Corruption and marketization: Formal and informal rules in Chinese public procurement

The relationship between market liberalization and corruption has attracted scholarly attention in recent years. Conventional wisdom holds that increased economic marketization reduces corruption. China, however, provides evidence to the contrary; corruption has grown as its market‐oriented reforms progress. This paradoxical co‐development of the market and corruption begs the intriguing questions of how corruption has survived marketization and what explains the failure of government regulation. Extending the conceptual framework of institutional theory about formal and informal rules, and using public procurement in China as an example, this article shows that formal tendering rules and regulations may be modified, circumvented, or replaced by informal ones which facilitate corruption. The article identifies four corruption schemes through which procurement actors may distort competition processes and mechanisms under the guise of formal rules. Consequently, public procurement in China displays the structural outlook of market competition, but not its essential substance.