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Mo Zhixu, February 4, 2018
“Rather, reform has been used as a kind of calibrating tool for the system to retain complete control in the political, economic, social, and cultural spheres.”
In 1981, Polish president Wojciech Jaruzelski ordered a crackdown on the growing Solidarity movement. Eight years later, under pressure of internal unrest as well as a cultural thaw in the Soviet Union, the Polish Communist government and Solidarity held roundtable talks. On June 4, 1989, free parliamentary elections were held in Poland and the Communists suffered a crushing defeat. Jaruzelski resigned in 1990 and Solidarity leader Lech Wałęsa took his place as president. Poland marked its transition to democracy without shedding a drop of blood.
Poland’s case is unique among the political transitions in the collapse of the Soviet and Eastern European communist bloc. Unlike the Soviet Union, where reform was led primarily by Communist Party bureaucrats and went through a chaotic implementation, or Czechoslovakia, where change came through the sudden mass demonstrations of the Velvet Revolution, Polish democracy emerged as a product of the state coming to an agreement with society.
In the view of political scientist Juan José Linz, this phenomenon has to do with Poland’s unique political and social structure. Unlike other Eastern European countries, Poland was not a totalitarian system even though it was also a communist country.
After World War II, Poland did not experience agricultural collectivization. Land remained privately owned and private economy had had a significant percentage in agriculture — a strong contrast with events in other Soviet satellite states.
In addition, the traditional influence of the Catholic Church in Poland remained intact through decades of Communist government. In 1978, Karol Józef Wojtyła from the Krakow parish was selected to become Pope John Paul II of the Roman Catholic Church. As the history’s first Polish pope, his nationality played a major role in shaping the social movement in his homeland. Each of Pope John Paul II’s returns to Poland to celebrate Mass was tantamount to a large-scale social mobilization and at the same time a demonstration of the power of civil society.
A few years ago, my friends Jia Jia (贾葭), Murong Xuecun (慕容雪村) and Michael Anti (安替) met with former Polish President Wałęsa and inquired about his country’s experiences in the transition to democracy. To their surprise, Wałęsa stated bluntly, “My friends, the Polish transition can’t be a model for China. We were blessed to have a Polish Pope.” At a loss for words, Anti replied: “God bless Poland!”
The fact that Poland was not a totalitarian state left room for the growth of civil society. Because of it, organizations like Solidarity could arise in Poland and garner widespread support against the Communist regime.
Following China’s market reforms, Chinese citizens gained more personal, economic, social, and cultural autonomy. Mainland Chinese society seemed to have departed from the familiar dictatorial style, giving many hope that civil society would appear in China and form a local version of the Solidarity movement that would bring peaceful democratic change.
Until a few years ago, this prospect didn’t seem too far-fetched. Limited marketization did bring a handful factors favorable to the growth of civil society, such as the emergence of new social classes, market-oriented media outlets, the establishment of judicial institutions that have the appearance of rule of law, and the growing space for expression on internet. These developments resulted in the spread of the ideas of universal freedom and civil rights, the rise of rights defense activities, and the willingness of participation of the the emerging social classes. People were encouraged by these phenomenon and began to harbor an optimistic picture that the growth of civil society would be tolerated by the regime, that a healthy interaction would develop between the government and the civil society, and that China could thus transition toward democracy.
This optimistic vision was quickly shattered.
After some initial observation, the authorities tightened control over all of these rising social fields: the media and internet were brought under ever-stricter control; human rights defenders and NGOs also faced mounting pressure. Furthermore, the government has been strengthening its grip on the new social classes by establishing party cells in what it calls “the new economic organizations and the new social organizations.”
Some might think these measures are only a product of Chinese leaders’ regimented political mindset, and their optimistic vision is still viable as long as the leaders of the regime change their way of thinking.
But upon closer examination of contemporary China’s political and social structure, you will see that the problem lies not in the mindset of the leadership, but is deeply built into the system.
China’s reform toward marketization has also been called a marginal revolution. This revolution developed as agrarian land was contracted to households, individuals were allowed to create their own businesses, enterprises cropped up in towns and villages, and special economic zones were established in coastal cities. The authorities adjusted accordingly, fuelling the hope that such reforms would eventually make inroads to systemic change, or the most difficult “deep water of reform.”
But in practice, little change has been effected on the system. On the contrary, the reforms on the margins have been adapted to reinforce the system. Specifically, the Party, government, and military saw little substantial change; the Party retained control over the core economic departments, strengthening itself through financial avenues — a phenomenon reflected in the fact that the government has grown more in power and resources while the masses have been regressing. In terms of society and culture, the regime’s monopoly has remained strong but at the same time it has introduced some market elements to strengthen itself.
