Another Corrupt Official in China Bites the Dust

by Damien Ma

The big political imbroglio out of China over the weekend was the sacking of the railway ministry party chief Liu Zhijun. The official reason given is that Liu is being investigated for "violation of discipline," but it should be interpreted as another corrupt official falling from grace. Although corruption is a serious problem for the Communist Party, it's not every day that a party secretary -- let alone one who manned the powerful rail ministry -- gets canned. This is probably the highest profile corruption case since 2006, when Shanghai party secretary Chen Liangyu was accused of funneling the city's social security funds to property developers. But at the time, many speculated the real reason behind Chen's ouster was President Hu Jintao's first major move to dismantle the Shanghai crowd, his political opponents aligned with former President Jiang Zemin. These types of ordeals tend to involve a considerable degree of political intrigue and command public attention. Consequently, domestic Chinese media is swarming with coverage of Liu's demise.

As with most of these cases, the exact reasons are never entirely clear. Speculation abound that Liu may have been a particularly bad "lychee" and had it coming for years. Unsavory practices may run in the family, as his brother is apparently something of a mobster and has been charged with potential murder. Another hypothesis floating around is that this reeks of another power play by President Hu Jintao to get rid of an ally of former President Jiang Zemin -- which could make some sense as internal political jostling intensifies through the political transition in 2012. But the most likely reason is probably that Liu was engaged in crony capitalism, handing out contracts and rigging bids to favor his own network, likely pocketing quite a bit of money in the process. It is these kinds of practices that often rile the Chinese public to no end. More than a few Chinese believe that their hard-earned money has been siphoned off by these corrupt officials.

The development had an impact on driving down rail stocks in China. I presume the average cynical Chinese investor probably thinks that this ain't over yet. Now that the top leaders made the move, who knows what other minor bad seeds are involved and can be summoned away for "discipline." Indeed, reports quoting anonymous Chinese rail officials indicate they've been shaken up.

Is Liu's dramatic departure going to have an negative effect on China's rail plans, particularly high-speed rail? After all, having been at the ministry since 2003, Liu oversaw one of the greatest expansions of the rail network and the operation of China's first high-speed rail linkages. The country saw $126 billion in fixed-asset investment for rail alone in 2010, shattering the previous single-year record of $106 billion in 2009. But I doubt Liu's downfall will seriously undermine China's rail plans, since they are larger than the rail ministry. This monumental rail project is viewed as almost nation-building and facilitating the integration of a continental-sized country.

However, the episode will shake the reputation of the rail ministry, and potentially embolden domestic critics of the outsized high-speed rail ambitions. Some have already questioned whether the project is becoming a boondoggle and a drain on resources, even as the Chinese government insists that debt level is about 52%, lower than seen in other countries. So, we'll have to see how this story evolves.

But just to be clear, I still plan to ride the high-speed rail when I'm in China come April. Beijing to Tianjin in 30 minutes? Just can't beat that.

Damien Ma is a China analyst at Eurasia Group.