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^4. Nye, J.S., “Corruption and political development: a cost-benefit analysis,” The American Political Science Review,Vol. 61, No. 2 (June 1967), pp. 417–127.]CrossRefGoogle Scholar After over 30 years of debate on the definition of corruption and its causes, there is a considerable body of literature on the topic. See inter alia, Scott, James C., “Corruption, machine politics, and political change,” in Heidenheimer, Arnold (ed.), Political Corruption: Readings in Comparative Public Analysis(New York: Holt, Rinehart and Winston, 1970), pp. 459–463]Google Scholar; Scott, James C., Comparative Political Corruption(Engelwood Cliffs, NJ: Prentice-Hall, 1972)]Google Scholar; Huntington, Samuel P., “Modernization and corruption,” in Heidenheimer, Political Corruption;pp. 492–500]Google Scholar; Friedrich, Carl J., The Pathology of Politics: Violence, Betrayal, Corruption, Secrecy, and Propaganda(New York: Harper & Row, 1972)]Google Scholar; deLeon, Peter, Thinking About Political Corruption(Armonk, NY: M. E. Sharpe, 1993)]Google Scholar; Theobald, Robin, Corruption, Development and Underdevelopment(Durham, NC: Duke University Press, 1990)]CrossRefGoogle Scholar; Ben-Dor, Gabriel, “Corruption, institutionalization, and political development: the revisionist theses revisited,” Comparative Political Studies,Vol. 7, No. 1 (April 1974); pp. 63–83]CrossRefGoogle Scholar; and Klitgaard, Robert E., Controlling Corruption(Berkeley: University of California Press, 1988). In many cases, these authors are aware of institutional corruption, but do not clearly distinguish it from individual corruption, treating it instead as “collective corruption” or “syndicated corruption,” that is corruption involving groups of officials rather than individuals.]Google Scholar

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^6. As used herein, institutional corruption is distinct from “bureaucratic corruption” in that the latter term generally refers to corruption by bureaucrats while the former refers to corrupt acts committed by bureaucracies acting as collective institutions.

^7. This is not to say that institutional corrupt is unique to the reform period or a direct consequence of the reform. On the contrary, various forms of what I define as institutional corruption existed during the Maoist period.

^8. The term small treasury or coffer refers to banks accounts maintained by public units under false names in order to hide them from higher levels. State Council regulations banned small treasuries in 1986. Guowuyuan guanyu qingli he zhengdun “xiao jinku” de tongzhi (State Council Notice Regarding the Rectification of Small Treasuries), Dictionary of Supervision and Control, 1990, pp. 373–374.]Google Scholar

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^11. In addition to white and green slips, other forms of IOUs were reported during 1992–93. Some functioned essentially like white and green slips. Banks, for example, would hand their customers “yellow slips” or “blue slips” when they were short of cash. Others, however, functioned more like illegal bonds. Underground “banks” and curb market financiers, for example, issued “black slips” carrying high interest rates. Some state enterprises sold “red slips” paying 15 and 20% interest to employees or issued them in lieu of wages and bonuses. Other units, however, issued non-interest bearing “red slips” or “purchase coupons” allowing employees to obtain goods at designated stores when they lacked enough funds to meet their payrolls. Industrial enterprises, meanwhile, resorted to the use of IOUs to pay suppliers when cash ran short. Unfortunately, data on yellow, black or red slips are too limited to allow for systematic analyses of these forms of IOUs. Hongkong Economic Journal,17 June 1993, in Inside China Mainland,August 1993, pp. 39 and 83; Inside China Mainland,September 1993, p. 84; Inside China Mainland,November 1993, p. 83; Zhongguo caiwu bao,27 May 1993, p. 1; Zhongguo tongxun she,19 June 1993, pp. 33–34; Xinhua, 1 May 1993, in FBIS, 3 May 1993, p. 28; and “Bufen nongcun chuxian qi geng pao huang xianxiang” (“In parts of the countryside, farmers cast aside their ploughs and leave behind wasteland”, Liaowang,15 November 1992, pp. 8–9.

^12. As revealed during the 1993 anti-san luancampaign, many of the arbitrary taxes and fees collected by local governments and central department had in fact been authorized. As a result, even though many localities violated State Council regulations limiting taxes to 5% of farmers′ previous years income, the fees and taxes were actually legal. In many areas, local governments also find themselves forced to levy taxes in excess of the 5% limit because they simply cannot get by on legal taxes and subsidies from the unitary budget, thus creating a situation where institutional corruption may be driven as much by fiscal need as institutional

