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The Lesson of Venezuela: Regime Change Can Only Happen When People Take to the Streets

Wang Dan, February 5, 2019

On February 2, tens of thousands of Venezuelans took to the streets again, demanding change. This article by 1989 Tiananmen student leader Wang Dan (王丹) was published in Chinese by Radio Free Asia on January 25. After teaching in Taiwan for years, Wang Dan now lives in the Washington, DC area and heads the new Dialogue China think tank. – The Editors

On January 23, tens of thousands of demonstrators took to the streets of the Venezuelan capital to protest the ruling party and President (Nicolás) Maduro. In front of a dense cheering crowd, waving their arms in support, the 35-year-old opposition leader (Juan Guaidó) proclaimed himself “interim President” and immediately received recognition from Western countries led by the U.S. and Latin American neighbors. The current Venezuelan administration faces severe challenges, and an alternation in regime will very likely succeed peacefully. What happened in Venezuela once again tells us one thing: that is, it is only when people take to the streets that regime change is possible.   

Why, you might ask? Simply because in countries with authoritarian dictatorships like China and North Korea, there’s no mechanism for people to change the regime through elections and other means within the system. Even in democratic countries, people taking to the streets is the most effective and direct way to effect a change in political power.

Venezuela is not a completely authoritarian state. It has long possessed a constitutional democracy. But a democratic system cannot guarantee that a corrupt regime will, on its own accord, correct its own mistakes. During Chavez’s four-term presidency and the tenure of his successor, Maduro, it’s not that the opposition did not try to overthrow their rule through elections, but they could not shake the entrenched power. This was in part due to the irrational choices of Venezuelan voters, and in part due to the fact that the opposition could not come together and jointly agree on a leader to put forward.

But in recent years the Venezuelan opposition party has continued to explore ways to solve problems within the system, and the majority of public opinion supported the opposition. In the December 2015 parliamentary elections, the opposition won 112 seats of 167 seats and took control of the National Assembly. The outside world thought that this would effectively check the anti-democratic behavior of the current government. However, on August 18, 2017, Maduro also used a method from within the system to announce the establishment of the Constituent Assembly. This Constituent Assembly, with direct legislative power, meant that the National Assembly was deprived of its main powers, making it impossible for the will of the people to be expressed through the system. Through manipulation by the government, the judicial system– another built-in check and balance mechanism – was, likewise, unable to play its role. The Supreme Court opposed the National Assembly’s exercise of its right to effect change in political power.

It was only when all means within the system were exhausted and there were no other ways to force a regime that had lost popular support to step down, that the people took action. Heeding the call of the opposition party, tens of thousands of people took to the streets. And this led to the moving scene witnessed by the whole world: the self-proclamation of a takeover of the regime by the young opposition leader.

It remains to be seen whether the alternation of political power in Venezuela will be realized smoothly. In addition to the crucial factor of whether the military’s support for the current government will change, the attitude of the United States and Latin American neighbors, such as whether or not to intervene militarily, and their influence, is also crucial. Regardless, at present we can already see there is hope for solving the political deadlock that has long troubled Venezuela.

Losing the recognition of the international community and facing large-scale street protests, the future prospects for President Maduro don’t look good. Even if he can manage to hold onto office, it’s unlikely that his rule will proceed smoothly. All that has happened is predicated on the people taking to the streets in large numbers, and peacefully displaying their desire for change.

It is often said that street demonstrations are a radical form of protest, which can easily lead to large-scale violent conflicts and undermine the democratic process. But in fact, throughout the ages, the vast majority of regime change took place when people went to the streets. Without the pressure of people taking to the streets, few rulers will take the initiative to step down on their own. At the same time, we also have seen that, without the support of street demonstrations, mechanism from within the system can easily be defeated by all manners of political manipulation. Although people taking to the street may lead to large-scale violent conflicts, there are many examples of peaceful demonstrations that have forced a peaceful change in the regime. The resistance on the street, which occurs outside the system, will provide an opportunity for the opposition party within the system, and it is only such an opportunity that can lead to success for the opposition within the system. This is root cause for why street demonstrations are the only method to change a regime, and what happened in Venezuela proves this point again.

Related:

Twenty-Eight Years After – An Interview With Wang Dan, October 25, 2017.

The Chinese Communist Party Should Fade Into History Peacefully, Avoiding Violence and Minimizing Social Unrest, Zheng Yefu, January 25, 2019.

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At China Change, a few dedicated staff bring you information about human rights, rule of law, and civil society in China. We want to help you understand aspects of China’s political landscape that are the most censored and least understood. We are a 501(c)(3) organization, and your contribution is tax-deductible. For offline donation, or donor receipt policy, check our “Become a Benefactor” page. Thank you.

The Chinese Communist Party Should Fade Into History Peacefully, Avoiding Violence and Minimizing Social Unrest

Zheng Yefu, January 25, 2019

“Now it’s time to lay it bare: You can’t fool the Party into starting this journey, nor can you allow the calls for political reform that lack a clear final goal to numb the minds of the people.” 

I. Why Hasn’t Political Reform Happened?

In the late 1970s, China undertook a reform; the main elements were the restoration of the household production system in rural China [that allowed individual families to take control of their farming], opening up the private economy, and allowing farmers to go into the cities to find work. In the early 1990s, seeing that it was likely that this reform would run aground, Deng Xiaoping once again pushed a reform agenda, which was known as “reform of the economic system.”  As for corresponding political reform, Deng Xiaoping and the leaders that came after him all mentioned it in succession, and even said: “Without successful reform of the political system, reform of the economic system will be impossible to carry through to the end.” Subsequent history proved this argument.

It is precisely because political reform did not happen in China that “reform and opening up” fell far short of meeting people’s expectations, and the developments up to the present have led to a fear of further regression. Why did political reform always remain in the realm of words, with not even one step taken towards action? The truth is actually quite obvious, but unfortunately, it seems that it was never clearly pointed out.   

When referring to political reform in speeches, the above-mentioned leaders meant the following: first, the separation of Party and government and the separation of government and enterprise; second, decentralization of power, avoiding excessive concentration of power; third, improving the legal system; fourth, initiating social and political consultations.

Why did these leaders propose political reform? Because they realized that if rule of law is lacking and power is abused, then social and economic life cannot get on the right track.

But why, ultimately has political reform not been implemented? Because intuition has also told the Communist Party leaders that every component of political reform weakens the Party. First, the separation of Party and government, and the separation of government and enterprise, means that the Party is losing power to others, and that the Party will lose control of the administration of the state and the society and economy. Second, the soundness of the rule of law will, on the one hand, guarantee citizens’ rights and freedoms such as speech, association, assembly, and demonstration, and on the other hand, limit the sphere of action of the Party. The society will not be completely controlled by the ruling group as in the past. Third, once genuine political consultations are initiated, it’s possible the Communist Party’s views will fall into a disfavored position. In order to avoid such a situation, the Party leaders eventually created political consultations in form only, in which they had the final say. Fourth, in the competition with the Party’s internal and external opponents, the rulers are increasingly firmly convinced of this: in order to suppress and respond to the trend of social diversification, democratization, and liberalization, even internally the Party cannot practice democracy and must concentrate power.

Before the reform of the economic system, and afterwards too, it’s difficult to say that most of the Communist Party’s guiding principles and policies have been in the fundamental interests of the vast public. But ahead of us there is something that is in the common interest of both the broad Chinese public and the Party, and that is, the Communist Party should fade into history peacefully, avoiding violence and minimizing social unrest. I think that the one great thing the leaders of the Chinese Communist Party can do that would enter the annals of history is to honorably and with dignity lead the Party off the historical stage.

