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to inject fresh blood into the Communist Party and the state bureaucracy, this term-limit system drastically reduces the period during which officials may hope to recoup their political investment (mainly because it takes many years for an individual to work his way up the hierarchy). The second is the practice of rotation of cadres that began in 1990. As a measure to prevent the entrenchment of local political bosses, the regime frequently rotates county, prefecture, and provincial officials. The unintended effect of this institutional practice is to turn these officials, literally, into roving bandits. As a result, such involuntary exit motivates Chinese officials to cash in their political investments more quickly.

Table 4.4. Punishment of Corrupt Officials, 1993-1998

Source: Calculated from the CCP Central Organization Department’s data quoted in Zhang Yangsheng, “Lun dangqian zhongqingnian lingdao ganbu fubai de tezheng jiqi yuanyin” (Characteristics and Causes of Corruption of Middle-Aged and Young Cadres Today), Zhongguo dangzheng ganbu luntan(Chinese Partyand Government Officials’Forum)1 (2000): 33.

China’s economic reform and opening to the outside world have also made available to the insiders of the CCP and the government new exit options. They can acquire capital through the spontaneous privatization of state assets and the takeover of formerly state-owned businesses, set up proxy businesses by channeling government contracts and bank credits to firms controlled by family members, seek appointments to executive positions in government-controlled businesses, and transfer illicit wealth to offshore accounts and businesses. By all accounts, the pace of the exit accelerated in the 1990s. The accelerated liberalization of the economy following Deng’s southern tour in 1992 created new opportunities for the insiders to exercise the exit option. In addition, one of the lessons many Chinese elites learned from the fall of the Soviet Union was that they should have an exit strategy and an insurance policy.59 In practice, this meant a rush to privatize state assets and set up private businesses. A survey of owners of private firms showed that the majority (60 percent) of those who became entrepreneurs in the 1980s were peasants, workers, and ordinary people—in other words, ordinary risk takers. But a survey of private business owners in 2002 showed that almost two-thirds of the 6.2 million owners of private firms had been former officials and executives in the SOEs and government agencies. This indicates that a very large number of officials—almost 4 million—had exited to the private sector in the 1990s.60

A somehow different exit option was double-dipping: officials holding administrative government positions would simultaneously acquire executive appointments in commercial firms with close ties to the government. Official press reports show that a large number of insiders have opted for this route. One representative example occurred in Wuhu, a city in impoverished Anhui province. Many of the city’s party officials became the so-called red-cap businessmen by holding simultaneously government appointments and corporate executive positions. The city’s party chief was the chairman of the board of a local automobile company. The head of the local tax bureau was the deputy general manager of a local real estate investment firm in which the municipal government happened to be a large investor. All the firm’s senior executives were local officials, including the deputy director of the local land management bureau, which had the power to allocate commercial land use.61 Similar stories were reported in many other jurisdictions. In Nanjing, a deputy mayor held the chairmanship of the board of a local industrial park; a district party chief occupied the chairmanship of a real estate development firm; and the head of the city’s urban development bureau was the chairman of a local real estate investment firm.62 In Beijing, nearly four hundred officials at or above the division level (chu) were found to be holding executive