China's anti-graft campaign is the true starting point of its next round of industrial reform

Does China's anti-corruption campaign help the economy? At first glance, it's hard to say. Looking into the near future, one just might say it doesn't.

This is because all the rules to make officials mind their behavior hold them back from spending their work time and public funds on entertaining themselves. And institutional spending, that done by organizations and most often by government offices, used to make up a hefty part of the nation's retail and service revenues. Except for some very wealthy individuals, officials and staff from state-owned enterprises tended to make up the largest group of customers for luxury hotels and their banquet halls.

Not any longer. One wouldn't be surprised to learn that the national retail growth during the coming Chinese New Year holiday this year might be softer than in previous years.

The anti-corruption campaign may not instantly benefit the economy, but in the long run, it will. There are many things in China that, by the logic of every theory, should come along very soon. But at times, that "very soon" may keep people waiting, and waiting.

A stern reality is that ever since the leadership promised overhauls of the existing SOE system at the famous Third Plenum of 2013 - a continuation of industrial reforms in the 1990s - nothing has happened over the past couple of years. Little has been done toward the further diversification of SOEs' equity structures to make them more responsible in management and under more effective supervision by shareholders.

On a few occasions, the State-owned Assets Supervision and Administration Commission, which represents the government's SOE control system, talked about plans for pilot reform programs. But none of these programs seems to have been put to work, much less resulted in differences from the past.

But as with many things in China, people do need patience to reap the benefits of the anti-corruption campaign.

In fact, starting almost from day one of reforms, back in the early 1980s, Chinese leaders have kept telling would-be trade partners and investors to be patient. At times, patience sounded ominous, if not entirely disappointing. But in other times, it did pay off. Because when a change does come, it comes in a major way in a large country like this. When the wind is strong, as Chinese entrepreneurs like to joke, pigs may well fly.

Now that the Central Commission for Discipline Inspection, China's powerful anti-corruption authority, announced last week that it would complete its investigation rounds at all national-level SOEs this year, one can come to realize why the reform failed to make the promised progress over the last couple of years.

CCDI listed 26 of the largest SOEs, including some high-profile energy companies, as the first batch to be inspected, starting immediately after the Chinese New Year holiday on Feb 24.

In a meeting the other day, as the Chinese-language press reported, Wang Qishan, the CCDI leader, pointed out the problems that widely exist in the executive suites of many SOEs, ranging from trading power for money, embezzlement, bending of the rules, factionalism and nepotism, let alone poor management.

Small wonder that with top managers engaged in such things, and with no authority so far to effectively police their behavior, SOEs would have no interest whatsoever in implementing reforms that only place themselves under stronger supervision. SOEs can't even start reforms until the CCDI hauls away their own corrupt officials to face the music. It is no exaggeration to say, indeed, the anti-corruption campaign is the true starting point of China's next round of industrial reform.

No one doubts that the CCDI will pursue its goal with doggedness. And once China can claim a victory in its anti-corruption campaign at the enterprise level, which may still take several years, a new generation of corporate executives will begin to deal with the world who are joined by fewer children and relatives of officials and with more individuals educated in law and perhaps legal professionals.

In due time, as one can imagine, China will present a rising demand for corporate legal services and internal compliance executives. Every large corporation will need to have their own Wang Qishan to check its business integrity and staff behavior. By then, China's definition of its corporate elite will have changed.

The author is editor-at-large of China Daily. Contact the writer at edzhang@chinadaily.com.cn

(China Daily European Weekly 02/13/2015 page13)