China's Princelings Problem

The time had finally come. China's new Politburo Standing Committee--in effect, the country's nine most powerful men--emerged from behind a carved wooden and lacquer screen to meet the nation. Every detail had been carefully scripted to give these leaders a proper debut as they lined up in a neat symmetry. Even their outfits matched: somber navy suits, white shirts, red power ties. China's new party chief, Hu Jintao, who was taking the helm from his predecessor, Jiang Zemin, introduced his colleagues in order of rank. One of them, No. 5 in the lineup, just couldn't restrain his grin. Zeng Qinghong beamed and waved at the media like a celebrity, as if the moment were his.

And in some ways it was. As Jiang's longtime protege and hatchet man, Zeng had just engineered a political coup. Two thirds of the new Standing Committee's members are Jiang allies, ensuring that the 76-year-old former leader will be a formidable presence as the party's elder statesman. China's first orderly succession since 1949 was a deep-reaching one. Nearly half of 300-odd top party positions are filled by new faces; all but Hu are new to the Standing Committee. But Jiang remains, for now, the head of the party's crucial Central Military Commission, further ensuring his continuing clout.

Much more was at stake than influence and office. Succession in China these days isn't just a contest for political power, it's a tussle for economic turf. For those at the pinnacle of Chinese power, politics can be a very lucrative calling, and some relatives of top leaders--often referred to as "princelings"--have amassed sprawling business empires through their political connections, or guanxi. Jiang's own U.S.-educated son, Jiang Mianheng, has been dubbed China's "prince of information technology" because of his ties to a number of information-technology ventures.

These princelings have also earned the resentment of the Chinese people, who perceive their influence-peddling as thinly veiled corruption, even by the standards of China's cowboy capitalism. So the leaders' maneuverings at a party congress are, in fact, a form of retirement planning, guaranteeing the protection of family assets and interests. For those princelings who succeed at being elevated during a leadership succession, their new political clout can translate into tremendous opportunities to expand family fiefdoms. Indeed, a number of the new faces in the 356-member Central Committee are beneficiaries of this patronage system. Zeng may have been grinning less for the cameras than for the thought of all the rewards he'd secured for his political mentor and cronies.

Not every senior official is crooked, of course, nor has every princeling leveraged his or her guanxi for material gain. But temptation abounds: huge profits are waiting to be made from the privatization of China's massive state firms, and leaders have access to deep reservoirs of government capital--all with little institutional oversight. "China has a hothouse economy with poorly regulated markets and large flows of foreign investment that all help feed corruption," says Steven Vickers, president of International Risk, a regional risk-management company. "When paired with spotty enforcement, it's an explosive mix."

Especially when the people catch on. Crooked princelings and spouses of cadres are No. 2 on a list of citizens' grievances, according to an internal party survey, just behind abusive, baton-wielding police. This public resentment is based partly on a handful of high-profile scandals in which political scions got tangled in dragnets, often inspired by party power struggles. But the people's intuition is correct. According to the party document, 78 percent of the suspects in fraud cases involving more than $600,000 have been related to senior officials. A full 98 percent of senior officials had relatives in significant government or business posts, with incomes up to 120 times the Chinese average. Chinese economists estimate that various types of corruption--including tax evasion, embezzlement and bribery--have bled about 14 percent from China's GDP yearly since the late 1990s. Given that state-sponsored reforms have left 25 million resentful workers without jobs, it's understandable that China's leaders often treat "red collar" crime like a state secret.

The newly promoted apparatchik who looks to have the most to hide is the unpopular Jia Qinglin, former mayor and party boss of Beijing. Jia's wife was implicated in a multibillion-dollar smuggling and tax-evasion scandal in the mid-1990s when Jia was party chief of Fujian province and his wife was a provincial trade official. During the investigation, Jiang went out of his way to be photographed with Jia, who had reportedly been best man at Jiang's wedding. "Everyone in the Fujian party apparatus knew about the smuggling," said a Beijing businessman with well-placed party connections. "So either Jia knew and he was corrupt--or he didn't know and he was incompetent." Either way, Jia was officially cleared, and last week he ascended to the No. 4 spot in the party's hierarchy of power. Of course, Jiang likely sees the advantage of having such a politically indebted ally elevated so high. "Jia will be very dependent on Jiang," says Sinologist Jean-Pierre Cabestan. "Jiang saved him from arrest and prosecution."

Jiang isn't the only leader concerned with having an insurance policy. Just ask Li Peng, China's outgoing Parliament head. His princeling son, Li Xiaoyong, became the target of angry Beijing protesters earlier this year. In a rare authorized demonstration, city residents carried placards blaming the young Li, a rising star in the state power sector, for involvement in a $60 million investment-fund scam. As he steps away from the political stage, Li Peng may well be counting on his protege Luo Gan--formerly the internal-security czar, now the ninth member of the Politburo Standing Committee--to shield him and his family from future inquiries into their business dealings.

It's not as though China's leaders are oblivious to the threat of unchecked corruption or have no fears that their country could descend into a kleptocracy. Fighting corruption was a big theme during last week's Party Congress. Wei Jianxing, who was stepping down as head of the party's powerful graft-busting discipline and inspection commission, warned party members "in high and low positions" that their posts were no protection against the long arm of the law--a rare acknowledgment of high-level wrongdoing. Jiang himself warned that without a serious crackdown on corruption, "the flesh-and-blood ties between the party and the people will suffer," and the party could find itself "heading toward self-destruction." Indeed, that part of his speech (along with a riff on reunification with Taiwan) won the "biggest cheers" during the session, says a Western diplomat in Beijing.

And yet, as his last act as the party's leader, Jiang stacked the deck of China's highest offices with scandal-tainted cronies like Jia. (Jia is the most blatant example, but at least two other Jiang loyalists named to the Standing Committee--Huang Ju and Li Changchun--have seen their names tainted by scandal.) The composition of China's top lineup "says a lot about how people plan to deal with corruption, which is potentially the most dangerous issue facing China today," says Murray Scot Tanner, a China expert at Western Michigan University. "Corruption is the gasoline that feeds the fire of almost any other, smaller crisis." And with rising joblessness, growing demands for social security and a terribly fragile banking system, China's newly installed fourth generation of leaders will have no shortage of fires to put out.

The challenge boils down to whether leaders who have benefited from corruption can be expected to turn around and rein it in. It may be too early to tell. But central-government graft-busters have actually made some progress since the flush, freewheeling early 1990s. China analyst Cheng Li agrees that corruption was more rampant back then, in part because "there's not that much money left to embezzle." That's cold comfort, but perhaps it can buy Hu and other top officials the time they need to reform the state apparatus. "Beijing needs to devolve real power and authority to legal and anti-corruption institutions, beyond the meddling of individual leaders," says Tanner. "But it's hard to look at this [new] assemblage and see strong personalities committed to doing that."

The task will fall most immediately to Wu Guanzheng, 64, a relative unknown who was catapulted last week to the Standing Committee and named the new head of the party's anti-corruption commission. (His first name, Guanzheng, means "upright official.") He doesn't have much experience leading investigations, and it's certainly a politically difficult job. But even if he takes his work seriously, Jiang Zemin at least has little to worry about. He's a friend, too.