The mindset of preserving

power at all costs ruined the

souls

of those involved.

During its 70-year rule, the Party has brought too many disasters to the Chinese people. And as the Party has evolved up until now, its power structure as well as its ecology have predetermined that it can no longer deliver excellent leaders for Chinese society at all levels; it has almost completely lost its self-correcting mechanism. Its nature has already completely degenerated: for a long time it’s been a group that lacks belief; people join the Party to become officials, and they defend the Party to protect vested interests. The mindset of preserving power at all costs ruined the souls of those involved: hatred of different political views grows ever stronger, and the fear of a crisis has led to their own dysfunction.

The path to escape the shackles on their souls is to strive to melt the Party into the larger society.

However, to make the Party that has ruled Chinese society for 70 years end the one-party dictatorship by itself, there will be a long period of transition. During the transition period, the Party will necessarily be the one to guard social order. This transition period will allow other political forces to emerge, preparing to launch real and meaningful political consultations. Every school of thought and political faction can have its own ideas, but China’s blueprint for the future, and the path it will forge, can only be produced through negotiations involving many political groups.

Don’t we already have the “Chinese People’s Political Consultative Conference” (CPPCC)? It is difficult in this world to find a business like the CPPCC that squanders taxpayers’ money and is so hypocritical, contrived, pointless and boring, and deceptive. I’m speechless as how to describe it. If the rulers had courage and confidence, they should either disband the CPPCC and engage in a real one-party dictatorship; or give different political factions a platform for dialogue and engage in real political consultations.

Ending autocracy is in the interest of the Chinese people, but bloodshed and turmoil are not. A peaceful transition is in the interest of the Communist Party, because it is the only dignified path of retreat.

In sum, pursuing prosperity while fearing for its political security has resulted in the Party professing interest in something it fears for more than 30 years, and swaying to and fro, left and right, in the economic and ideological fields. However, in the past few years, the seesawing has come to a halt at the left side because the Party leaders realized that the private economy and the liberalization of thought bears a threatening and close relationship to the survival of the Party. In contrast to the increasingly stereotypical conduct of the power oligarchy, the call for political reform has not declined at all in society. Unfortunately, the latter has been weak at best. It’s been weak because everyone is scared; it’s been weak because those few in the know have stopped short of telling the whole truth. Chen Ziming (陈子明) said: We should promote democracy together with the Communist Party. Zhou Duo (周舵) advocated Party-led constitutional government.

Just exactly what will the position of the Communist Party be when democracy and constitutional government are realized in China? Now it’s time to lay it bare: You can’t fool the Party into starting this journey, nor can you allow the calls for political reform that lack a clear final goal to numb the minds of the people.

Zheng Yefu.

II. Rarely Seen Common Interest of the Party and the People

The core of the theory is “the Communist Party of China must always represent the fundamental interests of the overwhelming majority of the Chinese people.” Unfortunately, during most of its rule, the Party’s principles and policies have not represented the interests of the vast majority of the Chinese people. Property rights are the greatest manifestation of interests. In the rural areas, through the chain of land reform, mutual aid groups, cooperatives, and people’s communes, the land has changed from privately owned to state-owned. In the cities, private economy vanished following the public-private partnership movement. The benefits of the economic reforms of the 1980s proved that the above-mentioned two revolutions seriously violated the fundamental interests of the Chinese people, and suppressed their zeal for production. Otherwise, why would there have been a need for reform to begin with?

So after the reform, did the policies represent the interests of the vast majority of the people?  When land was nationalized, what did the government do?  Creating revenue by selling land. It sold lots at high prices to real estate developers. This is the first cause of excessive housing prices in China and a great portion of the population became slaves to their mortgages.  Isn’t it too tyrannical to say that a policy that enriches the state and impoverishes the people is in the fundamental interests of the overwhelming majority of the Chinese people?

For 60 years, from 1949 to today, only once did I see a time when most of the people in the ruling class had reform aspirations, and that was in 1978. Just once.

Has there ever been a policy of the Communist Party that has been in the fundamental interests of the Chinese people? Yes, but it really is rare; that was the reform of the economic system in the late 1980s. I stated the following view at a seminar in 2008: top-down reform is not common; it is a rare thing because the reform aspirations at the higher level and motivation to reform exist only in rare moments. For 60 years, from 1949 to today, only once did I see a time when most of the people in the ruling class had reform aspirations, and that was in 1978. Just once.

What was the motivation for the reforms in 1978? Because they were at a point at which they could either choose to reform, or see the Party demise. “If the Party falls, so does the nation” is the axiom so often repeated by the state propaganda machine. But there is no such thing as the demise of the country. The age of colonialism is all but in the past; China and its people no longer face the same threat of extermination. It’s the Party that is going down. Thanks to its dismal management of the country, there are so many people who can’t make ends meet. What happens if the Party falls? The Party will fade into history. Of course, they want to avoid that scenario, so reform was implemented.

We can credit Mao Zedong for creating this consensus among them: Mao, in his dogmatic ways since 1956, had drawn himself ever further apart from his colleagues. No one except for the bootlickers and careerists were inclined to support him. By the time of his death, he had driven upwards of 95 percent of the people within the Party into the ranks of a hidden opposition. The end of Mao led the other senior officials to jointly discuss how they should move away from Mao’s political line. I have yet to find a second dictator in history whose subordinates stood together in such unity after his death. It is extraordinary and rare: the Party elders were of one mind, working in concert to turn things around.   

Reform is not a novel concept: going back to 1956, and even earlier. In the Ming and Qing dynasties (1368–1911), and all the way back in the Qin Dynasty (221–206 B.C.), household production system had been the model for agricultural production. Throughout history, there had been a private economy that existed to varying degrees in urban areas. Reform isn’t some sort of groundbreaking thing, it’s actually conservatism: look at what the ancients did and follow the path they took. It’s just that Mao Zedong introduced his utopian thinking that repudiated common sense. This thinking led to constant disagreement during the reform period despite the broad consensus; as a result, the general secretary [of the CCP] was replaced time and again. Today, that rare moment of consensus that once permeated the leadership is gone; they will not come to this kind of understanding again. What reason do we have to hope that any new top-down reforms can be sustainable?

III. Successful Transition Requires the Cooperation of Two Forces

No discussion regarding the end of the one-party dictatorship in Taiwan can do to omit Chiang Ching-kuo (蔣經國). At the same time, the Taiwanese themselves firmly deny the notion that the course of their history was shaped by one individual. They think that Chiang would not have made that choice if not for the perseverance of Taiwan’s democratic activism as well as the massive pressure that arose from the social diversity at the time. I am of the same opinion.  

The ruler is created by the ruled, and vice versa. Ruler and ruled sculpt one another, together creating a vicious circle. The ruler bears most of the responsibility, but his wantonness is also induced by the meekness and submissiveness of the Chinese themselves. They have spoiled the CCP too much. Only when we the vulnerable speak up can China escape this vicious cycle. If there is no pressure from outside [the political system], no demand for the independence of the press or tolerance of opposition parties, there can be no change: Even supposing the Party leader himself is willing to reform, he would encounter opposition from his colleagues — they would think that he has gone insane. It needs not be said that without external impetus, the idea of reform will never occur to them. If we don’t voice our opinions and exert pressure, we don’t deserve to see the dictatorship come to its end.

