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Stealing from the Farmers: Institutional Corruption and the 1992 IOU Crisis

Published online by Cambridge University Press:  12 February 2009

Andrew Wedeman
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In recent years, sinologists and leaders of the Chinese Communist Party have come to view “endemic” corruption as the “Achilles′ heel” of Deng Xiaoping's reforms. Corruption, they assert, has weakened the Party and threatens to push it into a “life and death” crisis of legitimacy. Such views accord with a conventional wisdom that treats corruption as the episodic and catastrophic variable in a punctuated equilibrium model. In this construct, although it may generate political discontent and mass alienation, corruption lies dormant most of the time and only becomes politically significant when both the stakes involved and the number of officials engaged in corruption reach extraordinary levels, and the regime fails to bring corruption under control, at which point it becomes a factor in mobilizing anti-government agitation.3 Without such crises, corruption's tangible political consequences remain quite limited or at least latent.

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Research Notes
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The China Quarterly , Volume 152 , December 1997 , pp. 805 - 831
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Copyright © The China Quarterly 1997

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12. As revealed during the 1993 anti-san luancampaign, many of the arbitrary taxes and fees collected by local governments and central department had in fact been authorized. As a result, even though many localities violated State Council regulations limiting taxes to 5% of farmers′ previous years income, the fees and taxes were actually legal. In many areas, local governments also find themselves forced to levy taxes in excess of the 5% limit because they simply cannot get by on legal taxes and subsidies from the unitary budget, thus creating a situation where institutional corruption may be driven as much by fiscal need as institutional

13. Misappropriation, particularly by banks, treads a fine line between the improper and the illegal and, therefore, the misuse of power and the abuse of power. Even though they had a certain amount of discretion in using deposits and could make short-term inter-bank loans, banks violated regulations governing the management of procurement funds in several ways. First, the Agricultural Bank was prohibited from using procurement funds to make commercial loans and any inter-bank loan made for the purposes of re-lending was illegal. Secondly, because criminal misappropriation occurs when funds lent out without proper authorization cannot be recovered in a timely manner or if the unauthorized use of funds causes the state financial losses, any bank that failed to recover short-term bank loans in a timely manner was in violation of banking regulations. Thirdly, financial regulations stipulate that banks must report any income generated by inter-bank loans and could be subject to criminal prosecution for tax evasion if they failed to report such income or stashed the funds in unregistered accounts. In the case of procurement agencies, any lending of procurement funds allocated to them by the Agricultural Bank violated regulations stipulating that such funds must be maintained in specialized procurement accounts held by the Agricultural Bank and may not be relent. According to regulations, organizations found guilty of misappropriation can be subject to confiscation of unauthorized funds and fined. Officials may also be held criminally responsible and prosecuted if they were directly involved in the misappropriation of funds or if units they directed engaged illegal acts. See “Zuigao renmin jiancha yuan, Guanyu renzhen chaban danwei xinghui shouhui fanzui tiao an de tongzhi” “Supreme People's Procuratorate, ‘Notice regarding the conscientious investigation of units involved in making or accepting bribes’”), 22 October 1993, in Jiancha shouce,1993 (Procuratorate Handbook)1995, p. 133; An Interpretation of Changes in the Penal Code,1994, ch. 1; Controlling Economic Crime in China,1995, ch. 15; and Guidance for Work on the “Three Clears and One Stop”1994.

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95. Institutional corruption continued during the clearing process. In Anhui, for example, local governments misappropriated funds or inflated the amount of outstanding IOUs. In other areas, local governments grabbed a share of the repayment funds by having banks transfer them to village governments, which then stripped off a healthy percentage in irregular fees and “village deductions” or as repayment for contrived debts. Others gave farmers “material purchasing tickets” instead of cash for their IOUs. When stores refused to accept these tickets, farmers complained that the government had “drawn pictures of food to ally their hunger.” Other localities collected farmers' promissory notes and then pocketed repayment funds, leaving the farmers holding “invisible grey slips.” Even after they received additional funds from the central bank, local authorities in some areas continued to default on payments. In Hunan, the Linli county branch of the Industrial Commercial Bank failed to hand over 970,000 yuanof funds allocated by the provincial bank for the purpose of settling IOUs, while the local finance bureau diverted 1.50 million of the 2.20 million yuanprovided by the People's Bank. Hubei ribao,June 1993, p. l;Xinhua,8 January 1993, in FBIS, 12 January 1993, pp. 38–39]Google Scholar; Henanribao,29January 1993, p. 1]Google Scholar;Nongmin ribao,15February 1993, p. 3]Google Scholar;Nongmin ribao,15 February 1993, p. 3]Google Scholar; Jingji ribao,10 October 1993, p. 7]Google Scholar; Hunan ribao,5 October 1993, p. 7]Google Scholar; and Hebei ribao,29 January 1993, p. 1.]Google Scholar

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127. The regime has, for example, been battling the “three disorders” since the mid-1980s, with major campaigns undertaken in 1990 and 1993.

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129. Ibid.