China News Review

U.S. may file a complaint with WTO on China 'piracy'

2007-04-06T11:43:00.000-07:00

By Mark Drajem and Li Yanping Bloomberg News
Published: April 6, 2007

WASHINGTON: The United States may file a complaint at the World Trade Organization as early as next week over what it calls China's piracy of copyrighted movies and books, according to four people briefed by the Bush administration.

Officials have prepared two cases, one saying China sets too high a value on pirated movie or music disks before prosecuting violators, and another objecting to restrictions on the sale of foreign books and movies in the country, they said. The people, three industry officials and one lawyer, spoke on condition they not be identified.

China's illegal copying of movies, music and software cost companies $2.2 billion in 2006 sales, according to an estimate by lobby groups representing Microsoft, Walt Disney, and Vivendi. The WTO complaints would be the first by the U.S. against China for breaching intellectual property rights, in a country where copying has extended to bags, golf clubs and even shampoo.

"The U.S. believes that now it's time to put more pressure" on China, five years after the country became a WTO member, a Standard Chartered economist, Stephen Green in Shanghai, said Friday. "The U.S. believes that China has clearly infringed rules that it agreed to play by," prompting the action.

China's 2006 trade surplus against the U.S. widened to a record $232.5 billion, prompting U.S. lawmakers to blame the yuan's value and China's piracy of patented goods for the gap.

In a letter to President George W. Bush in October, Nancy Pelosi, speaker of the U.S. House of Representatives, and other lawmakers said that "no country in the world has done more to undermine American intellectual property than China."

Sean Spicer, a spokesman for the U.S. trade representative's office in Washington, declined to comment.

U.S. complaints were imminent, the U.S. trade representative, Susan Schwab, said Feb. 22. "We're all going to run out of patience at some point, and that's going to be sooner rather than later," she said.

Last month, the Bush administration decided to levy duties on imports of coated paper from China to compensate for Chinese subsidies to exporters.

Under WTO procedures, the United States will formally ask for consultations with China when it files its complaints. Only after 60 days can it ask for an independent panel to adjudicate the dispute.

"China has continued to demonstrate little success in actually enforcing its laws and regulations in the face of the challenges created by widespread counterfeiting, piracy and other forms of infringement," the U.S. trade agency said in a report this past week. "One major factor is China's chronic underutilization of deterrent criminal remedies."

The U.S. plan may not escalate into a formal complaint, said Li Yushi, deputy director of the Chinese Commerce Ministry's research institute.

"This is just another turn of focus by the U.S. government in dealing with its widening trade deficit with China," Li said Friday in Beijing. "The administration understands that China has made efforts in IPR protection, as well as our limitations in enforcing the effort," he said, referring to intellectual property rights.

Pirated DVDs, including the Oscar-winning movie "The Departed," still sell for less than $1 on the streets of Chinese cities including Beijing and Shanghai.

"It's all about the economics of movies," said Liu Ping, who sells pirated DVDs including "The Departed" and "300" for as little as 5 yuan, or 65 cents, at the Wangfujing subway station in Beijing. "No one wants to pay 60 yuan for a movie when they can watch a DVD for 5 yuan."

A reason for piracy could be the limits placed on U.S. publishers and movie companies. Overseas publishers are only allowed to sell non-Chinese books, magazines and newspapers through five-star hotels while movie studios can only show a limited number of overseas films every year in China.

"IPR is critical to the U.S. because it is a tool by which it can control technology and industries around the world," said Guan Anping, managing partner of Beijing-based corporate law firm Anping & Partners. "It's a powerful tool to control nations like China, which are dependent on low-cost manufacturing."

The Bush administration may still adjust or delay the complaints to account for new announcements from China. Twice in the past year, the U.S. was poised to file a complaint only to delay at the last moment.***

Li Yanping reported from Beijing.

China's appetite for meat feeds a Brazilian soybean boom

2007-04-05T11:36:00.000-07:00

By Alexei Barrionuevo
Published: April 5, 2007

RONDONÓPOLIS, Brazil: For more than 2,000 years the Chinese have turned soybeans into tofu, a staple of the country's diet. But as its economy grows, so does the Chinese appetite for pork, poultry and beef, which require higher volumes of soybeans as animal feed.

Beset by scarce water supplies, China is turning to a trading partner 24,000 kilometers, or 15,000 miles, away - Brazil - to supply the protein-packed beans essential to create a meat-rich diet.

The Chinese scramble for natural resources is leading to a transformation of the world's grain trading. Vanishing cropland and diminishing water supplies are hampering the ability of China to feed itself, and the increasing U.S. use of farmland to produce biofuels like ethanol is pushing China to seek more of its agricultural staples from South America, where land is still inexpensive and plentiful.

"China is out there beating the bushes," said Robert Thompson, a professor at the University of Illinois who is a former director for agricultural and rural development at the World Bank. The goal is "to ensure they have access to long-term contracts for minerals and energy and food."

The link between Brazil and China is a profound shift in world agricultural trade. The biggest bilateral food trade once flowed between the United States, the world's largest food exporter, and Japan. But countries with vast arable land for expansion, particularly Brazil, are now racing to meet demand in China.

American farmers have started to move away from soybeans, planting far more corn for ethanol at the expense of other crops. But long after watching a U.S. soybean export embargo imposed by President Richard Nixon in the early 1970s help to spawn the Brazilian soybean industry, they are not giving up their leading role in the trade easily.

With a superior system for transporting grains to global markets, American farmers still enjoy many advantages over their competitors from Brazil and elsewhere in the developing world. Infrastructure and financing constraints in Brazil will keep the global competition to feed China in flux for years to come.

But the longer-run trends are emerging. At the heart of the shift is the global competition for land to grow crops. Brazil, which farms about 70 million hectares, or 173 million acres, has room to double its available cropland to equal the scale of the United States, analysts say, even without clearing any more of the Amazon rain forest.

"All of a sudden you have a global market for land, a competition between several different products for the same amount of land," said Sérgio Barroso, president of the Brazil operations of Cargill, the world's biggest grain trader.

The Brazilian soybean industry is already losing hectares to sugar cane for ethanol production in some areas, he said, and is competing with corn, cotton and cattle for the same land.

"If you put it all together, between feed and food it is going to be a tremendous challenge," Barroso said.

Expectations ran high three years ago when President Hu Jintao of China visited South America and talked of a "strategic partnership" with President Luiz Inácio Lula da Silva of Brazil, predicting trade between the two countries would double to $20 billion. China pledged $10 billion in investments, mostly in infrastructure.

Brazilians have been disappointed in the follow-up, however. China has struggled with the Brazilian paper work and has waited for Brazilian rules on public-private investments before committing large amounts of capital to infrastructure projects.

"Very little has happened," said Pedro de Camargo Neto, a former official in the Brazilian Agriculture Ministry who is now an agribusiness consultant.

Still, China has continued its buying spree in Brazil. Last year, Brazil sent nearly 11 million tons of soybeans to China, up 50 percent from the previous year and nearly double the amount shipped in 2004. Early indications are that Brazil has produced yet another record crop and analysts expect that China will take most of the increase.

While the United States remains the largest producer of soybeans, last year Brazil passed it as the world's biggest exporter. U.S. soybean exports are expected to fall by 23 percent by the 2009-2010 crop year, according to the U.S. Agriculture Department.

For all the Brazilian gains, though, the surge in exports to China has created a sense of unease among many in Brazilian agriculture, who worry the growing relationship will accelerate a development model in which Brazil is too reliant on sales of raw natural resources rather than value-added goods.

"We are a little bit nervous," said Seneri Paludo, a trade analyst at AgRural, an agricultural consultancy in Cuiabá, the heart of the Brazilian soybean country. "This is happening too fast."

In some parts of Brazil, the challenge of supplying China is already showing signs of strain. The soybean boom in the past two years has not brought rewards for many farmers in Mato Grosso state in western Brazil which produces more than a third of the country's beans.

In Rondonópolis, in Mato Grosso, Rogério Salles watched recently as a handful of combines harvested the last soybeans on his 7,000-hectare farm.

"Just because we're producing a lot of beans here doesn't mean we're making money," he said.

A higher-valued Brazilian currency and a bottlenecked transport system are working against many Mato Grosso farmers like Salles. Most soybeans are trucked south more than 1,600 kilometers along two-lane highways full of potholes. At the export ports, some ships wait at sea for up to a month before finding docking space to load the beans.

"If major investments are not made in transport infrastructure, China cannot count on this region being a stable supplier to its market," Salles said. "There's a lot riding on this."

The Brazilian agricultural sector has been dominated by large investors who bought huge tracts of land at bargain prices, and by multinational grain traders - like Cargill of Minneapolis and Archer Daniels Midland of Decatur, Illinois - that have built storage, provided financing and lined up the overseas buyers.

Through his Maggi Group, Blairo Maggi, the governor of Mato Grosso, is the largest soybean grower in the world, and a major financier, with 160,000 hectares of his own under production.

"It has been all about a land grab in Brazil," said Daniel Basse, president of AgResource, an agricultural consultant.

As for many farmers in Mato Grosso, prosperity has been hard to come by lately. Growers in the state amassed $14.5 billion in debt in the past two years. Farmers say they can no longer afford storage space for their grains, forcing them to sell their crops as soon as they are harvested, rather than wait for higher prices. "You do all the work, you plant the right crops," Salles, the local farmer, said. "But even when you do everything right, you still lose."

The growers' desperation has allowed the major grain traders to tighten their grip. Brazilian farmers say they are paying up to 25 percent more for inputs like fertilizers provided by the traders, which are paid back with the crop.

"We are becoming slaves of the big trading companies," said Ricardo Tomczyk, another farmer in Rondonópolis.

José Luiz Glaser, Cargill general manager in Brazil for grains and oilseeds, said Cargill stopped financing several farmers in Mato Grosso last year after they failed to pay their bills.

Such abandoned farmers could soon find new Chinese benefactors, who are looking to make inroads in the clubby world of Brazilian agriculture, said Charles Tang, president of the Brazil-China Chamber of Commerce.

Brazilian farmers say they would welcome Chinese money. But they worry about the growing clout of China as a soybean buyer. Memories are still fresh of an incident in 2004, when China rejected several shipments of Brazilian soybeans, saying they were contaminated.

To try to counter the Chinese influence, Brazilian producers are working with U.S. growers to diversify their buyers. American soybean producers organized a joint trade mission with Mato Grosso farmers last December to India, another huge potential market.

As for China, its dream is to connect directly with Brazilian farmers, bypassing the multinational grain merchants. While Chinese companies have yet to make a major purchase of cropland in Brazil, they are looking to invest in improved facilities and upgrade the Brazilian rail system, which has not undergone significant improvement since the 1930s.

China began looking overseas for more soybean supplies in the mid-1990s when the scope of its land and water problems became clearer. In northern China, where soybeans traditionally have been grown, water tables are dropping at a rate of one to three meters, or three to 10 feet, a year, said Wu Aimin, a researcher with the China Groundwater Information Center in Beijing.

"It takes a thousand tons of water to produce one ton of grain," said Lester Brown, president of Earth Policy Institute, an environmental research and advocacy group. "So the most efficient way to import water is in the form of grain."***

Joshua Schneyer contributed reporting. David Barboza contributed from Shanghai.

Grooming China's future leaders

2007-04-04T19:46:00.000-07:00

Apr 4, 2007
SUN WUKONG
By Wu Zhong, China Editor

HONG KONG - Shortly after the conclusion of the annual session of the National People's Congress (NPC) in mid-March, the Chinese Communist Party (CCP) has begun a new round of reshuffling its provincial leaders as a preparation for the convention of its 17th National Congress this autumn.

So far this year, the CCP has announced the appointment of new party secretaries for two provincial-level municipalities and four provinces. They are the municipalities of Shanghai and Tianjin and the provinces of Shandong, Zhejiang, Shaanxi and Qinghai. With the appointment of new party chiefs, these six provinces will soon have their new party committees.

According to the reshuffle plan, all of the 31 mainland provinces will have new party committees and new party secretaries by end of June. All new provincial party secretaries will automatically become deputies to the 17th Party Congress and candidates for the new Central Committee.

By the end of last year, 14 provinces had completed the reshuffle. The remaining 17 provinces, including the above-said six, will need to complete the reshuffle in the second quarter. New party secretaries for 11 of the remaining 17 provinces have yet to be announced.

Of the six newly appointed provincial party chiefs, three are in their 50s and therefore could be regarded as the "fifth generation" cadres who may move up the official hierarchy in future. And it is almost certain that the new party secretaries of Shanghai and Tianjin, Xi Jinping and Zhang Gaoli, will become members of the new Politburo in the 17th Party Congress, following the adopted practice.

The most eye-catching is the appointment of Xi Jinping, 54, as the party secretary of Shanghai municipality, which has surprised many political watchers inside and outside the country. Before obtaining his the new job, Xi was the party chief of Zhenjiang province.

In late September, the CCP leadership removed Shanghai party chief Chen Liangyu on corruption charges and appointed Shanghai Mayor Hang Zhen, 52, as acting party secretary. But Hang was in that post only for half a year, and Xi's appointment dashed Hang's hope to sit in the new Politburo. This is a rare case in which the acting party chief was not formally appointed to the post.

Given his age, Hang used to be thought to have a bright political future. The latest decision of the CCP power center therefore has sparked speculation that Hang might also be implicated in Chen's corruption case. But analysts in Beijing say Hang could never have had a chance because the power center has always wanted someone from outside Shanghai to take the post after Chen's removal in the hope of shaking up the power base of the so-called Shanghai Clique.

Xi's new appointment came as a big surprise partly because he had never been predicted as a candidate for the job by pundits of Chinese politics. Instead, several others, particularly Liu Yandong, director of the CCP's Central Department of United Front Work and vice chairwoman of the Chinese People's Political Consultative Conference (CPPCC), had been short-listed.

In fact, a Shanghai deputy to the CPPCC said during the annual sessions of the NPC and CPPCC in the first half of March, "There was no sign about Xi's Shanghai appointment." Even Xi himself, after taking his new office, said he was informed of his new appointment "on very short notice".

And given the importance of Shanghai, it had been expected that President Hu Jintao would have appointed one of his so-called tuanpai, or faction of the Chinese Communist Youth League (CYL), to take over the job.

Xi has never worked as a CYL official. Instead he started his political career as a county party official in Hebei province. Just about the only thing in Xi's life that could be related to Hu is the fact that they both graduated from the privileged Tsinghua University, majoring in engineering.