On the other hand, a wise leader is needed to bring a peaceful end to dictatorial Party rule. Otherwise, violence will be inevitable. It is hard to say if this sort of positive development has much probability of occurring, but at least there’s the possibility, since those in the upper echelons of power know the truth, better than anyone on the outside, that the Party can hardly change its ingrained habits. For the Party to voluntarily give up its power in a way that saves face would be a win-win outcome.

There’s a third “win” involved: I have always believed that politicians must possess ambition. For one’s name to be honored by history should be enough to satisfy the ambition of any politician. This is the best way out for the Chinese people, the Party, and the Party leader.  

Being the Party leader though, it’s really no easy task to take the Party on this path. The challenge comes not necessarily in the form of opposition from the outsiders, but the lack thereof, which is also a consequence brought about by the Party itself. As it doesn’t face any credible opposition, it has little reason to choose the path of ending its rule.

This is also the reason why I have decided to “poke through the paper window” and point at the truth hidden within. Let us gather and pool our efforts to take the single path that will lead to an amicable resolution. This opportunity will not last long.

IV. Blame Not He Who Speaks But the Wise Men Who Remain Silent

It is written in the Chinese constitution that the “socialist system is the basic system of the People’s Republic of China.” and that “the leadership of the Communist Party of China is the defining feature of socialism with Chinese characteristics.” Given that the central theme of this article goes against the words above, should I be considered a criminal for writing it? No, because it is an expression of opinion and not an action. There should be no such thing as a thought criminal in a civilized country.  

The Thirteenth People’s Congress convened in 2018 is instructive. There used to be a rule in the constitution limiting the number of presidential terms, and a motion to remove the term limit was proposed prior to the conference. Is it a crime to suggest a constitutional amendment to the presidential term limit? No. I am in favor of terms being limited, but I don’t think it’s wrong to suggest any amendment to the constitution. The characteristic of the law is that it is authoritative and inviolable under a specific setting, but it also progresses along with the course of history and as such is subject to revision. The process of revision is dependent on the ability of citizens to freely discuss and criticize the laws, so long as their criticism remains in the realm of speech and not action as this would be illegal.

Over the years I have scribbled millions of words. How could I forgive myself if I fail to write a few words on the one question that has been on my mind for so long, the question that concerns the future of our country?

While I write this primarily in my own self-defense, I also write them for the people who came before, or will come after, me. For a peaceful transition to become reality, China needs citizens who abide by the law. I am such a citizen. Everyone shares a collective responsibility for the welfare of the nation, as it’s said, and this is one of the reasons I wanted to write this article. A humbler reason is to allow myself some semblance of self-respect. Over the years I have scribbled millions of words. How could I forgive myself if I fail to write a few words on the one question that has been on my mind for so long, the question that concerns the future of our country?

In January 1948, three months after the CCP published the “Outline Land Law of China” (《中国土地法大纲》), late Chinese sociologist Fei Xiaotong (费孝通) wrote an article titled “Standards for a Moderately Prosperous Society Free of Hunger and Cold” (《黎民不饥不寒的小康水准》) to argue against violent land reform. He wrote: “History is not always reasonable, but in any historical setting there has always been a reasonable solution available. Whether history can develop along a reasonable course is dependent upon whether people can make rational choices. Those in the position of scholars have the responsibility to point out rational solutions, while it is up to the politician to bring it into history.”

I don’t believe we’ve reached the point where we can hold the politicians responsible for everything. This is because at present, the intellectuals have yet to fulfill their duty. Had they stayed true to their conscience and mustered the courage to speak their minds, China would not be in the state it is in today.

Drafted August 2018; finalized December 2018.

Zheng Yefu (郑也夫) was born in 1950 in Beijing. He was one of the 17 million “educated youths” sent down to the countryside, and served in the Heilongjiang Construction Corps. He is now a retired sociology professor from Peking University. The Chinese version of the article can be found here.


Related:

A Great Shift Unseen Over the Last Forty Years, Xiang Songzuo, December 28, 2018.

Bid Farewell to Reform and Opening Up –– On China’s Perilous Situation and Its Future Options, Zhang Xuezhong, translated by Andrea Worden, January 7, 2019.

An Interview With Xu Youyu: ‘The Worst Is Yet to Come’, China Change, October 31, 2018.

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At China Change, a few dedicated staff bring you information about human rights, rule of law, and civil society in China. We want to help you understand aspects of China’s political landscape that are the most censored and least understood. We are a 501(c)(3) organization, and your contribution is tax-deductible. For offline donation, or donor receipt policy, check our “Become a Benefactor” page. Thank you.

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The Schellenberg Affair: Chinese Lawyers and Law Professors Opposing Court’s Handling of Robert Schellenberg’s Case

China Change, January 16, 2019

On January 14, a court in Dalian, northeastern China, sentenced Canadian Robert Lloyd Schellenberg to death for drug smuggling at a one-day retrial. It appears that China, after detaining two Canadians recently, is escalating the diplomatic clash with Canada over the arrest  of Meng Wanzhou (孟晚舟), Huawei CFO, which the US requested pursuant to its extradition treaty with Canada, to the United States for suspected violation of Iran sanctions. The bizarre re-sentencing of Schellenberg seems to indicate how far China is willing to go to pressure Canada for the release of Meng, and how it is betting on Canada to give in by using the Schellenberg case as further leverage. To help clarify the legal controversy surrounding the retrial of Schellenberg, China Change gathered and translated the views of Schellenberg’s defense attorneys and several other Chinese lawyers and law professors who opposed the re-sentencing. As for opinions supporting the Chinese court’s decision, you can find them in China’s state media such as the Global Times and China Daily. — The Editors

Lawyer Ma Gangquan (马纲权) — A death sentence handed down with mysterious haste, January 16, Beijing Time, WeChat post:

1. It took about four years from Schellenberg’s detention  to his being sentenced to 15 years in prison by the e court of first instance.

Schellenberg was apprehended on December 1, 2014, and his case was heard by the Dalian Municipal Intermediate People’s Court i (大连市中级人民法院) on March 15, 2016. On November 20, 2018, at the court of first instance, he was found him guilty of trafficking illicit drugs. He was sentenced to 15 years in prison to be followed by expulsion from China, as well as a fine of 150,000 RMB. Schellenberg appealed the sentence. 

2. The time it took for the case to be returned to the first-instance court with supplemental prosecution  was just four days.

On December 29, during the review of Schellenberg’s case, the Liaoning High People’s Court (辽宁省高级人民法院) ruled that the original sentence was overly lenient and “obviously inappropriate” [in consideration of the crime], and sent the case back to the Dalian Intermediate Court for retrial.

On January 2, 2019, the Dalian Municipal Procuratorate (大连市检察院) submitted a supplementary indictment to the Dalian Intermediate Court.

3. On January 14, 2019, the Dalian Intermediate Court began the retrial at 8 a.m., with proceedings lasting until around 7 p.m., at which time the court adjourned for one hour. After  the collegial panel deliberated and submitted its decision to the adjudication committee for discussion, at around 8 p.m. the court resumed the hearing, at which time it, it announced Schellenberg’s death sentence. This was all done in less than a day, deftly and expediently.

Lawyer Zhang Dongshuo (张冬硕), Schellenberg’s defense attorney, January 15, 2019, Chinese-language interview with Deutsche Welle

DW: Robert Lloyd Schellenberg’s case was retried and a new verdict was announced in no more than 15 days. What is your view on this?

Zhang: This is indeed a very unusual situation — though the proceeding is in accordance with the law. But it is indeed quite unusual for a case involving the death penalty to finish in just 15 days from court proceedings to delivering the sentence.

