Corruption and China’s Economic Reform in the Early 21st Century

In: Business and Management

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Corruption and China’s Economic Reform in the Early 21st Century


Gregory C. Chow, Princeton University

CEPS Working Paper No. 116
October 2005

Acknowledgement: I would like to thank Steven Kou of Columbia University and Yan Shen of Peking University for helpful comments and the Center for Economic Policy Studies at Princeton University for financial support in the preparation of this paper.

Past economic reform of the state sector in China consisted mainly of privatization, of agriculture and of small and medium-size state enterprises, leaving large state enterprises in the control of the state. Current reform consists of making state-owned enterprises and banks more efficient and functioning like private enterprises, and gradual privatization of some large state enterprises. Bureaucrats managing state assets and the selling of assets take advantage of such power to benefit themselves, including embezzlement of public funds and taking bribes from citizens needing their help, as can be found in state enterprises, state-owned commercial banks and in government projects. Reducing the size of the government sector is a basic solution to the corruption problem in China while attention should be paid in the privatization process which can involve corruption.


1. Introduction
2. Review of Past Reform Measures and Current Problems
3. Enterprise Reform Hindered by Bureaucratic Behavior
4. Reform of Banking and Financial System Hindered by Corruption
5. East-West Income Inequality and Western Development Hindered by Corruption
6. Reform of the Legal System
7. A Theory to Explain Bureaucratic Behavior and Corruption
8. Policy Recommendation

1. Introduction

Reform of China’s economic institutions since 1978 has been a gradual process. A major theme of this paper is that corruption, while not a major hindrance to economic…...

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