In fact, Xi could be regarded as a princeling, or offspring of senior party officials. His father Xi Zhongxun was a communist veteran who was purged by Mao Zedong in the late 1950s but made his comeback after Mao's death in 1976. Xi is also well known because his wife Peng Liyuan is a popular singer.

Because of his background, Xi is widely considered a protege of Vice President Zeng Qinghong, who is regarded as leader of the princelings. Thus Xi's new appointment is seen by overseas China watchers as a victory of Zeng over Hu.

For instance, Poon Siu-tao wrote on the Chinese version of Asia Times Online: "It seems that Hu cannot yet completely dominate the reshuffle of senior officials ... It becomes increasingly obvious that Zeng Qinghong has gotten off Jiang Zemin's leash to go his own way ... and Zeng has replaced Jiang to become the most powerful challenger to the CYL faction." In Poon's view, in addition to Xi, Zhang Gaoli and the new Zhejiang provincial party chief Zhao Hongzhu are also Zeng's proteges.

Analysts in Beijing say that indeed the latest reshuffle could be seen as a result of a compromise among factions within the party. But politics is an art of compromise. And Hu now is the supreme leader instead of only heading one faction. As such, he must carefully seek a power balance rather than cater to the interests of one faction alone.

In the previous reshuffles, tuanpai officials have taken over several provinces. For example, Li Keqing is Liaoning provincial party chief. Li Yuanchao is Jiangsu provincial party secretary. Wang Yang is party secretary of Chongqing municipality. Zhou Qiang is governor of Hunan province. "It would have been rather odd had all provincial posts be taken by the CYL faction," an analyst said.

From another perspective, it could be said that Hu and Zeng have formed a cooperative partnership. As reported earlier, Zeng is now in charge of the organization and personnel affairs for the 17th Party Congress. It would be hard to believe that he got the job without Hu's consent.

Some say Xi was chosen because he has been known for always toeing the power center's line. For instance, when the central government launched its macroeconomic-control policy two years ago, Chen Liangyu took a defiant attitude. But Xi, as Zhenjiang
party chief, warned his subordinates, "To comply with the macro-control policy in appearance but oppose it in heart is an unhealthy trend and evil practice."

In any case, the new appointment ensures that Xi becomes a member of the new Politburo in the 17th Party Congress, filling the vacancy left by the disgraced Chen. But as the newly appointed Shanghai party secretary, Xi is unlikely to be promoted to the Politburo Standing Committee in the autumn, because membership is a full-time post based in Beijing that normally cannot be concurrently taken by a regional party chief. However, given his youth, Xi is likely to move further up in the party hierarchy in the 18th Party Congress in 2012.

Zhang Gaoli, 61, was appointed party secretary of Tianjin, replacing Zhang Lichang. As such, Zhang Gaoli is likely to replace Zhang Lichang as a Politburo member in the 17th Party Congress. However, because of his age, this will perhaps be the zenith of his political career.

Zhang Lichang, 68, was removed to take another post in Beijing. Before his new appointment, Zhang Gaoli was party secretary of Shandong province. Before he was promoted to the Shandong post in 2001, Zhang Gaoli worked in Shenzhen as mayor and party chief for four years and was reputed as a clean, open-minded and pragmatic leader.

It is well known that Zhang Lichang could never get along with Tianjin Mayor Dai Xianglong, the former governor of the People's Bank of China, which somehow held back the city's development. The power center eyes development of Tianjin's Bohai New Area as a new pivot, like Shenzhen in the 1980s and Shanghai's Pudong in the 1990s, to lead the country's economic development. It is obvious that Beijing hopes with his experience in Shenzhen, Zhang Gaoli could cooperate with Dai to accomplish the task.

Li Jianguo, 61, was appointed party secretary of Shandong province, replacing Zhang Gaoli. Given his age, Li Jianguo will likely retire after he finishes his term in Shandong.

Li, a Shandong native, started his political career in Tianjin, where he had worked for more than two decades, with his last post as Tianjin's deputy party secretary, until 1997, when he was removed to become party chief of Shaanxi province. As such, he is regarded as a protege of Li Ruihuan, who retired as the fourth-ranked party leader in late 2002. Tianjin was Li Ruihuan's power base, where he worked as mayor and party chief in 1980s.

Zhao Hongzhu, 60, was named party secretary of Zhejiang province. He too, given his age, may have to retire after completing the five-year term in this office. In this reshuffle, Zhao is the only official working at the CCP power center to be appointed to head a province.

Zhao started his political career as a People's Liberation Army officer, and then he worked at various local party posts in Inner Mongolia. In 1997 he was promoted as deputy secretary general of the Central Commission for Disciplinary Inspection, the party's top anti-graft watchdog. In 2000 he was appointed a deputy head of the party's Central Organization Department, where he had stayed until this new appointment.

Zeng Qinghong was the head of the Central Organization Department from 1999 to 2002. And even after 2002, one of Zeng's portfolios as a member of the Politburo Standing Committee was to oversee the Central Organization Department. Because of this, Zhao is also said to be a protege of Zeng.

Zhejiang and Shandong are two of the most economically important provinces in China. Hence Li Jianguo and Zhao Hongzhu will be often in the limelight in the next years.

Zhao Leji, 50, was appointed party secretary of Shaanxi province. He started his political career in Qinghai province. In 2000, he was named to head Qinghai province, becoming the youngest provincial governor in China. Five years later, he became Qinghai party secretary, again the youngest provincial party chief in the country. Youth is Zhao Leji's greatest advantage. If nothing goes wrong, he could be one of the future leaders of China.

Qiang Wei, 54, replaced Zho Leji as party secretary of Qinghai. After brief service in the military, Qiang began to work in a chemical factory in Beijing. In 1984 he became party secretary of the factory and started his political career. From 1987-90 he was the secretary of the CYL's Beijing municipal committee. In this sense, Qiang Wei could be said to come from the CYL faction, though he might not be so close to Hu Jintao, who was the secretary of the CYL's central committee from 1982-85. Before his new appointment, Qiang was deputy party chief of Beijing overseeing law enforcement.

Qinghai is a an economic backwater. However, it is a known practice of the CCP to send promising cadres to remote regions to demonstrate their capabilities in working through hardships and difficulties. Both Hu Jintao and Premier Wen Jiabao started their careers in Gansu, another poor province in northwestern China. Hu himself was even once sent to work in Guizhou province and Tibet. Therefore, given his age, Qiang could also have a bright future.

At present, as provincial party chiefs, Li Jianguo, Zhao Hongzhu, Zhao Leji and Qing Wei will surely be elected as members of the new Central Committee in the 17th Party Congress, though they are unlikely to become Politburo members like Xi Jinping and Zhang Gaoli.***

(Copyright 2007 Asia Times Online Ltd. All rights reserved. Please contact us about sales, syndication and republishing.)

China's rise inevitable - Kissinger

2007-04-03T07:25:00.000-07:00

By Li Xing (chinadaily.com.cn)
Updated: 2007-04-03 14:51

The United States and China should cooperate to face up a host of issues that challenge the world today, Dr Henry A. Kissinger, former US secretary of state, told the 800-plus scholars and students Tuesday, April 3, in Beijing.

"Our future depends on (Sino-US) cooperation, and that's why I am so committed to friendship between our two countries," he said in a keynote speech at the Graduate School of the Chinese Academy of Sciences, drawing warm applause and laughter.

During his speech, Kissinger, who made his first visit to China in 1971 on a secret trip that broke the ice frozen for some 20 years, couldn't help but share his amazement about the changes that have taken place in China.

"China has developed in a manner that none of us could have imagined 35 years ago," he said. "China has grown with the dedication of its people by its own effort."

Following the traditional concept that shaped the international system for the past three centuries, people believed that conflicts were inevitable when "the center of gravity moves from one region to another" and when another country suddenly becomes "very powerful", he said.

He said he believed in China's rise. "The rise of China is inevitable, and there is nothing we could do about it," he said. "There is nothing we could do to prevent it or should do to prevent."

What Kissinger projected is cooperation. "Cooperation is essential," he said.

Only by cooperation, can countries in the world, the US and China included, be able to deal with the climate change, environmental problems, economic globalization, nuclear proliferation or other security issues, which challenge the humanity.***

Oil firms told to boost offshore production

2007-04-03T07:22:00.000-07:00

By Wang Yu (China Daily)
Updated: 2007-04-03 07:03

The country should look increasingly offshore to shore up dwindling onshore production, oil companies were told on Monday, April 2.

"The current offshore oil and gas exploration and production should focus on the Bohai Bay basin and the Pearl River estuary as the top priority," Pan Jiping, a senior researcher with the Ministry of Land and Resources, said at China Offshore Summit 2007.

"As for deep-sea exploration, the firms should invest more in blocks in the northern part of the South China Sea," Pan said.

More than 80 percent of China's proven offshore oil reserves are located in the Bohai Bay basin, and the country needs to beef up exploration in the Pearl River estuary, the South China Sea and the southern Yellow Sea, he said.

The southern Yellow Sea is the only offshore area where no major oil and gas reserves have been discovered so more efforts should be made there, Pan emphasized.

The ministry is expected to publish an appraisal of China's overall offshore fossil fuel reserves soon, giving more detailed guidelines to oil companies.

"We are also considering reforming the current project review and approval format to give more opportunities to international players. We may adopt more international practices, such as bidding, to allocate mining rights," Pan stressed.

He called on Chinese offshore companies to develop technologies for deep-sea oil and gas exploration.

Han Xuegong, a senior consultant with China National Petroleum Company (CNPC), the country's largest oil and gas producer, noted that given soaring energy demand and the decreasing production in oil fields located in the eastern part of the country, it is natural for national conglomerates to make more efforts offshore.

"It is true that developing offshore reserves involves higher risks and requires more investment and technical expertise. But given the current global oil prices, it is absolutely worth the risk.

"That is mainly why CNPC and China National Offshore Oil Corp (CNOOC) are marching offshore," Han said.

Both CNPC and China's top offshore oil company CNOOC announced yesterday that they are developing deep-water drilling platforms with a 3,000-meter extraction capacity.

Zhang Weiping, deputy chief economist of CNOOC, said that 70 percent of oil reserves in the South China Sea are in deep water, which require deep-sea drilling capacity.***

British waste adds to environmental crisis across China

2007-03-31T08:17:00.000-07:00

Jonathan Watts in Mai
Saturday March 31, 2007
The Guardian

British high street waste is fouling streams and ditches in China despite promises of an environmental crackdown by both governments.

Mai village in Guangdong province, southern China, suffers from a Made-in-Britain eyesore: Tesco and Argos plastic bags choke the waterways, snag on tree branches and contribute to a rotting stench during floods and hot weather. There is even a green and white Help The Aged carrier bag printed with a slogan proclaiming the charity's fight against "poverty, isolation and neglect".

It is a side-effect of globalisation. Many of these products were manufactured in China, shipped to the UK for use and sent 5,000 miles back for disposal.

China exported £12.6bn worth of manufactured goods to the UK last year and received an estimated 1.9m tonnes of rubbish in return. Under EU regulations member countries are not allowed to dump garbage overseas, but are permitted to send sorted waste for recycling.

Environmentalists say this is irresponsible because much of the recycling is carried out in poorly-regulated communities, where health risks and pollution worries are a low priority.

Guangdong is scattered with scavenging centres. In Guiyu and Qingyuan small family-run businesses chop up and melt down toxic plastics and metals from discarded computers, printers and mobile phones. In Nanhai and Shunde factories deal with mounds of plastic bags and bottles. About 20% of the waste comes from overseas according to local sources.

A series of exposés in the domestic and foreign media prompted the government to crackdown on the business earlier this year. Guangdong's provincial government banned unlicensed businesses and individuals from importing plastic waste and suspended operations at factories that failed to meet environmental standards.

Last month factories in the most notorious district, the Lianjiao area of Nanhai, were shut down. But most firms simply relocated.

Two hours drive away a new recycling centre is under construction in Shijing village, which is now littered with scrapheaps. The dealers said they would no longer touch foreign waste.

In nearby Shenzhen and Shunde businessmen were still reprocessing carrier bags and other UK waste from the UK. "It can be done as long as the plastic is well enough packaged to get through customs," said the owner of one factory.

At "plastic street" in Mai village, dozens of small plastic recycling firms line the road. Most of the work is done by migrant workers who are paid about £50 a month.

Thousands of plastic carrier bags were being blown into ditches and waterways, creating an eyesore and a bad smell. Students at the local school said the stench came into their classrooms and got worse when the fetid stream floods.

The sanitary department of Shunde township said it was unaware of the mess in Mai village.

"We have a project to clean up villages in this area but we haven't got round to Mai yet," said a spokesman. The provincial government declined to comment.

Britain supports the recycling business. "It allows for a more sustainable use of world resources, but it should be carried out under strict environmental controls," said the UK consulate in Guangzhou. When told of the impact on Mai village it said individual companies should take more responsibility.

Greenpeace believes that wealthier countries should deal with their waste problems at home, rather than exporting them to developing countries, which have to pay the environmental costs.

"If we can stop the waste trade I am sure it will lead to more sustainable development around the world," said Kevin May, toxics campaign manager at Greenpeace's office in Beijing.***

Waste land

2007-03-31T08:14:00.000-07:00

China makes most of our plastic carriers - it also recycles them when we toss them away. Crazy? It's become a fashionable thing to worry about - and there's a new It bag to prove it. Jonathan Watts in Mai and Jess Cartner-Morley in London report

Jonathan Watts and Jess Cartner-Morley
Saturday March 31, 2007
The Guardian

Five thousand miles from the nearest UK high street, a blue and white Tesco carrier bag flutters like a flag in the breeze. It is snagged on a twig above a Chinese stream that's choked with rubbish from around the world. Argos and Wal-Mart logos are visible in the fetid water and along banks that are strewn with plastic bags. There is even a green and white Help The Aged carrier with a UK website address on it.

Here in Mai, a village in Guangdong Province, southern China, a community of recyclers ekes out a living from items considered so worthless in the west that they are given away free and quickly discarded. Carrier bags and bottles are shipped here from London, Rotterdam, Hong Kong and cities within China for chopping, melting and remoulding into pellets. Like many jobs outsourced to China, it's dirty, smelly, labour-intensive and poorly paid.