Thus, the economic progress achieved during the marginal reforms reinforced the regime’s financial capacity and allowed it to double down on its control over society. Contrary to what the optimists had envisioned, market reforms have not touched the root of the political system. Rather, reform has been used as a kind of calibrating tool for the system to retain complete control in the political, economic, social, and cultural spheres.
With the system still firmly in control, factors that optimists believed would herald social change never got off the ground, and the gains civil society made were lost. For example, reacting to the demands of the the new social class, market-oriented media outlets developed a liberal trend for a limited period, but because the industry is subject to Party monopoly, they have ultimately bent to the will of the political system. Faced with combined political and economic pressure, the fate of the internet was similar.
The limited market reform in mainland China didn’t relax the political system’s need for absolute control. It’s more apt to see China as a neo-totalitarian regime with characteristics of a market economy — it can by no means be called merely “authoritarian,” as some do. The neo-totalitarianism does afford the Chinese masses a certain degree of personal, economic, and cultural freedom as well as some social space. Yet that social space is tightly controlled by the state and given little potential for free growth.
In the face of the neo-totalitarian regime’s total control and persistent suppression, the prospect that a civil society born of social movements will usher in progressive political transformation seems increasingly distant and elusive. But history continues. In the 1980s, Poland’s non-totalitarian nature permitted democratic transition through state-society negotiation. Other Communist countries made the transition all the same, whether through peaceful mass demonstrations or violent regime change.
No matter the methods, when a totalitarian regime imposes absolute control over society and robs the people of their rights, it does so against popular support. Social progress may be hindered, but the people will continue to resist the system from within. When the window of opportunity presents itself, history will bring change — at once unpredictable yet in hindsight inevitable.
Mo Zhixu (莫之许), pen name of Zhao Hui (赵晖), is a Chinese dissident intellectual and a frequent contributor of Chinese-language publications known for his incisive views of Chinese politics and opposition. He is the co-author of “China at the Tipping Point? Authoritarianism and Contestation” in the January, 2013, issue of Journal of Democracy. He currently lives in Guangzhou.
Chinese original 《莫之许：新极权下没有所谓公民社会》
Also by Mo Zhixu on China Change:
Wu Qiang, December 3, 2017
On November 18, a fire killed 19 people in Jiugong township, in the Daxing District of Beijing. A few days later, the city government launched a mass clearance operation of “low-end people” around the city’s suburban belt. Within a week, probably more than 200,000 of the “migrant low-end population living in Beijing” was evicted from their rental homes or workplaces.
Videos uploaded to social media, and reports by both citizen and mainstream media journalists, show that people living in the migrant worker “shantytowns” — village enclaves within urban areas — have been told that they have only two or three days to disband. The restaurants and factories in these shantytowns face marauding thugs who roam around smashing doors and windows. Their homes are invaded in the middle of the night by uniformed police, or auxiliary police, who kick in their doors and enter without permission, forcing them to evacuate under the threat of violence. The videos show them cold and homeless on the streets of Beijing in the middle of the night. Some pack onto trains taking them back to their home villages, while others look for temporary accommodations in nearby Hebei Province. Some simply linger on Beijing’s streets, refugees within China’s own borders.
The cruel and violent actions of the government have sparked fury and protest on Chinese social media. Some officially-controlled media, those which still retain some compassion, have published articles that offer veiled criticism of the Beijing municipal government’s policy. Civil society groups in Beijing, which have been under sustained repression for the last five years, have summoned up extraordinary courage to organize protests and relief. Alumni of Renmin University of China, Beijing intellectuals, and labor groups in China have published open letters of protest, for example.
What is particularly noteworthy is that, apart from the small number of Christian organizations and labor NGOs that reached out to help, some Beijing residents volunteered and organized their own relief networks, providing emergency accommodations, food, and jobs to the displaced. Hundreds of volunteers rolled up their sleeves and got involved, showing that civil society in Beijing, despite being under tremendous political repression, is still resilient and courageous.
Consideration of Political Security Underlies the Fascist Expulsion Campaign
As far back as February 2014, during his first inspection of Beijing, Xi Jinping proposed the idea of “relieving Beijing of its non-capital city functions (“疏解北京的非首都功能”).” In 2015 the State Council passed the “Programme on the Beijing-Tianjin-Hebei Coordinated Development (《京津冀协同发展规划纲要》).” In the same year, Beijing passed the “Beijing Municipal Party Committee and People’s Government’s Opinions on the Implementation of the ‘Program on the Beijing-Tianjin-Hebei Coordinated Development (《中共北京市委北京市人民政府关于贯彻〈京津冀协同发展规划纲要〉的意见》)’” and, in 2017, “Beijing Municipal Overall Development Program (《北京市总体规划》).” This indicated that China’s top leaders had made up their minds that Beijing’s population would be capped at 23 million, and cleaning out “superfluous people” would be a key task for the next two Beijing administrations, in addition to the urgent target of Beijing returning to its so-called “capital city functions.” The officials determined that “demonstrable results” would be reached in 2017. Thus, just as winter 2017 arrived, a suspicious fire in a low-rent apartment building in Daxing District presented the perfect pretext. Beijing municipal authorities, using their executive organs in every district where migrant workers dwell and their shops and factories operate, struck. Using the excuse of “fire safety” and an environmental requirement to convert households from coal to gas (煤转气), they orchestrated a mass mobilization of personnel, bringing in construction equipment accompanied by uniformed officers, directly entering the villages and getting to work expelling residents. That is how the ongoing humanitarian tragedy in Beijing was created.
