Is China's Anti Corruption Campaign Hurting the Economy?

EVEN by Chinese standards, growth in the southern city of Jieyang was remarkable under Wan Qingliang, the local boss with bouffant hair who cultivated an air of frugality in his personal life. When he took over, in 2004, annual expansion was 4%. By 2007 Jieyang’s growth rate had surged to 18%. Dirt roads were paved, banana groves uprooted and high-rises planted in their place. Propelled by these achievements, Mr Wan’s ascent up China’s political ranks was swift. He was made vice-governor of Guangdong, China’s wealthiest province, and then mayor of Guangzhou, the province’s capital and China’s third-biggest city.

Yet Mr Wan’s fall was even more precipitous than his rise. In June investigators accused him of widespread corruption; he has disappeared from sight. The man who said he owned no homes allegedly dispensed favours worth at least 600m yuan ($97m) to one property developer, Comhope, and the charge sheet is growing. But the takedown of Mr Wan, who knew how to get the local economy fizzing, raises a question about President Xi Jinping’s fight against corruption: is it a drag on growth?

The scars of Mr Xi’s campaign are visible in Jieyang. At a Comhope complex down by the river, bamboo scaffolding lies in a heap at the base of what were supposed to be 30-storey towers—construction was abandoned at the 11th floor. Across China, luxury retailers and fancy restaurants are suffering from an edict against wasteful government spending. A chill has crept into karaoke parlours and brothels; mistresses also face a hard time. One maker of condoms estimates demand has fallen in China by 1m condoms a day in recent months. In June casino revenues fell in Macau, a popular destination for cadres, for the first time in years. The government has made it harder to transfer cash to the gambling enclave.

When the economy wobbled early this year, one common explanation was that officials were reluctant to approve investment projects lest they be accused of taking backhanders. Some executives with state-owned enterprises do not want to travel abroad, for fear that enemies will portray such trips as junkets. After rising strongly for a decade, foreign direct investment by Chinese companies fell by 5% in the first six months of the year, compared with a year earlier.

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