The Politics of Corruption

Lecture 10: China and Hong Kong — Corruption, Growth, and Clean Government

Bogdan G. Popescu

bgpopescu@tec.mx

Tecnológico de Monterrey

Today: two puzzles

Puzzle 1. China boomed for forty years while corruption stayed vast.
Puzzle 2. Hong Kong, next door, built famously clean government.

By the end of today you should be able to:

sort corruption into Ang’s four types; say which allow growth
explain how Hong Kong’s ICAC changed what people expected
criticise campaign enforcement using Chen and Kung’s princeling evidence

Part I — The puzzle: boom and bribes

The boom is not in doubt

What corruption is supposed to do to growth

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flowchart LR
  A["Officials can<br/>demand bribes"] --> B["Investing costs<br/>more and is<br/>less certain"]
  A --> D["Public money<br/>is diverted"]
  B --> C["Firms invest less<br/>and stay small"]
  D --> E["Worse roads,<br/>schools<br/>and courts"]
  C --> F["Slower<br/>growth"]
  E --> F
  classDef bad fill:#f6e7df,stroke:#b44527,stroke-width:2px,color:#1e293b;
  class F bad;

Author’s illustration of the standard argument. No units; conceptual only.

The simple cross-country relationship is weak

Descriptive only. No controls for starting income, region or measurement error, and the base year is arbitrary. This motivates the puzzle; it does not test the corruption–growth hypothesis.

So what?

Counting corruption tells us how much. It does not tell us what kind.

Wedeman calls this China’s double paradox: growth and graft rose together
From 1978 to 2010 the economy grew roughly 9% a year
Corruption did not fall as markets deepened — it changed shape
Hong Kong ran the opposite experiment in the same region

Next: Yuen Yuen Ang’s move — stop counting, start sorting.

Source: Wedeman (2012), Double Paradox, ch. 1.

Part II — Unbundling corruption (Ang)

Ang’s four types of corruption

Question 1. Who is involved — a clerk, or a powerful politician?

Question 2. What is the act — taking (one side loses), or trading (both expect to gain)?

Ang’s typology unbundles corruption by actor and by act.
Type	Who	The act	Likely effect on growth	Ang’s metaphor
Petty theft	Non-elites	Steals or extorts	Damaging	Toxic drug
Grand theft	Elites	Embezzles large sums	Highly damaging	Toxic drug
Speed money	Non-elites	Trades: pays to hurry	A tax on business	Painkiller
Access money	Elites	Trades: buys privilege	Can accompany investment	Steroid

Source: Ang (2020), ch. 1. Her claim is that the four types have different consequences — not that corruption causes growth.

Why access money can ride alongside growth

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flowchart LR
  A["Official's career<br/>depends on<br/>local growth"] --> B["Official clears<br/>land, permits<br/>and credit"]
  B --> C["Investor builds:<br/>factory, road,<br/>housing"]
  C --> D["Output, revenue<br/>and the official's<br/>own reward rise"]
  D --> A
  C --> E["Debt, bubbles<br/>and inequality<br/>build up"]
  classDef risk fill:#f6e7df,stroke:#b44527,stroke-width:2px,color:#1e293b;
  class E risk;
  linkStyle 3 stroke:#4a7c6f,stroke-width:3px;

Author’s illustration of a mechanism Ang (2020) proposes, not an estimated causal effect. The loop is the point: the official profits from growth rather than from theft.

Steroids have side effects

Rewards flow to the connected, not to the most efficient
Land, property and local government debt inflate together
Inequality widens between insiders and everyone else
Officials rise and fall with their patrons — politics becomes risky
Growth becomes distorted as well as fast

Source: Ang (2020), ch. 1.

Measuring the four types separately

Transparency International’s index gives a country one score
One score cannot tell theft apart from access money
Ang’s index scores the four types separately
Method: an expert survey using short vignettes, piloted in 15 countries
China scores high on access money, lower on theft and speed money
Rich democracies also score high on access money, much of it legal

Source: Ang (2020), chs. 1–2. The index is a prototype measure, not an official statistic.

If it is legal, is it corruption?

An 1889 Puck cartoon showing giant money bags labelled with trusts — Standard Oil, Steel Beam, Copper, Sugar — looming over seated US senators, with a doorway marked 'Entrance for Monopolists' and the People's Entrance closed.

Ang: China today rhymes with America’s Gilded Age
Lobbying, donations and the revolving door buy access too
In rich democracies most of that is perfectly legal
Legal influence and a brown envelope are not the same thing

Two minutes, hands up: should we define corruption by law, by behaviour, or by effect?

Joseph Keppler, The Bosses of the Senate, Puck, 23 January 1889. U.S. Senate Collection; public domain.

Exercise 1 — Sort the bribe

In pairs (5 minutes). Put each case in one of Ang’s four boxes, then answer the question below.

