Home » Economy & Development
Category Archives: Economy & Development
By He Qinglian, published: September 30, 2015
A flood of commentary has come out since the release of the long-anticipated Guiding Opinions on Strengthening and Reform of State-Owned Enterprises (《中共中央、国务院关于深化国有企业改革的指导意见》; “SOE Reform Program” or “Program” hereafter), jointly issued by the Central Committee of the Chinese Communist Party and the State Council. Some say that the Program is aimed at expanding and strengthening SOEs, while others say that the government is using market forces to promote privatization. That the same plan can yield two radically different suppositions is due to the Program’s strong “Xi Jinping quality”: It tries to combine the governance characteristics of both Mao Zedong and Deng Xiaoping and gain some advantage from both sides, thereby introducing a whole bunch of mutually contradictory formulations.
Key Points of the Program
The SOE Reform Program is 10,141 characters long and comprises 30 opinions in eight sections. It makes its purpose clear from the very outset: “SOEs are owned by the people as a whole . . . and are an important material base and political foundation for the development of our party and state.” This message infuses the Program throughout. Below are a few of its key points that must not be overlooked:
I. A highlight of the Program is the mixed-ownership system. Pundits have different opinions about this system based on their different understandings of the word “mixed.” Some (including foreign experts) see the word “mixed” and believe that the plan encourages privatization. But the original language in the Program says: “Actively encourage ownership diversification through introduction of other state-owned capital or various types of non-state-owned capital. State-owned capital may retain absolute or relative majority share positions, or it may be a [non-controlling] equity participant. Encourage the integrated companies to go public.”
The drafters of the Program seemed to worry that people would not fully understand their meaning, so they made a special point of noting in Opinion 2 (under the “General Principles” section): “Public ownership occupies the dominant position. It remains the basic economic system, the key point for consolidation and development. The non-public sector occupies a subordinate position.” “Upholding and improving the basic economic system are the fundamental requirements for deepening SOE reform that must be grasped.”
So, “mixed ownership” means that private companies can make cash purchases of shares in SOEs and become shareholders. But since the equity allocation ratio is based on the state-owned capital being the controlling party, private companies can only remain in a subordinate role, without any decision-making power or right to a say in matters. To prevent the public from getting the wrong idea, after releasing the program the Xinhua News Agency promptly issued a piece entitled “We Must Unequivocally Oppose Privatization” (《须旗帜鲜明反对私有化》).
II. The Program calls for fostering “market-oriented management mechanisms” while strengthening the Party’s leadership. Marketization is mentioned a total of 14 times, as if it were a theme of the Program. But in Opinion 24 it says: “Give full play to the key political role played by the Party organization within SOEs. Unite the goals of strengthening party leadership and improving corporate governance. Put a general requirement for Party-building work into the corporate charters of SOEs and clarify the statutory role of the SOE Party organization in the corporate governance structure.”
“Party leads everything” was the lifeblood of political and economic life during the Mao era. “Marketization” has been the theme of SOE reform ever since Deng Xiaoping took over. When Zhao Ziyang was General Secretary, he worked very hard to separate government from enterprise in the hopes that it would bring an end to the misadministration that came when the party managed companies. Originally, he even planned to build on his successes in this area and promote separation between the party and the government, but all of those efforts went down the drain after the events of June 4, 1989.
More than 60 years of Communist rule has shown that, under Party control, SOEs can use the Party’s support to grow large but not strong. This is because, growing strong means that a company increases its operational capabilities and management capacity, achieves a reasonable input-output balance, and gains market share through competition, rather than monopoly. These are precisely the things that it is impossible for Chinese SOEs to achieve.
III. Private companies with “great development and growth potentials” will become the primary target of SOE enterprise reform. Opinion 18 of the Program states: “Encourage state-owned capital to pursue various ways of investing in non-state-owned companies. Fully realize the capital operation role of state-owned investment and operations companies and use market forces to make quality investments in non-state-owned companies with great development potential and strong growth in the key sectors of public services, high-tech, environmental protection, and strategic industries.”
In other words, private companies with weak prospects can rest easy that SOEs won’t come knocking at their door. But if you’re a private company with high efficiency and good market prospects, the SOEs won’t even knock—they’ll come right in and purchase some of your shares or shell resources. There will be nowhere to hide.
Why Do the Chinese Authorities Insist on Making SOEs Big and Strong?
You can tell what a government considers its key interests to be by looking at the companies it chooses to support. Take, for example, the acquisition of the largest American pork processor, Smithfield Foods, by China’s Shineway Group. With a total of 48,000 jobs at stake, including around 1,300 newly added jobs, local residents and governments all welcomed the deal and didn’t care that the new owners were Chinese.
