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China Notebook

This is the first deep economic downturn most Chinese have experienced, so fear and anger are in the air. A Bloomberg report yesterday quoted an editor of a state-run magazine in the southwestern city of Chongqing as saying, “We’re entering the peak of mass incidents. In 2009, Chinese society may face more conflicts and clashes that will test even more the governing capabilities of all levels of the party and government.”

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Even in prosperous times, corruption undermines governments. But add severe financial stress to the mix and people look for someone to blame. It's no surprise, then, that fighting corruption emerged as a top priority at the Chinese Communist Party's 17th National Congress this week in Beijing. “The principle that everyone is equal before the law must be enforced and no corrupt official should be able to escape punishment under the law," the official Xinhua News Agency reported, quoting a communiqué from the Party's internal anti-graft body, the Central Commission for Discipline Inspection.

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China punished 4,960 officials above county-head level between November 2007 and November 2008 for involvement in corruption, bribery or other law-breaking activity, the communiqué trumpeted. Of those, 801 were prosecuted.

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In May last year, the Sichuan earthquake killed about 100,000 people, including nearly 20,000 school children crushed in their classrooms. There were allegations then, denied by the government, that corrupt officials had allowed sub-par construction of school buildings. Then in September, in the afterglow of the Olympics, came news that Chinese milk and infant formula were contaminated with melamine, a chemical added to create fake levels of protein content. Nearly 300,000 kids became sick, many with kidney stones, and at least six infants died. Other product scandals last year involved tainted cough syrup, toys, seafood, toothpaste and dog food, among others. In July 2007, China executed the former top food and drug regulator for accepting nearly a million dollars in bribes in exchange for approving an antibiotic that killed at least ten people.

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In the six months ended November 2008, there were more than 550 publicly-funded overseas trips. The authorities banned almost 4,000 Party and government officials from traveling abroad during the same period, and will crack down more in the year ahead, according to the above-mentioned communiqué said.

Last month we told about the three-week study tour to the U.S. by 23 officials from the eastern Chinese city of Wenzhou. In between beach days in Hawaii and sex shows in San Francisco, they spent just five days on government business. On the way to running up a bill of $94,000, the road-trippers crashed for two nights in $700 suites at the Sahara Hotel & Casino in Las Vegas.

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This year's Wall Street Journal / Heritage Foundation Index of Economic Freedom ranks China 132nd (behind Indonesia and above Nepal). It says the country's corruption "is perceived as widespread. China ranks 72nd out of 179 countries in Transparency International's Corruption Perceptions Index for 2007. [The 2008 CPI is available here.] Corruption limits foreign direct investment and affects banking, finance, government procurement, and construction most severely, and there is a lack of independent investigative bodies and courts."

What country ranks first on the 2009 Index of Economic Freedom? Hong Kong, a Chinese Special Administrative Region with local rule. Corruption? It's "perceived as minimal. Hong Kong ranks 14th out of 179 countries in Transparency International's Corruption Perceptions Index for 2007 [12th in the 2008 CPI], and foreign firms do not see corruption as an obstacle to investment."

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Foreign Corrupt Practices Act enforcement actions in 2008 involving China included AGA Medical Corporation, Faro Technologies Inc., Shu Quan-Sheng and Siemens. Avon last year disclosed an internal investigation of its practices in China, and FCPA Opinion Procedure Release 08-03 also concerned the PRC.

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