There is so much rubbish to be recycled that parts of the village look like a dump. "The river is foul - we can smell it from our classrooms," says Wang Yanxia, a student at a local middle school. "When it rains, the water floods on to the path and the stench is everywhere." Villagers may not have heard of Tesco, but the British high street giant has an all too visible presence. One factory has even decorated its front gates with huge plastic banners advertising a Tesco mobile phone offer.

If China is the end of the line for the plastic bag, it is also the beginning. Most of the carrier bags used in Britain are made in Chinese factories just a few hours' drive from Mai. From there, they travel halfway around the world, are dished out to British shoppers - and then at least some of them find their way back.

The 10,000-mile odyssey between manufacturing and dumping is the story of our age, part economic miracle, part environmental tragedy. In the space of just 20 years, the fishing village of Shenzhen, in the south of China close to Hong Kong, has become an industrial powerhouse with a population of more than eight million and a container port that handles more cargo than anywhere in the world other than Hong Kong, Singapore and Shanghai. This is where most of the planet's toys and shoes are made, where Apple outsources much of the production of its iPods, where Wal-Mart fills its shelves. And, naturally, it is also the place that makes billions of the plastic bags that briefly contain all these consumer goods.

Shenzhen Delux Arts Plastics is a typical manufacturer, paying its workers about £60 a month to churn out 25,000 plastic carriers every day, a fifth of which go to Europe, some to Next in the UK. It is a simple, three-part process. Bags full of plastic pellets are fed into an induction pipe, melted together at a temperature of 180C and then stretched and wound on to rolls the width of the desired bag. Next, the rolls are fed through a series of cylinder printing presses, each adding a different colour, until the logo and lettering are complete. Finally, an army of workers on the second floor carries out the more labour-intensive process of melting handles on to the bags, checking quality and packing. From start to finish, it takes just five minutes to make a bag.

The production cost for each bag is less than four pence, most of which goes on machinery maintenance, management and materials. The primary ingredient is polyfabric polypropylene or other types of plastic, all of them petroleum based and imported directly from Saudi Arabia or from refineries in Singapore and Japan. The industry has a significant carbon footprint. By one estimate, the US alone requires 12 million barrels of oil for the 100 billion bags its consumers use annually.

For factory manager Andy Lue, the main concern is that the cost of plastic is rising along with the surge in oil prices. "Our customers would complain if we tried to pass on the extra cost of the materials," he says. The factory's main competitive advantage is labour, which accounts for less than a 10th of the production costs of a plastic bag. Wages in Shenzhen are low, and more than three-quarters of the population are migrants, many of them living in huge company dormitories far from their homes and families, and working in dirty, dangerous conditions.

Over at the Delux Arts Plastics factory, pay and working conditions are above average for Shenzhen. The manager will not permit us to talk to employees, but we are introduced to "group leader" Chen Ping, a migrant from Guangxi Province, who tells us that the situation has improved enormously since she started working and living in the factory 11 years ago. "The managers realise they must let us eat and sleep better if they want us to work harder."

Chen earns more than double the average factory salary, but her life is far from easy. Because she is a migrant, her two children will have to return to their home town to go to school, which means she will see them for only a few days each year, at spring festival. But she expresses no sense of grievance, even though the consumers who use her Next bags can easily pay more for a single shirt than she earns in a month. "I don't think it is unfair. We make these bags to be used. They have their own value."

In Britain, plastic bags have long been a cause of irritation, partly due to their visibility. In gutters and branches, the useless, ugly flutter of discarded, brightly coloured plastic taunts us with human fecklessness. They pose problems for wildlife, they block drains. And 17 billion plastic bags a year are handed out to British shoppers.

What has made them, suddenly, a very hot issue is the launch of another kind of bag - an item that has already become the status bag of 2007. This is not the reissued Chanel quilt-and-chain classic, the 2.55. It is not even the YSL Downtown, with its modish zips and snap fastenings. And - here's the thing - it costs £5.

There is nothing inherently remarkable about Anya Hindmarch's I'm Not A Plastic Bag. It is a simple, rope-handled, sturdy cotton shopping bag, albeit one that's rather beautifully designed, as you would expect from the British Accessory Designer of the Year. What is significant, however, is the reaction to it at every stage, from the sketchbook to the checkout. There have already been queues at the Mayfair store Dover Street Market, when a few preview bags went on sale.

At around the same time, the British Retail Consortium has announced a voluntary initiative to reduce the environmental impact of carrier bags by 25% by the end of next year, through the use of alternative materials to make lighter-weight bags, by encouraging reuse, offering and promoting "bags for life", always asking customers whether they require a bag at all and providing bag recycling points. In other words: reduce, reuse, recycle.

Friends of the Earth are quick to point out that, in the context of the scale of the environmental issues with which we are faced, plastic bags, which account for only 0.3% of the domestic waste stream, are not their top priority. Even so, the average person in the UK accepts, on average, five plastic bags a week. The decision as to whether to take a bag is almost a daily one. The supermarket checkout has become, therefore, a frontline of the battle for the environment, even more so because, unlike recycling or composting of domestic waste, it is a decision we take in public, and so reflects not only personal beliefs but what we see to be public norms.

It is for this reason that Decline Plastic Bags Wherever Possible is the first action suggested in the book Change The World For A Fiver. "Declining plastic bags is totemic of lots of things," says Eugenie Harvey, co-founder of the global social-change movement We Are What We Do, which produced the book. "It's the most visible aspect of a whole set of behaviour around shopping: do you buy environmentally friendly washing powder; do you buy locally produced food?"

Trevor Datson, spokesman for Tesco, calls the "Do you need a bag?" moment at the checkout "a constant conversation between us and the customer. I was in the Sandhurst store yesterday and my colleague on the checkout remarked to me how many more people remember to bring in their own bags these days."

Hindmarch's bag may help. She has a knack for reading the zeitgeist, as illustrated by the phenomenal success of her Be A Bag range, whereby family photos could be made into smart handbags, a concept that in the six years since it was launched has been copied all over the world. The low price of the I'm Not A Plastic Bag - a fiver - was absolutely essential to the project, Hindmarch says. "And so was the point of sale, which had to be the supermarket checkout."

Hindmarch is, however, a businesswoman, and as such knew that too many £5 Anya Hindmarch bags on the market would damage her upmarket brand. (To put the price in perspective, the Elrod, one of the key Anya Hindmarch leather handbag styles for this summer, sells for around £500.) Production therefore had to be limited, and so the bag had to be made in China if the figures were going to add up. "That was not ideal, of course," Hindmarch concedes, "but we have been careful about carbon-offsetting the project. Our aim was for the project to break even. None of the retailers involved in the project is making any money from it."

A limited number of bags are currently on sale via Hindmarch's website, and from April 11, the remaining 20,000 bags will go on sale in Sainsbury's.

The purpose of the Hindmarch bag is, says the designer, "to cast a spotlight on the issue. Just to plant an idea in people's heads that will make them think before automatically reaching for a bag."

Finding a complete solution to the plastic bag problem is extremely complicated. All the supermarkets profess commitment to the issue, but all have different policies. Tesco produces all-degradable bags and operates a clubcard scheme to reward people for reusing bags, on the principle that "incentive is better than coercion, because if people do something resentfully, they are not making such a deep-seated change".

Waitrose emphasises the "bag for life" scheme, which they were the first retailer to introduce 10 years ago. The Co-op's bags are degradable; Sainsbury's are made of one-third recycled material. The opening of the country's first organic supermarket, Whole Foods Market in Kensington, in June, may further accelerate the process of change - the store, like its Fresh & Wild predecessors, will refund customers 5p for not taking a bag.

Friends of the Earth, however, would like to see a government tax on all plastic bags. Degradable and biodegradable bags are "not an environmentally friendly option", they say, and "will lead to the public becoming increasingly confused as to what they are supposed to do with them. Degradable plastic bags usually can't be recycled with normal plastic bags, and people may think they can put degradable bags into their compost bins, which they can't." Degradable bags are still made from plastic, so placing demands on oil resources. They contain a metal additive to make them degrade and tend to require sunlight to break down. If biodegradable bags end up in landfill, they will eventually produce methane, a powerful greenhouse gas.

Paper bags are no better, say Friends of the Earth, because they have less capacity for being reused, and require more energy and resources in manufacture and transport than plastic alternatives. Bags made from recycled plastics, which are then reused or recycled, are considered by many a better option, but recycling points for bags are as yet not widely accessible.

In any case, all too often, a promise by municipal government to recycle simply means sending the rubbish to China. In trade terms, it makes an odd kind of sense. Historically, British merchants have always found it easy to fill their ships with goods on the route from China, but all too often they have been stuck with empty cargo holds in the opposite direction. This trade gap is the main reason why English gunboats forced opium on China in the 19th century. Today, however, the answer is not drugs, but garbage.

China exports almost £12.6 billion-worth of manufactured goods and other products to the UK each year. In return, the UK sends back 1.9 million tonnes of rubbish, for the simple reason that it's cheaper than dumping it at a UK landfill site. Because the ships are almost empty on their way back to China, the cargo costs are tiny - it's cheaper to send a container of waste from London to Shenzhen than it is to truck it to Manchester.

Under EU law, waste cannot be dumped abroad, but shipments for recycling are permitted. This means business for Guangdong Province, which is scattered with Steptoe and Son communities. There are the e-waste centres of Guiyu and Qingyuan, where families make a living from chopping up and melting down toxic plastics and metals from discarded computers, printers and mobile phones. Below them on the waste chain are the recyclers of plastic bags and bottles in Shunde and Heshan.

Until recently, the most notorious of these was in Nanhai, a town just outside Guangzhou, where the streets were once piled high with rubbish and the streams thick with trash and pollution. Last month, however, after a series of embarrassing reports in the British media, the government was shamed into shutting down the entire area and banning imports of foreign garbage. Today, the streets of Nanhai are swept clean and the small recycling sheds are shuttered up. For many locals, however, this sudden concern about the environment is a financial disaster. "We were ordered to close last month because some foreign rubbish contained toxins," says Ding Chunming, who used to process bottles and bags. "It's a terrible blow because we only started this business last year. We get no compensation. All we can do is wait and hope the government allows us to restart business."

But the industry has learned how to bypass laws and regulations. Many Nanhai refugees simply moved their scrapheaps to a new location. Two hours' drive away, we found a new recycling centre under construction in Shijing village. The concrete is still wet on the floor and many of the sheds are only half complete, but the task of buying, selling and sorting rubbish is already in full flow. The operation is remarkably specialised. There are sections just for discarded hotel welcome mats, the bases of revolving chairs, black buckets and the lids of shampoo bottles.

A local businesswoman, who gave her name only as Ms Liang, was terrified that another critical news report would force her to relocate again. "We have only just got here from Nanhai," she says. "I have never dealt with foreign waste. I can't do it now and I won't do it in the future."

But for others the trade in foreign waste is too lucrative to disappear quickly. We were approached by a scrap dealer who asked if we had any rubbish to sell. He was after PVC, but he put us in touch with a factory in Shenzhen that said it could deal with carrier bags despite the ban. "It can be done as long as the plastic is well enough packaged to get through customs," says the owner. "You should ship them to Hong Kong and we will deal with them from there. If the bags are sorted by colour, we can pay you as much as $100 a tonne."

Farther away from the media spotlight and the scrutiny of environment officials, many factories are still reprocessing British carrier bags and other rubbish despite the government's ban. Another hour's drive away is Shunde, where European trash is baled up on the roadside. Much of it is from the UK - Tesco milk cartons, Walkers crisp packets, Snickers wrappers and empty packets of Bisto gravy and Persil powder - but there are also bales containing the packaging for Dutch confectionery and Italian nappies.

The village of Mai is close by. Running through the community is a street of recycling firms, outside each of which stands a blackboard detailing the type, colour and quality of the plastic they deal in. Some are no bigger than a shed in which migrant workers sift by hand through hundreds of thousands of tiny plastic pellets, picking out discoloured flecks and bits of fluff.

Mai Weibo buys semi-processed bags for 9,000 yuan a tonne (around £600) and, after painstakingly cleaning up the contents, sells the plastic on for 10,500 yuan - "We don't make much of a profit." The recycled plastic is not of sufficiently high quality to be used a second time for UK bags, so instead much of it is turned into red, white and blue plastic sheets, which are used for building site coverings and holdalls.

Many locals believe the pollution is ruining their health. A local doctor says the village suffers from an unusually high incidence of respiratory diseases. "Perhaps it was the pollution or perhaps it was because everyone smokes cigarettes," he says. "This is a sensitive topic. Of course we want a garden-like environment, but people here have to make a living."

Others say they have other priorities. "I don't care about the environment," says one migrant labourer. "I only want to make money. If your stomach isn't full, how can you worry about health?"

Everyone condemns as an eyesore the ditches full of carrier bags, but nobody seems to take responsibility for clearing up the mess. In fact, the main concern of local businessmen and government officials is to avoid scrutiny. "The government has banned imported waste because of the media attention," says one local factory manager, whose warehouse includes giant baskets full of rubbish from the UK. "The Nanhai recycling business has been shut down. This area doesn't want to suffer the same fate because it would hurt the government's income."

Britain's stance is also equivocal: dumping waste overseas is forbidden, but sending it to another country for recycling is acceptable. When told of the foul conditions at Mai, an official at the UK consulate in Guangzhou says that individual companies have to take action. "It is the responsibility of producers to make sure that waste is dealt with properly at all stages of the chain."

Foreign governments have started to take action specifically on plastic carriers, some going much further than Britain's retailers and their aim for a voluntary 25% reduction in bag use by 2008. Ireland, for example, introduced a 15p "plastax" on carrier bags way back in 2002, which has subsequently led to a 90% reduction in use. Australia has launched a "Say No To Carrier Bags" campaign. In Taiwan and Hong Kong, the government has obliged supermarkets to charge for bags at least two days a week. Italy is promoting the use of biodegradable bags. In France, reusable plastic bags - which are heavier, easier to recycle and less likely to blow away - now account for more than half of the ¤770m market.

Inevitably, however, even those eco-bags are made in Shenzhen. The main producer is the Richall Group, which must be one of the world's fastest-growing companies. Launched in 2003 with starting capital of just £1,000, last year it recorded sales of more than £3m, and this year that figure is expected to triple, thanks to business from Sainsbury's, Unilever, Disney, Budweiser and Nestlé, all of whom are looking towards reusable bags. Richall's president, Liu Tianyan, says attitudes are changing but, more importantly, so are materials. "We're never going to get rid of plastic bags completely, because in some cases, such as food wrappings, there is no good substitute. But in the case of shopping bags, I believe the flimsy plastic can be completely replaced."

