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Rampant Corruption in S&T Highlights Regulatory Gaps

2014-06-17 15:47:03 Caijing
“S&T intermediaries” charge 30 percent of the S&T subsidies enterprises apply as “consulting fees” and turn over 10 percent of the subsidies to officials who help enterprises get government funding.

  By staff reporter Lu Wei

  Over 70 government officials in Guangdong’s science and technology (S&T) sector have been arrested for corruption since Feb. 2013. The cases, which involve a total amount of more than 50 million yuan, have implicated wide ranks of officials, ranging from grassroots public servants to department heads such as Li Xinghua, former director-general of Guangdong Provincial Department of Science & Technology.

  The S&T sector, an area where for a long time there was little room for corruption, is increasingly afflicted by corrupt practices as regulatory gaps remain despite the government’s growing research budgets. China’s research and development (R&D) expenditures reached 1,029.84 billion yuan by 2012, ranking third worldwide. Rent-seeking cases in the sector usually involve swindling of research funds appropriated by the government, which normally occurs during the process of project approval and fund allocation.

  The cases often involve large sums of money and implicate a wide spectrum of government officials, including many high-level officials. Aside from traditional cash gifts and presents of high value, bribers are known to give corrupt S&T officials stock options or promise them a portion of their company’s profits. Many of the officials work with “consulting firms” on a long-term basis to get kickbacks on research funds approved; while some of them even set up their own companies.

  Caijing learned that the suspects in Guangdong’s S&T corruption cases typically took advantage of their unsupervised discretionary power to help bribers swindle research funds.

  A case in point is Science and Information Technology (Bureau) of Guangzhou (GZSI). Fourteen of the GZSI’s 19 departments and offices are responsible for project management, which oversee the organization and implementation of projects, and manage project investment.

  In other words, a single department or office is in charge of all aspects of a project, from drawing up the project guide to organizing expert review, from inspection to the recording of scores, and from ranking applicants to adjusting scores. Industry insiders say there is room for rent-seeking in each of the aforementioned procedures.

  Given information asymmetry, the easiest and the most primitive way to rent seek is for relevant officials to profit by selling nonpublic information. A case in point is former GZSI staff Fu Jian, who has no real power but was able to rack up bribes by tipping off applying companies about relevant projects’ appropriations and criteria for application.

  A more sophisticated and common practice among Fu’s colleagues is to launch their own companies. Foshan City Nanhai District Kaipu Technology and Culture Co. Ltd., which focuses on S&T project planning, was established in June 2004. Yang Tianxi was listed as the company’s legal representative; while Ouyang Kebin, then deputy director of Guangdong Foshan’s Nanhai District Science & Technology Bureau, was the real beneficiary.

  The most covert way of rent-seeking is for officials to work with “S&T intermediaries” to get kickbacks on research funds approved. S&T intermediaries are mostly founded by former staff of the S&T sector, who, by way of “S&T consulting,” use their connections built over the years to help enterprises bribe relevant officials.

  Caijing learned that ordinarily, “S&T intermediaries” charge 30 percent of the S&T subsidies enterprises apply as “consulting fees” and turn over 10 percent of the subsidies to officials who help enterprises get government funding. Applying enterprises ultimately get 70 percent of the subsidies.

  “Over 30 years after China’s reform and opening-up, the institutional system of the country’s S&T sector has changed little since the 1980s, and the legacy of the planning system remains entrenched,” said Zhang Bihui, executive director at the Chinese Association of Science of Science and S&T Policy Research.

  “Administrative means continue to play a major role in allocating resources in the S&T sector. Excessive administrativization is bound to lead to rent-seeking and rampant corruption,” Zhang added.

  Zhang recommends a transformation “from ‘S&T resources’ to ‘S&T’ capital, and from ‘the government pays, enterprises research and develop’ to ‘enterprises pay, the government subsidizes’.”

  Full article in Chinese:http://magazine.caijing.com.cn/2014-06-16/114264679.html

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