A customs officer keeps part of the duties she collects.
A restaurant pays a clerk so its licence arrives this week, not in three months.
A minister moves public pension money into a private account.
A developer funds a mayor’s flagship project; the city then rezones its land.

Question: which case is most compatible with rapid growth, and what does the economy pay for it later?

So what?

Ang offers one answer to Puzzle 1: what matters is the type of corruption, not the amount.

Access money offers an explanation for why the boom and the bribes could rise together. Whether it causes growth or merely travels alongside it is still contested.

And it says nothing about why Hong Kong, with the same starting problem, ended up somewhere else entirely.

Next: Melanie Manion on how clean government gets built.

Part III — Corruption by design (Manion)

Hong Kong before the ICAC

In the 1960s a bribe was the going rate for ordinary services
Police corruption was syndicated: organised, with known prices
1973: Chief Superintendent Peter Godber flees to Britain
Investigators found he held assets far beyond his lifetime salary
The police’s own anti-corruption branch could not touch him
February 1974: after the Blair-Kerr inquiry, the ICAC is created

Sources: Manion (2004), ch. 6; ICAC, official history of the commission.

An agency placed outside the police

Street-level view of the glass entrance of the Independent Commission Against Corruption headquarters on Java Road, North Point, Hong Kong, with bilingual Chinese and English signage above the doors.

ICAC headquarters, North Point, Hong Kong. Photo: Citobun, CC BY-SA 4.0, via Wikimedia Commons. The Commissioner reports to the Chief Executive alone — not to the police, not to a ministry.

Manion’s key idea: corruption is an equilibrium

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flowchart LR
  A["Everyone expects<br/>officials to<br/>take bribes"] --> B["For a citizen,<br/>paying is the<br/>sensible choice"]
  A --> C["For an official,<br/>refusing costs<br/>money and trust"]
  B --> D["Almost everyone<br/>takes part"]
  C --> D
  D -- "a few arrests<br/>change nothing" --> A
  classDef start fill:#f6e7df,stroke:#b44527,stroke-width:2px,color:#1e293b;
  class A start;
  linkStyle 4 stroke:#b44527,stroke-width:3px;

Author’s illustration of Manion (2004). Beliefs about how common corruption is are what hold the loop together.

The ICAC attacks the loop at three points

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flowchart LR
  I["ICAC<br/>1974"] --> O["Operations:<br/>investigate<br/>and prosecute"]
  I --> P["Prevention:<br/>redesign<br/>procedures"]
  I --> C["Community work:<br/>educate and<br/>take reports"]
  O --> R1["Raises the risk<br/>of taking"]
  P --> R2["Removes the<br/>opportunity"]
  C --> R3["Changes what<br/>people expect"]
  R1 --> N["Clean becomes<br/>the new normal"]
  R2 --> N
  R3 --> N
  classDef goal fill:#e7efec,stroke:#4a7c6f,stroke-width:3px,color:#1e293b;
  class N goal;

Author’s illustration. Manion (2004): reform needs enforcement, prevention and education together.

Making the new expectation credible

Independence. The Commissioner answers to the Governor, not the police
Permanence. A standing agency with its own staff and budget
Visibility. Senior officers prosecuted, publicly and repeatedly
A line under the past. Police protest in October 1977
Partial amnesty: offences committed before 1 January 1977 not pursued
Those already under investigation, wanted, or abroad were excluded

Sources: Manion (2004), ch. 6; ICAC official history. The amnesty closed the past once — not repeatedly.

Fifty years later, the gap is still visible

But was it really the ICAC?

The ICAC arrived in the middle of a much wider reform drive
Hong Kong was small, rich and urban, not a continent
Rising incomes made a civil-service job more costly to lose
Courts and newspapers operated with real independence
Manion shows the design was coherent; she cannot randomise it
Read Hong Kong as a strong case, not a controlled experiment

Sources: Manion (2004), ch. 6; ICAC official history. These rival explanations are not tested here — that is the point.

Exercise 2 — Would an ICAC work here?

In pairs (5 minutes), then two volunteers report back.

Your country announces a new anticorruption commission tomorrow.

Name one design feature from Hong Kong you would copy, and say what it changes.
Name one reason it might fail where you live.

Use these prompts: Who appoints the head? Who is allowed to be investigated? What do ordinary people currently expect when they need a permit?

So what?

Manion’s answer to Puzzle 2: Hong Kong did not out-punish corruption. It out-designed it.

That is her argument, and the evidence is a well-documented case rather than an experiment. What it establishes is a mechanism: expectations can be shifted deliberately, and kept credible.

Mainland China also punishes corruption — heavily, and very publicly.

Next: does a campaign do the same work as an institution?