In China, the private sector has long provided more employment opportunities for Chinese people than SOEs. According to official statistics for 2007, SOEs accounted for only 9.2 percent of industrial jobs, compared to 44.4 percent for the private sector. In January 2011, the All-China Federation of Industry and Commerce published a report indicating that small and medium enterprises accounted for more than 99 percent of all Chinese companies and accounted for more than 70 percent of urban employment and 90 percent of newly added jobs. In 2014, the State Administration for Industry and Commerce announced that sole proprietorships and private companies accounted for approximately 90 percent of all new urban jobs nationwide.
As foreign investors have begun to leave China, rural-based laborers are returning to the countryside in great numbers and more than half of all university graduates are forced to return home and live off their parents. In principle, the government ought to encourage development of the private sector and make raising the employment rate its primary consideration. So why do the authorities instead want to make SOEs, which account for comparatively fewer jobs, “big and strong” and adopt a “reform” strategy of “advance the public sector and diminish the private sector”? It is based on the following two considerations:
- As the economy has begun to slide, the Chinese government is facing an enormous financial dilemma. Private companies already represent the largest share among all Chinese companies when it comes to number of enterprises, assets, or main revenues, whereas SOEs are at a disadvantage on all accounts. But when it comes to the share of taxes paid to the state, private companies paid only 13.0 percent in 2012, according to official figures, compared to 70.3 percent paid by SOEs. As original sources of tax revenue increasingly dry up, the fact that SOEs are the main pillar of public finances is a sufficient reason for the government to make such efforts to support them. Whether or not SOEs can increase the employment rate is not among the government’s primary concerns. Premier Li Keqiang has already told the hundreds of millions of unemployed to follow a path of starting their own businesses.
- Restructuring and listing is the Program’s ultimate goal. Currently, there is a very high rate of debt among SOEs. At the end of July 2015, the average asset-liability ratio among Chinese SOEs was 65.12 percent, with the overwhelming majority of those debts owed to state-owned banks. This kind of relationship between banks and companies ensures that if SOEs cannot perform better, the state-owned banks will also collapse.
Over more than two decades, the main way that SOEs have gotten out of their difficulties has been to follow the brilliant idea of former Premier Zhu Rongji, who first allowed SOEs to raise money by going public. But today this idea seems to have lost its magic, and the national team appears stuck after being forced by the government to take part in efforts to save the stock market. So, the SOE Reform Plan is only an attempt to come up with a new tactic: have SOEs reform and, after mixing ownership with private companies, “encourage restructuring for going public.” After the assets have been restructured, the companies can go to the markets to float IPOs under a new name.
Does the Private Sector Want to “Mix” with SOEs?
This talk of a mixed-ownership system is something the public is familiar with, having first appeared in the 2014 Guiding Opinions on Deepening State-Owned Enterprise Reform (《深化国有企业改革的指导意见》) and the public consultation draft of the Guiding Opinions on Improving the Forms of Realization of Public Ownership (《关于完善公有制实现形式的指导意见》). But private companies are not in the least bit enthusiastic. In my earlier article, “SOE Reform: Government and the Private Sector Each See Things Differently,” I explained how private companies commonly perceive “mixed ownership” as a trap. They believe that if they take part in a mixed-ownership company, the private company can’t get a controlling stake so it’s very likely to be neutralized and, in the worst case, caught with no means to defend itself.
Wanda Group Chairman Wang Jianlin (王健林) told the Sina website: “If I’m going to ‘mix,’ the private company definitely needs to have a controlling share, or at least I want relative control . . . If the SOE has the controlling share, isn’t that the same as me helping out the SOE by giving it money? Wouldn’t that be crazy of me to do? I can’t do that kind of thing.”
In the article Mixed-Ownership: Six Big Risks for Private Companies Investing in SOEs (《混合所有制：民企参股国企的六大风险》), the author got several private entrepreneurs to share their opinions about the mixed-ownership system. The main risks they raised were: (1) the people with responsibility over state assets were not actually required to take responsibility; (2) concern about loss of state-owned assets will become a high-tension line used to keep private-sector shareholders under control; (3) state-owned shareholders are much more powerful than private-sector shareholders, making it difficult to cooperate; and so on. The point is that private companies cannot cooperate with SOEs, because for them “cooperation” means getting caught in a trap.
It’s clear that even if private companies don’t want to “mix,” the government is determined to “mix” them. Chinese private entrepreneurs have weathered many storms over the years, and as soon as they saw the government getting ready to position itself for mixed ownership, they started “investing overseas” in great numbers. As the saying goes: “Of the 36 stratagems, fleeing is best.” Since August of this year, Beijing has imposed stricter foreign exchange controls. Rather than targeting those small holders of foreign exchange, the controls are aimed at those rich businessmen who are trying to transfer their assets overseas. “Shorting China” is becoming an up-and-coming crime.
