China Cash-for-Votes Scandal Shows Xi’s Graft Challenge

China Cash-for-Votes Scandal Shows Xi’s Graft Challenge

A cash-for-votes scandal in China’s southern city of Hengyang that snared more than 500 lawmakers underscores the challenges facing Xi Jinping as he enters his second year in charge of the world’s second-biggest economy.The unprecedented electoral fraud, which led to the resignations of almost the entire city People’s Congress, was disclosed on Dec. 28, less than a week after the ruling Communist Party issued a new plan to fight corruption and described the situation as “critical and complicated.”

Authorities are intensifying a graft crackdown a year after Xi took control of the party with a warning the issue could lead to social unrest and end its six-decade grip on power. Targeting both “tigers and flies” — as Xi described perpetrators of all ranks — may bolster the party’s image as economic expansion slows and public discontent over corruption spreads.

“Any corruption scandal is a good scandal for the government as long as they play it right because people know that corruption permeates their political landscape,” said Thomas Koenig, London-based coordinator for the China & Asia Programme at the European Council on Foreign Relations. “This case is unique as there is a widespread, simultaneous crackdown rather than one scapegoat being used as a symbol for the commendable fight so the world is presented with a more systemic problem.”

Xi became head of the party in November 2012 after a once-a-decade power transition to a new generation of leaders, and took over as president of the country in March this year.

Incompetence, Corruption

The Central Committee on Dec. 25 issued a five-year plan to combat corruption, warning that the party is confronted with “increasingly grave dangers of lack of drive, incompetence, being out of touch with the people and corruption,” according to a Xinhua News Agency report.

While China is ruled by the Communist Party, villages and towns hold local elections, and administrative areas including cities and provinces have People’s Congresses whose members are chosen by vote. The congresses have historically followed the party’s orders.

The People’s Congress of Hengyang city in Hunan province accepted the resignations of 512 members found to have taken bribes to vote for candidates for the provincial congress, according to a Dec. 28 Xinhua report, citing a statement from the lawmaking body.

Election Voided

The election of 56 delegates to the provincial congress was invalidated after they were found to have offered 110 million yuan ($18 million) in bribes to 518 city lawmakers and 68 staff, Xinhua said, without giving more details. A total of 527 municipal lawmakers were present at the election for the provincial congress, which took place from Dec. 28 2012 to Jan. 3 2013, according to Xinhua.

Hengyang, about 925 miles (1,490 kilometers) south of Beijing, had a population of 7.14 million in 2010, according to the city government website.

The cash-for-votes scandal was disclosed less than two weeks after the party’s anti-corruption watchdog said Tong Mingqian, a vice chairman of the province’s political advisory body and former party secretary of Hengyang, was being probed. Hu Guochu, the head of the city’s congress, has also been removed and is under investigation.

Xinhua’s report named Tong as “directly responsible” for the corruption. Hunan’s procuratorate has started an investigation into the fraud, Xinhua said in a report late yesterday.

Closed Election

“This is just the tip of the iceberg, it’s a very common problem,” said Qiao Mu, director of the Center for International Communication Studies at Beijing Foreign Studies University, who unsuccessfully stood for election to the Haidian District People’s Congress in 2011 as an independent candidate. “In a closed election like this where candidates know who the voters are, there’s more likely to be corruption. If you pay for votes you won’t necessarily win, but if you don’t you’ll definitely lose.”

The problem has become more widespread since the party introduced competitive elections at local level a few years ago, said Qiao. Becoming a member of the congress is attractive because it bolsters reputations and opens up a network for contact with politicians and business people, he said.

“When there was only one candidate for one position there was no need to bribe anyone, because you were guaranteed the seat,” he said. “But now there are 10 percent more candidates than seats.”

Wukan Protests

Businessman Huang Yubiao said he gave about 320,000 yuan in bribes in a failed bid to win a seat on the Hunan People’s Congress, according to a Xinhua report on Jan. 30. Huang was chairman of a private building materials company in Guangdong province, it said, adding that the government had set up a team to probe his claims.

One of the highest-profile cases of fraud took place in Wukan, a fishing village in southern Guangdong province which grabbed world attention in 2011 after residents barricaded themselves in and forced politicians out of office. Their protests were triggered in part by election violations.

Xi’s campaign against corruption has extended from village officials and executives at state-owned companies to provincial governors and members of the elite central committee of the Communist Party. Since November 2012, at least 15 ministerial level officials have been probed, according to a Dec. 21 report in the China Daily newspaper.

Elite Snared

Prosecutors investigated 22,617 cases of graft in the first eight months of this year, 3.6 percent more than a year earlier, Xinhua said in October, citing the Supreme People’s Procuratorate.

Vice Minister of Public Security Li Dongsheng is under investigation, according to a Dec. 20 statement from the Central Commission for Discipline Inspection. He’s the second member of the central committee to be held this year for suspected graft after a probe into Jiang Jiemin, then head of the State-owned Assets Supervision and Administration Commission, was announced in September.

Guangzhou, the capital of southern Guangdong province, told 2,014 village chiefs to hand in their passports to prevent corrupt officials from fleeing abroad, the Guangzhou Daily reported Dec. 21.

“Frankly if the government was seriously trying to crack down on all the corruption cases in China, the government would in all likelihood be rendered useless and at a standstill,” said Koenig. “The government is for now content with identifying high-profile cases here and there and exposing and humiliating those people with the greatest delight.”

To contact Bloomberg News staff for this story: Nerys Avery in Beijing at; Helen Sun in Shanghai at

About bambooinnovator
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 (, 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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