DW: In increasing the sentence from a 15-year prison term to death, do you think that this verdict was made fairly and in accordance with the evidence?

Zhang: I can’t comment on whether or not it was fair. I can only say that in my view as a defense lawyer, the evidence available is insufficient to prove that Schellenberger engaged in smuggling of more than 222 kilograms of drugs in Dalian. This is the first point. Second, there is insufficient evidence to suggest that he participated in organized international drug trafficking. Third, the prosecution provided no new facts in its supplementary indictment about the alleged crime. Therefore, even if the charges are accepted by the court, they cannot be used to increase the severity of Schellenberg’s sentence. These are my three main arguments. But it is regrettable that the court completely disregarded the arguments of the defense.

DW: What remains now is for the case to be appealed, correct?

Schellenberg has the right of appeal. Only after he files an appeal — we have two lawyers, I am the primary defense attorney, and Zhong Qiang (钟强) is the secondary defense attorney — will we continue to defend him during the appeal period. I guess that he will formally file an appeal in the middle of next week.

[Note: Zhang Dongshuo is a lawyer with the Mo Shaoping Law Firm in Beijing; Zhong Qiang is senior partner of the Beijing Yingke (Nanning) Law Firm, Director of Criminal Legal Affairs Department, and Vice Chairman of the Drug Crime Defense Alliance.]

Lawyer Mo Shaoping (莫少平) — interview with Voice of America, January 16, 2019, Beijing time:

Mo Shaoping: As defense lawyers, we pleaded not guilty on his behalf. I believe that the evidence provided by the prosecution does not exclude all reasonable doubt, so he should be acquitted. However, the court did not accept this argument and claimed that there were so-called new criminal facts submitted. The defense attorneys believe that the so-called new criminal facts provided in the supplementary indictment are wholly nonexistent. However, if the prosecution did not supplement the indictment, the court would definitely not have issued a death sentence. Therefore, the so-called new criminal facts were meant to take advantage of the procedure of supplementary indictment and retrial to increase the severity of the crime, and warrant the death penalty.

Reporter: How did Schellenberg react to [the announcement of the verdict] in court?

Mo Shaoping: From beginning to end, Schellenberg denied the charges against him. He denied them then and denies them now. He says that his purpose for travelling to Dalian was purely for tourism, and has no knowledge of drugs. However, the witness Xu Qing (许清), who later appeared in court, may have indeed been involved in the crime. But the authorities considered him to be a witness, rather than a suspect. As attorneys we suspected that at one time this person may have been a public security agent. Later, the public security [Chinese police] produced evidence to show that he wasn’t their agent. So the facts regarding this case were unclear and inconclusive from the start. The evidence as provided could hardly substantiate the charge that Schellenberg was involved in drug smuggling activities.

Reporter: The court didn’t accept your arguments?

Mo Shaoping: It didn’t, the court issued the death penalty. We have never seen any precedent for this case, in which the death penalty was announced at the hearing. Usually, death sentences are announced on a later date after court has been adjourned and the adjudication committee has deliberated. I’ve never seen a case where the death penalty was announced right after the conclusion of the trial. It’s unprecedented. 

Reporter:Many people have linked this matter to the case of Meng Wanzhou (孟晚舟). Do you think there was a political motivation in Schellenberg’s sentencing?

Mo Shaoping: I will leave the analysis to journalists. Schellenberg was held for more than four years, and the Dalian Intermediate People’s Court made a first-instance judgment and sentenced him to 15 years. Why did it take four years to sentence him? Because the court thought that the evidence was insufficient and sought instructions all the way up to the Supreme People’s Court (SPC). The SPC said Schellenberg could be convicted and the sentence should be 15 years. So Schellenberg was sentenced to 15 years in prison according to the SPC’s instructions, and he was also considered an accomplice.

As a general rule, after an appeal is filed, the court of second instance will not hold a court hearing; instead, the court rules just based on the written documents in the case. It’s very unusual that a second-instance court would suddenly hold a hearing, and then suddenly remand the case for retrial. It took the Dalian Procuratorate only one day to produce and submit the so-called supplementary indictment to the court after the retrial order had been made. Just 16 days later the court tried Schellenberg again and announced the death penalty right after the trial. Everything about the proceeding was unusual.

Chen Youxi’s comment on Weibo

Lawyer Chen Youxi (陈有西), January 15, 2019, Beijing time, Sina Weibo:

It is clearly stipulated in law that there is to be no increase in punishment when a case is sent back for retrial. Without new facts or new evidence, there cannot be an additional penalty. If a new crime is discovered, after the original sentence has taken effect and the case remanded, then the new criminal facts should be re-indicted in accordance with the adjudication supervision procedures. Increasing the penalty on remand is not permitted, so as not to deter the defendant from appealing.

Article 237 of the PRC Criminal Procedure Law (CPL) stipulates that second instance people’s courts handling appeals submitted by the defendant, his legal representative, defender, or close relatives, must not increase the defendant’s punishment. Cases that second instance courts remand to first instance courts for retrial, except when there are the new criminal facts and the people’s procuratorate provides a supplemental indictment, the original people’s court must also not increase the defendant’s penalty. In instances in which the people’s procuratorate lodges an appeal or where there is a private prosecution appeal, the aforementioned restrictions do not apply. 

Per the Interpretation of the Supreme People’s Court on the Application of the PRC Criminal Procedure Law, Article 327:  After the defendant, or his legal representative or defender, or a close relative, files an appeal, and the second instance people’s court remands the case for retrial, except in cases where there are new criminal facts and the people’s procuratorate files a supplementary indictment, the original people’s court must not increase the defendant’s penalty.

Article 257 (5) of the Supreme People’s Court’s Interpretation of Several Issues Concerning the Implementation of the PRC Criminal Procedure Law provides: “… in the case where a change in the original sentence must be done according to law, the case shall be retried according to the adjudication supervision procedures after the second instance judgment or ruling becomes effective.”

When courts of second instance send various cases back for retrial on the grounds of unclear facts and insufficient evidence, purporting they have a new understanding of circumstances that were already discovered during the original trial, and result in supplemental prosecutions and an additional penalty for the defendant through retrial by the court of first instance, it is a disguised violation of the principle of “appeal without increased penalty.” The result is that the appeal system will inevitably be damaged the defendant’s right of appeal will be impaired and constrained; the second-instance final appeal review and correction mechanism will be forfeited.

There’s no way around this. Regardless of the case, it is very easy to find a few pages of new evidence, and have a new understanding of the details of the case. As long as a judge is allowed to remand a case with supplemental charges, a reason could be found in any case to support a sentence increase. Accordingly, defendants would not dare to appeal. The system of China’s second-instance final review would be fundamentally destroyed.

He Weifang (贺卫方), law professor at Peking University, January 15, 2019,Beijing time, WeChat: 

The Canadian named Schellenberg was sentenced to 15 years in prison by the Dalian Intermediate People’s Court on November 20, 2018 after being detained for more than four years. In addition, the court confiscated 150,000 yuan of his assets and ordered his deportation. He insisted that he was not guilty, and filed an appeal.

It really was a strange coincidence that just at this point in time, in early December, the Canadian police arrested a high level Chinese business executive named Meng [Wanzhou] based on the extradition treaty between the United States and Canada. This move triggered an angry protest from China, which threatened Canada, telling Canada it would pay for what it had done.