The mass clearance is occurring shortly after Cai Qi (蔡奇), an associate of Xi Jinping, ascended to the office of Beijing Party Secretary around the 19th Party Congress in October. To be sure, it has been common for local Party cadres to kick into radicalist governance as a means of accumulating political merit and showing their loyalty to the top. Similar things took place during the G20 in Hangzhou (杭州), with a massive urban redevelopment plan that came with restrictions on city operations and vehicles, or in Xiamen (厦门), prior to the BRICS summit, where city officials took up a scorched earth policy for stability maintenance. Officials in Lijiang, Yunnan (云南丽江), forcibly shut down guest houses when the occasion called for it, and Shenzhen (深圳) officials have suddenly banned electric-powered scooters.
But there is more to what’s happening in Beijing now, in addition to scoring political points and realizing the central government’s desire to turn Beijing into a show-case city like Pyongyang. Defining why Beijing is undergoing urban redevelopment in People’s Daily in August, Cai Qi stated clearly that “political security” is the number one security issue in Beijing and is part of the national security.
A New Displaced Class
The difference between the current actions and the “arrest and control” of public intellectuals, dissidents, and NGO workers during the 2011 “Jasmine Revolution” in Beijing, is that Cai Qi’s target this time is a massive group of people. These are the “new displaced class,” the main target of expulsion in Daxing District and now in virtually all districts of Beijing. This group includes clothing manufacturers, small factory owners, home renovation laborers, others in the service industry, individual business owners, Taobao store owners, and other small business enterprises and self-employed workers. They — along with the construction workers now holed up under tents on work sites, as well as the contract and lease workers (派遣工) now sleeping in factories — all constitute a massive, growing group, a new displaced class. Their common characteristic is the lack of a stable and long-term employment relationship. They also lack social security or real estate. Compared to the mainstream class in society, they live on the margins of China’s urban environment. Ten years ago, the main representative of this group was the “migrant worker” (农民工), but with the rapid growth of urbanization and movements of people — in particular the relentless expansion of temporary employment relationships, the collapse of the social security system and the shrinking rights of city residents — this group continues to grow. They have now spread to the so-called low-skilled computer programming (码农) and traditional industrial workers.
Guy Standing of the School of Oriental and African Studies at the University of London took note of this phenomenon in 2011. He discovered that the globalization of capital was creating a larger and larger displaced proletariat, from developing countries to the developed world. Their employment is unstable, their work hours are not set, their pay is not fixed, and their scale is massive — from the lowest-rung of work to traditional blue and white collar work. They include both “leased workers” in factory workshops and white collar working positions. They’ve become “The Precariat: The New Dangerous Class,” as Standing titled his book, a new source of social inequality and unease.
The first “displaced class” to arise in reform-era China were migrant workers and entrepreneurs who moved to cities. Today the faces of the displaced class have changed a little, but they’re all a part of the “new displaced class” in the backdrop of globalization. This is not an exclusively Chinese phenomenon, but it’s a trend that has deepened and expanded as China has globalized. This group has uncertain work, a lack of rights, informal contracts, no social security, unstable family environments, and exists outside the social mainstream. This description of the “precariat,” in fact, can be traced back to the Communist Manifesto of Karl Marx and Friedrich Engels 170 years ago.
The growing competition among the bourgeois, and the resulting commercial crises, make the wages of the workers ever more fluctuating. The unceasing improvement of machinery, ever more rapidly developing, makes their livelihood more and more precarious; the collisions between individual workmen and individual bourgeois take more and more the character of collisions between two classes.
The unstable work and compensation of the newly displaced are creating a new form of inequality and insecurity, and also new forms of marginalization that they are unable to overcome. They may end up the objects of resentment due to wave after wave of “evictions,” whether scorned by city residents, or the nation as a whole. Put another way, the reason they are helpless in the face of expulsion is not because they suffer the feeling of inferiority of the so-called lower class. Strictly speaking, they are different from the lowest class. But, it is their lack of security and civil rights that makes them helpless in the face of violence. This is why the danger of the newly displaced is different in the eyes of the authorities from the Jasmine Revolution in 2011 although the group is big, living in close spaces and has the appearance of potential political confrontation.
