Why competition cannot effectively reduce corruption

: the case of China's public procurement

Abstract

Drawing on empirical data from C hina's public procurement, I try to explore how and why competition mechanisms adopted in procurement management have failed to curb corruption and to gain a better understanding of the relationship between corruption and competition. Scholars generally consider competition an important approach to containing corruption, but this is not the case in China. Since China's marketoriented reforms began, the government has established a bidding system as a way of inducing market competition in public procurement. The government does so for two purposes, liberalizing the economy and preventing corruption. However, as the bidding system develops, corruption has become even more rampant than before. Why competition mechanisms have not been effective in controlling corruption is a puzzling question. In this study, I employ a case study method and try to find out answers to this puzzle. The data collected from the public procurement in a Chinese city indicates that bidding competition has in fact been distorted to a large extent. Procurement actors such as government officials and firms use a variety of strategies to evade and manipulate competition mechanisms. As a result, the effect of competition on preventing corruption is severely undermined in China's public procurement. Besides identifying problems in bidding competition, I take a further step to explore how and why procurement actors are able to evade and manipulate competition. The discussion among scholars on regulatory reforms shows that economic liberalization should be bound up with state regulation. In light of this academic thinking about state regulation, I develop an analytical framework to examine how China's bidding system is regulated. As shown by this study, when the state withholds itself from excessively interfering with the market, it fails to establish a sound regulatory regime to support bidding competition. This in turn provides procurement actors with opportunities to undermine competition. Based on these findings, I conclude that competition alone is not a panacea for controlling corruption. Economic liberalization helps but does not necessarily lead to a reduction of corruption. In China's reforms, corruption grows despite reduced government intervention and increased market competition. In the period of economic transition, the mechanisms and processes set up for inducing market competition are particularly susceptible to manipulation. Only if coupled with vigorous state regulation can market competition successfully prevent corruption.

Date of Award	16 Jul 2012
Original language	English
Awarding Institution	City University of Hong Kong
Supervisor	Ting GONG (Supervisor)