To put the private sector at ease and keep them from seeing the government as the wolf dressed up in Grandma’s clothes, Opinion 16 of the Program states: “Uphold the principle of implementing policy according to location, according to industry, according to company. Decide whether to remain independent, take a controlling share, or make an equity investment based on what is appropriate. Don’t make arbitrary matches between companies or try to apply mixed ownership across the board. Don’t set timetables; move forward when the time is ripe. Reform must be carried out in accordance with law and regulation, in strict accordance with procedure, and in a transparent and fair manner. Ensure protection of the rights and interests of the various investors in mixed-ownership enterprises and root out state-owned asset loss.”
The real problem is that the Chinese government has always treated law as something used to constrain the people. Private entrepreneurs know what’s really behind this kind of reform intended to “preserve the leading position of the state-owned sector” and “root out state-owned asset loss.” Under this kind of “reform,” just watch and see whether the private companies that SOEs have taken a fancy to can avoid becoming “Little Red Riding-Hoods.”
He Qinglian (何清涟) is a Chinese economist who lived in China before 2001. In her bestseller The Pitfalls of Modernization (《现代化的陷阱》), she argues presciently that, as the power of local governments grows, officials who have favored reform would come to oppose further reform because it would limit their ability to trade power for money and money for power. The book was banned in China, Ms. He was forced into exile. In 2006, she published China Shrouded in Fog (《雾锁中国》) which studies how the Chinese government manipulates and, to some degree, controls overseas Chinese-language media. Ms. He lives in New Jersey with her family.
What’s the Murderous Intention Behind “Don’t Let Li Ka-shing Run Away”?, Xiao Zhonghua, China Change, September 19, 2015.
中文原文《何清涟：国企改革方案的风，姓私还是姓公？》, translated by China Change.
By Xiao Zhonghua, published: September 19, 2015
“Everyone understands that, in China, the real estate business is closely entwined with power, and it has no way to succeed without the backing of political connections. Therefore, wealth generated from real estate is not wealth generated completely from the market economy. [He] can’t exit just because he wants to.” – Luo Tianhao, Don’t Let Li Ka-shing Run Away
An expert at Xinhua News Agency’s “Outlook Think Tank” (瞭望智库) recently published a brilliant essay entitled “Don’t Let Li Ka-shing Run Away.” This piece has caused quite a stir in public opinion in China and beyond. As an economist who understands a thing or two about how economics works, I lament the woeful standards at Chinese think tanks and can’t imagine how such a low-quality think tank can influence and undermine China’s political and economic policy decisions. I also can’t help but speak a few words of conscience on behalf of Li Ka Shing, China’s wealthy, the Chinese economy, and China’s proletariat.
I. Who Is Running Away and Why?
Is Li Ka-shing the only one [exiting China]? Of course not! There’s no question that foreign investors are pulling out in great numbers and that domestic capital is also fleeing on a large scale. Besides being the nature of capital to chase profits, it’s also beyond dispute there are also outflows of dirty money. However, not all of the money that is leaving China is dirty.
How do we judge whether money is clean or not? If we were to say that all commercial interests with political backing are dirty, then what about all of China’s state-owned enterprises? They’re all monopolies with strong political backing, so their money is the dirtiest of all.
Naked exchanges of power for money and vice-versa are of course violations of Chinese law, so you can just launch legal proceedings and carry out investigations. If you find political rent-seeking or graft, you can make arrests, hold trials, and confiscate the illegal proceeds. Those sorts of people couldn’t run away if they wanted to, since they can always be captured and brought back, can’t they? The whole world is opposed to serious corruption and economic crimes. Aren’t we always having people arrested and brought back to China?
But isn’t it brazenly ridiculous to say that, because Li Ka-shing was a real estate developer in China and China’s real estate market “works so closely with the authorities” that you can’t get anything done without “political resources,” therefore he can’t “come and go as he pleases”? No matter what you do in China, can you get anywhere without official approvals? With the possible exception of North Korea, China is the hardest place to do business because you can’t get permission to operate or access to markets without political ties. This has been especially true over the past two decades or so. What do you think all those myriad administrative reviews and approvals are for? How did it get to the point when a new government wants to greatly streamline administration and decentralize power, there are suddenly millions more administrative reviews and approvals?
How can you pin the faults of the political authorities on the people doing business in China? You rapaciously expropriate from them while they’re in business. Then you don’t permit them to spend their hard-earned cash, so that they lack the freedom even to put their capital in play?
When your governments and officials want to get rich, you make some property deals. You make these deals without the least bit of moderation, coaxing, tricking, or forcing developers into doing the deals. Then, when those deals run into trouble, it all becomes the developers’ fault?
For many years, local officials have described their governments’ so-called investment policies with a very vivid saying: “trick-hold-chew” (or PBK for 骗、抱、啃). First, you trick them into coming. Then you hold on to them for dear life. And finally you chew them to death. Isn’t this a realistic portrayal of how property development has worked in China, along with all sort of other industries?
You shouldn’t use your power in such willful and capricious ways! When power is used too willfully, business will suffer. Today’s businessmen, no matter whether they represent foreign capital or domestic capital, are all starting to flee. That’s because the authorities are acting too capriciously. The terrorist methods used in Chongqing under the guise of “singing red songs and fighting organized crime” led thousands of business leaders to flee abroad overnight. Isn’t this enough of a lesson for you?