Soon after, on December 29, the Schellenberg appeal was heard in the Liaoning High People’s Court.  It is worth noting that the procuratorate did not file a protest after the trial in the court of first instance, but this did not prevent the High Court from remanding the case to the Dalian Intermediate People’s Court for retrial. Meanwhile, the New Year’s holiday intervened, and so it was on January 14, 2019, in less than ten work days, the Dalian Intermediate People’s Court unexpectedly and, in lightning speed, tried the case, and in a shocking move, changed the defendant’s sentence to the death penalty, and confiscated all his assets.

Some people have asked: Doesn’t China’s Criminal Procedure Law stipulate the norm of  “appeal without an increase in penalty”? A local scholar who attended the retrial responded that the rule prohibiting an increase in penalty does not include cases in which the procuratorate discovers and raises new criminal facts after the defendant appealed, or cases in which the procuratorate did not lodge a protest.

However, as a result, as long as the defendant files an appeal, the procuratorate can counter-appeal on the grounds of having discovered certain new criminal facts or just communicate with the court to exert some pressure (which is very easy for the procuratorate to do in China), which will inevitably lead to the complete failure of the principle

“appeal without an increase in penalty.”  As long as the defendant refuses to accept the original judgment and appeals, all that awaits the defendant is the procuratorate’s protest (even a protest is not actually necessary) and a subsequent increase in punishment. So who would dare to appeal?

Furthermore, now that the procuratorate produced new facts so quickly in such a short period of time  after the first instance trial, one wonders why they didn’t discover these facts during the four years of Schellenberg’s detention, facts that have caused the outcome of the case to change so drastically? Even though the PRC’s Criminal Procedure Law does not have the “double jeopardy” clause that prohibits anyone from being prosecuted twice for substantially the same crime, we have reasons to expect that the procuratorate had learned all the facts and made all the preparation before the first trial, given that the investigation had gone on for four years and had been through all sorts of pretrial procedures. How could it be that as soon as the defendant appealed, the procuratorate “discovered new facts” and that the defendant changed from being an accomplice to the principal culprit? Isn’t that just bizarre?

In this country, administrative officials can make wrong decisions and diplomats can blatantly lie, but if judicial organs also take part in such a farce, succumbing to external interference and treating the law like a toy, that’s really a despairing and perilous situation.

He Weifang and Zhang Jianwei’s comments on WeChat.

Zhang Jianwei (张建伟), law professor at Tsinghua University, January 15, 2019, Beijing time, WeChat:

In the case of supplementary indictment, the court could alter the sentence and increase the penalty. Here, supplementary indictment should be understood to mean that the supplemental crimes are crimes in addition to what has already been tried; if the prosecutors supplemented certain facts that fall within the criminal facts that have already been tried in the first instance but may affect the penalty decision, it is still a violation of the principle of no increase of sentence on appeal.

The thinking behind the principle of no increase of sentence on appeal is to allay the defendant’s fear of a worse outcome on appeal. In Schellenberg’s case it was the defendant who appealed, and increasing the penalty through spurious reasons is a violation of the principle of no increase of sentence on appeal.

At the moment when China and Canada is locked in a diplomatic row, such a judicial re-sentencing rouses the suspicion that the judiciary in China is merely a servant of politics, and it hurts the international perception of China being a country governed according to the law. As such, there is more to be lost than gained. You may think you are doing good for the country, but you are in fact ruining it.

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Bid Farewell to Reform and Opening Up –– On China’s Perilous Situation and Its Future Options

Zhang Xuezhong, translated by Andrea Worden, January 7, 2019

Last week, Dr. Zhang Xuezhong (张雪忠), a law professor at East China University of Politics and Law in Shanghai, posted an article on WeChat titled “Bid Farewell to Reform and Opening Up –– On China’s Perilous Situation and Its Future Options” (《告别改革开放 –– 论当今中国的危局和前路》). The following is an excerpt from the article in which he dismisses the notion that Deng Xiaoping’s time was a better time, a time, many believe, the current leader Xi Jinping has digressed from and should return to. We should point out that, in 2013, Dr. Zhang was stripped of his teaching position at the university by the university’s communist party committee for his writings on constitutionalism, and he now works in an administrative office on campus. He also has been a practicing lawyer and has represented prominent human rights activists, Liu Ping and Guo Feixiong, among others. But in the last two or three years, the university has blocked his practice. In other words, the university has reduced the law professor and human rights lawyer to an office clerk. He should be grateful that he hasn’t been sent to Jiabiangou (夹边沟) to die, if you call that progress.  –– The Editors

The Place of Reform and Opening Up in the Course of Long-Term National Transition

From the Westernization Movement to the Reform Movement of 1898, and then to the Revolution of 1911, the idea of a republic–– antithetical to a monarchy––became the consensus of the Chinese elite. Since the Revolution of 1911 through the founding of the People’s Republic of China by the Chinese Communist Party (CCP) and afterwards, although the values ​​of freedom and democracy had not been well implemented, they were modern political principles and ideals such that no political force dared publicly deny, destroy or discard them. In September 1949, the new People’s Political Consultative Conference formulated the interim Common Program (共同纲领), which would both continue the legacy of the Revolution of 1911 and establish a new democratic system.

However, the concept of communist dictatorship that the CCP adhered to then and now, in principle, stands in fundamental contrast to the constitutional government of a liberal democracy. This means that the continuation of the CCP’s rule must be predicated on the elimination of the concepts of freedom, democracy, and the rule of law. Beginning in 1953, a series of political campaigns, such as the socialist transformation movement (社会主义改造) and the “washing” of intellectuals (i.e., thought reform) meant the gradual destruction of the new democratic system. The 1954 Constitution, based on the Common Program, was in force for three years and then abandoned.

This meant that the new democratic system was replaced by the Soviet-style system, and that the political legacy of the Revolution of 1911 was basically eradicated. During the 1957 Anti-Rightist Campaign, following the persecution of Zhang Bojun (章伯钧), Luo Longji (罗隆基), Chuan Anping (储安平) and others, liberal, democratic organized forces with clear political demands vanished completely from the mainland. Since then, although the ideals of freedom and democracy have hung on by a thread, they have survived and been passed on only in the form of personal thought.

Reform and opening up, which was launched after the end of the Cultural Revolution, is undoubtedly a denial of Maoism. It brought opportunities and space for a ravaged Chinese society to recover and recuperate. Compared with Maoism, reform and opening up is substantial progress, and objectively speaking, it brought about the emergence of civil society relative to governmental power.

However, reform and opening up as a political guideline and policy of the Chinese Communist regime, contrary to what Professor Xu Zhangrun (许章润) said, has never been about the transition to a better form of government (优良政体). In fact, it’s exactly the opposite. Reform and opening up, as a policy measure in response to actual circumstances, is aimed precisely at consolidating and continuing the CCP’s one-party dictatorial rule. Initially, reform and opening up relaxed restrictions on society, and the loosening of political oppression made people hope for a more civilized, democratic, and liberal political system. This is the social backdrop of the 1989 student movement. However, the suppression of the student movement by the CCP regime, headed by Deng, undoubtedly indicated to the world that reform and opening up never included in its agenda the gradual establishment of a liberal democracy.

Interestingly, pundits who are today still loudly extolling Deng Xiaoping are deliberately ignoring the most important political decision Deng made during his life–– that is, his decision to use military force to suppress the student movement. This suppression not only ended a patriotic student movement that focused on the pursuit of freedom and democracy, but also ruined the opportunity for a peaceful political transition in China.

