Financier Warren Buffett and Prime Minister Stephen Harper make an astute team of investment advisers. Mr. Buffett says people should be wary of investing in China. Mr. Harper says people should be wary of Chinese investment in Canada. Now, in a devastating analysis of China's systemic corruption, a distinguished academic predicts - "inevitably" - an end to the country's three decades of rapid economic expansion.

Author and commentator Minxin Pei is a political scientist (and Harvard PhD) who directs the China Project at the Washington-based Carnegie Endowment think tank. (Carnegie operates its own research centre, affiliated with a number of Chinese universities, in Beijing.)

Mr. Pei calls China's "endemic corruption" the No. 1 reason for the country's coming crisis in government - a crisis, he says, which could bring down the Communist Party dictatorship. If he is right, Mr. Buffett will look good for selling his PetroChina shares (some purchased for 22 cents [U.S.] and some sold for $19.40). If he is right, Mr. Harper will look good for his tough approach with China on human rights as well as on China's purchase, through state-owned enterprises, of strategic Canadian companies.

Mr. Pei describes China as a number of mafia states run by corrupt officials, from the highest levels down to the lowest, who themselves form the Communist Party of China - which explains why the party will never be able to reform itself, why the party will never adapt either to democratic or to free-market norms.

Many people think the Communist Party wants to end the corruption, Mr. Pei says, citing public executions and long prison sentences. The appearances, though, are deceiving.

Beijing punishes only a small proportion of its corrupt officials, all of whom are party members. Although as many as 190,000 government officials are cited for corruption every year, 80 per cent of them get only a warning. Only 20 per cent get expelled from the party. Fewer than 6 per cent are prosecuted and only half of these serve jail time.

"The odds that a corrupt official will go to jail are, at most, three out of 100," Mr. Pei says, "making corruption a high-return, low-risk activity."

In the 1980s, Mr. Pei says, few corrupt officials stole more than one million yuan ($135,000). Now, even lowest-level officials routinely steal "tens of millions of yuans."

All in all, Mr. Pei says, corrupt government officials steal 3 per cent of the country's $10-trillion (U.S.) economy, or $300-billion. These crimes, he says, "represent a large transfer of wealth from the poorer to the richer, to a tiny group of elites."

But these numbers do not include many other kinds of corruption, notably the buying and selling of jobs and the corrupt transfer of land to developers.

China's Ministry of Land Resources reported last year that half the property transfers it examined were illegal, that it had documented more than one million cases of criminal transfers. These are the crimes, Mr. Pei says, that spark tens of thousands of riots and violent demonstrations every year, most of which go unreported in the West.

The most egregious crimes, though, are committed within state-owned enterprises - and state-owned companies still account for 35 per cent of China's economy. The state sector controls the largest corporations. It monopolizes banking, power generation and natural resources. It owns trillions of dollars worth of fixed assets. It controls prices, interest rates and land prices.

"Corruption [in all countries] is closely related to the state's involvement in the economy," Mr. Pei says. "The Chinese state remains deeply and extensively entrenched."

Because the Communist Party cannot reform, Mr. Pei says, "the financial system is fragile, the environment degraded, law enforcement tainted and ineffective, the public health system unresponsive and the regulatory system creaky."

Mr. Pei observes that the spillover effects onto Western investors - and, indeed, Western governments - is significant. The corruption "endangers" foreign investors. Criminal conduct by Chinese officials can expose Western firms to huge environmental and financial liabilities - to say nothing of human rights abuses. Corruption makes it difficult for honest businesses to succeed. Corruption jeopardizes Western intellectual property rights.

Corruption has already kept the Chinese government from honouring international agreements it has signed - as in, for example, treaties on environmental standards. "A China governed by a corrupt elite," Mr. Pei says, "can never be a reliable strategic partner."

Japan. South Korea. Taiwan. Thailand. Indonesia. All of these countries, Mr. Pei says, have paid steep prices in sequential crises for varying forms of crony capitalism. China, he says, will be no exception - if only because its corruption is worse. China, he says, has no "infinite capacity" to escape a full-blown financial crisis of its own.

Don't say that we weren't warned.