I’m guessing that the most important reason why businessmen—especially China’s own businessmen—are pulling out of China is not because they’re pessimistic about China’s economic prospects. Rather, it’s because they have no confidence in the direction China’s political and economic policies are headed and there’s a spreading fear of the authorities.
In fact, our political and economic policies swing periodically from left to right, and from right to left, with no one able to make head or tail of things. This is not good. I don’t think it takes any great wisdom to understand that when people are uneasy, change is inevitable.
II. Why Won’t You Let them Run?
Are you trying to attack the local landed gentry and divide up their land, like during the period of land reform? I sense that, deep down, that’s what you want to do, and you’re accomplishing to different degrees.
You’ve basically accomplished your goal already. The stock market collapse has basically destroyed the middle class, while the truly powerful and wealthy have emerged without a scratch. But I believe that’s not enough for you, so is it your next step to introduce “mixed ownership” reforms and use “public-private partnerships” to go down the old path towards communism, like you did in the late 1950s? I doubt I’m the only one speculating and worrying about this. Businessmen are all shrewd people—who can’t see that there’s something fishy going on here?
I don’t know whether or not Li Ka-shing is willing to let you “mix” with his companies, but I would never allow it. I’d rather run my company into the ground, close up shop, and go home, even though I know you’d never even have any interest in a small enterprise like mine. The simple reason is that I’ve observed your abilities and what you’ve done over the years, and I know the wolfish nature of “public-private partnerships” and what the inevitable outcome will be.
Rather than carrying out forward-looking reform of the existing system, you instead go backwards in time and loot the people’s wealth. This is not the correct path of a ruler—it’s an evil path, a road to ruin.
Don’t blame me for presuming to speculate about the “emperor’s intentions.” You don’t give a good explanation for the new “Guiding Opinions on State Enterprise Reform,” while at the same time sounding the battle standard of “Don’t let Li Ka-shing run away.” Did you really think people wouldn’t jump to conclusions about what you’re up to?
III. Preventing Them from Running Will Just Make Them Run Faster
You’ve always believed yourselves to be extremely clever and that your grip on power permits you to do whatever you liked. But let me tell you, as soon as this brazen slogan of “Don’t let Li Ka-shing run away” left your mouth, everyone could clearly see the murderous intentions lurking behind it. If they don’t run now, it’ll be too late for them! So, China’s wealthy will do everything in their power to flee abroad. If you don’t believe me, just wait and see!
Of course, you can try raiding underground banks and imposing strict restrictions on foreign exchange to block the rich from fleeing. But today China’s economy is already completely integrated with the world economy, and it’s not such a simple matter to block foreign capital from pulling out or domestic capital from fleeing.
And the currency wars are just about to break out, if they haven’t already. I dare to predict that China will definitely lose badly in the currency wars and that the Renminbi will suffer deep devaluation versus the US dollar. We’re talking an exchange rate of 10 or even more than 20 yuan to the dollar when all is said and done. Again, if you don’t believe me, just wait and see.
My prediction doesn’t require the intervention of hostile external forces or Soros-types. It’s based on recognition that the rich who hold 80 percent of China’s wealth have begun to grow alarmed at your threats and mistaken actions and have begun to flee abroad. Li Ka-shing is only one of them.
You, not others, will always be the source of your own ruin.
IV. Aren’t You Ashamed for Making Businesspeople Fulfill Government Responsibilities?
The Xinhua think tank’s brilliant essay said that entrepreneurs like Li Ka-shing ought to take on two great “unfulfilled missions” of “giving consideration to the people’s livelihood and giving back to the poor,” on the one hand, and “doing more good deeds and operating social enterprises” on the other. I’m truly dumbfounded to see such ignorant talk come out of a state think tank.
The mission of a company is to do business, earn profits, take care of its employees, and pay taxes—that’s it. Taking care of employees and paying taxes counts as “giving consideration to the people’s livelihood and giving back to the poor.” As to whether or not to engage in charity or operate social enterprises, this doesn’t count as a company’s mission; it’s only a moral choice and ethical act taken by a company when it’s capable of doing so. Please remember, ethics and morality have never been duties, let alone a mission. Rather, they’re ideals to be pursued, and sometimes people achieve the ideal and other times they don’t.
Governments, on the other hand, are duty-bound to “give consideration to the people’s livelihood and giving back to the poor,” as well as invest in charity and social enterprises. Government has both a political responsibility and a social responsibility to do these things. What do governments do with the taxes that they collect from companies and citizens? Companies and citizens use their tax payments to fulfill their political and social responsibilities, whereas governments use their economic policies to develop the livelihood, charity, and social enterprises that they’re entrusted to take care of on behalf of companies and citizens.
How can a government be so shameless as to collect taxes without fulfilling its responsibilities, instead talking big and pushing all these responsibilities on companies?
