s skyline at night (Pic: Weijie~ on Flickr)

The fall of prominent Chinese politician Bo Xilai earlier this year exposed the depths of corruption in China’s ruling class. Much of the media here is focusing on his wife, Gu Kailai, who last week stood trial for murdering a British businessman.

Corruption in China goes far deeper than these two. Yet the allegations against them shed a light on what the Chinese ruling class looks like, and how class power is shifting in China.

Bo Xilai’s spectacular fall from grace was the biggest disgracing of a senior Chinese politician since the 1990s. He was the Communist Party boss in Chongqing, a province in Southwest China.

Later this year the ruling Chinese Communist Party will hold a congress, at which they will reveal their economic plans for the next five years. The congress will also produce a new leading body. This committee of nine men are some of the most powerful people on the planet.

Seven out of the nine current members are stepping down this year, and so there is intense competition for the empty places. Bo Xilai was slated to be on that committee.

He made a name for himself as a populist, supposedly tackling corruption and harking back to the “good old days” of the Cultural Revolution.

What was less well known is that he was also running private jails, and shaking down local businesses for contributions to his personal funds. Bo Xilai was running a state within a state.

The wheels started coming off in February when his chief of police sought political asylum in the US consulate in a neighbouring province. He claimed that Bo Xilai was going to have him killed.

At this point Bo Xilai’s enemies, of which there were lots, saw their opportunity and removed him. He has now been sacked from all his positions and has disappeared.

Bo Xilai is a “princeling”, one of the people who have risen to power because of who their fathers were. There is a split in the ruling class between the “princelings” and people who succeeded on their own merits, but it is about personal rivalries rather than policies.


There are also huge splits between the princelings themselves. You can see decades-old family rows shaping politics today. One of these princelings, Xi Jinping, is set to take over as Chinese premier later this year.

Although he appears to be clean, almost all of his family have made huge profits as he’s risen up the Communist Party machine.

If this is what China looks like at the top, what does it look like slightly further down? The recent story of the businessman Lin Chunping from a city near Shanghai is instructive.

The state media reported that he had taken over the Delaware-based Atlantic Bank in January. He received a government appointment and state media called his business experience “legendary”.

But when he came under investigation for another set of dealings, someone made a routine phone call to Delaware. They then discovered there was no such thing as the Atlantic Bank­.

It’s important to understand where corruption in China comes from. It’s often thought that what happened there in the 1980s is the same as what happened to Russia and eastern Europe in the 1990s.

There, as state-owned industries became privatised, the people running them simply moved sideways and became private capitalists. China is more complicated.

Most economic growth came from state-owned industries, or collaboration between the state and private (often foreign) capital.

However, economic power shifted within the state. The central ruling class gave up their tight controls over all aspects of the economy to local managers and officials.

They were allowed to keep profits generated in their areas and encouraged to use them in their own interests. The idea was to encourage local entrepreneurship—and it worked.


There’s no good measure of how much corruption affects the Chinese economy as you can only look at who gets caught. But one estimate from the central bank says that over the last 20 years some 16,000 people have fled China because they were about to be exposed as corrupt.

They took with them 125 billion US dollars. That’s roughly the value of what China imports from the US in a year. This is organised, sustained corruption at the very top. And the Communist Party is central to it.

The Communist Party still runs all state-owned industry, and around 40 percent of top bosses in private firms in China are members of the party.

How does this drive growth? In normal economics, corruption is seen as a tax on profits. But in China officials are driven by the need to grow businesses so they can take their cuts. And some of the money stolen does get ploughed back into productive businesses.

In the countryside the dynamic is slightly different. The state machine has expanded while the direct tax base has shrunk. This produced both an expansion of village industry in the 1980s, and the illegal taxes that sparked a wave of resistance in the 1990s.

The central ruling class relies on an army of local officials that it can’t trust or effectively discipline. Some 50 million people work for the state in China. One million take their orders directly from Beijing. The rest work for the provinces, the towns, the counties and so on.

This endemic corruption angers people—and has the potential to unite people too. Everyone knows a manager or official who is corrupt.

The economic crash of 2008 (see below) has also led to an increased level of resentment in China. This makes the ruling class particularly nervous.

The last 20 years have seen a huge rise in the number of strikes, demos, protests and riots—what China’s rulers call “mass group incidents”.

There were around 8,000 such incidents in 2004. In 2007 the figure was 80,000. The government has since stopped publishing the figure, but one estimate for 2010 puts it at 180,000. In June, for instance, there were two outbreaks of rioting in the southern province of Guangdong.


More recently there have been two campaigns, in cities hundreds of miles apart, against factory pollution. Both campaigns were run using social media—and school students were at the heart of both.

Observers noted the students showed no fear of the police. One of the campaigns has won—the factory has been scrapped—and in the other the fight goes on.

That explains why such incidents keep exploding—most of the time, people win. Similarly, it makes sense to strike because even in state-owned industries the local management has the power to increase wages.

You can tell how scared China’s rulers are from the fact that spending last year on internal security was higher than the arms budget.

It’s important to stress that this is not a “China Spring”. These are battles fought against individual officials or managers, not to change the regime. And they don’t necessarily link up.

Strikes are the most likely actions to generalise. In the summer of 2010 there was a spate of strikes in the car industry. It was marked by a high degree of organisation, with workers openly electing stewards.

It was also notable for offensive demands—people asking for more money and shorter hours. And, they had specific demands—such as to be paid the same as workers at the same company 200 miles away. They knew what wages were because they’d linked up on web chat sites.

There was also a tendency for one strike to kick off another—the growing confidence a new generation of migrant workers.

It’s not always articulated but they have a sense that the boot is now on the other foot, and that they have a power that their parents didn’t have.

Bo Xilai was trying to surf this wave of discontent and has come a cropper. Other wings of the party try to co-opt the resistance. But it’s a high risk strategy.

Before the 1917 Russian Revolution, officials in Russia set up legal unions to try and undercut the Bolsheviks but the plan backfired and instead furthered the coming revolution.

There’s no easy solution for the ruling class. If the economy slows down significantly there’s potential for an even greater explosion of anger from below. China’s rulers well understand that all the ingredients are there—what’s missing is a detonator.

How China’s boom turned to bust

There have been two separate periods of growth in China. The first was from the late 1970s until 1989. The second boom ran from 1991 to 2008 and was based on exporting industries in coastal provinces—often with significant foreign investment.

They were staffed by a seemingly endless supply of migrant workers from the countryside. Industries there exported overwhelmingly to the US and manufactured everything from clothing to electronics and aircraft.

The speed at which changes took place is striking. In 2000 there were no DVD players made in China. By 2005 most of the world’s production came from China.

This made for an incredibly high level of growth, but it wasn’t sustainable—despite most general histories written during that period assuming the economy would carry on expanding forever.

The crash of 2008 put between 25 and 30 million workers out of work as exporting factories closed. The state responded with increased spending on infrastructure, such as housing, railways and roads.

This stabilised the economy for a while. But today all indicators show China’s economy is again slowing down rapidly.

The building boom can’t last. Already flats and houses lie empty. And the supply of migrant labour is drying up because of China’s one child policy.

Further reading

Click here to subscribe to our daily morning email newsletter 'Breakfast in red'

Article information

Tue 14 Aug 2012, 17:44 BST
Issue No. 2316
Share this article


Mobile users! Don't forget to add Socialist Worker to your home screen.