Ling Chen, an assistant professor of political economy at Johns Hopkins School of Advanced International Studies (SAIS) recently appeared on an episode of the Pekingology podcast. She said that large firms in China have an advantage over smaller firms in that they are able to build relationships with local officials and potentially bribe them to receive tax breaks, although some of China's bribery and corruption has lessened following the implementation of President Xi's anti-corruption campaign.
The Pekingology podcast is hosted by the Center for Strategic and International Studies (CSIS). While on the show, Chen discussed her paper, "Capital Mobility and Taxation: State-Business Collusion in China."
"The main finding is simply is that overall in China, it's really the opposite of the traditional story - that mobility doesn't seem to help firms," Chen said. "It's actually this advantage for firms, and that when you are more fixed, less mobile...actually you have a lower effective tax rate...The company that has more fixed capital, actually has the commitment to stay here longer. Therefore, [the] company can actually pay bribes...can go to a banquet with local officials, not just local officials of the tax bureau, but local officials of other economic departments, which are in charge of issuing these tax break policies."
"From the viewpoint of a local official, the local official is also more willing to engage with bribing, collusion, corruption with [large companies], because they know that just by looking at [those companies], they know that [they are] going to be here longer. After the anti-corruption campaign...the kind of state-business collusion started to be constrained. That is to say that officials in business are no longer openly going to banquets and openly bribing with each other and they're less comfortable doing so. And they, especially from the official side, they're sort of paralyzed and they would rather not make mistakes and be safe. And so that has effects that sort of curtailed the availability of the strategy of networking and bribing and collusion between state and business."
Chen said on the podcast that according to conventional beliefs, businesses that have greater mobility tend to have lower tax rates, because if a business owner believes he's being taxed too much, he can move his business to a different location. However, in China, businesses with less mobility tend to pay less in taxes.
According to The Diplomat, when Xi Jinping became general secretary of the Chinese Communist Party (CCP) in 2012, he said in his first speech that tackling corruption within the party was one of his top priorities, The Diplomat reported. Xi instituted an anti-corruption campaign, with investigations carried out by the Central Committee for Discipline Inspection (CCDI). The CCDI has investigated and punished more than 4 million cadres and 500 senior officials in the last decade. The anti-corruption campaign's scope broadened in 2018 to include non-party members, such as managers of state-owned enterprises and administrators of public institutions.
According to her bio-page on the Johns Hopkins website, Ling Chen is a China native who came to North America to pursue a graduate degree. Chen's focus is in state-business relations, including industrial and tax policies. She teaches courses on China's Political Economy, Comparative Politics, and Political Economy and Development Strategies in East Asia. Prior to joining Johns Hopkins SAIS, she was a Shorenstein Postdoctoral Fellow at Stanford University and a Rajawali Fellow at the Ash Center of Harvard Kennedy School. Her work has been published in American Journal of Political Science, International Studies Quarterly, World Development, Politics & Society, China Journal, Review of International Political Economy, New Political Economy, and Axios.
