Calculating corruption

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Yesterday, the results of a five-year long investigation into corruption in China named ‘Trading Favours: Untangling the Web of Corruption between Officials and Firms in China’s Land Market’ were unveiled in an event at Macau University.
The study, developed in co-operation with academics from the Hong Kong University of Science and Technology (HKUST) and Princeton University, analysed quarterly data from 2,555 listed companies in Mainland China which purchased 32,155 land parcels for a total value of RMB1.66 billion between 2000 and 2012.
The study was presented by HKUST Assistant Professor of Social Sciences Li Han, who showed how the report intended to quantify and calculate the amount of discount provided per square metre purchased in Mainland China, depending upon the amount and type of political connections possessed by real estate firms.
The study sought to connect land transactions data with employees registered for listed firms and calculate if the value of political connections was caused by information sharing, experience and ability, or related to corruption.
China’s land market was also considered ideal for the occurrence of corruption due to prefectural government being the sole seller; being a market of licences monopolised by the government; and the disproportionate amount of bureaucrats hired by the real estate sector.
According to the research more than 10 per cent of company directors in the real estate and leasing and business services at provincial level were retired bureaucrats, such as prefecture party secretaries or mayors.

Going local
Enquiring about a similar impact in the MSAR, an academic who chose to remain unidentified told Business Daily that the territory needs more institutional checks to prevent corruption in the real estate sector.
“In Mainland China government audits are conducted to prevent corruption [between real estate firms and government officials] but the effects tend to be temporary, so it’s necessary to develop good institutions to perform the checks,” the expert added.
“The Chinese government has imposed measures whereby government officials can’t act as board members during their tenure. I believe the right direction to go is the U.S. model with retired officials having to wait a certain time period before being able to be hired by private entities,” he concluded.

Who you know
In the research the level and type of political connections was divided into three fields: general political connections, local experience, and local-specific political connections. The study showed that almost 70 per cent of board members and senior members possessed general political connections, with 27.46 per cent having local-specific political connections.
“Our literature shows that many politicians have received gifts and benefits from their connections to businesses but it’s hard to connect private company gains with their connections,” Professor Li stated during the presentation.
During the research several variables of real estate were also taken into account such as size of land parcels, methods of transaction, officials subjective evaluation of land plots; while firm variables such as total assets and number of employees were taken into consideration.
The results indicated that the reduction on the average price of square metre in transactions that involved general political connections could be as high as 2.2 per cent, with the reduction for local-specific political connections as high as 2.9 per cent.

When the cat’s away
The study also tried to assess the efficiency of Chinese government audits on the real estate market, as the country launched a series of 10 to 18 months audit campaigns starting from 2005 and involving 585 counties.
It revealed that the difference in set real estate prices for companies with political connections would be as much as 5 per cent lower in the period right before and after an audit, becoming almost 5 per cent more expensive for those companies during the audit period.
In conclusion, the report indicated that the ‘politician-revolving door’ was one of the main channels for corruption.