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The Gaping Hole in China’s Corruption Fight

August 1, 2013, 3:03 PM

The Gaping Hole in China’s Corruption Fight

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By Stanley Lubman

The ongoing campaign against corruption that forms the backbone of new Chinese president Xi Jinping’s reform platform is not nearly robust as Communist Party media would have us believe. It is directed more at symptoms than causes and is limited in scope due to fears of citizen agitation on broader issues such as press freedom and transparency. It also suffers from a glaring and an important omission: The judicial system, although it should be the appropriate institution for exposure and punishment of offenders, is itself infected by corruption that up to now has gone unmentioned.An ongoing Chinese government investigation into drug maker GlaxoSmithKline for allegedly using a travel agency to channel some 3 billion yuan in bribes highlights the depth of China’s corruption problem. Even in the country’s hospital system, where lives hang in the balance, doctors and other medical staff routinely take kickbacksfrom pharmaceutical firms and sellers of medical equipment.

Xi Jinping rightly recognize that corruption is so deeply embedded in Chinese political life that it threatens the very life of the Communist Party. But going after foreign companies is relatively easy. The question is whether Xi and the rest of the party leadership are willing or able to confront more fundamental abuses at the heart of the political system.

The credibility of China’s current anti-corruption campaign has plummeted following a crackdown on activists calling for greater governmental transparency. More than a dozen have been taken into custody in recent months, including well-known human rights advocate, law lecturer Xu Zhiyong, who was detained by Chinese police in Julybecause he had “gathered crowds to disrupt public order.” In May, Xu, together with others, issued an open letter that urged release of 10 activists who had been arrested for publicly demonstrating against corruption and who had called on officials to disclose their financial assets.

By detaining Xu, Chinese authorities have silenced one of the country’s more prominent advocates of legal reform. In doing so, they have lessened pressure on themselves to confront the corruption infecting the country’s courts.

To be sure, in recent years judicial professionalism in China has increased, and the the number of court personnel investigated for violations of discipline has fallen, from 712 in 2008 to 519 in 2011. Yet many who work in the system continue to describe it as severely impaired. Not long ago, a lawyer in a large Chinese law firm told me that he avoids litigation as much as possible because of rampant corruption in the courts.

The problems of the courts have been well-documented. Available sources summarized here suggest that the wide extent of corruption is facilitated by the way the courts are organized and supervised. The courts are not independent because they are bureaucratic organs in the political system, no different than other government agencies. As Hong Kong-based political scientist Gong Ting wrote in The China Review, the finances of the courts are determined by the local government. Senior judges are nominated by the local CPC Committee and endorsed by the local People’s Congress, meaning judges whose decisions are seen to violate Party policy may be discharged or otherwise punished. The courts are subject to the extra-legal authority of the Political-Legal Secretary of the local Party Committee, which deals with difficult and important cases referred to it.

The courts are not publicly accountable because decision-making is dominated by their Adjudication Committees, composed of senior judges who are also members of the Party leadership within the court. The Adjudication Committee is supposed to review “significant” or “complicated” cases—although neither term is legislatively defined and judicial discretion is very broad.

Xin He of City University of Hong Kong studied one court in which the committee reviewed most criminal cases, often increasing criminal fines, likely because the court was seeking increased revenue. Civil cases were reviewed because “the committee is a good shelter for avoiding risk.” The adjudicating judge, who originally heard the case, is relieved of responsibility if any solution turns out badly– because the committee decides cases collectively. Last but not least, the committee is a “safety device to protect the adjudicating judges and the committee members from being accused of corruption.” It can also “accommodate ….extra-legal interferences,” such as judicial accession to easily hidden outside political demands.

Another study, by Li Ling from the Northwest University of Political Science and Law, relies on media reports and press releases related to charges of corruption against 388 judges between 2005 and 2008. The author argues that judicial corruption is not the “deviant behavior of a few black sheep eluding prescribed judicial conduct” but “an institutionalized activity” at the center of the judicial system, embedded in courts’ decision-making process. She also found that corruption isn’t limited to higher-level judges; it frequently involves lower-level judges, whether collaborating with superiors or acting on their own.

The power of the Party leaders embedded in the courts is comprehensive. Without participating in court proceedings they can instruct leaders of the court by sending internal instructions to their subordinates that merely dictate the desired result in the case and do not have to be supported by any reasoning, nor referenced in the final decision. Moreover, the Party leader who issues the instruction “is not responsible for the legitimacy of his acts,” even if procedural or substantive laws are violated or misapplied. The leaders can control the outcomes of many cases without ”rational legal interpretation and adjudication.” even though they do not participate in the entire process of adjudication– a perversion of the judicial function as it is understood in systems based on the rule of law.

The issue of corruption in the courts has not been raised in the current anti-corruption drive, probably because judicial reform of any kind would affect the basic roots of CPC power. One American scholar, Elizabeth Economy, observes that there is “no institutional change to ensure that that roots of corruption are addressed” and none seem likely in the near future.

A number of foreign observers seem to agree that the Party-state’s concern to maintain “social stability” is the reason limiting the reach of the campaign. As Beijing-based political scientist Russell Leigh Moses put it in a column for China Real Time last month, “the issue is how much information and oversight do you give people without undermining party rule.”

Failing to hold the legal system accountable for its own corruption may be hypocritical, but it’s a hypocrisy the Party likely believes it must live with at the moment, even if it will came back to haunt them later.

Stanley Lubman, a long-time specialist on Chinese law, is a Distinguished Lecturer in Residence at the University of California, Berkeley, School of Law. He is the author of “Bird in a Cage: Legal Reform in China After Mao” (Stanford University Press, 1999) and editor of “The Evolution of Law Reform in China: An Uncertain Path” (Elgar, 2012).

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Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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