"Crushing the Princelings' Deal: Anti-corruption Campaigns in China"
Presenter: Ting Chen, Postdoctoral Fellow, Princeton University Bendheim Center for Finance
Abstract:This study explores a special type of political exchange in China, namely the favor trading between the princelings—a group of offspring and the family members of the high-ranking officials (including both Politburo Members and Standing Committee Members)—and the local government officials. By analyzing a unique data of 1,151,358 land transactions between firms and local governments, we confirm that by selling land to firms connected to the princelings are on average 88% lower than the market price, the local officials—either provincial or prefectural level—have managed to increase their promotion prosperity significantly. These evidences suggest that “jurisdictional yardstick competition”—an institution designed to promote officials based on meritocratic rules (e.g. GDP growth)—is being undermined by the political exchange in question, with consequence that likely to go beyond mere rents seeking. Perhaps it is due to the rampant corruption evidenced by the Princelings' Deal, new chairman Xi had little choice but to embark upon a campaign that departed significantly from those conducted by his predecessors. Indeed, our empirical analysis finds that Xi’s effort has been immensely successful, as the magnitude of rents accrued to the princeling-official nexus has been significantly reduced during Xi’s campaign in the past four years. With the disappearance of land price discount, the promotion benefits for dealing with princelings also significant reduces or even vanishes for the officials.
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