Personal Financial Disclosure by Chinese Officials: Will China Finally Get Serious?

Matthew noted yesterday how continuing revelations of the vast wealth some Chinese officials have accumulated put China’s leaders in a bind.  If they don’t curb corruption, they risk undermining their legitimacy; on the other side, so many senior individuals are involved that a serious crackdown could ignite a power struggle.

An important gauge of the direction the leadership will choose is how vigorously it enforces a directive issued in November 2013 requiring public servants to disclose details about their and their family members’ finances.  Requiring senior officials to reveal their personal finances can be a valuable tool in the battle against grand corruption, as one of China’s East Asian neighbors can testify.  In the Philippines, the Statement of Assets, Liabilities, and Net Worth officials must file has been central to exposing the corrupt dealings of a president and a chief justice as well as revealing a nest of corrupt tax collectors.

On the other hand, the November directive is not the first time China has demanded that its public officials come clean about their personal finances.  In 1995, the Central Committee of the Chinese Communist Party and the State Council jointly promulgated a regulation requiring officials above the county level to report their income, and in 2001, the Party released a second rule mandating officials above the provincial and ministerial level report their family assets to the Party.  But the disclosures were made to another government agency, and several of that agency’s employees told me that enforcement was half-hearted.  Many officials did not file the required reports, and many of the reports that were filed were obviously false.

Will the latest effort be any different?  An early sign will be whether the implementing regulations mandate that the submissions be public.  China’s earlier experience, where the reports were submitted to a government agency and quietly ignored, is typical of the financial disclosure programs in many countries.  Publishing the disclosures on the web or otherwise giving the public the right to review them makes it far less likely they will be ignored.   What tripped up the Philippine president and a bevy of tax officials were press reports comparing how well they lived against the meager wealth they reported on their Statements of Assets, Liabilities, and Net Worth.

Making the personal finances of Chinese leaders open to scrutiny by ordinary citizens might sound as likely to happen as North Korean leader Kim Jong Un holding a free and fair election.  But there are Chinese academics and even Chinese leaders who realize that a serious effort to curb avarice at the top demands it.  The issue is likely to arise at the meeting of the National People’s Congress in early March.  So what will China do?  Will it finally take income and asset disclosure seriously?

8 thoughts on “Personal Financial Disclosure by Chinese Officials: Will China Finally Get Serious?

  1. It seems like one way out of this bind–pitting the need for public disclosure against the currently suspect assets of senior officials–is to publicly and explicitly announce a date that a Philippines-like database for China will go live. The concession to current officials would be a relatively far-off start date, say 2020, while the nod to reformers would be publicly available data. Officials could get their ducks in a row in the meantime, and if the announcement was big enough news it could tie the hands of future legislators, constituting a Ulysses contract of sorts, http://en.wikipedia.org/wiki/Ulysses_pact.

    • Why would reformers believe the law would actually come into effect in 2020? Would citizens be willing to allow those who have amassed enormous wealth corruptly to keep it?

      • I agree that such a promise would only work if it was credible (to reformers/the public). To your latter point, I’d imagine that citizens MIGHT be willing to forgive past ill-gotten gains if they believed that the agreement would prevent future ill-gotten gains (i.e., as a political compromise). But again, you’re right that such a compromise could only be reached if future promises were credible.

  2. How broad is the scope of this disclosure directive? Does it cover in-laws or friends? And what keeps leaders from under-reporting their assets? Indian electoral rules require politicians to disclose their assets to the public, but there is widespread under-reporting.

    • The scope of disclosure remains to be determined. While it could certainly cover in-laws, which are easy to define, it is unlikely that any directive would reach “friends” because it would be difficult to define just who is a friend. It would be even more difficult to enforce disclosure requirement covering “friends.” Disclosure rules by themselves are not a panacea, for as the Indian case, and it is by far not the only example, shows, under-reporting is common. But income and asset disclosure rules are part of the solution, for under-reporting can often be easily detected, particularly when the disclosures are public. Disclosure rules are thus another way to catch a corrupt official, and a particularly easy route to a conviction as proving a non-disclosure violation is straightforward.

      • That’s a great point: it’s simple to prove a non-disclosure violation. At the very least, it can be embarrassing when there is a tremendous discrepancy between real and disclosed assets.

  3. Fascinating development. I have always wondered about the effectiveness of disclosure requirements. On one hand I agree with overall thrust of transparency. On the other hand by outlining what needs to be disclosed and what doesn’t disclosure requirements will make it easier for corrupt officials to structure their finances in ways that avoid detection. This seems to be a classic dilemma: as regulatory and enforcement attention is focused on certain unlawful behaviors, other equally harmful acts becomes easier to hide. There are no easy solutions and arguably an asset disclosure law would send a loud and clear message to government officials and the business community that the central government is taking anti-corruption seriously.

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