For all the hope that the rise of a certain kind of capitalism in China will bring with it political freedom, corruption persists, the Financial Times reports in an article that makes clear just how powerful the Communist Party is there:
To glean a sense of the dimensions of the organisation department's job, conjure up a parallel body in Washington. The imaginary department would oversee the appointments of US state governors and their deputies; the mayors of big cities; heads of federal regulatory agencies; the chief executives of General Electric, ExxonMobil, Walmart and 50-odd of the remaining largest companies; justices on the Supreme Court; the editors of The New York Times, The Wall Street Journal and The Washington Post, the bosses of the television networks and cable stations, the presidents of Yale and Harvard and other big universities and the heads of think-tanks such as the Brookings Institution and the Heritage Foundation.
All equivalent positions in China are filled by people appointed by the party through the organisation department.
The article also reports: "Buying and selling official positions is commonplace in local governments in China...In small localities, the most popular positions up for sale are those of party secretary and head of the local organisation department. Both jobs carry enormous discretionary powers and the ability to bestow patronage on individuals under them in return for cash."
As a casual reader with no particular expertise in China, it seems to me that since the Washington Post's Phil Pan left for Moscow, the FT has had the best coverage of any of the Western dailies. To my mind, it reinforces the analysis in the long Goldman Sachs article:
what are the fair criticisms of Goldman Sachs, if any? There's a case to be made that the firm has gotten too close to Communist China. In his 2008 book about Goldman Sachs, "The Partnership," a consultant who has done work for the firm, Charles Ellis, reports that as a Goldman partner, before becoming the firm's CEO, Mr. Paulson coached China's vice premier, Zhu Rhongji, on how to answer questions from a bond rating agency. Paulson's chief operating officer, John Thornton, left Goldman when the Chinese government appointed him to a full professorship at Tsinghua University's business school. The Ellis book reports that when Paulson left Goldman to join the Bush administration, the banker held a "substantial" personal stake in the Industrial and Commercial Bank of China; Fortune reported that the Chinese bank's chairman's daughter worked as a summer intern for Goldman in New York.
In 2004, while Mr. Paulson was CEO, Goldman agreed to a $2 million fine by the Securities and Exchange Commission to settle charges that it had illegally promoted the stocks of four Asian companies, including PetroChina's $2.9 billion initial public offering. The Washington Post reported that among the statements at issue in the SEC case were Goldman's efforts to allay concerns about PetroChina's role in Sudan. Goldman pocketed hefty fees for underwriting the PetroChina IPO in 2000, but in the years that followed, institutional investors such as Harvard, Stanford, and the California state pension system have divested PetroChina stock, citing its role in the genocide in Darfur. A New York Times article focused on what it called "an unusual horse trade" crafted by Mr. Paulson in 2003, in which Goldman made a $67 million "donation" to cover investor losses at a failed Chinese brokerage firm it had nothing to do with. In exchange, the Chinese government let Goldman set up shop in Beijing.
The case for American banks to do these deals in Communist China is at least in part that American values — capitalism, rule of law — are imparted to the Chinese. Better the Chinese absorb Goldman Sachs values than those of the Swiss or German or French bankers who would be doing the deals if America stayed away, this argument goes. Reasonable enough. But there's a risk — not a certainty, but at least a risk — that some of the values flow back in the other direction and that instead of Goldman exporting capitalism and the rule of law to China, China ends up exporting Communist-style state ownership, arbitrary government decision-making, and cronyism back to America, using Goldman as the "culture carrier," to use a popular Goldman phrase.
That risk applies not only to Goldman but to all American companies that try to do business with China; Goldman just comes in for particular scrutiny because of Henry Paulson's role as Treasury secretary during the financial panic of 2008 and the expansion of federal power that accompanied it.