In fact, judging from both official public pronouncements and the internal discussions of policy makers, in the past few decades, no CCP figure who has held real power has ever thought about establishing a good, modern political system in China. For CCP leaders, the supreme concern has always been keeping the CCP in power, meaning they must spare no cost to tenaciously defend a backward, premodern system of government. All policies carried out in the name of so-called “reform and opening up” must be based on the premise of defending, and even strengthening, the existing structure of power interests.

I have never denied that compared with the Mao Zedong era, the policies during the reform and opening up period–– and the results of those policies–– are certainly much better [in terms of economic growth and improvement in people’s livelihoods]. But I don’t agree that scholars and pundits should act like the official mouthpieces who invariably look at the path of reform and opening up over the past several decades from a vulgar, utilitarian perspective.

What Criteria Should Be Used to Judge 40 Years of Reform and Opening up?

We must use the discourse of rights and rules before we can fairly judge the gains and losses of reform and opening up.

Once we adopt the discourse of rights and rules, not only can we conduct a fair and convincing evaluation of the past reform and opening up, but we can also more clearly understand the current situation in China. We can even conceive of a clearer future for this country, one that is more reasonable and reliable. 

For example, we often see people, who, due to a crass utilitarian mentality, are deeply grateful to Deng Xiaoping for reinstating the college entrance examination (gaokao). However, if we use the discourse of rights, we can see that the resumption of the college entrance examination is both an improvement over the situation during the Cultural Revolution, and at the same time we can understand that it is a fundamental human right of modern society for people to be able to receive higher education when appropriate conditions are met. During the whole period of reform and opening up, not only has the allocation of resources for public institutions of higher learning been unequal and unfair, but also the government’s restrictions on private schools artificially deprives generations upon generations of opportunities for higher education, not to mention the long-term implementation of political brainwashing in the national education.

To take another example, during the period of reform and opening up, there was a limited right to have and protect private property, and the private economy. This is certainly an improvement compared with the preceding period. However, if we realize that personal property rights and business rights are basic human rights to begin with, we can see that during the period of reform and opening up, people’s property rights and business rights have not been adequately respected and protected by the government, and the violation of these rights by public authorities is extremely common and widespread.

As another example, compared with the absolutely unrestrained and comprehensive violation of human rights during the Cultural Revolution, the period of reform and opening up is, of course, much better. But at the same time we can also see that in the latter period, many freedoms, including the people’s right of freedom of speech, publishing, assembly and association, as well as the right to petition and the right to freedom of movement, have been strictly suppressed; and people have always been deprived of the right of political participation, and political persecution has been a common occurrence.

I think these few examples are sufficient to illustrate my point. In fact, once we begin to use the discourse of rights and rules, we not only can transcend the different subjective feelings held by different groups of people, but also objectively and fairly evaluate the reform and opening up policy. Moreover, we can clearly see how decades of reform and opening up have created the various crises and problems in China today.

In a nutshell, the root cause of these crises and problems is the dictatorial system in which a few people monopolize unconstrained power. In the process of reform and opening up over the past few decades, the problem of unfettered government power and unprotected individual rights not only has not been solved, but has also at times deteriorated. The policy priorities of different political leaders may have differed during this period, but they are completely consistent in terms of defending dictatorial power and suppressing individual liberties.

Arbitrary power can be wielded capriciously. When a few people monopolize unconstrained power, the power-holders can relax their control of society at a certain moment due to certain realistic needs, and they can also at a different moment, in response to different practical needs, strengthen their oppression of society. The reform and opening up path of the past few decades has always been based on a political system in which government power is not constrained and individual rights are not guaranteed.

Once we have seen this clearly, it is easy to understand that although there have been different policy priorities during different stages of these decades, the logic of political power behind them has been consistent. In the first stage of reform and opening up, the private economy was tolerated and encouraged to a greater extent, both to remedy the crisis of the national economic collapse caused by the Cultural Revolution, and because the size of the government at that time was still relatively small and the government’s absorption of social and economic resources was at a relatively low proportional level.

But unconstrained power must inevitably be rent seeking, and it is certain to be corrupt. The phenomenon of rent seeking by those in power has accompanied the entire course of reform and opening up, beginning with the dual pricing system (价格双轨制) in the early stage of the reform period. Once government power could be used for rent seeking and profiteering, not only did the power holders’ appetite become bigger and bigger, but it also led to more and more people using various kinds of paths to enter the government, and subsequently, the scale of the government swelled continuously and expanded without limit. Once such a trend reaches a certain critical point, the speed of social production and national economic growth will not be able to keep up with the increasing scale of government exploitation and consumption of social resources. By this time, all sectors of society, including private entrepreneurs, would find themselves in an increasingly difficult situation, with the exception of those who can use their power to extract wealth. We can even say that the various policies of squeezing and tightening in the later stages of the reform are a completely natural and logical result of the reform and opening up.

Leave Behind Reform and Opening up and Move Towards the Creation of a Modern Government

Under the reform and opening up policy, the government has never considered establishing rules for a constitutional government that would guarantee the basic rights of citizens. On the contrary, the suppression of individual liberty and the trampling of civil rights went hand in hand with economic growth. This model of economic growth inevitably led to problems such as a large gap between the rich and the poor, serious environmental damage, and the collapse of social governance. It can be said that the current government financial crisis and various social crises are the inevitable consequences of decades of reform and opening up. Those who have used 2012 as the dividing line and have portrayed the thirty-plus years before 2012 as a beautiful time, it is is incumbent upon them to search their hearts and ask themselves: Of all the social crises people have faced since 2012, which one of these did not already exist before 2012? Which one is not the result of decades of reform and opening up?

If we expand our horizons a bit more broadly, it is easy to understand that China’s political moves in recent years to intensify the repression of civil society and reject Western influences are themselves the logical result of the reform an opening up. The West is the region in the world that first completed modernization, and the core of modernization is political modernization; that is, the democratic politics of national self-governance under the precondition of respecting and guaranteeing individual freedom. The so-called modern polity is exactly the polity of this liberal democracy.

The Sino-Western collision during the Qing Dynasty made the imperial court aware of its own fragility, and the “Westernization movement,” which aimed at self-strengthening by learning from the West, became an important policy measure. But for decision makers in power, this modernization-oriented learning process had to be severed from political modernization. That is to say, the purpose of limited study of the West was not to change the autocratic regime of the minority ruling the majority, but to preserve and consolidate this premodern regime. However, the Westernization of such facets as technology, management, education, and culture gradually created a partially modernized society, which, in turn, led to conflict between the society making big strides towards modernization and the unchanging, obstinate, premodern government.

However, their more likely choice was to forcefully interrupt the process of societal modernization in order to eliminate the threat to the authoritarian regime posed by society’s pursuit of modernization. It is not surprising that after many years of the Westernization Movement, the extremely xenophobic Boxer Movement followed closely behind.

To a certain degree, the post-Cultural Revolution reform and opening up can be regarded as a Westernization Movement under new conditions. The key point is for China to learn from the West––to introduce Western investment, technology, management and products–– but at the same time, resolutely exclude political modernization. This is precisely the reason why Deng Xiaoping’s “four modernizations” slogan at that time did not include political modernization. While adhering to reform and opening up, the government at the same time insisted that the polity uphold the four basic principles that enshrine the leadership of the Communist Party. This is similar in terms of outcome to the formulation “Chinese learning as substance, Western learning for application,” in the late Qing dynasty.

However, with the castration of political modernization from the development agenda, sooner or later there will be a conflict between a society with limited modernization and an authoritarian regime that rejects modernization. At that point, the rulers must make a fundamental decision: either initiate the process of political modernization or discontinue the process of societal modernization.