Not everyone thinks that would be a good thing. Peter Woodall, communications manager for the Carrier Bag Consortium, says, "It's important to forget the emotion and look at the science. We are not filling our landfill with plastic bags. That is simply a myth. When real science is taken into account, the best environmental choice is plastic. Life-cycle analysis shows that if you use a conventional bag four times and then recycle it, that is better than using a 'bag for life'."

Environmental campaigners, meanwhile, believe the only solution is to make rich countries deal with their waste locally. "That's the only way to make the whole community feel the impact," says Kevin May at Greenpeace's office in Beijing. "If you can easily dump waste overseas, then there is no motive for having a waste-reduction programme at home. The argument that developing nations need recycled resources from wealthy nations is only partly true. The environmental costs are too high. Just look at the filthy water and polluted air of China. If we can stop the waste trade, I am sure it will lead to more sustainable development around the world."

The apparent intractability of the plastic bag problem is all the more remarkable considering that our dependency on them is a recent phenomenon. Polythene was not even invented until the 30s, and plastic bags did not become common in supermarkets until the 70s. The idea that we can't live without them is a very modern one.***

China's 'fifth generation' leaders come of age

2007-03-29T19:23:00.000-07:00

Mar 29, 2007
By Cheng Li

Just as the US political arena has begun to heat up in an off-election year, so too has Chinese politics become even more dynamic as the country's political clock winds its way toward the convening of the 17th National Congress of the Chinese Communist Party (CCP).

Since 1977, the CCP has held a party congress every five years. The congress has often been an occasion for change in China's top leadership and for new directions in domestic and foreign policies. Fervent jockeying for power among various factions on the eve of the party congress is common.

The 17th National Congress, which is scheduled to convene this autumn, will be no exception. More than 60% of the Central Committee and about half of the Politburo are expected to vacate their seats for newcomers at the congress.

An anticipated large-scale reshuffling
While the current top leaders, including President Hu Jintao and Premier Wen Jiabao, will most likely remain in power for another five-year term, the new Politburo will consist of many newcomers, especially younger members who are in their 50s.

This should come as no surprise, given that the average ages of the current members of the current Standing Committee of the Politburo, the Politburo, and the Secretariat of the 16th Central Committee are 67, 66 and 65, respectively. With no exceptions, all members of these three leadership bodies are now in their 60s or 70s. ¹

Among the nine members of the Politburo Standing Committee, at least four - Luo Gan, 72, Huang Ju, 69, Wu Guanzheng, 69, and Jia Qinglin, 67 - are expected to retire. In addition there are 16 seats in the current Politburo, including an alternative member and the vacancy left by disgraced former Shanghai party secretary Chen Liangyu.

Nine of these 15 Politburo members (Chen not counted) are also 65 or above, and they will either be promoted to the Politburo Standing Committee or retire. Some Politburo members who are under 65 may also step down. In fact, all 16 current Politburo members (including Chen) were first-timers when they were appointed to this leadership body in 2002. ² It is reasonable to anticipate that about 50% of both the 17th Politburo and its Standing Committee will be new faces.

Meanwhile, all but Liu Yunshan, 60, on the seven-member CCP Secretariat will likely vacate their seats to younger leaders. ³ Although the leadership of the State Council will not change until the 11th National People's Congress next March, the candidates for the top positions will most likely be decided at the 17th Party Congress.

Largely because of the age factor, three of four current vice premiers and all five state councilors will most likely vacate their seats through retirement or promotion. ⁴ This means that the leadership teams for the country's economic and financial administration, foreign policy and military affairs will largely consist of newcomers after this party congress.

A new team will likely replace current top economic and financial decision-makers, including Huang Ju, 69, Wu Yi, 68, Zeng Peiyan, 68, and Hua Jianmin, 67. The leading candidates are Ma Kai, minister of the National Development and Reform Commission, 61; Li Rongrong, minister of the State-owned Assets Supervision and Administration Commission, 63; Zhou Xiaochuan, governor of the People's Bank, 59; Bo Xilai, minister of commerce, 58; and Lou Jiwei, deputy secretary general of the State Council, 57.

Some current provincial leaders, such as Beijing Mayor Wang Qishan, 59, Tianjin Mayor Dai Xianglong, 63, Shanghai Mayor Han Zheng, 53, and Chongqing Party Secretary Wang Yang, 52, are also among the leading candidates for posts as vice premiers in charge of economic and financial matters.

The Central Committee (CC) will also undergo a large-scale reshuffling. At present, 68% of the 356 members (both full and alternatives) of the 16th CC are more than 60 years old, and among the 198 full members, 88% are more than 60. Most of them belong to the so-called "fourth generation" of leaders.

The turnover rate of the Central Committee has been remarkably high over the past 25 years; newcomers constituted 60% of the 12th CC in 1982, 68% of the 13th CC in 1987, 57% of the 14th CC in 1992, 63% of the 15th CC in 1997 and 61% of the 16th CC in 2002 (Asian Survey, July/August 2002). Based on the current age distribution and the turnover rates at previous party congresses, we can expect that roughly 60% of the members of the 17th congress will be first-timers.

This upcoming party congress will likely be the coming of age of the "fifth generation" of Chinese leaders, defined as those who were born in the 1950s. The fifth generation of leaders consists of many "sent-down youth", who are often referred to as members of "the lost generation" of the Cultural Revolution.

This generation differs profoundly from preceding generations in terms of their formative experiences, educational credentials, political socialization, administrative backgrounds, foreign contacts and world views. The collective characteristics and intra-generational diversity of the fifth generation of leaders will likely have a strong impact on the country's political trajectory and socio-economic policies in the years to come. ⁵
Hu's successor designated?

Rightly or wrongly, a great deal of public attention will be given to the issue of Hu Jintao's successor. This is understandable because Hu served on the Politburo Standing Committee for 10 years before taking the post of general secretary in 2002.

Hu's previous 10-year-long membership on the Standing Committee not only allowed him to gain leadership experience in the country's highest political institution, but also placed him as the first among equals in the fourth generation in line to succeed president Jiang Zemin. Based on this political precedent, it seems necessary for the Chinese political establishment to identify Hu's successor during this upcoming congress. With an adequate "reserve" period near the center of power, this heir apparent will be able to take over the top leadership when Hu completes his second term at the 18th Party Congress in 2012.

Largely because of the current Chinese obsession with age in elite recruitment, the heir apparent is unlikely to be chosen from the pool of current members of the Politburo. The youngest member of the current Standing Committee, Li Changchun, is only two years younger than Hu Jintao, and the youngest current Politburo member, Liu Yunshan, is only five years younger than Hu. The CCP's norm of promoting leaders in batches, within somewhat narrow age brackets, suggests that Hu's designated successor will most likely be a new face in the 2007 Politburo.

It is unclear, however, whether the 17th Party Congress will select a single younger leader, the "core" leader of the fifth generation, to be the successor to Hu or will choose two to four "rising stars" from that age group to wait in line for succession to the top posts in the party and the state. This largely depends on whether or not a consensus or a willingness to compromise exists among competing factions, as well as the degree of confidence that the old guards have regarding the loyalty and the ability of the newcomers.

In recent years, Chinese public opinion has been critical of the traditional method of appointing the heir apparent. Top leaders' recent rhetoric about the promotion of collective leadership and inner-party democracy seems to suggest that they may choose a few leading candidates from the fifth generation rather than simply appoint one "core" figure (Wenhuibao, March 12).

It is likely that two to four rising stars of the fifth generation will be promoted to the Politburo or the Standing Committee at the 17th Party Congress. ⁶ These potential successors will acquire more political capital, compete with one another, gain further endorsements from Hu and other top leaders, and become more familiar to the Chinese public over the next five years.

In contrast to many democratic countries, where top politicians may not have much administrative experience in their previous careers, China's political rising stars have usually been on the list of "future leaders", prepared by the CCP Organization Department, for 15-20 years. Although no one, perhaps not even Hu Jintao himself, knows which younger leader will finally be appointed as the general secretary of the party, the pool of candidates is clear.

As part of the norms of Chinese elite recruitment, the candidates for top leadership should be current members or alternatives of the Central Committee, should have substantial leadership experience in provincial-level administration, and should be more or less acceptable to all current top leaders and factions.

Among all the candidates, four leaders - Liaoning Party Secretary Li Keqiang, 52, Jiangsu Party Secretary Li Yuanchao, 57, Chongqing Party Secretary Wang Yang, 52, and newly appointed Shanghai Party Secretary Xi Jinping, 54 - are apparently the front-runners.

Their advantages over other potential candidates stem from their current administrative positions, broad leadership experiences, strong patron-client ties and educational credentials. For example, three of these four rising stars hold advanced degrees in economics, politics or law; the other holds a master's degree in economic management. None of them are entirely new to the Chinese public; all have served on the vice-provincial and ministerial levels of leadership for about two decades.

The first three leaders, known as the tuanpai faction, have advanced their careers through the vehicle of the Chinese Communist Youth League. They have been under the patronage of Hu Jintao ever since the early 1980s when Hu was in charge of the league. Many other tuanpai leaders are also poised for promotion.

Tuanpai leaders currently occupy one-third of the top provincial positions (party secretaries and governors) and about one-fourth of the ministerial posts of the State Council and directorships of the CCP central departments. Some of them could potentially be dark-horse candidates in the race for power at the 17th Party Congress. ⁷

With so many of his tuanpai proteges in line for promotion, Hu Jintao will, for the first time since he assumed the post of CCP general secretary in 2002, have his own team in the national leadership. Consequently, Hu should be able to move more aggressively to reshape China's economic and socio-political development in line with his own vision and perceived mandate.
The next phase

It has widely been recognized that in the 16th Politburo, Hu Jintao has been surrounded by Jiang Zemin's proteges, known as the "Shanghai Gang". Six of the nine members of the Politburo Standing Committee have pledged their loyalty to Jiang rather than to Hu. This gravity of power, however, will shift in Hu's favor after the 17th National Congress. The recent removal of Chen Liangyu, a Politburo member and former Shanghai party secretary, reflects Hu's growing power. The main challenge for the factional balance of power in China now is how best to constrain Hu's power.

This challenge has become even more acute because Vice President Zeng Qinghong, 68, a political heavyweight in Chinese politics and a prominent figure of the Shanghai Gang, may retire after the 17th Party Congress (China Brief, December 6, 2006). Zeng's relationship with Hu is both competitive and cooperative.

Zeng is currently in charge of personnel affairs in the CCP and he may decide to use his own retirement to set a good example and urge other senior officials to vacate their seats in favor of younger leaders. Yet at the same time, Zeng may promote several of his longtime friends to the new Politburo and its Standing Committee. Three of Zeng's confidants, Hubei Party Secretary Yu Zhengsheng, 62, Minister of Public Security Zhou Yongkang, 65, and Guangdong Party Secretary Zhang Dejiang, 61, are already in the current Politburo, and one or two of them may be promoted to the Standing Committee.

Because of his own background as the son of a revolutionary veteran, Zeng has long been seen as a patron of the "princelings" (children of the high-ranking officials). Zeng may promote princelings such as Xi Jinping, Ma Kai, Wang Qishan, Bo Xilai, Zhou Xiaochuan and Hebei Party Secretary Bai Keming, 64, to the next Politburo.

Some of Zeng's proteges from Shanghai who are not princelings, such as Director of the Central Policy Research Center of the Central Committee Wang Huning, 52, Jiangxi Party Secretary Meng Jianzhu, 60, and Han Zheng are also candidates for membership in the next Politburo or Secretariat.

All of the leaders who are close to Zeng will likely seek to prevent the possibility that Hu-linked tuanpai leaders will dominate the membership of the next Politburo. Many of Zeng's proteges have expertise and experience in economic administration, especially in finance, banking and foreign trade - areas in which tuanpai faction leaders are characteristically weak.

The upcoming 17th Party Congress will test the political wisdom and the abilities of top Chinese leaders, such as Hu and Zeng. But in a far more important sense, it will serve as a litmus test to determine whether China is capable of taking further steps toward institutionalizing norms of leadership transition and power-sharing.***
Notes
¹. The youngest member of the current Politburo, Liu Yunshan, director of the CCP Publicity Department, was born in July 1947 and thus will be in his early 60s when the 17th National Congress of the party convenes this autumn.

². Wu Yi was promoted from alternative to full member status at the previous Politburo.

³. The other six members are Zeng Qinghong, 68, Zhou Yongkang, 65, He Guoqiang, 64, Wang Gang, 65, Xu Caihou, 64, and He Yong, 67.

⁴. Among the four vice premiers, Huang Ju, 69, Wu Yi, 68, and Zeng Peiyan, 68, will likely retire, while Hui Liangyu, 63, is more likely to stay. Among the five state councilors, Zhou Yongkang, 65, Cao Gangchuan, 72, Tang Jiaxuan, 69, Hua Jianmin, 67, and Chen Zhili, 65, will probably step down and be replaced. Zhou Yongkang may be promoted to the Standing Committee to replace Luo Gan.

⁵. The upcoming two-day conference "Changes in China's Political Landscape: The 17th Party Congress and Beyond", to be held by the John L Thornton China Center at the Brookings Institution on April 12-13, will examine various aspects of China's political developments, including the implications of the coming of age of the "fifth generation" of Chinese leaders.

⁶. This largely depends on the total number of full-member seats on the Politburo and its Standing Committee. There is no rule regarding these numbers and they have fluctuated over time.

⁷. A mong other tuanpai leaders in the provincial leadership, Shanxi Party Secretary Zhang Baoshun, 57, Guangxi Party Secretary Liu Qibao, 54, Shaanxi Governor Yuan Chunqing, 55, Inner Mongolia Governor Yang Jing, 54, and Tibet Party Secretary Zhang Qingli, 56, are also candidates for Politburo membership.

Dr Cheng Li is the William R Kenan professor of government at Hamilton College in New York and a visiting fellow at the John L Thornton China Center of the Brookings Institution in Washington, DC. Li is conducting research on the fifth generation of leaders, who are expected to emerge during the 17th Party Congress.

(This article first appeared in The Jamestown Foundation. Used with permission.)

(Copyright 2007 The Jamestown Foundation.)