All of these increasing burdens are making it harder and harder to run a company in China. There are so many gaps in the social security system, so you keep raising the social security levies every year, shifting all the burden on companies. When there’s inflation, you increase salaries for civil servants, forcing companies to raise wages as well, so the burden of inflation gets shifted to companies, too. Taxes only go up, never down. Even if you don’t threaten them, under such serious economic conditions it’s impossible for private companies to bear all these burdens. They can’t continue on, so their only choice is to flee. At a time like this, if you’re still thinking about plundering private enterprise, there’s only own road left for the future and that’s to go back to a planned economy.
Of course, perhaps that’s just what you’re hoping to accomplish . . .
Xiao Zhonghua (肖仲华) is an associated professor at Wuhan University of Technology.
Li Ka-shing’s moves on China reveal good timing, WSJ, September 6, 2015.
Online criticism of Li points to break-up with leadership, South China Morning Post, September 18, 2015.
中文原文： 肖仲华《“别让李嘉诚跑了”暴露了什么样的杀机？》, translated by China Change.
China Change, published: July 10, 2015
Before China’s recent, painful reckoning with the share markets, official media channels were abuzz with the limitless prospects for bountiful equity prices well into the future (“decades,” one optimistic commentator intoned.) Now, as retail investors grapple with their losses, and the full extent of the rout continues to play out, China Change here translates excerpts from Party media that helped to talk up the disastrous rally. – The Editor
We’re in an era of great change, and we can’t limit ourselves to the confines of the stock market to understand stocks. To grasp the future development of the stock market, we should see it from the national strategic perspective, and place it in the overall plan of the Chinese dream.
Looking at the stock market from a historical perspective, one should be able to see that our country’s economy and social system are facing a profound transformation. Domestic problems are intertwined and complicated. There is an enormous latent financial crisis, and the stock market must bear the great mission of dissolving this risk. Its role is to gain time for the comprehensive deepening of reform and the upgrading and transformation of the macro-economy. It serves the national strategy of China as a rising great power.
The importance of the stock market’s strategic position is ever increasing in our national strategy, and the government further recognizes its importance with every passing day. [….] With funds rushing in from society, the stock market already possesses the three key ingredients: “strategic need + policy dividends + capital boost.” Going forward, we must resolutely have a positive outlook on the stock market, and investors will be able to look forward to a stock investing opportunity of historic proportions.
— Shanghai Securities Journal, November 20, 2014.
“In 1948, when America rolled out the Marshal Plan, the American dollar gradually became an international currency. From the 1930s, American stocks saw a 75 year bull market! Over the following decades the Chinese stock market will also have ample foundation and conditions to gradually relish the fruits of the great rejuvenation of the Chinese nation —“the China Dream.”
This time around, the bull market is not a “speculative market” but a “confidence market.” The enormous dividends wrought by the deepening of China’s reform and opening will be enough to support a long term, stable, and growing bull market.
China needs a bull market that surges forth and unfolds on a massive scale. In the 1990s, the A market shouldered the task of state-owned enterprise reform; in the beginning of this century, it carried the great mission of banking reform; and now, it has hoisted the great banner of bringing China through the middle-income trap—honor permits no turning back.
—People’s Daily Online. “The ‘China Dream’ of A Stocks Calls for a Long Bull Market.” December 8, 2014.
“‘Reform Bull’ or ‘Leverage Bull’, there is truth in both. This market rise is a result of high expectations for the dividends of reform and opening up, a result of favorable policies piling atop one another. It is inevitable, and it is reasonable.”
—Xiao Gang, chairman of China Securities Regulatory Commission, March 11, 2015.
“Confidence is more important than gold.” Zhang Qun (张群), chief market strategist in the market research team at CITIC Securities, believes that the stock market reacts before the real economy in general. Currently, measures to comprehensively deepen reform are being carried out expeditiously, and the Two Sessions [i.e. the annual assemblies of the National People’s Congress and the Chinese People’s Political Consultative Conference] have drawn the blueprint for this year’s economic development. All of these factors are injecting market confidence in the stable and healthy operations of the Chinese economy. In addition, financial leverage is also playing an important role in bringing up the stock market as large quantities of funds are being invested.
—Xinhua, March 30, 2015.
The stock market hike conveys an important signal: Chinese economy is still maintaining a stable growth momentum, and its fundamentals haven’t reversed as a result of slowing down. The surge of confidence in the stock market has excited the entire society’s faith in development, and it allows the people to view the new phenomena under the new norm [i.e. China’s hoped-for ‘new economic normal’ of less fixed asset investment, more innovation, and more domestic consumption] with peace and optimism.
People’s Daily online. March 30, 2015
We unanimously believe that the sudden drop in the stock market imposes enormous financial risks. On the less damaging side, it could lead to the “sudden death” of the stock market and cause severe casualties among the newly emerging middle class who are the nucleus realizing the China Dream. If it becomes more serious, it could trigger doubts about the China Dream, and social instability. It absolutely must not be taken lightly.
