World Economy

How China’s anti-corruption drive is hurting growth


Chinese authorities' anti-corruption campaign has knocked between 1 percent and 1.5 percent off the country's gross domestic product (GDP) annually over the past two years and continues to hit the economy, BNP Paribas has said.

President Xi Jinping launched a high-profile crackdown on bribery and extravagance among officials shortly after taking power in 2012, which has proved popular with the Chinese public.

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However, the campaign has impaired spending in the country, hitting both consumption and investment, Chi Lo, China senior economist at BNP Paribas said.

"To my surprise, investment is still down," Lo said at a conference in London on Wednesday.

Gift-giving — previously a major practice among Chinese corporations and officials — is down and companies have stopped giving awards, which could be seen as "kickbacks," Lo added.

In addition, investment projects by local governments have been hit.

"Even if these people are clean — and we have our doubts — they don't know if their counterparts are," Lo said, explaining why regional governments were wary of launching projects.

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Corruption regularly tops polls tracking the Chinese populace's greatest concerns. In September, 84 percent said that corrupt officials were a big problem in a survey by the Pew Research Center. 44 percent thought corruption was a very big problem.

The Chinese Communist Party updated its rules for members in October in light of the graft crackdown. The updated, stricter, version explicitly forbids extravagant eating and drinking, playing golf and "improper sexual relationships," according to Xinhua, China's official news agency.

The crackdown has also impacted foreign companies in China like GlaxoSmithKline. Last year the U.K. pharmaceutical giant was fined nearly $500 million by China after its local subsidiary was found guilty of bribery. Five of the company's managers received suspended prison sentences.

Peter Parks | AFP | Getty Images

Lo said that the economic hit from the crackdown should wane through 2016 and 2017.

"I think the negative impact will fade, as there has been (and will continue to be) policy easing to offset it and people's/investors' confidence should be stabilizing," he told CNBC via email.

"However, GDP growth will continue to be restrained by on-going structural reforms, with the growth rate expected to range (between) 6 percent and 7 percent a year in the next few years."

China's economy has slowed steadily since 2010, when GDP expanded by more than 10 percent. The economy is seen growing by 6.8 percent this year and 6.3 percent in 2016 by the International Monetary Fund (IMF).

To put this in context, the 6.8 percent figure is over twice the 3.1 percent average global growth rate for 2015 forecast by the IMF in October. It's also above the 6.5 percent growth that emerging Asia is seen averaging, but below the 7.3 percent growth that India is forecast to post.

— By CNBC's Katy Barnato. Follow CNBC International on Twitter and Facebook.