On the tide of culture shock

2007-03-29T08:08:00.000-07:00

Studying abroad is encouraging Chinese women to challenge male domination
Greg Philo Thursday March 29, 2007
The Guardian

We are in the middle of the biggest educational movement in history. Hundreds of thousands of young people are travelling to be educated abroad. They are led by the Chinese, for whom a foreign education is highly prized. There now are over 50,000 Chinese students in Britain - mostly the children of the elite and the rich - and the numbers studying abroad are predicted to double.

So what happens to the beliefs and values of these young people when confronted by a culture so different from their own? Staying in Britain produces extensive reflection about both British and Chinese society, as a new study of recent graduates by the British Council has found. Our approach to politics, sexuality, equality and rights look very different from back home. They are amazed to see cartoons that are rude about Tony Blair.

Students' knowledge before they arrive is often limited. Many are expecting a country of gentlemen, walking sticks and top hats. As one respondent put it, her image of Britain was "posh garden parties, traditional English afternoon tea and the royal family".

What they actually encounter can leave them shocked. They see young people drunk and out of control. One student commented: "There is an emptiness in nightlife - party, party and nothing else. I thought there would be something special in culture - people would speak about plays or stories. I thought it would be a garden of thinking."

Not all young people were seen in this way, and older generations were thought to have good manners. The students noted that the British also had the ability to have a good time and relax, while in China people worried incessantly about their children or their parents. Part of the reason for this difference was the success of the British system of welfare and social care, said the students. There were many comments along the lines of "you can feel confident when you are old". These statements hinted at a deeper truth, in that they were all made by women.

In China the position of women is less secure than in Britain, and many feel great pressure to be married before the age of 30. One pointed to a Chinese saying: "A man of 30 is like a blossoming branch, a woman of 30 is like old bean shells." Some female participants were intensely aware of how their job opportunities would be affected by their age and attractiveness - what is referred to in China as "the beauty economy". There was approval of the idea that women in Britain could go to university at the age of 40 or 50 to retrain.

But such relationships are likely to change, partly as a result of pressure from highly educated women. The number of these who study abroad is being expanded because of the intense focus on education in Chinese society, but also as an unintended consequence of the one-child policy. In male-dominated societies, the resources of the family for education tend to be focused on boys. But in China, where the one-child policy works, each family has a 50% chance of the only child being female - and because this is an only child, there is a concentration of resources.

There are large numbers of young Chinese women now in universities in Britain and other countries. This is creating a constituency to demand more equal rights in careers, interpersonal relations and individual development.

Chinese students come to Britain for the quality of its education system. The experience of living in Britain also means that they can explore how their conditions might change, for themselves and for the future of their own country.***

Greg Philo is the research director of Glasgow University Media Unit: the British Council report, Cultural Transfer, will be published in May.

ADB: China economy to slow slightly

2007-03-28T07:01:00.000-07:00

By Zhu Qiwen (China Daily)
Updated: 2007-03-28 07:17

China's economic growth will moderate slightly in the next two years because of tight macroeconomic controls and government efforts to alter the growth pattern, the Asian Development Bank (ADB) said yesterday in its flagship annual publication.

The Asian Development Outlook 2007 predicts that the economy will grow 10 percent this year and 9.8 percent the next.

"The performance of the Chinese economy was exceptional in 2006 and will remain strong in 2007 and 2008," said Zhuang Jian, an economist at the multilateral development bank.

The country's efforts to rein in galloping fixed asset growth are expected to gain more traction this year, the report forecasts.

The authorities have taken many steps to cool down the economy. For instance, the People's Bank of China, the central bank, has raised the base lending rate thrice from 5.58 percent to 6.39 percent and the reserve requirement five times from 7.5 percent to 10 percent in the past year to curb credit growth and investment expansion.

The National Development and Reform Commission and the State Environmental Protection Administration have raised energy efficiency and environmental requirements for investment.

However, recent monthly data are yet to show clear trends for industrial production and fixed asset investment, the ADB report points out.

Figures from the National Bureau of Statistics show that factory output in January and February combined grew 18.5 percent from a year earlier, compared to 14.7 percent in December and 16.2 percent for the first two months of 2006.

Meanwhile, growth in urban fixed-asset investment rebounded from about 20 percent in the fourth quarter last year to 23.6 percent for the first two months of this year.

"Progress was limited on most fronts," said Zhuang, "but difficulties in shifting the growth pattern will not be addressed overnight."

The ADB suggests that China strengthen the social security system, spend more on education, healthcare and rural development, and take more effective measures on energy efficiency and environmental protection.***

A US-China arms race on the final frontier

2007-03-27T05:42:00.000-07:00

Mar 28, 2007
By Malou Innocent

While some have pooh-poohed Putin's admonition, claiming high oil profits must have gone to his head, the United States may want to heed this "arms race" warning, for if a new arms race does not transpire today between Washington and Moscow, it may transpire tomorrow between Washington and Beijing.

Reacting to Putin's charge, US Secretary of Defense Robert M Gates assured the world that "one Cold War is enough". But Russia is not the only great power the US must worry about. China opposes all theater and national missile defense (NMD) programs. As far back as 2001, China's United Nations envoy for disarmament affairs, Hu Xiaodi, argued that NMD "is, in essence, a disguised form of unilateral nuclear-arms expansion, which will severely hinder the international arms-control and disarmament process and even trigger off a new round of arms race".

And former Chinese president Jiang Zemin affirmed, "Any attempt to break the existing international strategic balance by developing sophisticated weapons systems cannot but spark new rounds of an arms race and jeopardize world peace." China's disapproval was justified, since an ability to intercept ballistic missiles would deprive it of its nuclear retaliatory capability.

Chinese officials have openly voiced opposition to US machinations in the past. But recently, they have grown noticeably more restrained. In fact, not one high-level Chinese official has spoken out against America's recent plan to use Eastern Europe as an anti-ballistic-missile base. Is China simply allowing Russia to speak on its behalf? Why have the Chinese shifted from strident opposition to muted acquiescence? One reason may be their desire to dodge US criticism of their own expanding military.

On January 11, China successfully destroyed one of its orbiting weather satellites using ground-based medium-range ballistic missiles. While the launch drew sharp criticism from various nations that wished they had simply been consulted prior to the test, US opposition was based on the principle of its own primacy. Gordon Johndroe, spokesman for the National Security Council, argued that China's test was "inconsistent with the spirit of cooperation".

This statement was inspired by the White House's own National Space Policy, which declared that the US should have unimpeded supremacy in space, and will undermine other great powers from usurping this freedom. Not surprisingly, Chinese Major-General Peng Guangqian said the US was making too big a deal out of the test.

But a "big deal" may be warranted. China's defense industry has developed in large part thanks to the country's space program. With regards to military technology, space programs go beyond simple aeronautics and computer-simulation models. They enable countries to develop wind-tunnel and jet-propulsion test facilities that are crucial to weapons development, including destroyers, other ships, and fighter aircraft.

In fact, many of America's own military and engineering innovations were born out of its space industry. Because China's aerospace program has military applications, and the US already has numerous reconnaissance satellites, a future US-China arms race in the final frontier could be more plausible than not.

But just as tensions from the missile test were dissipating, a spokesman for the National People's Congress announced this month that China will boost its defense spending by 17.8%, bringing total spending to US$44.94 billion for fiscal 2007. While the real spending figure is in dispute, because of inadequate accounting measures and intentional obfuscation, US military experts agree that China's double-digit increases over the past decade support the likelihood of a future arms race between great powers.

US government officials, preoccupied with conflicts and force requirements in other theaters, are finally growing more concerned about China's strategic ambitions and whether or not those ambitions will depreciate America's global power. The United States may want to use its Cold War history as a frame of reference, drawing useful lessons for its encounter with the rise of the next up-and-coming superpower.

Summing up, the way in which the United States chooses to respond to China's rise will have profound implications on the path China takes: whether it decides to be a strategic competitor or a stable strategic partner.

While Defense Secretary Gates is correct in stating that "one Cold War is enough", America's actions, not its words, will matter more to the Chinese. Consequently, if a missile-defense system in Eastern Europe continues as planned, the US may be stepping toward the threshold of a new cold war with a brand-new enemy.***

Malou Innocent is a defense and foreign policy research assistant based in Washington, DC.

(Copyright 2007 Malou Innocent.)

Mao's forgotten son dies

2007-03-27T05:33:00.000-07:00

Mao Anqing lived through the most tumultuous era in the history of modern China. But he spent his last years as an unknown recluse

Jonathan Fenby
Sunday March 25, 2007
The Observer

He was the reclusive, mentally ill son of one of the most powerful and feared figures of the 20th century, and his 84-year life echoed one of the deepest traumas of modern history.

Yesterday a brief notice in the China News Service recorded the death of Mao Anqing, who survived his father to live on into a new China that the dictator would not have recognised.

Mao Zedong's second child, who died on Friday, lived through civil war, the execution of his mother, street life in Shanghai, and a journey to Paris and to Moscow, where he studied under Stalin's surveillance. Eventually he returned to China, where he was largely ignored by his father.

Anqing was born in 1923, during a rare settled period in his father's life, one of three sons from the second of Mao's four marriages. Having left his first arranged marriage to a girl in his native village, the young librarian fell for Yang Kaihui, the daughter of an ethics professor. Though Mao's record as a womaniser was already established, his bride wrote that she was 'living for him' and, if he died, would die with him.

They set up house just outside the East Gate of Changsha, capital of their home province of Hunan. Three sons were born in the next seven years - Anqing was the second.

Mao was frequently away, working for the Communist Party, touring the countryside and participating in the United Front with Sun Yat-sen's Nationalists in Canton. His biographer, Philip Short, writes that 'perhaps for the only time in Mao's life, he had a truly happy family to come home to'.

Hunan was an unsettled place in which to grow up as warlords vied for power. In 1927 the Nationalist leader, Chiang Kai-shek, allied with one of the province's militarists and led a motley force north to the Yangzi. On their way, they took Changsha without trouble, workers' militias helping to chase out the warlord troops.

Chiang then launched a 'White Terror' against the Communists, first in Shanghai and then across the country. Abandoning his wife and sons for good, Mao began his long career as a guerrilla leader, sheltering with bandits in the rough mountain country on the eastern border of Hunan, and then setting up a bigger base in Jiangxi province, where he lived with the daughter of a local scholar.

Depressed by his faithlessness, Yang Kaihui considered suicide, but decided she could not do this to the sons. Poems that she wrote, which she hid in cracks in the walls of her house and which were seen by the author Jung Chang when she was researching her biography of Mao, vividly express her solitude and fears.

'You are now the beloved sweetheart,' one ran. 'Return, return...'

She appears to have had doubts about her Communist belief, and wrote in another poem: 'I want to flee. But I have these children. How can I?'

In 1930 tragedy struck the family that Mao had left behind. The Communist leadership ordered frontal attacks on cities the Nationalists held. The campaign was a disaster. In Changsha the attackers held ground in the city for nine days, but were then beaten off. Two months later the victorious Nationalist general ordered an anti-Communist purge.

Yang Kaihui was arrested, with her elder son, on his eighth birthday. Given a chance to save her life if she denounced her husband, she refused. She was taken to the execution ground and killed.

Learning of her death, Mao wrote that 'the death of Kaihui cannot be redeemed by a hundred deaths of mine!' Despite his infidelity, he always called her his true love. But that had not led him to try to rescue her and their sons during the battle for Changsha.

Later he would show similar lack of scruples in abandoning his third wife, who was badly wounded in the head on the Long March, for his best-known partner, the one-time Shanghai actress, Jiang Qing. She became one of the Gang of Four in the Cultural Revolution, and was imprisoned after Deng Xiaoping took power, dying in 1991, apparently having hanged herself in her bathroom.

After his mother's execution, Anying, the eldest son, was released and the three children were smuggled to Shanghai, where the youngest died of dysentery aged four. The two surviving brothers spent at least part of their time on the streets, scavenging for food and sleeping on pavements.

In 1936, after the Red Army had staged the Long March from Jiangxi to northern China, Stalin invited Mao to send his sons to Moscow, following a pattern of getting the children of prominent Chinese under Soviet control. After a delay in Paris waiting for visas, the Mao boys arrived in the Soviet Union and stayed until the 1940s. In a rare letter, their father advised them to study science and 'talk less politics'.

By this time Anqing's health was evidently poor. When his elder brother headed back to the Communist base area in China in 1943, he asked the head of the Communist School in Moscow to look after his younger brother. 'He is an honest person, only he has hearing ailments and his nerves are wrecked,' he added.

After his second son returned to China in 1947, Mao saw little of him, and he was reported to have spent much of his life in mental institutions. Mao met Anying more often, but he was killed in the Korean War in 1950.

Mao's other known offspring, two daughters Li Na and Li Min, have passed quiet lives, living in apartment buildings in Beijing, venerating their father but keeping out of the limelight. Other children born on the Long March were abandoned along the way; a woman turned up a few years ago along the route who claims to be one of the infants left behind by the Chairman.***

Jonathan Fenby is author of Generalissimo: Chiang Kai-shek and the China He Lost (Free Press).

We will not be moved: one family against the developers

2007-03-27T05:29:00.001-07:00

Jonathan Watts in Beijing
Saturday March 24, 2007
The Guardian

Property-owning China has a new hero. Yang Wu, now better known as The Nail, has become the talk of the country for his refusal to abandon his home to property developers.

Despite an eviction order, offers of compensation and the chasm that has opened up around his home, the 51-year-old restaurateur is holding his ground in an increasingly high-profile challenge to the authorities.

Newspapers and websites have published spectacular images of the siege-like situation in Chongqing, where Mr Yang's home has been turned into an island, surrounded by a moat of mud and tractors.

The developers, who want to build a six-storey shopping mall, have reportedly offered compensation of 3.5m yuan (£233,000), a staggering sum in a country where the average income is about £1,000 a year. But Mr Yang and his family insist they are not concerned about money.

"I promise we will fight to the end," his wife, Wu Ping, told reporters outside the building site. "Even if we have to give up our lives, we will not move. This property is ours."

On Wednesday, Mr Yang placed a banner across the roof of his house declaring: "Citizens' legal property cannot be invaded."

According to local media reports, the former Kung Fu champion took a set of wooden clubs with him to fend off potential attackers, and shouted to the construction site guards: "If you dare to come up, I will beat you down."

The water and electricity have been cut off, but supporters give him food and drink, which he pulls up by rope.