[Among our recommendations] Immediately form the Central Government Financial Committee, and establish a joint command comprised of one bank (POBC), three commissions (CBRC, CSRC, CIRC), and one office (CAC). The 1-3-1 must work as a fist under unified leadership to coordinate actions and prepare for a long-term battle. Party Central must command finance the way it commands the gun barrel. In the end, it should establish a Central Finance Commission, similar to the Central Military Commission, according to the needs of modern financial soft war.
“Five Professors Call for Rescuing the Market,” Tencent Finance. July 2, 2015
This morning, deputy minister of the Ministry of Public Security Meng Qingfeng (孟庆丰) arrived at the China Securities Regulatory Commission with an entourage trailing behind him. They will work together with the CSRC in investigating leads on malicious short selling in stocks and stock indexes in recent weeks. This shows that supervisory organs will strike hard with a heavy fist against all illegal and irregular behaviors.
Xinhua, July 9, 2015.
Plunge in Chinese Stocks Leads to Bull Market for Gallows Humor, the New York Times’ Sinosphere blog, July 8, 2015.
By Yaxue Cao, published: March 9, 2015
China’s left foot wants to go north, and China’s right foot wants to go south. Both feet have the same goal, and, that is, to maintain the one-party rule.
When I first watched Chai Jing’s Under the Dome a week ago, my response was like everyone else’s: “Bravo!” In early 2013, shortly after the prolonged smog that cloaked much of China which Chai Jing mentioned at the beginning of her film, political science professor Wu Qiang at Tsinghua University wrote an article titled Amidst the Smog, I Hear the Bugle Call for a National Environmental Movement and China Change translated it. So, watching the film, my mind jumped, “the Bugle Call!”
But instantly, I had other thoughts, too, just like many others did: without the government’s acquiescence or even assistance, a private citizen, even a celebrity citizen, could not have completed the investigation in which she was able to interview government officials of various positions, make inquiries with the National People’s Congress (NPC), and follow the police during their enforcement tours. In China, the government controls who can, and who cannot, expose its failings, what can and cannot be exposed. And without an order from some office, it’s practically impossible to premier the film on the People’s Daily website and disseminate it on all internet portals under the 24/7 watch of the censors.
Regardless, I think the making and dissemination of the film is a landmark event. I agree with Ian Johnson’s assessment that the film is “the final proof that the Party is serious about the issue,” but the party has other determinations too. The film galvanized public opinion and consolidated its awareness to an unprecedented level. It peeled apart the multi-faceted causes of pollution. It is a mobilization of the public, and it sets expectations for a war against environmental disasters. The film works on many layers of the public psyche, and not all of them are welcomed by the government. This probably explains why it was spectacularly promoted and then shut down.
“In order to solve the environmental problem in China,” said Wang Yuesi (王跃思), an atmospheric scientist at China Academy of Sciences, “first, we need to have better management. Second, we still need to have better management. Third, we still need to have better management.” Though not an expert, I’m going to take a quick look at management, management, and management.
Law and Policy
Most people are probably impressed by the government officials and researchers who spoke on camera. They are insightful about the causes of environmental ills and candid about solutions.
With one zero after another, Chai Jing gives us shocking account of how laws and regulations have not been enforced.
As outsiders, we are shocked that China’s petroleum standards are set by the industry itself, and the environmental authority didn’t even have a vote. Chai Jing talked about how the EU, Canada, Australia, Mexico, South Korea and Japan formulate their respective standards, how it is a result of multilateral participation, consultation and voting. But she didn’t point out what these six political systems have in common: they are all democracies in which each participating party has independent power safeguarded by the rule of law, and the powers check each other to reach optimal solutions through procedures established in similar manners. Chai Jing’s film seems to share this ideal of governance. But does the Communist Party share it?
We can foresee that China will be improving its policy making process, the environmental authority probably will get its vote on the Standard Committee, but ultimately everything will still be subjected to the will and need of the party, whatever that may be at a given point.
Unlike Article 53 of the Law of the Peoples Republic of China on the Prevention and Control of Atmospheric Pollution, most of the Chinese environmental laws do specify enforcement authorities. The truck stopped by enforcement officers has a certificate, issued by environmental authorities in Hebei province, for meeting the national emission phase III standard, but in reality it has no emission measure. On camera, the officer squirms, telling Chai Jing that he can’t fine this truck because it is delivering the city’s essential supplies – eggs, milk and cooking oil. Here you witness a case in which an administrative order overrides the law. It is common in China.
In my favorite section of the film, Li Kunsheng, Beijing’s environmental official in charge of emission regulations, said that Chinese automakers, against the law, falsify data and that 90% of the vehicles don’t have basic emission controls. Individual automaker’s argue that they can’t afford to manufacture vehicles with proper emission controls if all of their competitors are omitting them. In addition, they argue, without gasoline supplies that meet a national standard, what’s the use of making cars that use cleaner gas? The Chinese petroleum industry does not produce high-grade gas because the industry itself is in charge of setting the standard, and being a monopoly, it is not inclined to upgrade gasoline.