Beijing: a City Gearing up for the ‘Beautiful Life’
Daxing District is located in the new Beijing airport’s “economic zone” (临空经济区) and is crowded because of its economic opportunities. So the evictions have been the most violent there. These shantytowns burn coal through the winter and create pollution, leading to frequent fires. They also lack law enforcement. “Zhejiang village (浙江村)” in Dahongmen has a high concentration of clothing manufacturers, logistics companies, repair workshops and houses large numbers of the newly displaced class. But such areas also frequently turn into places with appalling Kowloon-Walled-City-style living conditions; they are seen as a cancer on the outskirts of the city; and they provoke the authorities “sense of security.” They have become a sacrificial offering to the “beautiful life (美好生活)” policy unrolled at the 19th Party Congress. The existence of this class is incompatible with the “beautiful life” designated by the powers that be.
In addition, as the rising middle class has grown, so have internet industries such as courier and online sales services, changing the traditional urban landscape. Streets are filled with couriers, delivery trucks, and countless shared bikes. The expansion and instability of the new middle class has itself impacted many traditionally high-salaried industries and groups, including computer programmers and financial workers. Their temporary accommodations and shared housing arrangements also go against the notion of a “beautiful life” envisioned by the authorities.
By identifying the undesirable class of floating proletarian migrants and analyzing the Beijing government’s policy to “cleanse and reduce the low-end population,” we are bringing the state of this “non-citizenship” to the attention of the public and the international community. In Beijing and the rest of the country, this new and growing class of floating migrants who are “long-term temporary workers” is quietly altering China’s social class structure and urban landscape. They lack basic civil rights and the right of free movement into cities. Their unstable labor relations — that is, the obstacles caused by the backwardness of Chinese labor conditions and social security net — inform their unstable lifestyle that in itself poses a challenge to the urban space. Matters of household registration (户籍) aside, it is possible that this group of people will be used as an excuse for future discrimination and stratification by the state. This kind of stratification no longer entails the classic distinction between the modes of education and residence that once formed the gulf between proletariat and bourgeoisie.
In practice, recent years have seen Beijing’s poor move away from the old city quarters to the suburban districts at an accelerating rate as they search for economical housing, engendering a localized kind of class stratification.
A Genuinely ‘Dangerous Class,’ Perhaps
Placing ourselves in the aftermath of the 19th Party Congress, the net result of the authorities’ utopian designs for “a beautiful life (美好生活)” and hardline radical governance is a new kind of internal colonialism. Walls to maintain financial stability and to spatially isolate the new displaced class are being erected so as to guarantee what Cai Qi (蔡奇) calls “political security.” It is a reversal of the continuous breaking of social barriers during the 30-some years of reforms and opening up.
At the Davos World Economic Forum at the beginning of the year, China projected itself as the greatest proponent of globalization. Its arbiters are clearly taking a page from the statecraft of Li Hongzhang (李鸿章), a general and a diplomat of the late Qing Dynasty, whose Huai Army employed a fortress tactic to overcome the Nian rebels. In the same vein, firewalls are being erected everywhere. The tactic is being elevated to overall strategy: not only has the concept of internet sovereignty received heavy promotion; the “One Belt, One Road” is threatening to divide Europe. Meanwhile, in the United Nations, China has started proactively undermining the universal concept of human rights.
In the future, as Slavoj Žižek said in 2012, “to be exploited for the sake of holding of a long-term job is becoming a kind of privilege.” In the future, perhaps the only people allowed to live and work in Beijing will be elites and members of the new privileged class who accumulate a sufficient score in the new “social accreditation system.” Maybe there will be no more need for the display of state violence in the streets, which would be superseded by symbolic, big-data violence. This would be enough to ignite the increasingly intense class and spatial conflicts between the new displaced class and the mainstream class, creating human rights crises over and over again.
More Beijing refugees will likely be produced as a result of internal colonialism. At the same time, this new displaced class, in the course of repeated expulsions, could in theory find their self-consciousness and engage in independent societal grouping—becoming a genuinely “dangerous class.”
Dr. Wu Qiang (吴强) holds a Ph.D. in political science from the University of Duisburg-Essen in Germany. He is a researcher of social movements and a freelance writer.
Also by Wu Qiang:
Liu Xiaobo: The Founder of China’s Political Opposition Movements, Wu Qiang, June 30, 2017.
Thousands of Migrant Workers in Beijing Forcibly Evicted, Resistance Mounted in at Least One Location
China Change, November 29, 2017
On November 18, 2017, a huge fire broke out in Xinjian Village, Daxing County, in the Beijing suburbs, killing 19 people. Subsequently the Beijing municipal government launched a large-scale campaign known as “big investigation, big clean-up, and big rectification of hidden safety trouble,” issuing eviction orders that forced thousands of migrant workers to leave their residences in the freezing night. In official documents, they are referred to as the “low-end population.”