Hold-outs, known as "nails" in China because they stick up despite attempts to beat them down, are becoming increasingly common in China.

Mr Yang's protest has been strengthened by its timing. Earlier this month, the National People's Congress, China's parliament, passed the country's first law to protect private property. Earlier this week, the government reported a surge in illegal land seizures by developers and local governments.

Mr Yang's case has sparked an online debate, which has been promoted even by the state-run China Daily. And the Nanfeng Metropolitan newspaper declared: "This couple are fighting for their own rights. But they are also fighting for the rights of all property owners in China and for the dignity of the property law that has just been passed."

The development companies, Chongqing Zhirun and Nanlong, said they were no longer in negotiations with Mr Yang.

"We haven't arranged negotiations with the hold-out. We talked to him before for a long time without achieving any agreement so now we are just waiting for the government to settle this issue," the manager, Wang Wei, told local reporters.***

China: More rights for millionaires

2007-03-25T08:12:00.000-07:00

Mar 22, 2007
By Pallavi Aiyar

BEIJING - After years of galloping economic growth in China, the ruling Chinese Communist Party (CCP) has much to celebrate. However, the growth has come at a cost, and rather than strengthening the party's hand to press ahead with further economic reforms, growing inequalities, rampant corruption and vanishing provisions for health care and education have put China's leadership in somewhat of a tight spot.

Increasingly squeezed between the demands of the right and the criticisms of the left, the CCP is engaged in an ever more delicate juggling act, balancing the interests of the urban middle class, who have emerged as a key constituency of support, and a restive peasantry, once the party's mainstay but progressively disaffected at being left behind by the economic boom in the cities.

China's unique form of "socialism with Chinese characteristics" is rent with contradictions, and many of these are forcibly coming to the fore. The recently concluded annual session of China's parliament, the National People's Congress (NPC), usually a sedate piece of set political theater, was thus the site of some unusually feisty debate this year.

The main bone of contention was a landmark bill providing the legal basis for the protection of private property for the first time since the CCP came to power in 1949. The NPC has never voted against a bill proposed by the government and, as expected, the close to 3,000 delegates approved the property-rights bill. However, its passage was atypically rocky, requiring the government to answer some fierce criticisms from an increasingly vocal cohort of new-left thinkers.

The bill took 14 years in the drafting and was subject to a record seven readings by legislators since being tabled in 2002 (most bills in China are passed after three readings). It was in fact scheduled to be passed a year ago, but widespread objections amplified by heated Internet-circulated commentaries forced its last-minute withdrawal from the parliament's agenda. One of the bill's most vocal critics, a law professor at Peking University, Gong Xiantian, condemned it as "copying capitalist law like slaves" and offering equal protection to "a rich man's car and a beggar man's stick".

For the left, the bill represented a final sellout by the state to capitalist interests. China has already embraced several other free-market mechanisms such as stock markets, but the idea that socialist property is inviolable has long been an almost scared legal principle in China. The debate about property rights thus goes to the core of China's modern identity.

"Socialism is based on public ownership. This won't be a glorious page in the history of Chinese legislation," Gong Xiantian said of the property bill at the start of this year's parliamentary session.

The fact that the government threw its support behind the bill despite the sharp and often public critiques the draft law provoked reflects awareness of the increasing weight of the private sector in the country's economy as well as the importance of the support of a property-owning urban middle class to the party's continuing reign.

Until 1998, state-owned firms were the mainstay of the economy, but today private businesses account for more than 65% of gross domestic product and more than 80% of economic growth, according to a recent report by the All-China Federation of Industry and Commerce (ACFIC).

This buoyancy of the private sector followed policies instituted first by Deng Xiaoping, the architect of China's economic reforms, and carried on by Jiang Zemin, his successor as China's ultimate leader. Both had decided that real and rapid growth could only come about by unfettering the private sector.

Deng called economic development "hard truth", and under Jiang the restructuring of state-owned enterprises was accelerated, leading to more than 20 million workers being laid off in a huge wave of closures, mergers and privatizations that halved their number since the mid-1990s.

It was also because of Jiang's efforts that in 2002 the party threw open its doors to private entrepreneurs. According to ACFIC, almost a third of entrepreneurs who registered their businesses after 2001 are now CCP members.

For President Hu Jintao and Premier Wen Jiabao, who inherited the country's leadership in late 2002, the contradictions of China's special brand of state-led capitalism are, however, becoming ever more apparent.

In the span of some 25 years, China has gone from being one of the world's most equal, albeit poor, societies to becoming the fourth-largest economy in the world, with one of the worst rich-poor imbalances. China's Gini Index - a commonly used statistical measure of inequality where 0 represents perfect equality and 1 perfect inequality - of 0.447 is worse even than India's 0.325, according to the United Nations' 2005 Human Development Report.

Property that used to be taken away from the rich for redistribution to the poor is today routinely taken away from poor farmers and given to real-estate developers. According to the Ministry of Public Security, in 2005 there were 87,000 mass protests across the country expressing public anger. Some were directed against official corruption and unpaid wages and pensions, but most were against illegal land grabs. The number of such protests has seen a more than 400% increase over the past decade.

Given this situation, both the policies and rhetoric of the Hu-Wen duo have taken a swing leftward. The leadership has thus made tackling the income inequalities between China's rich urban and poor rural areas the centerpiece of their new five-year plan, borrowing language from the past in promising to build a "new socialist countryside". Both at the NPC and in speeches elsewhere, Wen has repeatedly stressed that "social justice" is as important a goal for China as economic growth.

The government has raised spending for rural health care and education sharply for two successive years. At this year's NPC session, Wen said in his opening address that tuition and other fees for all rural students would be eliminated, helping some 150 million families. He added that the government would step up spending on rural primary and middle schools by 21%, to the equivalent of US$29 billion.

The premier also promised greater central-government support for health care in rural areas, where 90% of the population has no health insurance. He said a trial cooperative medical-care system would be extended to cover 80% of China's territory, with the government more than doubling subsidies to $1.31 billion.

Crucially, however, Wen made no reference at all in his address to the most controversial item on the NPC's agenda: the property law.

The property bill was introduced to the NPC two days after the opening session of the parliament. In his explanation of the CCP's support of the bill, an NPC vice chairman, Wang Zhaoguo, told gathered parliamentarians that given China's current economic circumstances, the people "urgently require effective protection of their own lawful property accumulated through hard work".

The final shape that the draft law took was patently the result of an attempt to stitch up a compromise between the bill's detractors and supporters and aimed at striking a balance between state and private interests. The bill clearly laid out definitions of both and also defined private wealth, including income, houses, investments and other personal assets.

However, it stopped far short of moving toward privatizing collectively owned rural land. Instead, it maintained the concept that property is owned publicly, and individuals are merely given a right to use that property. It's that right of use that the law protects, not private ownership of land.

In a further accommodation to new-left criticisms, the bill affirmed the state-owned sector as the "leading force". "The nation is in the first stage of socialism and should stick to the basic economic system in which public ownership predominates, co-existing with other kinds of ownership," it read.

But this watered-down version may have fallen short of satisfying either side of the debate.

"Private property is the foundation of civilization. It must be protected," said Dean Peng, a Beijing-based free-market advocate and commentator. "Public ownership results in poverty, as China has already experienced."

Peng was skeptical, however, that the new law will substantially help push forward the economic-reform process. The actual impact of the law is likely to be minimal, he said, because it merely restates what was already the status quo. In rural areas, farmers have the right to lease collectively owned land for 30-odd years but cannot buy or sell it. In urban areas, residents have been able to buy and sell 50-to-70-year leases on property for well over a decade.

Peng pointed out that several laws governing the leasing of land in both rural and urban areas were already in place. The new law does not alter these but rather brings them together under a single overarching law. This might be argued to give them additional weight, but Peng was nonetheless dismissive. "We already have enough laws on paper to protect property rights. What we need is rule of law, so that these laws can really be implemented," he said.

Beyond the statement of general principles and reiteration of already existent regulations, there are some new clarifications in the law, but these primarily spell out the legal position on certain points of dispute between the property-owning middle classes and real-estate developers. For example, the law has a clause that stipulates that parking spaces around highrises belong to apartment owners and not to the property developers, previously a gray area that led to numerous disputes.

Wang Zhaoguo's explanation of the bill before the NPC, however, made scant reference to the middle classes and their interests, focusing instead on those parts of the draft law that addressed concerns regarding asset stripping of state-owned factories, illegal transfers of farmland to real-estate developers by local governments, and adequate compensation for those whose lands are expropriated legally.

The law contains provisions aimed at ameliorating all of these concerns. For example, it states that if any person "causes loss of state-owned property by transferring it at a low price, illegally sharing it in conspiracy with another person, placing a charge over it without authorization, or by other means in the course of restructuring the enterprise", he or she will bear legal liability.

It also explicitly gives farmers the right to renew their land-use leases after they expire.

However, Professor Wen Tiejun, dean of the School of Agriculture and Rural Development at Renmin University and a leading new-left scholar, remained unconvinced by these claims. "The law is dressed up to show that it will protect rural people and public-owned property, but in fact its main aim is to give more rights to China's new millionaires and urban middle class," he said.

Putting private property on an equal legal footing with that of state-owned and collective property, Wen Tiejun argued, was a dangerous first step toward the eventual privatization of all property in China, an outcome he said would be a disaster for the 700 million Chinese who continue to live in rural areas.

Rural residents have no state-provided social security, Wen explained, so that their communally owned plot of land is often virtually all that remains between them and destitution. Were they allowed to sell this land, it would expose them to exploitation and impoverishment on an altogether more alarming scale than at present, he concluded.

His solution for preventing illegal sale of farmland is to slow down the rate of urbanization. The only point where he agreed with free-market advocate Dean Peng was that laws in China had only a limited impact given the shortcomings of the legal system. "Merely formulating new laws will not change the situation on the ground," he said.

What is evident is that while the property bill may have been passed into law, the tensions within Chinese society it exposed continue to simmer.

China's current leadership has come in for criticism for what some analysts see as its weakness and ensuing inability to take a firm stand. Unlike Jiang, it is indeed hard to classify Hu and Wen as either decidedly pro-left or pro-reform. Their strategy has instead been to develop a more left-oriented rhetoric while simultaneously but quietly pushing along the reform agenda.

On the other hand, their penchant for compromise could also be interpreted as a maturing of the political system in China in which the leadership must take into account and attempt to reconcile opposing interests and views. Moving ahead through consensus rather than heavy-handed, untrammeled diktats from the top is more the style of a democracy. China's one-party system remains far from democratic in the Western liberal sense, but it is showing some signs of greater internal debate.

The course of China's development is thus likely to remain the subject of contention, but in the short term at least the country looks set to continue its embrace of pragmatism over ideology. The voices from the left might be getting louder, but so far there are scant indications that China will take a major swerve off the path of economic reform.***

Pallavi Aiyar is the China correspondent for The Hindu.

Asia's river systems face collapse

2007-03-25T08:07:00.000-07:00

Mar 24, 2007
By Alan Boyd

Water in the Indus River is so clouded that the native dolphin has in effect lost its eyesight and has to detect prey and other objects through sound waves.

More than half of all the industrial waste and sewage in China flows into a single waterway, the Yangtze. And tributaries of the Ganges, one of Asia's greatest cultural and religious treasures, are running dry because of the crippling burden of irrigation.

Such has been the legacy of the frantic Third World rush to industrialize at any cost, according to a landmark study by the World Wide Fund for Nature (WWF) that was released as part of World Water Day on Thursday.

It found that 21 of the world's greatest rivers, including the Yangtze, Mekong, Salween, Ganges, Indus and Tigris-Euphrates in Asia, were struggling to survive against the tide of man-made pollution and the diversion of water through dams, pipes and irrigation.

"We're talking about a complete collapse of the system - they're so polluted, so over-extracted or so cut up by dams that it's really not functioning as a river anymore," said Tom Le Quesne, freshwater-policy officer at WWF. "It's a challenge that humanity faces not far off the scale of climate change."

So many lives depend on these river systems that the economies of emerging Asia could be ravaged and there could be immense social upheaval, including the loss of food security and employment. About 450 million people draw water, food and electricity supplies from the Yangtze alone, while many more use it for transportation.

The Mekong River basin supports 60 million people, including parts of China, Myanmar and Vietnam, nearly one-third of Thailand and most of Cambodia and Laos. It supplies two of the world's most important rice bowls, central Thailand and the delta region of southern Vietnam.

In India, the Ganges Plain comprises one-third of the country's land area and 120 million people rely on its waters for fishing and farming. Tens of millions live on tributaries of the Ganges in Bangladesh.

Then there are the displacements forced by development, often involuntary. The World Commission on Dams (WCD) has estimated that between 40 million and 80 million people have been resettled, including at least 10 million in China.

As habitats are progressively destroyed, the ecological toll is mounting and may be irreversible. About 20% of the world's 10,000 freshwater fish and plant species are either extinct or endangered.

In the Yangtze, the freshwater dolphin was declared officially extinct last year and the Chinese alligator, baiji (river dolphin) and freshwater finless porpoise are critically endangered. Other dolphins are at risk in the Salween basin, Ganges and Indus.

Hundreds of fish species have vanished, especially species that have found their annual migration patterns blocked by dams. Giant catfish, one of the world's largest freshwater fish, have not been caught in the Mekong in northern Thailand since 2001.

As the species decline, so do livelihoods. Annual fish catches from the middle and lower Yangtze averaged around 240,000 tonnes in the early 1950s, but were down to 110,000 tonnes when the last checks were taken, in the period 1983-2000.

The WWF puts the blame for the deterioration of river systems on overdevelopment, noting that at least 60% of the world's 227 largest rivers have been fragmented by dams, leading to the destruction of wetlands.

On a global scale, more than 45,000 large dams - those that are more than 60 meters high - are operational in more than 150 countries, while another 1,500 or so are under construction.

"Unabated development is jeopardizing nature's ability to meet our growing demands," said Jamie Pittock, who heads the WWF's freshwater program.

The report is a follow-up to a study by the WCD in 2000 that recommended more stringent controls on the blocking of water flows so that the environmental impact of man-made barriers could be contained. The WFF concludes that governments are not acting on these recommendations.

Most at risk is the Yangtze, which also has the largest number of large dams either planned or under construction - 46, including the mammoth Three Gorges.