Such a mess. There are laws, but they cannot be enforced. There is the know-how, but it is not carried out. How so? Let me try an analogy: A judge sits in the court, the plaintiff is his daughter, the defendant is his son, the prosecutor is his brother, the plaintiff’s attorney is his sister, the defendant’s attorney is his wife, and the court martial is his cousin. But this doesn’t prevent the judge from gaveling the court, “The dignity of the law lies in its enforcement!” (Xi Jinping)
Monopoly and Competition
On camera one by one, officials indict the state-owned petroleum industry. “Each and every part (of the petroleum industry) is basically a monopoly.” “Under a monopoly there can be no innovation.” “Outsiders can’t break into it at all.” “It is the one and only child. The toys are all his. He plays with them anyway he wants, and he throws them around.”
Cao Xianghong, the director of the National Petroleum Standard Committee and former chief engineer of CNPC, rejoins, “Petroleum is a security issue, and it could easily cause big problems.” Supply disruption could cause social instability and turmoil. Opening the market could lead to disaster. “Not any Tom, Dick, Harry can run a fuel company.”
It sounds like the left brain and the right brain of the party are punching each other, doesn’t it?
Chai Jing tells us, the U. S. auto companies also complained when the government tried to raise emission standards, and allowing competition from foreign companies forced American auto makers to keep pace. “Weren’t you afraid of hurting the national auto industry?” Chai Jing asks an American environmental official. “Environmental protection is not a burden,” she is told. “It’s innovation. Protecting a backward industry is no way to promote innovation. The government’s role is to set the standards and ensure fair competition in the market. You win the market through fair competition.”
Try to put this mindset in the communist party in China. This is more or less how the Party approaches international competition, judging from the trend of the last couple of years: when I don’t know how to do it, I welcome you to come and show me how. When I’ve learned how to do it, you can’t make money from my market anymore.
The ongoing Two Sessions is signaling that the environmental industry will play a big part in China’s economic transition and drive new growth. The British Energy and Climate Change Minister Edward Davey told Chai Jing that “You must give the emerging industry a fair chance at competition. If you do, it will surprise you.” The irony is, while the petroleum industry is a state monopoly and monopoly had led to rampant environmental abuses, the rising environmental industry will most certainly be a state monopoly too and a new playground for those in power. You will be lucky if it does not turn into the new toy of powerful clans like the petroleum industry is to the Zhou Yongkang clan and the power industry to the Li Peng clan. We have yet to see whether Xi Jinping’s anti-graft campaign will clamp down the tigers, but we can be certain that there will be flies everywhere.
Wrapping up the film, Chai Jing speaks movingly of “our choice and our determination,” making a strong appeal for civic action. Among her recommendations are:
1) Citizen watchdog. Download apps, take photos, call 12369 to report pollution, or expose it on Weibo. Chai Jing says, while reporting SARS ten years ago, she realized how important it is to have information transparency. But information transparency is not limited to emission numbers on an app. How do you have information transparency when information is monopolized by the government, media is not independent, and citizens cannot express themselves freely?
2) Litigation. We’ve all seen photos of polluted villages and rivers in China. Law professor He Weifang (贺卫方), upon watching Under the Dome, wrote on Weibo, “there are often many victims in a pollution case, but an individual may not have enough courage to pursue litigation and sufficient ability to present evidence. This is where class action as a legal mechanism can stem rights infringement, compensate the victims, and improve judiciary effectiveness…In the U. S., this mechanism has played a significant role in environmental protection.” But Professor He lamented, “Unfortunately this country has a deep-seated fear of group actions, and meanwhile the judiciary is not independent. It’s difficult!”
To be sure, China has just established law for “joint action” in pollution litigation. In an overview of China’s class action law, King & Wood Mallesons points out that, “the recent amendment [August 2012] to the Civil Procedure Law of the P.R.C. (“CPL”) added provisions for certain joint litigation in areas of public interest related to ‘pollution to the environment’ and ‘damage [to the] legitimate rights and interests of consumers at large. In these cases of public interest litigation, however, only certain ‘designated institutions may institute proceedings.’ It is believed that for environmental public interest litigation going forward that entity will be the All-China Environmental Federation (ACEF).”
In other words, the victims cannot sue; only this organization connected with the government may sue. Why don’t I just call this law a fake law?
Professor Wu Qiang of Tsinghua University wrote, “In the past ten years, although the Property Rights Law was passed, private property owners are still unable to obtain effective protection. It is difficult for private property owners or environmentalists to resist pollution by asserting their property rights, or to make claims and demand compensation for rights infringement by polluters. The issue of private property has been debated non-stop ever since the economic opening and reform began. As long as this issue is not dealt with, not included in the civil code, and not recognized by the Constitution and safeguarded by an independent judicial system, it will be difficult to curb environmental pollution from the approach of civil law, and the environmental movement will not be able to take root and grow strong.”
