Postcard: Xiantang

The gleaming white government headquarters building that sits in the middle of Xiantang, a village of 3,500 in China's industrial heartland of Guangdong, is a concrete symbol of that which is wrong with the country's economic boom. The structure was built a few years ago as surrounding farmlands were being turned into residential developments. It was supposed to be the Communist Party's local power center. But there are no cadres in sight. Since July 2, Xiantang has had no leadership.

That was the day hundreds of villagers, saying they were fed up with government corruption, stormed city hall, tossed out the top bureaucrats and occupied the building. Their strange protest continues today. Three dozen old women in smocks and sandals sit at the entrance, guarding against the removal of boxes of documents that they believe will prove the officials' guilt. A cauldron of congee cooks on an open fire in the driveway. One retiree, 73-year-old Li Biao, marches around the building in a T shirt with the phrase "Villager's Complaint" stenciled over the face of Bruce Lee.

Xiantang's residents claim officials cheated them by dealing land rights to their fields to property developers without adequately compensating farmers. "They sold our land and made money off it," says one resident, "but they gave us nothing." More than 2,000 villagers signed a petition accusing top local official Lai Zhenchang of masterminding the scheme. Officials used the proceeds to refurbish their homes and send their children to study overseas, villagers say; farmers were offered $8 a month each in compensation. (The Foshan city government, which has supervisory authority over Xiantang, did not respond to requests for comment. Lai can't be located.)

Similar protests are commonplace in China. A study last year of more than 3,000 corruption cases found that half were connected to land and development projects, according to Minxin Pei, the director of the China program at the Carnegie Endowment for International Peace. He adds that the government has uncovered more than 1 million cases of illegal land acquisition between 1999 and 2005. "It pops up in sectors where the government holds huge sway," Pei says. "These are the least reformed, least competitive areas. The government owns the land; the government controls bank credit. This is where corruption tends to occur."

Pei estimates that corruption in China costs the economy about 3% of GDP, which was $2.7 trillion in 2006. While 3% may not seem like a huge amount, Pei notes that it is roughly equal to China's total annual education spending. There is a less tangible but more dangerous cost. Government graft "undercuts the legitimacy of the Communist Party," says Dali Yang, director of the East Asian Institute at the National University of Singapore. "Ruling élites, perceived by the population as irredeemably rapacious and self-serving, enjoy little popular legitimacy and would more likely get overthrown if a major [economic] crisis hits," says Pei.

Of course, China's top leaders are keenly aware of this possibility. In an Oct. 15 speech during the Chinese Communist Party's congress, President Hu Jintao declared that fighting graft is critical to "the party and its very survival." But previous clean-up efforts have had little effect. Of the 133,467 officials who were investigated for corruption between 2003 and 2006, just 427 were referred to the judiciary for criminal proceedings, according to Ouyang Song, deputy head of the Party Central Committee's Organization Department. Despite some signs of improvement, such as a growing reliance on investigators from distant regions in big cases to reduce the chance that corrupt officials can rely on local connections to avoid punishment, fundamental weaknesses remain. Corruption-fighting efforts are subject to political interference, and watchdog powers of the press and citizens are limited. "The other side is missing," says Yan Sun, a political scientist at the Graduate Center of the City University of New York.

The occupiers of Xiantang's city hall are hoping their protest will force Beijing to act. So far, the police have not moved in to evict them, probably because Xiantang is small and the discontent shows no sign of spreading. But the villagers' resolve is fading. "People have to get back to work," says one protester. Beijing can no doubt win this skirmish by ignoring it. But the war on corruption will not be won by looking the other way.