Can the Hong Kong ICAC Help Reduce Corruption on the Mainland?

Abstract

Hong Kong’s Independent Commission Against Corruption (ICAC) serves as the example par excellence of a successful anti-corruption agency. Yet, the Agency works in one of the more corrupt jurisdictions world-wide (the People’s Republic of China). To what extent can the ICAC – and the Prevention of Bribery Ordinance (POBO) which regulates its work – contribute to reductions in corruption on the Mainland? In this paper, we look at the ways in which the ICAC – technically a Chinese agency (albeit operating in a legally independent jurisdiction) – can help to reduce and prevent corruption on the Mainland. We find that with the proper modifications to the POBO, the Agency can reduce the value of corruption on the Mainland between $5-$20 billion. Through the right regulatory design, these amendments can help actually increase tax revenue by about $200 million per year. We also analyse the political-economy aspects of the reform – and present an example of an optimal reform path. Using economic analysis to assess the costs and benefits of reform – as well as the winners as well as losers of reform – this paper provides an illustration of evidence-based legislative analysis.