The new Environmental Protection Law of PRC, which took effect on January 1, 2015, stipulates that social organizations specializing in environmental protection and public interest activities for five consecutive years or more and having no law violation records may file litigation with the courts. There are 700 NGOs that meet the criteria, but the problem is, most of these NGOs, like ACEF, are either trade associations under de facto leadership of the government or NGOs funded by the government. To expect them to represent the victims by suing the polluters, that often are SOEs, is tantamount to climbing a tree to catch fish (缘木求鱼).
There are a small number of true NGOs in China. But they are extremely vulnerable, and the authorities can make criminalize an NGO if they want to. Did Gongmeng (公盟) break the law? It was outlawed. Did Liren Library (立人图书馆) break the law? It was forced to close its doors. Key leaders of the Transition Institute (传知行) were arrested without even a plausible reason. NGOs receiving foreign funding and training are being terrorized now and can be interrogated for espionage and divulging “secrets.” It’s a shame that Chai Jing did not interview some prisoners who “provoked disturbances,” “engaged in illegal business operation,” or “incited the subversion of the state power.”
In a country where citizens are forbidden to exercise their basic political rights and civil rights, where they mostly don’t even have the right to sue when their interests are damaged, how do we even talk about the right to know, the right to participate, and the right to legal relief? Chinese citizens not only do not elect their “people’s representatives,” they don’t even know which of the 3,000 representatives convening in the Great Hall of People represent them. Lawyer Liu Xiaoyuan said that, ever since 2007, he has been asking the NPC to publicize contact information of the representatives, and he has gone nowhere with his Quixotic quest.
In China 90% of vehicles have fake emission certificates. So what? The people’s representatives are 100% fake. Remember that fellow, the head of the Environmental Protection Department of Shanxi province? “The cat,” he said, “is the local government’s cat. Whether this cat can catch mice or not, how many mice it can catch, is decided by the local government. It’s not decided by the environmental protection authority.” The same is true on the national level, and the state-sponsored NGOs are additional cats of the government.
I too inaugurated a theory recently. It’s not “Four Comprehensives.” It is “Four Buts:”
- China wants to deepen reform, but it also wants to tighten control over society and its citizens;
- China wants to govern the country according to the law, but it also insists on the party’s supreme leadership;
- China wants to encourage innovation, but it rejects real competition;
- China wants to have world-class universities, but it also wants to extinguish free thinking.
China’s left foot wants to go north, and China’s right foot wants to go south. Both feet have the same goal, and, that is, to maintain the CCP’s one-party rule.
The journey of Chai Jing’s documentary is a microcosm of the party’s own embattled state. It was premiered by the party’s mouthpiece, but at the same time, the party’s propaganda department was keeping vigilant. Its first edict said, “All media outlets are required not to hype Under the Dome, and must control and adjust online opinion.” “Control and adjust” reminded me of a switch that can be turned on or off, dimming the brightness at will. The blinding light beam of the film was dimmed down to a kerosene lamp in less than 48 hours and then turned off completely. The party’s control is a must; the party’s will is absolute. It is so for the film, and it is so for everything in China. Don’t be surprised if the party launches a smear campaign against Chai Jing tomorrow.
I don’t know whether you saw it or not – there is a thin smog over Under the Dome. Chai Jing the narrator assumes that this system is just like any other system in the world except things are not done right. She runs to the United States and to England, to shoot and ask questions, presenting their practices and successes and lamenting that China isn’t doing the same. She pretends Weibo is a place for free speech. She looks up at the blue planet, anticipating the system reform prescribed by a high-level official. She tallies all the sources of pollution except the biggest one. It is the same with those officials in the film. They are able to trace pollution to the energy monopoly, but they see no ills in the political monopoly. It’s not that they don’t see, of course. They are feigning they don’t see. Or they will be in prison or sent packing. But as everyone pretends, what’s the difference between their feigning and the faking of vehicle emission certificates? If the Global Times’ political smog index is 800 and People’s Daily and Xinhua’s 600, I say, Under the Dome has a reading of 200.
When I shared these thoughts on Twitter, a Chinese tweep argued with me. “As an ordinary citizen,” he (or she) said, “I drive less, develop green habits, do my share, and have peace of mind, that’s better than doing nothing.” I said to him (or her), the film no doubt is a milestone, a powerful bugle call, for the simple reasons that two hundred millions of Chinese have watched it, and that even though the party is able to spirit it away, it cannot efface, with a click of the delete key, the smog cloaking China and the pollution scarring the land. Citizens should do everything they can, I said, to contribute to a better environment, but what they can do is purposefully restricted by the system, and they must understand that the political blue sky is the real blue sky, the ultimate dome over China.
Yaxue Cao is the editor of this website.