Communities along river systems add to the problem. Pollution in the main stem of the Yangtze has increased by more than 70% during the past 50 years, with heaps of garbage, pig waste and discharge from factories, hospitals and mines, possibly including radioactive waste, accumulating on the riverbed.

Leather-processing industries that use large quantities of chromium and other metals are feeding toxic waste into the Ganges, especially near Kanpour, while about a billion liters of mostly untreated raw sewage spills in daily.

The extraction of water for irrigation and runoff of chemicals from factories and farms threaten the Indus, which snakes through Pakistan and western India. Meanwhile logging, poor farming practices and the destruction of mangroves are putting the Mekong at risk.

Governments are waking up to the threat to their river systems, but there are inevitable economic and political trade-offs. India's localized Ganga Action Plan for the Ganges, which is building a chain of waste-treatment plants, has had little backing from the leading political parties because of the perceived threat to industry, and it barely registers with religious authorities.

Chinese officials have promised their neighbors on the Mekong that Beijing will "fully consider" the environmental consequences of tapping water from the river, which is known in China as the Lancang. Yet China refuses to join monitoring efforts by the Mekong River Commission.

The WWF and other environment agencies have acknowledged that policymakers face a difficult choice between development goals and ecosystems as they battle to raise living standards. Under the Millennium Accord brokered by the United Nations in 2000, the countries of the world agreed to halve the proportion of those without access to affordable and safe drinking water and basic sanitation by 2015.

Poor countries pledged to govern with greater effectiveness and to invest their resources more wisely. Rich countries committed to support them through increased aid and debt relief, among other things.

Much of this aid has been channeled into big-money water-infrastructure projects with the backing of the World Bank, the Asian Development Bank and other lending institutions, usually with multinational conglomerates from the richer nations as project partners.

Small countries such as Laos and Myanmar stand to make a financial windfall. For Laos, one of the most backward countries in Asia, the planned investment of more than US$1 billion in the contentious Nam Theun II Dam will be equivalent to three times its national budget.

But the WWF report contends that the benefits are often overstated, as most returns go to the offshore partners, while local communities face dislocation and the potential loss of livelihoods.

"Dams are both a blessing and a curse - the benefits they provide often come at high environmental and social costs," said Dr Ute Collier, head of the WWF's Dams Initiative. "Those most affected by dams rarely benefit from them or gain access to power and clean water."

According to studies by the WCD and the UN, the dams contribute water to only 12-16% of world food production, even though half were built specifically for the irrigation of crops and an estimated 30-40% of the 271 million hectares of irrigated land worldwide relies on dams.

This is because irrigation is notoriously inefficient: on average, it utilizes only 38% of water discharges and up to 1,500 trillion liters of water is wasted annually, enough to supply the whole of the African continent.

Likewise, there are arguments against the capital investment needed for the 19% of dam capacity that is used to supply power to electricity grids, even though it offers relatively low greenhouse emissions.

UN studies have found that every megawatt of installed capacity for hydropower costs about $1 million, while the bulk of output is often exported for hard currency rather than being offered to local populations.

Nevertheless, the WWF concedes that "there is little doubt that dams have improved agricultural output by making more land suitable for cropping through irrigation", while also piping drinking water and providing valuable benefits for flood mitigation. The central argument, the agency says, is how to build dams in a less intrusive manner that will sustain water systems and their habitats. So far the message is getting through only in developed countries: the United States is actually dismantling some of its dams.

But as water resources dwindle, it is likely that the potential for conflict between neighbors who share rivers will force a change of attitude, as the impact of dams and other flow diversions is selective. Communities living downstream from large dams, particularly those that rely on natural floodplains for agricultural, herding and fishery production, suffer the most when structures are built upriver.

China's activities on the upper Mekong are disrupting the navigation of Laotian fishing vessels, disrupting flood patterns for Thai river communities, drying up Tonle Sap lake in Cambodia and aggravating salination problems in Vietnam's delta region.

Management of the glacier belt in the Himalayas affects a whole range of river systems, providing 40% of the water in the Ganges and much of the flow for the Indus, Brahmaputra and Padma and feeding the Red Sea. Pakistan, India and Bangladesh put their trust in Nepal and Tibet.

Internal diversions of water have a similar impact on domestic populations. China plans to pipe water from the Yangtze basin to the Yellow, Huaihe and Haihe river systems more than 1,000km to the north to revive the Yellow River, which is now only a trickle in places.

India is considering 30 separate projects that will link rivers, including the Mahanadi, Godavari, Krishna and Cauvery, as a way of transferring flows, mostly from the north and west to the south.

Le Quesne said attitudes of governments will have to change if the world's river systems are to be saved.

"We've all been used to taking water for granted. We've assumed that water is a limitless resource. It's not anymore," he said.

"It's a question of using water wisely and managing it. It's a question of political will."***

Alan Boyd, now based in Sydney, has reported on Asia for more than two decades.

China cracks down on rioters!

2007-03-25T08:01:00.000-07:00

Mar 23, 2007
By Muhammad Cohen

HONG KONG - Last week's coverage of rioting in Hunan province was another example of how much has changed in China since it became the world's fastest-growing major economy and a key financial player in the world. It provided another snapshot of the often difficult transition from iron-rice-bowl socialism to the invisible hand of the market. But perhaps the biggest change on display, and the most obvious one, went unnoticed.

Domestic and international media differ about what happened in Zhushan, a rural village near Yongzhou in Hunan province - most notably whether there was a death among the more than four dozen injured - but the basic outline is pretty clear. It all began on the buses.

Villagers were angered about bus fares rising after Chinese New Year just in time to hit students and migrant workers leaving the region after their holiday visits. According to some reports, the bus company tried to impose extra charges for large bags. Others said the flash point was doubling fares for secondary-school students traveling around town.

The fare increases produced allegations of corruption, since the bus operator is a private franchise, recently awarded a government monopoly for service to the provincial capital from Zhushan and other rural towns. If there wasn't corruption, collusion or nepotism involved in the award of such a franchise, then Hunan province would be unique in China, indeed the world.

The price hikes struck an especially sour note coming during the annual two-week meeting of the National People's Congress. China's nominal legislative body remains a toothless, impotent tool of the executive branch, which legislates on its behalf during the 50 weeks a year when the full NPC is not in session.

Under President Hu Jintao, the government has played up the NPC's role as a representative body of the people to lend the regime a patina of democratic legitimacy, or at least democratic aspirations. Even when the Shanghai stock market's decline triggered a global panic - which had to swell some sense of national pride - and it was the top story on every international news broadcast, Chinese domestic and international news shows led with the NPC session.
Bridging the gap

In current propaganda, the NPC is portrayed as a key cog in the central government's drive to narrow the gap between rich and poor that has grown even faster than the economy at large.

"We need to make justice the most important value of the socialist system," Premier Wen Jiabao declared on March 9 as the NPC approved new programs for health care, education and social security.

This rhetoric and any action that follows has particular appeal in rural communities, where gains lag those in the large urban centers. And some villagers in Zhushan apparently took Premier Wen seriously.

That same day, March 9, villagers reportedly blocked a bus to protest the fare hikes. Over the next three days, confrontations escalated and expanded. At the peak, 20,000 people were involved in demonstrations that included occupation of local-government buildings and burning buses.

By mid-March, 2,000 riot police were deployed under a declaration of martial law. It's unclear whether residents began stoning the police station, burning police cars and chanting "Death to government dogs" before or after officers beat residents with batons and steel rods. Whoever started it, by mid-week order had been restored. Buses were even running again, with fares reportedly rolled back to re-New Year levels.

Details about the incidents in Zhushan are available thanks to the Pan-Blue Coalition, an Internet-based human-rights group. Villagers alerted a Pan-Blue member in Yongzhou, who traveled to Zhushan, compiled accounts of the rioting, and shared the information with the international media.

Most Western media were content to report the story from the comfort of their Beijing bureaus, sometimes supplementing information from Pan-Blue with their own local sources. But by Wednesday a British Broadcasting Corp (BBC) reporter was on the scene, broadcasting accounts of the rioting and pictures of burned buses and police vehicles as well as columns of police in full riot gear marching through the streets. Given the history of China and media coverage of unrest, it was incredible to see an international reporter allowed in Zhushan to show China's mechanisms of repression in action.

Imagine how much easier it would be for Beijing to get the world to forget the Tiananmen Square unrest of 1989 without that image

of the lone demonstrator confronting the tanks. Shutting down Western media facilities left no visual record of the final assault on the square, giving the official version that the occupiers were dispersed with minimal force and casualties whatever credibility it has.

The Hu Jintao regime is the most media-savvy in China's history. For example, it has encouraged local media to act as watchdogs against corruption. That's part of the regime's attempt to portray the central government as the good cop, whose lofty intentions are thwarted by less sophisticated, perhaps dishonest officials further down the chain of command. But the government has also seen that the uncontrolled press can snoop where it's not welcome, and has clamped down on publications it thinks have gone too far.

Whatever has changed in China, there's no doubt that the BBC cameras wouldn't have been in Zhushan if the central government didn't want them there. The story was lightly reported by domestic media, just another of an estimated 200 demonstrations a day around the country. So why let the foreign media make it into a big deal? After all, showing riot police in the streets suppressing protest is bound to anger the Western lobby for human rights in China.

But human rights in China is yesterday's news, and the current leadership knows it. Western concerns about democracy and freedom in China have been trumped by the mainland's economic integration with the world economy. From filling the maw of American consumers to financing Uncle Sam's trade deficit, the world's only global superpower and its pals need China as a supplier as much as China needs them as buyers.

It now seems hopelessly quaint to recall that less than a decade ago, the US Congress conducted an annual review of China's human-rights policy to determine its eligibility for normal trading terms (with the misleading name "most favored nation status"). Today the greatest concern in Congress isn't about China putting its citizens in jail, but putting Americans out of work.
Rights veer to the religious right
The administration of US President George W Bush has done its part to make human rights in China irrelevant by adopting the religious right's framework. These fanatics count not political prisoners but Christian church services available on any given Sunday. They care not about freedom of dissent but alleged forced abortions. With that agenda, it's no wonder human rights in China are no longer a mainstream concern.

What used to be a political story is now a business story. The political story was: Can China's government change enough to meet the political aspirations of its increasingly affluent citizens? If you accepted the basic premise that political change was inevitable in the face of economic progress, there was room for optimism whichever way particular events ran in a given week. Either China's government reduced repression, or it sowed the seeds of its eventual destruction.

The business story the West now favors centers on the Chinese government successfully managing its citizens to keep producing economic growth. In this story, there's only one outcome that works for the West: to keep China buying its bonds and filling its shelves. The West needs China's government to keep the factories working, or it will have to take its order books and billions of dollars or euros in investment to a place where the government can.

So when news gets out about villagers rioting, Beijing's policy response is far less important than showing that when things do get out of hand - as they can in any country from time to time - the government has the muscle and the will to fix things quickly. It's not about moving China closer to freedom, it's about keeping it producing for Wal-Mart.

Despite all the rhetoric about justice and fairness, Beijing is not afraid to send in a couple thousand troops and declare martial law to restore order. How convenient for Hu Jintao and company to have the BBC to broadcast that message for them.***

Former broadcast news producer Muhammad Cohen is special correspondent for Macau Business and author of Hong Kong on Air (Blacksmith Books), a novel set during the 1997 handover and Asian economic meltdown about television news, love, betrayal, high finance and cheap lingerie.

Hu reassures foreign investors of more opportunities

2007-03-25T07:13:00.000-07:00

BEIJING, March 25 (Xinhua) -- Foreign investors will enjoy more opportunities in China as the country's investment environment improves, said Chinese President Hu Jintao on Tuesday.

"I emphasize here that China will further deepen its reform and open its door wider," said President Hu when meeting with Russian journalists ahead of his Russian visit from March 26-28.

China put into effect a revised regulation standardizing mergers and acquisitions of Chinese companies by foreign investors in September, 2006, sparking off concern over the country's tightening control over foreign investment.

"The new regulation makes merger and acquisition operations more open and transparent," said Hu.

China, the biggest receiver of foreign investment among all developing economies for years, has seen a sharp rise of merger and acquisition bids by foreign companies targeting Chinese firms in recent years.

The trend has triggered off an outcry for protection of critical Chinese firms for national economic security, hence the promulgation of the new rules.

"With the continued growth of the Chinese economy and improvement of China's investment environment, foreign investors would have more opportunities for investment and development in China," said Hu.

The president noted that China has approved 590,000 foreign-invested enterprises and actually used 700 billion U.S. dollars in foreign investment since it started the reform and opening-up drive 29 years ago.

"China has always adhered to its pledges and has kept opening up its market since it joined the World Trade Organization (WTO),"Hu said.

China has already opened up every section of its manufacturing sector. It has also opened up more than 100 categories of trade of services, among the 160 categories listed by the WTO, he said.

"China will unswervingly implement the opening up policy, which is a fundamental national policy," said President Hu.***

Editor: Luan Shanglin

China : The New Global Model for Development

2007-03-23T23:05:00.000-07:00

by Wei-Wei Zhang
Winter 2007

Beijing — In November, a Chinese-African summit meeting was held in Beijing. The African leaders who came were attracted not only by opportunities for aid and trade, but also by the Chinese model of development.

They know that only three decades ago, China was as poor as Malawi. But while the latter remains among the world’s poorest, China’s economy has expanded nine-fold. Indeed, the Chinese model has in many ways challenged the conventional wisdom in the West on how to fight poverty and ensure good governance. Its key features are:

People Matter. Since 1978, China has pursued a down-to-earth strategy for modernization and has focused on meeting the most pressing needs of the people. The architect of China’s reform, Deng Xiaoping, argued that China could only “seek truth from facts,” not from dogmas, and all reforms must take account of local conditions and deliver tangible benefits.

Constant Experimentation. All changes in China first go through a process of trial and error on a small scale, and only when they are shown to work are they are applied elsewhere.

Gradual Reform, Not Big Bang. China rejected “shock therapy” and worked through the existing, imperfect institutions while gradually reforming them and reorienting them to serve modernization.

A Developmental State. China’s change has been led by a strong and pro-development state that is capable of shaping national consensus on modernization and ensuring overall political and macroeconomic stability in which to pursue wide-ranging domestic reforms.

Selective Learning. China has retained its long tradition of “selective cultural borrowing”—including from the neoliberal American model, and especially its emphasis on the role of the market, entrepreneurship, globalization and international trade. It is inaccurate to describe the Chinese model as the “ Beijing consensus” versus the “ Washington consensus.” What makes the Chinese experience unique is that Beijing has safeguarded its own policy space as to when, where and how to adopt foreign ideas.