People lament that China at present is a country that lacks consensus and is highly torn. In fact, the rips that have emerged in various aspects of this country all stem from a fundamental tear: a tear between a society that is looking forward to comprehensive modernization and a premodern government that adheres to the structure of existing power interests. It can be said that China today is a country that is pulling itself apart in opposite directions.

However, this state of pulling itself apart in opposite directions cannot be sustained over the long term. Eventually, either the whole society will succumb to the backward regime and regress to the previous state of closure, depression and poverty; or the backward regime will conform to the demands of the comprehensive modernization of society and transform into a modern political system that is compatible with modern society. In a sense, our country has reached a critical moment: Is it moving forward or backward?

What the Chinese need most is not to look backwards, not to recall with nostalgia the so-called reform and opening up, but to move forward, to decisively bid farewell to reform and opening up, and to work hard to innovate the current premodern polity.


Related:

A Great Shift Unseen Over the Last Forty Years, Xiang Songzuo, December 28, 2018.

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End Dictatorship, March Towards Freedom — A 2019 New Year’s Statement From the China Citizens Movement

December 31, 2018

Freedom, Justice, and Love

China is at a crossroads.

History will remember 2018. In March, Xi Jinping amended the Constitution to everyone’s chagrin, paving the way to life in power.

It’s an anachronism to go back to permanent power in the 21st century. More than that, it’s a subversion of civilization; it’s a shame for the country and for all Chinese nationals.  

Xi Jinping has imposed his will on the entire Chinese population. In order to hold onto power, he has to strip the Chinese of their rights and dignity and enslave them.

Xi Jinping is building a new model of totalitarianism that directly threatens freedom of movement and property rights. Each person lives in fear.

Xi Jinping attempts to monopolize all the resources and gain the privilege to rule over everything. Such desires threaten to diminish the struggle for freedom, over the last hundred years, for which countless Chinese have worked hard and made sacrifices.

Xi Jinping is quickly sabotaging the legitimate rules of the international community. His actions are leading China into isolation, making China a threat to the global order.

Over the six years of of his administration, Xi Jinping has been bringing China to a destructive point of no return. The entire country is becoming a sacrifice for his delusion of grandeur.

Citizens, this is the crossroads we have come to.

The road, on which Xi Jinping is forcefully taking all Chinese, is a dark road to disaster, a real “evil path.” It’s a road we can’t go down and refuse to go down.

Another way is to end Xi Jinping’s dictatorship and give the Chinese people freedom. It’s a road that will revive and lead this ancient land to greatness. It’s a road of hope and a road to light. It is the road we are determined to pursue. 

We are passionate sons and proud daughters of China. We are students; we are artists. We are Chinese citizens everywhere across the country.

We are the victims of concentration camps in Xinjiang; we are private entrepreneurs who have been ripped off; we are victims of poisonous vaccines; we are also investors who have lost everything in the financial bust. We are every citizen who bears the scourge.

We are prisoners of conscience; we are also human rights lawyers facing the crackdown. We are persecuted believers, and we are also netizens whose accounts are censored or deleted altogether. We are every citizen and we hold close our conscience and convictions.

We don’t have guns or canon, but we have our own weaponry and they are more powerful than guns or canon. We use common sense to dispel lies; we use courage to resist violence; we use hope to overcome tyranny.

No matter how thorny the road ahead, it is our firm belief that Xi Jinping’s reactionary rule will inevitably end and freedom lies right ahead of us.

We know very well that we will pay a price that’s too stiff for ordinary people. But we have made our choice, and that is: instead of succumbing to tyranny, we are willing to dedicate ourselves to the cause of freedom.

We want to tell the world that the Chinese people love freedom, pursue freedom, and will enjoy freedom. One day the rest of the world will witness us being free and rejoicing.

As the New Year begins, we, the Chinese Citizens, shout together: End Dictatorship! March Towards Freedom!

December 31, 2018

终结独裁,走向自由——2019年中国公民新年献辞

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Signs of China (5): Tightening the Screws on China’s Foreign Reserves

Jeff Wang, November 8, 2018

 

The Chinese government has been gradually tightening its foreign exchange controls to the great detriment of enterprises and citizens, as well as the country’s economic vitality. What are the reasons for this heavy regulation, and what does it tells us about the economic and political state of China?

Over the last two years, members of the Chinese middle class have found it increasingly challenging to access foreign exchanges or make international remittances.

Ms. Zhang (张女士), a Chinese woman who had immigrated to the United States and who declined to disclose her full name, returned to Beijing this October to sell her apartment. However, the process of sending the money to the U. S. has proved a daunting experience.

“I’m still stuck here waiting,” she said. “I see exchange rates for the dollar get higher every day, and I think about how much I’m losing.”

The obstacles that Ms. Zhang faces have been commonplace in China after the authorities started tightening up on foreign exchanges in the second half of 2016.

In January 2017, the China Foreign Exchange Administration announced new rules that, in addition to maintaining the $50,000 per person limit on foreign exchanges, required purchasers to fill out a form, the “Application for Foreign Exchange Purchase” (个人购汇申请书). Additionally, purchases of foreign exchanges could not be used for buying real estate or making investments in securities overseas.

This January, the Foreign Exchange Administration also stipulated in its “Notice on Regulating Large-Scale Cash Withdrawal Using Bank Cards While Abroad” (《关于规范银行卡境外大额提取现金交易的通知》) a 100,000-yuan limit on overseas withdrawals when using a Chinese-issued bank card.

In June, the daily limit for Chinese citizens to withdraw foreign cash deposit from bank was reduced to $5,000 from $10,000. Many banks decline transaction requests by saying they lack sufficient foreign cash.

On October 10, the government issued its trial version of the “Anti-Money Laundering and Anti-Terrorism Financial Management Measures for Internet Financial Institutions” (《互联网金融从业机构反洗钱和反恐怖融资管理办法(试行)》). Per the Measures, customers who make trades with online financial institutions in excess of 50,000 yuan or foreign money worth more than $10,000 must have their transactions reported to the government.

As Beijing tightens the financial screws, Ms. Zhang has found herself being given the short end of the stick. “A lot of people, including me, are looking for relatives and friends we can give our renminbi (yuan) to, asking them to use their quota to exchange as many dollars as we can. But after making the exchanges, we run into a huge problem: how to remit the money overseas?”

She said that in order to bypass foreign exchange controls, ordinary Chinese use the “ant move” method to incrementally transfer their exchanges.

In addition to controlling foreign exchange transactions by individual citizens, the authorities also aim to limit capital movement on the part of private enterprises. Hu Liren (胡力任), a private entrepreneur living in the United States, said: “At present, China’s [private enterprises] foreign investment has basically stopped. Although there’s no law banning it, it has in fact stopped, because foreign investment requires a process, which in turn depends on government approval.”

Such policies started in 2017. In the first half of last year, China’s foreign direct investment fell by 40 percent, the first time since 2015 that it has decreased so sharply.

An extreme example is that in 2017, the Chinese government obstructed Wanda Group in the process of making a large-scale overseas merger and acquisition. The China Banking Regulatory Commission prohibited large state-owned banks from granting loans to Wanda for overseas M&A projects. At the same time, the authorities, making reference to private enterprise groups such as Wanda and Anbang, and forced them to sell their overseas assets and transfer the funds back to China.