While the exact number is hard to estimate at this point, the eviction map suggests that the number is likely to be in tens of thousands.
Men, women, old and young migrant workers left Beijing in haste, dragging as many of their belongings as they could out of their shabby residences in villages outside of the Fifth Ring Road on the border of the city and leaving behind what they couldn’t carry. It was a mess, and many described the scene as a “disaster movie.” The majority of migrant workers who lived at the junction of the city and countryside worked in urban service industries, including construction workers, electricians, technical workers, security guards, express mail carriers, janitors, housemaids, nannies, restaurant owners, and street vendors. Their work guarantees the effective function of the city.
Many of them have lived and worked in Beijing for many years. Beijing has become their home. They have no other place they can call home or go back to anymore.
According to a blogger, a taxi driver reported that, in Malianwa, Haidian District (海淀区马连洼), he had seen three people hang themselves.
Located outside of the Fifth Ring Road in Chaoyang District, Beijing, Picun village (皮村) is a well-known area inhabited by migrant workers. As it is close to Capital Airport and there were plenty of employment opportunities, it had become a relatively large, and at its peak more than 30,000 migrant workers lived there.
Since 2002, a music teacher named Sun Heng (孙恒) and others founded a non-profit organization in Picun Village called “Home of Fellow Workers.” An elementary school, workers’ university, and a library were also opened. In April of this year, a story entitled “I Am Fan Yusu” based on the personal experience of and written by Ms. Fan Yusu, member of Picun Village Literary Group and a villager of Hubei Province who worked as a nanny, put Picun Village under an unprecedented spotlight (here and here).
On November 27, 2017, migrant workers in Picun Village received a notice that stated that they “must vacate before 6 p.m. on the same evening.”
As a migrant worker community with a certain degree of maturity and some ability to organize, the local NGO notified the media and citizens from all walks of life to pay attention to the forced-demolition notice after it had been posted, resulting in the postponement of the forced demolition to what was believed to be Friday, December 1 .
A reporter from Agence France Presse said that on Tuesday two reporters from the Chinese online news outlet “The Paper,” who conducted interviews at Picun Village, were pepper sprayed. But on Monday, when an AFP crew filmed people posting eviction notice, the dozen or so police officers watched on without interference.
This means that the police force was strengthened on Tuesday and that they had received new orders.
In December of last year the authorities cracked down on the NGOs of Picun’s migrant workers, forcing “Home of Fellow Workers,” a local NGO, to close.
Dr. Xu Zhiyong, a founder of the New Citizens Movement who had recently been released from prison Tweeted: “It is just like in those days when we made visits to black jails. Dark forces are afraid of sunlight. So the best way to help those targeted by the government this time around is to go to the sites of eviction, document them, and post them online.”
Indeed a lot of videos have been posted over social media this week. China Change picked two of them for our readers:
‘We are also Chinese. Why treat us like this? ’
Nov. 24, Beijing.
A man: “In 2008, you were welcome in Beijing. But now in 2017, Beijing finds you disgusting and kicks you out. “
Beijing: “Low-end population: “We are also Chinese. Why treat us like this?”
A man: “We are not allowed to live here. I heard that in the past few days, there have been nightly checks at 8 p.m.”
In Beijing, there are more than 21 million permanent residents, of which more than 8 million are residents from outside of the city. Recent eviction campaigns have left the “low-end population” from outside of the city with no place to go.
Ms. Cheng: “What do we think? We are very worried. We are also Chinese. Why treat us like this? We are not foreigners. We are also Chinese. Even if you want us to move, to go back, that’s okay, but you need to give us a couple of days. They don’t give us even one day. Look, grocery stores and supermarkets, it’s empty everywhere. There is no place to buy food.”
Ms. Cheng: “If you don’t move out by the end of the month, they will cut off water and electricity. Actually, he (the landlord) has no choice either. He treats us okay. He said that the higher authorities tell you what to do, you have to do it. Now everyone is looking for housing, but it can’t be found. I looked for housing for a whole day yesterday, but I didn’t find anything. They don’t let you rent. They don’t rent to outsiders. Now the situation is simply that they don’t want outsiders to stay in Beijing.”
(Reporter): As long as you are an outsider, you are not allowed to rent?
Ms. Cheng: “Yes, yes, yes. Most people around me are being driven out. The lease has not expired yet, but they are told to move. Now people everywhere are trying to rent a place in Beijing, but no one can find a place. If you have lived at a place for three days, and they check your ID, and you’re found to be someone from outside of the city, they will tell you to leave.“
(Reporter): “Tell you to leave? Who tells you to leave?”
