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
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
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
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. This post originally appeared in James Fallows' blog.
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is a fellow at the Paulson Institute, where he focuses on investment and policy programs, and on the Institute's research and think-tank activities. Previously, he was a lead China analyst at Eurasia Group, a political risk research and advisory firm.