^13. Misappropriation, particularly by banks, treads a fine line between the improper and the illegal and, therefore, the misuse of power and the abuse of power. Even though they had a certain amount of discretion in using deposits and could make short-term inter-bank loans, banks violated regulations governing the management of procurement funds in several ways. First, the Agricultural Bank was prohibited from using procurement funds to make commercial loans and any inter-bank loan made for the purposes of re-lending was illegal. Secondly, because criminal misappropriation occurs when funds lent out without proper authorization cannot be recovered in a timely manner or if the unauthorized use of funds causes the state financial losses, any bank that failed to recover short-term bank loans in a timely manner was in violation of banking regulations. Thirdly, financial regulations stipulate that banks must report any income generated by inter-bank loans and could be subject to criminal prosecution for tax evasion if they failed to report such income or stashed the funds in unregistered accounts. In the case of procurement agencies, any lending of procurement funds allocated to them by the Agricultural Bank violated regulations stipulating that such funds must be maintained in specialized procurement accounts held by the Agricultural Bank and may not be relent. According to regulations, organizations found guilty of misappropriation can be subject to confiscation of unauthorized funds and fined. Officials may also be held criminally responsible and prosecuted if they were directly involved in the misappropriation of funds or if units they directed engaged illegal acts. See “Zuigao renmin jiancha yuan, Guanyu renzhen chaban danwei xinghui shouhui fanzui tiao an de tongzhi” “Supreme People's Procuratorate, ‘Notice regarding the conscientious investigation of units involved in making or accepting bribes’”), 22 October 1993, in Jiancha shouce,1993 (Procuratorate Handbook)1995, p. 133; An Interpretation of Changes in the Penal Code,1994, ch. 1; Controlling Economic Crime in China,1995, ch. 15; and Guidance for Work on the “Three Clears and One Stop”1994.

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^19. In 1989, for example, wholesalers in Yucheng prefecture, Shanxi, defaulted on 6 million yuanin debts owed to grain bureaus in Zaoyang county, Hubei, because the Industrial Commercial Bank lacked sufficient cash to transfer funds to the bureaus′ accounts held by the Agricultural Bank. Local banks in Jiangling county, Hubei, on the other hand, refused to issue procurement loans to the grain bureaus because the local branch of the Industrial Commercial Bank owed the local branch of the Agricultural Bank 28.70 million yuan,the Agricultural Bank owed the Industrial Commercial Bank 7.57 million yuan,2.48 million yuanwas tied up in inter-bank loans between various branches of the Agricultural Bank, and 11.58 million yuanwas tied up in inter-bank loans between various branches of the Industrial Commercial Bank. Nongmin ribao,17 July 1989, p. 1]Google Scholar; Fujian ribao,16 July 1993, p. 1]Google Scholar; and Nongmin ribao,17 July 1989, p. 1.]Google Scholar

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^60. Zhongguo gaige yufazhan baogao,p. 118. Based on circumstantial evidence, it would not be unreasonable to assume that postal bureaus also misappropriated some of these funds and diverted them to unauthorized expenditures and investments or “lent” them to the bank at premium interest rates.

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^77. In 1992, legal interest rates could run as high as 10.37% for loans to individual households engaged in commerce and industry. Zhongguo tongji nianjian, 1992,p. 671. By simply borrowing procurement funds at the discount rate of 7.74% and then lending them out to individuals, a procurement agency or local government could make a minimum profit of 2.63% or much more given curb rates between 20 and 40% in 1992 (based on interest rates reported for red slips and black slips) depending on their willingness to take risks.

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^95. Institutional corruption continued during the clearing process. In Anhui, for example, local governments misappropriated funds or inflated the amount of outstanding IOUs. In other areas, local governments grabbed a share of the repayment funds by having banks transfer them to village governments, which then stripped off a healthy percentage in irregular fees and “village deductions” or as repayment for contrived debts. Others gave farmers “material purchasing tickets” instead of cash for their IOUs. When stores refused to accept these tickets, farmers complained that the government had “drawn pictures of food to ally their hunger.” Other localities collected farmers' promissory notes and then pocketed repayment funds, leaving the farmers holding “invisible grey slips.” Even after they received additional funds from the central bank, local authorities in some areas continued to default on payments. In Hunan, the Linli county branch of the Industrial Commercial Bank failed to hand over 970,000 yuanof funds allocated by the provincial bank for the purpose of settling IOUs, while the local finance bureau diverted 1.50 million of the 2.20 million yuanprovided by the People's Bank. Hubei ribao,June 1993, p. l;Xinhua,8 January 1993, in FBIS, 12 January 1993, pp. 38–39]Google Scholar; Henanribao,29January 1993, p. 1]Google Scholar;Nongmin ribao,15February 1993, p. 3]Google Scholar;Nongmin ribao,15 February 1993, p. 3]Google Scholar; Jingji ribao,10 October 1993, p. 7]Google Scholar; Hunan ribao,5 October 1993, p. 7]Google Scholar; and Hebei ribao,29 January 1993, p. 1.]Google Scholar

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^126. According to China Daily,as of late 1993, local governments owed teachers 1.40 billion yuanin back wages, including 556 million yuanin Hubei, Hunan, Sichuan, Inner Mongolia, Hebei, Gansu, Heilongjiang and Shaanxi. China Daily,18 December 1993, in FBIS 20 December 1993, pp. 16–17; ribao, Hubei, 13 November 1993, p. 1]Google Scholar; ribao, Hunan, 1 September 1993, p. 1]Google Scholar; ribao, Sichuan, 30 December 1993, p. 1]Google Scholar; ribao, Nei Menggu, 10 December 1993, p. 1]Google Scholar; bao, Renmin zhengxie, 5 October 1993, p. 1]Google Scholar; ribao, Gansu, 4 October 1993, p. 1]Google Scholar; Heilongjiang ribao, 16 December 1993, p. 3]Google Scholar; and Renmin ribao,23 August 1993, p. 3.]Google Scholar

^127. The regime has, for example, been battling the “three disorders” since the mid-1980s, with major campaigns undertaken in 1990 and 1993.

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