Ms. Cheng: “Just those city inspectors and neighborhood committee officials. They came here to check. “
(Reporter): “If people like you are told to leave, will they refund your rent?”
Woman in blue coat: “No, they won’t. We spent all our money building the house. I still owe someone more than 200,000 yuan ($30,000). Where can I go? The only place I have is here until I die.”
The Youth of Picun Village
I am Xiao Hai (小海) from Poems and Songs of Laborers. A big fire has affected each and every one of us. Moving, relocation, and eviction have left us with no place to go. Whenever such major accidents happen, we see tremendous contrast between the confidence of those who post public notices and the distressed, panicked, helpless, and numb expressions on the faces of fellow workers who are busy moving out. I feel that we, who have existed in these narrow spaces, have kept our silence for too long. We too must make our voice heard. Where on earth can we go? Reality does not happen in grand offices or in conference rooms. Reality happens in crowded places, in the cold wind, in the streets!
Now, together with my fellow workers, I will read a poem called “Let’s Go, Children, with the North Wind of Beijing,” by Ms. Yu Xiuhua (余秀华):
Leave the sunshine to tomorrow
Leave it to the high-end people to glorify
Leave the happiness to tomorrow
Leave it to the high-end people
Leave the hope to tomorrow
Leave it to the high-end people
But let despair stay
The despair that is left to stay
Will be high-end despair
We have no place to go
But we are on the territory of the motherland
Wearing thin clothes in the cold
We are on the territory of the motherland
We own nothing at all
The motherland is all we have
The motherland in the Beijing accent
The motherland in dialects
The motherland in office buildings
The motherland in rental rooms
This motherland also belongs to them
To those who post the notices
To those who break the windows
To those who rob us when we are in a plight
Children, you must trust me
We live in a low place
But it is not low-end
You don’t attend aristocratic schools
But it is not low-end
Even though you are in rags
You are still not low-end
The low-end owns the narrow-mindedness of the low-end people
The kind-hearted have the tolerance of the kind-hearted people.
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Open Letter: Call for Investigation Into HNA Group’s Activities in the U.S. and Probable Links With Corruption at Top of Chinese Communist Party
China Human Rights Accountability Center, August 15, 2017
Updated on October 19, 2017
We are writing this open letter to express our deepest concerns about the highly suspicious activities of the HNA Group (HNA) in the United States, including the lack of transparency of its ownership, the unclear nature of its plan for charity work, and allegations of large-scale corruption. Based on the mandate of the Global Magnitsky Human Rights Accountability Act, other relevant laws, and in the service of public interest, we strongly urge Congress and relevant administrative agencies to investigate and uncover the true nature of the HNA Group, its asset sources, and intended uses in the United States.
Headquartered in the capital city of Hainan Province, an island off mainland China between the South China Sea and the Gulf of Tonkin, HNA Group started in 1992 as a state-owned enterprise doing business primarily in airlines and tourism. It was re-incorporated around 2000 and began expanding its assets rapidly and mysteriously.
In the last decade alone, the HNA Group transformed itself into the largest acquirer of foreign assets in the U.S. and one of the largest worldwide. The HNA Group is heavily funded by Chinese state-owned bank loans, which have enabled it to leverage into completely unrelated business sectors. With acquisitions, its rank in the Fortune Global 500 list climbed from No. 464 in 2015 to 170 in 2017, and is projected to reach the top 100 in 2018. It is reported that HNA Group’s current total assets exceed $150 billion.
HNA’s ultimate target is to be one of the 10 largest companies in the world, according to its CEO Adam Tan. HNA’s sprawling portfolio now includes Ingram Micro, Avalon, Deutsche Bank, and Hilton Worldwide, to name a few. Its transactions and activities involve former White House Communication Director Anthony Scaramucci and other high profile luminaries including George Soros, David Cameron, and Nicolas Sarkozy. However, HNA remains behind a heavy veil, despite its incomprehensible success. It failed to make any clarifications when various journalists repeatedly raised questions about its ownership structure or how it made its fortune.
We are writing this letter out of concern over what appears to be one of the most generous donations to a U.S. foundation in the history of philanthropy, and its potential connections to unprecedented massive corruption.
On January 31,2017, New York Times first reported that HNA’s largest single shareholder was Guan Jun (贯君), a mysterious man who is alleged to be tied to China’s anti-corruption czar Wang Qishan. In June, the Financial Times also reported that Guan Jun purchased 29 percent of the company last year from Hong Kong-based businessman Bharat Bhise. Neither HNA nor Bhise revealed how the stake changed hands up to this transaction.
