China's second Party?

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shanghaiceltic

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Joined: Sep 20, 2005
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Posted: Feb 17, 2006 - 12:32 PM
Post subject: China's second Party?

For those who have been here a while this comes as no surprise, but it is good to see it coming out in the open. Am I being cynical? whenever I see a government official here I allways ask myself 'How much is he/she on the take for'

CHINA'S TRILLION-DOLLAR CRISIS
Beijing takes on local-government mafias
By Francesco Sisci

A new crisis is at work in China. Its fracture lines are barely apparent; still, they run deep, reaching the very structure of power of the Communist Party: the bureaucracy.

It was thanks to the efficient chain of command and control of the bureaucracy that the Tiananmen crisis was quickly brought under control. It was the same chain of command that worked miracles in neutralizing fª1ungοng activists within the ranks of the party, by singling them out and expelling or re-converting them. But now this line of command and control is under strain, and this could intime bring real problems to Communist Party rule in China.

There was a turning point just a week ago.

On February 9, a court in Handan, Hebei province, sentenced He Feng to life in prison. He Feng was the former party chief of Dingzhou city, and was found guilty of hiring thugs to beat up villagers for protesting low compensation for land seized to make way for a power plant last June.

Hiring thugs for dirty work has been an important tool of local administration in China. It keeps the police out of shady business and creates a dangerous liaison between high local officials and "black societies", mafia-like organizations that can be used for matters of "social concern" or for the private interests of officials. But they also can start a life of their own, growing independent from their former "official" masters. The use and encouragement of these thugs can then provide the environment for the growth of mafias, which next to the Communist Party itself are now the most efficient organizations in China. Therefore, in this environment, the mafias could in time become the most serious challenge to party rule.

The He Feng sentence thus had two goals: to signal to the whole country that Beijing will no longer turn a blind eye to blatant complicity with local mafias and, moreover, that Beijing will no longer cover up for local governments speculating on the sale of land against the interests of residing farmers.

According to Chinese estimates, since 2003 the sale of farmland for industrial and residential purposes created a rough turnover of some 5 trillion yuan (more than US$600 billion). The calculation is simple. Zhou Tianyong of the Central Party School argues in Breaking Through the Obstacles to Development (Tupo fazhande tizhixing zhang'ai, Guangzhou 2005, Guangdong Jingji Chubanshe, translated by David Cowhig), "Various construction projects throughout China had taken about 100 million mu [6.7 million hectares] of agricultural land from production. Calculating at an average market price of 50,000 RMB per mu, that comes to 5 trillion RMB, but peasants only received 500 billion RMB in compensation." (RMB stands for renminbi, or yuan.) Only some 10% of the money went to the farmers, some $60 billion.

This land was then sold to real-estate companies and industries, which invested in them by building apartment blocks or factories, producing a final value of more than five times the sale price. The total amount is then about $3 trillion, an amount considerably higher than China's 2005 GDP. This may lead us to think that there is some serious overestimation of the phenomenon. But even taking a cautionary view, it proves that there is a huge economy that moves outside of the banking circuit.

Furthermore, it is interesting to consider where 90% of the sales profits go. More than $500 billion went into local coffers, feeding local administrations and their needs, and into the pockets of local officials. Taking a cynical view, bribes are partly necessary, as they motivate officials in favor of market reforms. With such a very concrete incentive in sight, the officials push for economic development rather than hindering it.

These officials and their cronies then give birth to new middle and rich classes in previously poverty-stricken farmland. However, since only a small portion of the sales money goes to farmers, they are left out of the process, possibly poorer than before. Had a higher price been paid to them, they would have had a little capital to start other activities.

But there are two considerations to bear in mind. China's growth has been thriving on cheap labor. If peasants suddenly got much richer, this could create a shortage of cheap labor, pushing up prices in cities and possibly triggering inflation. Furthermore, there is endemic corruption in the countryside, dating back centuries. It is not possible to intervene with a system to monitor all land transactions. This would not only make things more cumbersome, it could add yet another layer of corruption.

What is possible realistically is to keep an eye on what is happening on the surface, considering this an indication of more serious problems deep down. In other words, peasants' prοtests are a sign that issues of land payment have not been satisfactorily solved. Now, the message from the top is clear: the officials involved will be put under inquiry and, if found guilty, severely punished.

In December Premier Wen Jiabao warned senior rural bureaucrats against making the "historical mistake" of failing to protect farmers and their lands, which he predicted would lead to more violence. In particular, he cautioned, towns should not violate the law regarding seizure of land nor sell confiscated fields to businesses as a way to raise public funds. Reportedly during his trip to Fujian province at Spring Festival, President Hu Jintao warned the local chiefs to clean up their messes locally and not to pass them on to the central authorities. It was a clear threat: if local chiefs are unable to keep their administration in order, they could be removed.

This new policy should limit local prοtests, as it makes the local chiefs directly responsible for local social order. They are not simply called on to quell riots, but to prevent them.

This creates a new environment for police and their handling of political action. Police should not try to solve problems that are not policing issues. It is the political leadership that has the task of solving social and political conflicts, in the spirit expressed by former central party leader Li Ruihuan in a book he published at the end of last year (Xue zhexue, yong zhexue, "Studying and Using Philosophy", China's People University Press, Volume 2, pp 712-716). He claims that conflicts are a permanent feature of society and political action should be able to spot them and find solutions before they become unmanageable.

