China’s $14.5 Billion Test

Zhou Yongkang pictured in 2008. Photographer: Nelson Ching/Bloomberg
Zhou Yongkang pictured in 2008. Photographer: Nelson Ching/Bloomberg

It’s great that China’s President Xi Jinping is pouncing on ex-security chief Zhou Yongkang. By seizing assets worth an estimated $14.5 billion and launching the biggest corruption probe in modern history, Xi is showing he’s serious about curbing the excesses imperiling China’s future. Right?

That’s one possible upshot of the Reuters scoop sending shockwaves through Beijing. The other: It’s politics as usual, retribution against a man who irked the establishment by opposing last year’s takedown of Bo Xilai, the disgraced Chongqing Communist Party chief.

It’s anyone’s guess how this will play out, and that comes with its own bit of irony. We’re talking about the world’s second- biggest economy, run by a government that has slammed Malaysia for a lack of transparency over missing Flight 370. And the world is totally clueless over the meaning of a truly gargantuan development in Beijing.

Let’s hope the first scenario is the right one. On any list of reasons why Xi and Premier Li Keqiang face such a daunting task in altering China’s growth model away from cheap exports and excessive investment, corruption ranks at the very top. How, after all, did the head of domestic security and his family and cronies allegedly amass a fortune greater than the annual output of Iceland? This robber-baron dynamic has been part of the history of every industrializing nation from the U.S. to Russia. But China is fast raising the bar on obscene and politically-embarrassing wealth grabs.

The Communist Party is top-heavy with entrepreneurial officials making billions of dollars off Beijing‘s status quo. A system driven by state-owned enterprises, shadow-banking activity and government support for national champions is proving astoundingly lucrative for all too many people. That kind of money makes the reforms Xi and Li plan dangerous to the ranks of the Communist Party’s nouveau riche.

Why work with China’s leaders to level playing fields when it will stop you and your extended families from joining the 0.001 percent? Why support the greener growth Chinese need to breathe safely when the real profits are in sticking with cheap coal? Why welcome a bigger private sector when it will compete with the politically-connected companies making you rich? Why work to make China less export-dependent when dodgy invoicing is so ridiculously lucrative?

Ending this toxic dynamic is the key to reform, and it will require tremendous political will. Only, Xi’s pledge to take on the problem has been mostly talk thus far. And Beijing’s crackdown on the international media — shutting down websites, holding up travel and work visas for reporters — belies even those words.

Until Zhou, that is. Prior to this case, the bulk of Xi’s anti-graft initiatives have been small beer: limits on holiday gifts, elaborate banquets, red-carpet ceremonies and fancy flower arrangements. If we give Xi the benefit of the doubt, this investigation could be the inflection point for which the world has been hoping. It could indeed mark a first strike in his campaign to go after both the “tigers” of graft as well as the “flies.” Zhou is clearly a big cat.

No doubt Xi doesn’t mind also punishing a rival and adding to a concentration of power greater than any Chinese leader since Deng Xiaoping. But let’s hope the Zhou case is a harbinger of things to come. Nothing would increase the odds of positive change in China’s economy faster than bringing Beijing’s robber barons to justice.

(William Pesek is a Bloomberg View columnist. Follow him on Twitter at @williampesek.)

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