Shanghai Daily
June 29, 2006

Auditor-general Li Jinhua said recently that institutional inefficiency could cause more waste of money than individual corruption. He cited the NDRC, which ‘injected 1 billion yuan into five river dam projects before their feasibility was proven.’

Institutional inefficiency could do more harm to an economy than the corruption of all individual officials combined. For a long time, the media – foreign and domestic – has lashed out at those who steal public money and lamented at an ever-degrading social moral. No problem with that kind of criticism. Bad apples must be eliminated. The thing is, society should not overlook another kind of corruption: Institutional inefficiency. Such inefficiency has somehow been tolerated because it does not involve any specific official pocketing public money for personal use. Li Jinhua, auditor-general of the National Audit Office, said at the beginning of this month that institutional inefficiency could cause more waste of money than individual corruption.

Yes, in a typical institutional inefficiency case, no one official may be implicated in corruption, but everyone winks at a poor system where efficiency is eroded and waste warranted. Thanks to Li’s efforts, one is able to see how inefficient certain central government departments have been in dealing with tax payers’ money. In his annual report to the National People’s Congress on Tuesday, he disclosed 5.5 billion yuan (US$680 million) that was misappropriated by 48 central government departments. The Ministry of Finance and the National Development and Reform Commission bore the brunt of Li’s charges of inefficiency. In a way, it’s not just inefficiency, it’s collective disregard of one concept: Protecting the public’s money. In one case, the Ministry of Finance last year gave a state asset management company unduly high fees from state asset sales. In another case, it allowed 20 percent of revenues from Treasury bond sales to remain idle.

The National Development and Reform Commission, responsible for scheduling central government investment projects, was no better last year. It injected 1 billion yuan into five river dam projects before their feasibility was proven. Certainly no one official stole money. But, if the dams were to collapse in the future, would the harm that this chaotic money management causes be larger than if one official grabbed one billion yuan for his own pocket? Li’s muckraking list went on and on, as it did in previous years. The 48 central government departments were only part of the story. The Agricultural Bank of China was found to have illegally handled 50 billion yuan in loans and credit business. Here some individual managers have been implicated in crimes, but the bank’s failure to implement a system of checks and balances was no less a problem. Many local governments, in secret defiance of central government orders, sold land to investors at an unreasonably low price, only to allow the investors to pile up idle land at a low cost and therefore send housing prices spiraling. Li’s report has led many commentators to admire his courage to speak the truth.

Less media attention seems to have been directed at the acute problem of institutional inefficiencies. He once said: “If everyone saves a drop of water, the nation will be able to save several hundred billion yuan a year.” It’s easy to arrest a few corrupt officials. It’s difficult to overhaul a system. But the job must be done and quickly. It can be done. Some people complain that Li’s criticisms don’t really bite, because those departments have been repeating their inefficiency year after year despite Li’s reprimand. But in my view, the key issue is not whether Li’s words will bite immediately or not. The key is whether he or his successors will have the courage to continue biting. Give the nation’s auditors sufficient support, and they will really bite sooner or later. By “really bite,” I mean the institutions that take care of our money will become more efficient. If you understand “really bite” as to mean whether misused money can be recouped in time, you would see that Li’s words have already bitten seriously. Official reports show that 95 percent of the misused money discovered in the last auditing year has been corrected. You may well doubt the official figure. But think what would happen if Li had remained silent?