Friday, October 31, 2014

Uncle House: How the Housing Market in China Aids Corruption

OFTEN the trickiest part of being a corrupt bureaucrat is not how to find new ways to extort money or accept bribes, but how to hide the ill-gotten gains. No one wants to end up like “Uncle House”, as a district official in the southern province of Guangdong was dubbed by internet users. He was outed two years ago by online anti-corruption activists after acquiring 22 properties that on his salary he clearly could not afford.

However, research by Hanming Fang of the University of Pennsylvania, and Li-An Zhou and Quanlin Gu of the Guanghua School of Management at Peking University suggests that the housing market is a source of illicit riches, as well as a place to park them. The authors find that Chinese bureaucrats consistently pay less when buying houses, receiving on average a 1% discount.

The authors examined over 1m mortgage contracts, which contain detailed statistics on the applicant, such as his income and employer, and the house in question. They then compared the average price paid by bureaucrats with that paid by those in the private sector. These estimates probably underestimate the corruption as they do not cover houses purchased by the spouses or children of bureaucrats.

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