Only after the Chinese and foreign media began to focus on HNA’s ownership did the company finally release an open letter on July 24 to its employees, associates, and consumers; but even then, it did not list Guan Jun as the largest shareholder. When probed about the disappearance of Guan Jun’s share by a reporter from China Business Network, HNA said Guan is a “private investor” who owned some of the company’s shares, which has now been donated to the Cihang Foundation in New York.
This was confirmed by another Financial Times interview with HNA’s chief executive Adam Tan, who told the British newspaper that a Chinese citizen had donated $18 billion of the ownership of HNA—29 percent of the shares of the HNA Group of China—to a private foundation based in New York: the Hainan Cihang Charity Foundation, the company’s charitable arm in the United States. According to HNA, 53 percent of the company is owned by Cihang foundations, including a 22.8 percent stake held by a sister charity in China. The foundation registered with the New York Department of State on December 7, 2016, and it is currently applying for federal tax-exempt status with the Internal Revenue Service. The foundation says it will support a number of efforts, including anti-poverty work. Suspiciously, its three initial directors are all top executives of HNA, as reported by Wall Street Journal.
To put the size of the donation in context, a single donation of $18 billion will make the New York Cihang second only to the Bill Gates Foundation, the largest private foundation in the world. Cihang foundations — the New York Cihang and Hainan Cihang — now hold tens of billions in total assets.
What was not explained, however, was how the donor Guan Jun, a man in his 30s, acquired such a large share of one of China’s biggest companies in the first place. According to Hong Kong corporate filings, Guan Jun’s registered residential address is a simple apartment in what New York Times reporters found was a dingy, trash-laden building in Beijing, while his business address was registered in the “Oriental Aphrodite Beauty Spa”, a street-side salon in a residential neighborhood in western Beijing. Both proved to be very dubious; Guan does not appear to be the owner or resident of those locations. When asked some of these questions by the Financial Times in a telephone call, his answer was “It is inconvenient to answer any of your questions.” In a YouTube video posted after this letter was first published, Guan Jun supposedly denied his connections with government officials, but never mentioned how and when he could possibly have amassed such a princely sum of wealth. Curiously, the source of the professionally produced video was not identified, and neither was the video acknowledged by HNA.
In the interview with the Financial Times, Tan made the surprising admission that Guan, and another shareholder, Bharat Bhise, had never really owned the shares, “but had just held the stake for us.” This claim is inconsistent with the HNA spokesperson’s statement. It remains to be examined how these shares were obtained from HNA, a former state-owned enterprise that had undergone government-managed privatization. HNA’s true relationship with Guan Jun also remains unsettled — HNA claims he does not work for the company, but according to media reports, he serves as co-chairman with the son of HNA’s Chairman Chen Feng in a peer-to-peer financing platform owned by HNA. Recent New York Times Reported that shares that Guan Jun held originated from companies affiliated with Chen Feng and his family.
Doubts about the company’s unclear ownership structure and allegations of corruption have recently caused Bank of America to decide not to do any business with the Chinese conglomerate. Meanwhile, the European Central Bank is reportedly investigating HNA’s nearly 10% stake in Deutsche Bank. Goldman Sachs, longtime partner of HNA, recently suspended its IPO work for a HNA unit on due diligence concerns.
On top of this, the New York Attorney General pointed out that the group had not registered in the state as a charity, as required by law, and asked it to do so within 20 days or explain why it has not done so. HNA argued that it was not required to register by Executive Law because it did not intend to raise funds from third party, after the first explanation that the foundation couldn’t register because it hadn’t yet received its federal 501(c)(3) status, a tax exemption of nonprofit organizations, which is pending.
More recently, in September, the Swiss Takeover Board (Übernahmekommission) requested HNA to explain its ownership structure. It is concerned that HNA is a “white glove” that holds wealth for the powerful.
Although Chinese citizens are effectively prohibited from asking questions about HNA and its business and political affiliations, there is little doubt that this conglomerate needed close ties with senior leaders of the Chinese Communist Party to achieve such spectacular growth. There is no other possible explanation for how HNA could obtain a seemingly unlimited line of credit from all major state-owned financial institutions in China. Most Chinese people are prohibited from knowing the nature of the HNA transactions. Those who are aware of the hidden fact are outraged by such an abnormal transfer of assets — possibly a grand embezzlement of public wealth — but they are too afraid to protest or speak up because they fear the potential backlash from the individuals who genuinely control the HNA assets, who are likely connected to the very top of the communist regime.
For Congress and the administration, HNA’s unprecedented, massive corruption and dubious transfer of large assets to a U.S.-based “charity” should sound an alarm: Cihang foundations control over 53% of HNA, making Cihang a shell holding company of HNA, one of the top companies in the world, not a charity.
We suspect that HNA’s largest shareholder Guan Jun may have acquired his 29.5% share ownership by siphoning off public assets through government-manipulated privatizations, because public records provide no evidence that he purchased these shares fairly.