The Chinese government has also used administrative measures to delay the withdrawal of foreign capital. In 2016, Deutsche Bank sold more than 3 billion euros of shares in China’s Huaxia Bank in China, but it took nearly a year before the money could be moved out of the country. In September of that year, when a large Japanese economic delegation visited China, its members made direct complaints about the procedural obstacles that Japanese companies faced when trying to withdraw capital.

The impetus for the rapidly tightening bureaucratic measures comes from the serious loss of foreign exchange capital in China in the past few years. According to the Chinese Academy of Social Sciences, during the two-year period from 2015 to 2016 — when losses of foreign exchanges reached a peak —  capital outflows recorded in China’s international balance sheet reached $1.28 trillion.

It is a market truism that private enterprises and individuals convert their renminbi assets into U.S. dollars and transfer them abroad. This is the main reason for China’s capital loss. Ye Zhao (叶昭), a former finance journalist who lives in the United States, described four grades of capital outflows:

“Once a family makes a few million, it first sends its children abroad; if they make tens of millions, the whole family will emigrate. The ones with hundreds of millions will set up business overseas. If billionaires are leaving China, that means their decisions have are political, and it has become too difficult for them to do business in China.”

It can be said that entrepreneurs and common people have concocted brilliant schemes to transfers their assets abroad. In addition to the aforementioned “ant move” adopted by members of the middle class, private enterprises have funneled large amounts of funds out of China chiefly by means of foreign investment and “underground money houses.” The two giants, Anbang and Wanda, took out loans from Chinese banks and used the money to buy up large amounts of overseas assets.

Ye Zhao said: “I have been in touch with these entrepreneurs. Speaking directly, they told me that one of their motivations is to explore business opportunities that might be available overseas, and the other is to have an escape route in case they are implicated during the investigation of some corrupt official.”

Ye Zhao’s words point to a fundamental dilemma among private enterprises operating in China. Since the marketization of the economy, China’s private enterprises have been carrying a so-called “original sin,” namely, that in order to flourish, they have no choice but to resort to illegal means including tax evasion and illicit collusion with officialdom. These illegal acts and their potential legal consequences have become the “Sword of Damocles” hanging over the heads of many entrepreneurs.

Recent changes in China’s political and economic situation have squeezed the private sector. Since 2011, China’s economy has been in a downward spiral, with domestic consumption sluggish and the market running out of space for expansion. Private enterprises face many obstacles such as high tax burdens and difficulty in acquiring loans.

Meanwhile, the trend of “the state advances, the private sector retreats” (国进民退) has become increasingly prominent, and the living space of private enterprises has been gradually eroded by state-owned enterprises. Earlier this year, someone even opined that private enterprises should be eradicated. The difficult environment has forced private companies to seek overseas investment.

The Chinese middle class is feeling likewise constrained. Kai Wen (凯文), who has long been engaged in business between China and the United States, believes that “whether in terms of education, clean air and clean water, and food safety, China cannot meet the demands of its emerging middle class, who want more security in their lives. So they have taken matters into their own hands.”

As companies and individuals flock to transfer their assets overseas, the PoBC intervened in the foreign exchange market in order to hedge capital outflows and maintain the exchange rate, which caused China’s foreign exchange reserves to fall from their peak of nearly $4 trillion in June 2014 to less than $3 trillion in January 2017. The sharp drop in foreign exchange reserves has set off alarms bells in the Chinese government.

Foreign exchange reserves are seen in China as a financial buffer for turbulent times. Although Beijing’s foreign reserves dropping below $3 trillion has little real impact on the Chinese economy, Cheng Xiaonong (程晓农), a U.S.-based commentator, believes that it will cause the government a host of other problems. “Part of China’s economic security is the demand for foreign imports. If China loses the reserves it needs to import goods, oil and food prices will present a massive dilemma. Therefore, retention of these three trillions is something the Chinese government keeps a close watch on.”

The loss of foreign exchange reserves would also lead to an accelerated depreciation of the renminbi and an increase in the chances of triggering a financial crisis.

Xia Ming (夏明), a professor of political science at the City University of New York, believes that, “the Chinese government is very worried that if there are insufficient foreign exchange reserves to serve as a protective firewall, the national currency might come under attack, the economy may experience turbulence, and that this could even lead to regime collapse.”

The decline in China’s foreign exchange reserves has directed public attention to their real composition. According to the China Administration of Foreign Exchange, as of March 2018, China’s foreign exchange reserves were worth $3.11 trillion US dollars, while China’s balance of foreign debt was $1.84 trillion. This means that more than half of China’s foreign exchange reserves must be reserved for repaying foreign debts, and are not true assets.

At the same time, about half of China’s foreign exchange reserves exist in the form of US dollar bonds, which are not easily realized at any time. This kind of bad composition has added to public concerns about Chinese foreign reserves.

Along with the decline of foreign exchanges, there is also the risk of brain drain, said Hu Liren. “China has reached a period of great risk in terms of human resources, and many people have emigrated. There are still many [talented] people in the country, but their children have emigrated. The Chinese government does not want these thoughtful and intelligent people to leave, but it is difficult to change the current political status in China.”

The Chinese government’s moves to exercise stricter control over its foreign reserves have greatly slowed the momentum of capital loss. According to a report released this February by the Washington-based International Finance Association, the net outflow of China’s capital in 2017 was 60 billion US dollars, just a tenth of the $640 in outflows recorded in 2016.

Chinese financial scholar He Jiangbing (贺江兵) has applied the Mundellian impossible trinity, of Nobel Prize fame, to explain China’s foreign exchange controls:

“Among the three ‘impossibles,’ the first is the independence of monetary policy, the second is the relative stability of the currency exchange rate, and the third is the free flow of capital. Of these, you can only choose two.”

In other words, China has no choice but to impose strong controls on foreign exchange if it wants to maintain independent monetary policy and a relatively stable currency exchange rate.

This kind of foreign exchange control is useful for settling financial balances, as well as keeping the exchange rate and domestic prices stable. But at the same time, the burden it places on some classes is considerable. “Who is to bear the consequences?,” said a rather emotional Ms. Zhang. “I feel it’s us members of the middle class who are being hit hardest by these strict foreign exchange controls.”

Foreign exchange control not only puts unreasonable pressures on enterprises and citizens: the Chinese government’s restrictions on foreign companies remitting profits to their parent firms have done tremendous damage to the country’s credit.

Jacob Parker, vice president and head of China Operations at the US-China Business Council, said last year that as the United States lowered its corporate tax rates, some members of the Council expressed their desire to quickly bring back the profits they received in China, so as to minimize the risk of capital controls.

The serious loss of foreign exchange reserves and the urgency of foreign exchange control reflect a tandem battle between the Chinese government and civil society being fought in the context of economic downturn and political totalitarianism. When the people lack trust in the government and want to avoid political and economic crisis, they vote with their feet. At the same time, the stubbornness of the political system manifests itself in high-pressure policies that grab civil liberties by the throat in order to maintain control.

Beijing’s foreign exchange controls give us but a glimpse of the reality in China, where political and economic pressures have been compounded by the U.S.-China trade war. Whispers of the “China collapse theory” are getting louder as the struggle between the Chinese state and the people heats up in different arenas and on different levels.

 

Jeff Wang is a journalist with Radio Free Asia’s Mandarin Service. The article was first published in Chinese on October 31, 2018. Follow him on Twitter @NeverlandWang0 

 


Related:

Signs of China (1), September 16, 2018.

Signs of China (2), September 22, 2018.

Signs of China (3), September 30, 2018.

Signs of China (4), October 8, 2018.

 

 

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