Part IV — Campaigns and selectivity

Two designs, side by side

Two institutional designs for fighting corruption.
Design feature	Hong Kong ICAC (since 1974)	Mainland China (CCDI)
Who investigates	Standing agency outside the police	Party’s own discipline body
Answers to	Governor, later Chief Executive	Party leadership
Who can be targeted	Public and private sector	Party members and public employees
Rhythm of enforcement	Continuous, routine	Waves and campaigns
Main lever	Everyday expectations	Discipline and loyalty

Sources: Manion (2004); CCDI. Since 2018 a National Supervisory Commission extends the mainland’s reach to all public employees. Caution: these bodies sit inside very different political systems. This is a structured comparison, not a controlled experiment.

Xi’s campaign: real, and very large

Launched after the 18th Party Congress, November 2012
Slogan: “tigers and flies” — senior leaders and local officials alike
Zhou Yongkang, a former Politburo Standing Committee member, jailed for life
CCDI: 4.39 million cases investigated, 4.7 million people punished
That count runs from November 2012 to April 2022
Nobody disputes the scale. The question is what it changed.

Sources: CCDI press conference, June 2022 (as reported); court judgment in the Zhou Yongkang case, 11 June 2015.

Chen and Kung: land as a measuring rod

In China, local governments are the only legal seller of urban land
Every sale leaves a record: plot, price, buyer
Chen and Kung link buying firms to the families of Politburo members
Such firms are known as “princelings”
Over one million transactions, 2004–2016
Favouritism turns up directly in the price — nobody has to confess

Source: Chen and Kung (2019), Quarterly Journal of Economics. Prices are recorded by the state, not self-reported in a survey.

What a political connection was worth

Enforcement that is real, and also selective

Discounts shrank where the campaign landed: 31.5% to 42.6% less corruption
“Where it landed” means provinces inspected, or given a new party secretary
Before 2012, granting discounts paid: those secretaries rose faster
Chen and Kung estimate 23.4% higher odds of national promotion
The campaign closed that route to promotion
Enforcement was genuine — and targeted by the centre, not universal

Source: Chen and Kung (2019), Quarterly Journal of Economics, 134(1), 185–226.

So what? Five things to take away

Ask what kind of corruption a country has, not only how much
Access money can ride alongside growth — and store up risk
Theft and extortion are generally far more damaging to investment
Hong Kong worked by changing expectations, not by punishing harder
A campaign punishes; a credible institution changes what people believe

The exam-ready sentence: type of corruption and credibility of enforcement matter more than raw quantity.

What we still don’t know

Does access money cause growth, or merely travel alongside it?
Would an ICAC work without Hong Kong’s wider political setting?
When does a campaign become an institution rather than a purge?
Where is the line between access money and lawful political influence?

Each of these is a live research question. None of today’s three authors settles it.

Bring one of them to Thursday’s discussion with an argument, not just an opinion.

References

Ang, Y. Y. (2020). China’s gilded age: The paradox of economic boom and vast corruption. Cambridge University Press.

Chen, T., & Kung, J. K.-S. (2019). Busting the “princelings”: The campaign against corruption in China’s primary land market. The Quarterly Journal of Economics, 134(1), 185–226. https://doi.org/10.1093/qje/qjy027

Global Times. (2022, June 30). China punishes 4.7 million people in decade-long anti-graft campaign. https://www.globaltimes.cn/page/202206/1269498.shtml

Independent Commission Against Corruption. (n.d.). History of the ICAC. Government of the Hong Kong Special Administrative Region. https://www.icac.org.hk/en/about/history/index.html

Manion, M. (2004). Corruption by design: Building clean government in mainland China and Hong Kong. Harvard University Press.

References (continued)

Wedeman, A. (2012). Double paradox: Rapid growth and rising corruption in China. Cornell University Press.

World Bank. (2025). World development indicators [Data set]. https://databank.worldbank.org/source/world-development-indicators

World Bank. (2025). Worldwide governance indicators [Data set]. https://www.worldbank.org/en/publication/worldwide-governance-indicators

Xinhua. (2015, June 12). Zhou Yongkang sentenced to life imprisonment. Supreme People’s Court of China. https://english.court.gov.cn/2015-06/12/c_767183.htm

Image credits

Benh Lieu Song. (2019). Hong Kong harbour night [Photograph]. Wikimedia Commons. CC BY-SA 4.0. https://commons.wikimedia.org/wiki/File:Hong_Kong_Harbour_Night_2019-06-11.jpg

Citobun. (2015). ICAC Building entrance [Photograph]. Wikimedia Commons. CC BY-SA 4.0. https://commons.wikimedia.org/wiki/File:ICAC_Building_entrance.jpg

Keppler, J. (1889, January 23). The bosses of the Senate [Chromolithograph]. Puck. U.S. Senate Collection; public domain. https://commons.wikimedia.org/wiki/File:The_Bosses_of_the_Senate_by_Joseph_Keppler.jpg

King of Hearts. (2017). Pudong, Shanghai, November 2017 [Photograph]. Wikimedia Commons. CC BY-SA 4.0. https://commons.wikimedia.org/wiki/File:Pudong_Shanghai_November_2017_panorama.jpg