Consistent with Guan Jun’s murky identity, only very high level political privileges can explain why HNA was able to grow at a parabolic rate, fueled by bank lending and easy access to hard currency, despite China’s tight capital controls. HNA’s chairman of the board, Chen Feng was a former PLA officer, worked under Wang Qishan for a project of the now defunct China Agriculture Trust Investment Co., and has “been a delegate to three national congresses of the Chinese Communist Party since 2002, spanning the presidencies of Jiang Zemin, Hu Jintao and Xi Jinping”, as reported by Nikkei. HNA’s business took off when Wang Qishan became Hainan’s Party chief in 2002. In Chen Feng’s most recent public appearance, he accompanied Xi Jinping on Xi’s state visit to the U.K in 2015, where he was received by then-Prime Minister David Cameron on the same stage with Xi. HNA filed a lawsuit in New York in Augustus 2017, denying allegations that Wang Qishan or his nephew Yao Qing is the controlling shareholder of HNA Group, directly or indirectly. Public records found online show that Yao Qing has several transactions with HNA subsidiaries and affiliates.
HNA bypassed scrutiny while acting as a state sovereign investment company. On the other hand, given the opacity of the ownership and its special connections, we are concerned that it could very well be controlled by individuals and families connected with the top of the Chinese Communist Party (CCP), operating through a shadowy Guan Jun. Cihang will provide a shelter for CCP leaders’ families to retain their wealth, which they could only have obtained through corruption. Cihang may thus become a beachhead for the CCP to influence the U.S. government and public.
If this is the case, such an entity would be liable for examination per the Global Magnitsky Human Rights Accountability Act, passed in December 2016 (NDAA 2017, section 1261-1265) as the law aims at sanctioning officials or their senior associates who have committed “expropriation of private or public assets for personal gain, corruption related to government contracts or the extraction of natural resources, bribery, or the facilitation or transfer of the proceeds of corruption to foreign jurisdictions.”
Therefore, we ask the U.S. Congress and the administration to support the following:
- Conduct an independent investigation into all transactions and assets held by HNA and its U.S. -based business affiliates in connection with alleged corruption by CCP leaders;
- Conduct an independent investigation of the source of funding for HNA and Cihang’s U.S. operations in connection with alleged corruption by CCP leaders;
- Hold an open hearing through the U.S. Congress regarding the above investigations;
- Suspend approval of HNA’s application for the tax-exempt status until the completion of the above investigations;
- Suspend approval of all HNA’s business mergers and acquisitions in the United States until the completion of the above investigations;
- Audit HNA’s U.S.-based companies, NY Cihang Foundation, and Guan Jun’s donation and suspend their operations in the U.S. until the completion of the above investigations.
China Human Rights Accountability Center
Contact: Fengsuo Zhou, Email: email@example.com
The China Human Rights Accountability Center was formed in January 2017 by a network of Chinese activists, primarily based in the U.S., to promote and assist the implementation of the Global Magnitsky Human Rights Accountability Act.
Financial Times: HNA chief shrugs off regulatory and ownership concerns
Financial Times: Who owns HNA, China’s most aggressive dealmaker?
Financial Times: Goldman Sachs suspends HNA work on due diligence concerns
Financial Times: ECB probes HNA and Qatar Stakes in Deutsche Bank
Financial Times:Former HNA shareholder denies Beijing ties
New York Times: Behind an $18 Billion Donation to a New York Charity, a Shadowy Chinese Conglomerate
New York Times: HNA dealing with Scaramucci, first report of Guan Jun
New York Times:Mounting Questions About Who Controls HNA, a Top Chinese Conglomerate
Regulatory filing of AID in Hong Kong, a HNA shell lists Guan Jun as shareholder
Wall Street Journal: HNA has deepened the uncertainties around the New York foundation that is its biggest shareholder by changing its reason for not registering yet with the state.
Bloomberg:Bank of America Halts Deals With HNA Amid Debt Concerns
Wall Street Journal: HNA’s Biggest Shareholder Doesn’t Really Exist Yet
Bloomberg: Don’t fly in the dark, HNA
Bloomberg: HNA’s NYC Charity Owner Told by A.G. to Register With State
Bloomberg:HNA is not going to raise funds in New York State
HKEJ:The ties that bind: HNA’s Chen Feng and his rise to power
Fortune: You’ve Never Heard of HNA Group. Here’s Why You Will
Global Magnitsky Human Rights Accountability Act
Nikkei:Questions mount over HNA’s financial engineering
Why HNA is on a buying binge?
Hainan Cihang registration at New York Department of State.
Cihang’s tax filing, 2016
Video appearance of Guan Jun, HNA’s main shareholder.
HNA lawsuit against Guo Wengui