Anti-corruption campaign will boost economy

China's GDP only overtook that of the United Kingdom in 2005, that of Germany in 2007 and Japan's in 2010, but today, it is almost four times more than the UK's, three times that of Germany's and more than two times that of Japan's.

One needs to remember that corrupt consumption of luxury goods and dining in expensive restaurants by government officials and businessmen is an "abnormal" phenomenon. It seemingly drives economic growth, but it accentuates inequality and causes social and political discontent.

With the anti-corruption campaign, China can improve political stability and the government can gain trust from the people. These are necessary conditions for social justice and long term economic growth.

In fact whether the anti-corruption efforts are helpful or harmful to economic growth in the short-term depend on the level of corruption. When the level of corruption is low, anti-corruption efforts will lead the economy to grow faster. However, when the level of corruption is high, the short-term effects of the anti-corruption efforts on economic growth will be negative, meaning that corruption's "lubricating" effect dwarfs its "drag" on the economy.

One could then argue that the current level of corruption in China is high, and hence, the anti-corruption campaign being maintained by Xi and Wang might in part have caused the Chinese economy to slow down. But this is only a small part of the full story. The truth is that the long-term effects of anti-corruption efforts on economic growth are far more profound than their short term impact.

In the long term, anti-corruption efforts will reduce the level of corruption, and hence, they will definitely promote long-term economic growth.

Further analysis suggests that if the current anti-corruption campaign is able to reduce the level of corruption by a half, it will generate a long and sustained positive effect on economic growth.

Furthermore, it should be stressed that not only is the anti-corruption campaign beneficial for China's long term economic growth, it will also help create a more equitable, just and harmonious society, which is the necessary foundation for the ruling Communist Party of China to lead the country to its next level of social and economic development.

Yao Shujie is professor of economics at the University of Nottingham and Chongqing University. Wang Feng is an associate professor at Chongqing University.

 

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