Division of economic interests in the bureaucracy
In all this there is a very entrepreneurial aspect. In China, entrepreneurs often live in a gray area, where they are required to be very aggressive while still lacking sufficient legal protection. In many cases their past hides instances of tax evasion, bribery or worse. These sins are due to the ongoing process of transformation from planned economy to market economy.

In many cases the opportunities for business faced by Chinese entrepreneurs are also gray, if not black, especially in cases involving expropriation of land from peasants. When an investor buys from the local authority, he can't tell if the farmer was properly paid or not. In other words, he operates in a risky environment, but his active participation is necessary if industrialization is to move forward. Therefore he can only be interested in business ventures that offer high returns: big risks, big returns. If returns get slimmer, he may be unwilling to take risks.

But it is not just the fact that investors are unwilling to accept lesser returns; they also can't really tell if these lower returns are truly compensated by lower risks. So when profits have to be cut three ways - entrepreneurs, officials, and peasants - the weakest link is the peasant, who can be squeezed out of his profit with fewer problems.

The new system of responsibility for the chiefs may improve protection for the peasants, but it doesn't change a thing for the entrepreneurs, and puts a greater burden on the officials. The officials are the ones who stand to lose most from the redistribution of profits. The entrepreneurs still have to be lured in with the promise of fat profits, while the peasants have to be made happier, so the officials stand to lose.

Looking at it from another angle, there is a risk of a big conflict between local and central chiefs, which if not well managed could become explosive. There appear to be two blocs: the central government, entrepreneurs and farmers on one side, and local officials on the other. In theory the local officials are isolated, because the interests of the former three are consistent and in contrast with those of the local officials. This is not some vague power struggle between central and local government; it is a struggle over how much money goes into whose pocket.

It could well be, then, that Beijing is trying to enact a system to curb the power of local officials. However, it could well be something very different.

As local officials are constantly in contact with farmers and entrepreneurs, they may have the opportunity to create new problems for the entrepreneurs and put the blame for these new troubles, as well as the old woes of the peasants, on the central government. Besides, they have some capital, that $500 billion accumulated over three years, to advance their cause and maneuver in the internal political arena, where money plays a rising role.

While these structural changes appear necessary, in the long run they could be dangerous for the country's stability. By redistributing money that otherwise would go to individual officials, the chain of command is broken. This is dangerous, as these officials need to feel that their personal interest is generally consistent with that of their country.

Certainly, even in the past there were differences of interest between the provinces and the center. But this situation involved various large entities and it was basically solved first by inviting representatives of the strong provinces into the Politburo, and second by constantly changing the heads of important provinces and cities. But in this case, the conflict is at a lower level: in districts, in counties, and China has thousands of them. It is impossible for the center to take care of the problems of every single district, and it is very difficult to monitor the rotation of officials in those districts. In fact, this new clash calls for a general reconsideration of the whole local-government bureaucracy.

In the short run, the party, which still has a very strong structure, will have no problem sustaining the stress. But the party discipline in the long run might not be enough. There is a classic historic example. In France in the 18th century, when the king tried to bolster his position against the power of the aristocracy, dominating the country and its administration, he sought the support of the newly emerging bourgeoisie. He created a conflict with the aristocracy but successfully concentrated the power in himself. Eventually, however, the growth of influence of the bourgeoisie and its conflict of interest with the absolute power of the king created the conditions for the French Revolution.

In China the center doesn't challenge an aristocracy, but its own administration, and no matter what, a country needs an administration. The point at the moment is that district administration is schizophrenic: on the one hand it represents the local interests to the center and on the other hand it represents the requests of the center locally. Ultimately the local officials, disoriented and under thousands of temptations and pressures, only look after themselves.

It seems necessary to split the interests into two bodies, one to represent the center locally, and the other to run the local government. But such a split of functions, which has already been attempted, can create conflicts between the two bodies, or more corruption, as the officials of both bodies can collaborate for one purpose, making themselves rich.

However, the present administration system can work without major revamping for a few years if strong party discipline and administrative measures are enforced by both Beijing and the provincial capitals, which themselves have an interest in preventing riots. In the short run the threat of removal from the job, or even the possibility of being sentenced to life in prison, can work miracles to keep the local bureaucracy in line.

Furthermore, the role of the Chinese press should not be underestimated in keeping an eye on local officials. Although many journalists who denounced local abuses lost their jobs, and many papers were put under scrutiny because of their attacks, their action is feared in China, and it can take place only because the central authorities en large approve of it, as it is useful to keep an eye on unruly local chieftains. Their role in the near future will certainly be enhanced and will help create an overall new environment for a greater, though still limited, freedom of the press.

At the same time, some of the enriched local officials could leave their offices and turn into full-blooded entrepreneurs. To end the fuzzy situation of many "collective" (jiti) enterprises, in reality run by a local official, they could be privatized and given clear lines of responsibility, separating entrepreneurial activity from government activity. In many localities the two are still confused.

It is hard to say how long the new social pact might take to strain party discipline seriously, but this could well be something to pay attention to after the crucial 2007 party congress.

Francesco Sisci is Asia editor of the Italian daily La Stampa. (Copyright 2006 Asia Times Online Ltd. All rights reserved. Please contact us for information on sales, syndication and republishing .)

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