Correct Sequencing and Priorities. China’s post-1978 change has had a clear pattern: easy reforms first, difficult ones second; rural reforms first, urban ones second; changes in coastal areas first, inland second; economic reforms first, political ones second. The advantage is that the experiences gained in the first stage create conditions for the next stage.

Over the past 25 years, I’ve traveled to more than 100 countries, most of them developing countries, including 18 in Africa. I have concluded that in terms of eradicating poverty and helping the poor and the marginalized, the Chinese model, however imperfect, has worked far more effectively than what can be called the American model, as represented by the IMF-designed Structural Adjustment Program (SAP) for sub-Saharan Africa and the “shock therapy” for Russia.

The American model is largely ideology driven, with a focus on mass democratization. With little regard to local conditions, it treats sub-Saharan Africa or other less developed countries as mature societies in which Western institutions will automatically take root. It imposed liberalization before safety nets were set up; privatization before regulatory frameworks were put in place, and democratization before a culture of political tolerance and rule of law was established. The end result has often been discouraging or even devastating.

The paramount task for most developing countries is how to eradicate poverty, a root cause of conflicts and various forms of extremism. What they usually need is not a liberal democratic government, but a good government capable of fighting poverty and delivering basic services and basic security.

Furthermore, conditions for a liberal democratic government—rule of law, a sizable middle class, a well-educated population, a culture of political tolerance—are simply absent in most poor countries. Enforcing premature democratization on them often leads to what Fareed Zakaria has called “illiberal democracies,” or worse, ethnic and sectarian conflicts.

So long as the American model remains unable to deliver the desired outcome, as shown so clearly in failures from Haiti to the Philippines to Iraq, the Chinese model will become more appealing to the world’s poor.

I well remember Deng telling the visiting president of Ghana, Jerry Rawlings, in September 1985: “Please don’t copy our model. If there is any experience on our part, it is to formulate policies in light of one’s own national conditions.”

Perhaps attitude makes all the difference. China is viewed by others as modest, America as arrogant; China leads by example, America by lectures and sanctions, if not missiles.

At the end of the day, what matters most is finding the best ways to tackle the many challenges facing mankind. The Chinese model, however imperfect, has enriched the world’s political discourse and wisdom and hence expanded the policy options.***

Wei-Wei Zhang is a senior research fellow at the Center for Asian Studies in Geneva and a visiting professor at Tsinghua and Fudan universities, China. He worked as a senior English interpreter for Deng Xiaoping and other Chinese leaders in the mid-1980s.

Focus: Intellectual Property

2007-03-23T22:52:00.000-07:00

China's 2006 IPR Review
China has pledged to step up efforts to protect intellectual property rights and released a plan to do so, but the results have been mixed

by Erin Ennis and Robert Alaimo

Over the past year, Beijing has taken several significant steps to better protect intellectual property rights (IPR) in China. Despite those broad efforts, legal shortcomings remain, and improvements are needed. In March 2006, the PRC Office of the National IPR Protection Working Group released China's 2006 Action Plan on IPR Protection, which outlines various policy objectives for the PRC government and the private sector. It focuses on four major areas—trademarks, copyrights, patents, and imports and exports—and suggests legal and interpretational changes, enforcement efforts, transparency improvements, advocacy and outreach programs, and training and exchange programs for each area. Though the action plan does not set a timeframe for meeting all of its outlined goals, Beijing successfully met some of the benchmarks by the end of 2006.

Trademarks

The PRC government is revising the Trademark Law, which was issued in 1993 and first revised in 2001, for the second time. China currently uses a "first-to-file" approach, which means that the first company to file for a trademark is granted that trademark in China, even if another company has already been using that trademark but has not registered it. Such a provision can create problems for multinational corporations (MNCs) that have registered their trademarks abroad because China does not automatically recognize those trademarks.

Although trademark enforcement is still weak in general, amendments to the Implementing Regulations of the Trademark Law may improve the legal structure for enforcement. Under these amendments, foreign companies' local branches or subsidiaries may directly register trademarks without a domestic agent, potentially expediting the registration process.

US-based Pfizer Inc. has taken several trademark cases to PRC courts. In December, the First Intermediate People's Court of Beijing (FIPC) ruled that Pfizer's trademark for Viagra, the male impotence drug, is valid and ordered two Chinese companies to stop producing counterfeit pills. Despite registering a small victory, Pfizer's legal battles are not over. The same Beijing court ruled in January 2007 that several Chinese drugmakers' use of Weige, the common Chinese name for Viagra, does not constitute trademark infringement. Pfizer is currently appealing the case.

Copyrights

China is also revising the Copyright Law. Beijing has conducted several high-profile national and local crackdowns on copyright infringement, one of which was "Hawk Action," a 2005 national campaign that resulted in the arrest of 5,981 counterfeiters. PRC officials followed with the launch of "Operation Mountain Eagle" in 2006, a campaign designed to not only toughen copyright enforcement but also analyze and improve enforcement techniques. Throughout 2006, the PRC government undertook a series of enforcement campaigns dubbed Operation Sunshine I, II, and III, which focused on audiovisual IPR violations. (Operation Sunshine III ended on January 1, 2007.) In a step toward stronger IPR protection, the PRC government issued a regulation, which took effect in July 2006, that allows authorities to impose administrative fines of up to ¥100,000 ($12,500) per copyright infringement of works disseminated over networks.

These efforts are not nearly comprehensive enough to quiet analysts who are skeptical of the campaigns' long-term impacts. Moreover, despite intensified efforts to curb IPR violations, the PRC legal system not only lacks the teeth necessary for permanent improvements in enforcement but has issued what appear to be inconsistent rulings. For example, Baidu.com, Inc., the parent company of one of the most popular Internet search engines in China, has been sued several times for using a practice called "deep linking," which allows Baidu users to download unlicensed versions of copyrighted songs through its MP3 search engine. The Internet company has had mixed results in fending off challenges to its practices. Baidu first lost a deep linking case brought by Shanghai Busheng Music Culture Media Co., an affiliate of UK-based EMI Group plc, in September 2005 and was ordered to pay ¥68,000 ($8,781) in damages. (Baidu is currently appealing the case.) In the same month, the International Federation of the Phonographic Industry (IFPI) filed a similar, but separate suit against Baidu on behalf of four international music giants, including EMI. FIPC in November 2006 ruled in favor of Baidu, noting that the search engine simply provided links to websites from which songs could be illegally downloaded. While IFPI is appealing the latest ruling, EMI has dropped out of the appeal and has instead struck a deal with Baidu to provide legal, downloadable songs.

In the most recent demonstration of the apparent inconsistency with which PRC courts interpret China's IPR laws, FIPC in late December 2006 fined Sohu.com, Inc., another popular web portal in China, about $140,000 for allowing its users to download US movies illegally. The same Beijing court is currently hearing another copyright infringement case, in which a Chinese daily, Beijing News, is seeking $400,000 from web company Tom.com Corp. for the unauthorized republication of more than 25,000 Beijing News articles.
Patents

The process of revising the Patent Law began in January 2006 and is expected to be completed in 2008. The latest proposed revisions would amend provisions regarding novelty standards and the acquisition of design patents, among others (see Changing China's Patent Regime).

Reforms in patent enforcement have focused on training and certification programs for patent officials and regulators. Over the past year, the PRC government has held training courses for all positions related to patent distribution and maintenance. In September 2006, the State Intellectual Property Office (SIPO) established training courses for patent officers, certification programs for fraud prevention, and a review and examination system for clarifying responsibilities and penalties in criminal and administrative cases.

In a positive legal development for foreign patent holders in China, a June 2006 court ruling overturned the PRC Patent Reexamination Board's decision and upheld Pfizer's patent on Viagra (see Judicial Review: Time for a Closer Look).
Imports and exports

The 2006 action plan includes provisions to strengthen IPR enforcement at China's borders, and the PRC government has taken additional steps to address the import and export of illegal goods. Among those efforts, Beijing is drafting new regulations that could alter the bond-posting process—under current rules, brand owners must post a bond when requesting PRC Customs to seize infringing goods (see the CBR November-December 2004, p.30)—and has launched studies on customs enforcement and coordination. US Customs and Border Protection recently reported that it seized $125.6 million worth of counterfeit goods from China in 2006—81 percent of all IPR-infringing goods seized at US borders that year.

Criminal proceedings and value thresholds

In 2005, China agreed to raise the number of criminal prosecutions relative to the number of administrative prosecutions.

In 2005, China agreed to raise the number of criminal prosecutions relative to the number of administrative prosecutions. IPR-related cases must still meet minimum value thresholds to be considered for criminal prosecution, however. To initiate criminal proceedings, the value of seized goods must reach at least ¥50,000 ($6,300) for individuals and ¥150,000 ($19,000) for corporations.

US Secretary of Commerce Carlos Gutierrez and many other US officials have described these thresholds as a violation of China's World Trade Organization (WTO) Agreement on Trade-Related Aspects of IPR, and as the CBR went to press, the Office of the US Trade Representative (USTR) was considering a WTO case that may include this issue. In March 2006, China released an opinion that calls for the prompt transfer of administrative cases to public security bureaus and grants people's procuratorates the power to enforce such transfers. The opinion, however, does not define "prompt transfer" and allows a public security bureau up to 10 days to determine whether to accept a criminal case, though it may have up to 30 days when considering a case that is deemed "serious" or "complicated."

JCCT commitments

Acceding to the World Intellectual Property Organization (WIPO) treaties was one of China's 2005 Joint Commission on Commerce and Trade (JCCT) commitments, and Beijing promised to submit to the PRC National People's Congress (NPC) a full legislative package by June 30, 2006 that would bring the country into compliance with WIPO requirements. But as of July 2006, only a few regulations governing IPR protection on the web had taken effect, falling short of the full legislative package. China took another step toward fulfilling its JCCT commitments in late 2006 when the Standing Committee of the 10th NPC approved the WIPO Copyright and Performance and Phonograms treaties.

As part of China's 2006 JCCT commitments, Beijing agreed to verify that all computers used by the government and state-owned enterprises are loaded with legal software. China has also begun to employ new strategies at trade shows to monitor and punish entities that display illegal products, another part of the 2006 Action Plan (see the CBR, January-February 2007, Showtime in China).

Into 2007

As China ushers in the Year of the Pig, it is preparing to unveil a new national strategy for IPR protection, as it did in 2006. A draft was completed and submitted to the State Council for approval on December 25, 2006. The strategy will likely be approved and released in the second half of 2007, according to SIPO. (In February, SIPO issued a separate 2007 IPR work plan that calls for better coordination of IPR strategy and intellectual property development among various government levels, improving patent information systems, and supporting the revisions to the Patent Law.)

This year may mark a new phase in US efforts to address China's IPR enforcement deficiencies, in part because US trade officials have made IPR enforcement a top priority issue under the newly formed Strategic Economic Dialogue. In addition, USTR is undertaking a special provincial review of IPR enforcement in China—announced in its annual report on international IPR enforcement in March 2006—and solicited public comments on its proposal in February 2007. Moreover, the US Congress has made the Bush administration's record on IPR enforcement in China a top priority in the first trade hearings of the 110th Congress. A WTO case against China's IPR enforcement record could address some of the congressional concerns.***

Erin Ennis is vice president, and Robert Alaimo was government affairs assistant, at the US-China Business Council in Washington, DC.

Wen's citing of Deng and the ancients

2007-03-23T22:41:00.000-07:00

By You Nuo (China Daily)
Updated: 2007-03-19 06:49

I am glad that China's political reform was brought up again by Premier Wen Jiabao last Friday in his press conference at the end of the National People's Congress (NPC) annual session.

It was interesting to notice the way he talked about reform, in response to a reporter's question about corruption. This is a problem that caused the fall of quite a few high-ranking officials in the past year and remains one of the major issues of public concern.

There were two elements worth noticing in the premier's remarks. First, he revisited the theme Deng Xiaoping raised in the 1980s, namely the over-concentration of power as the key cause of corruption. Second, the premier revisited a traditional moral teaching about politics.

China was not ready to do much to reduce the concentration of power in the government administration when Deng first pointed out the problem more than two decades ago. There was really nothing to substitute for the various official institutions managing society - not the market, not law, not citizens' autonomous associations.

Sometimes, as frequently lamented by the press at that time, a factory would have to have dozens of official seals on its request for approval before making even a minor change in internal finance.

Now, the market economy has substantially reduced the number of government agencies. Many of the remaining agencies have changed from total regulators of industry to regulators whose realm of power is legislatively defined. China is now much better prepared for further limiting the power that individual bureaucrats can wield over citizens' pursuits of their own goals.

Doing so, as the premier pledged, is an important step to strengthen the rule of law and root out the fundamental cause of corruption. Meanwhile, it is important to set higher moral standards for officials that the public can easily understand.

Hence the premier's referral to the ancient teaching that the common people's power is like water, able to both carry and sink a boat - meaning any official or any government.

That is an idea handed down from 2,000 years ago. The saying is believed to have come from Confucius (551-479 BC), quoted in the Eastern Han Dynasty (AD 25-220).

The idea that a government can only derive its power from the consent of the people was not just taught by Confucius nor confined to Confucianism. In the times of the "100 schools of thought contending", more than 2,200 years ago, many scholars, such as the followers of Taoism, shared the same humanist value.

An outstanding source was Xun Zi (313-238 BC), a key Confucian teacher in the time of the Warring States (475-221 BC) period. He was recorded as saying: "The ruler is like the boat, and the common people the water. The water supports the boat or capsizes it."

He went on to say: "For him who holds the government, he can be rich by mobilizing the common people's exertions, can be strong by having a cause that the common people are determined to die for, and can earn his fame from the common people's applause. With the three factors he can win over all under the heaven, but once without, he will be removed from his office."

In that vein, quite a few high-ranking officials were removed from office last year - including Chen Liangyu, Shanghai's former Party secretary, for misuse of public pension funds.

Little sympathy was shown for those failed officials when the premier brought up the ancient analogy between power and water. Indeed, who could have helped them stay afloat when they had thrown away their navigation charts?

E-mail: younuo@chinadaily.com.cn

US general plays down China threat

2007-03-23T22:35:00.000-07:00

(Agencies)
Updated: 2007-03-23 16:53

The US top general said Friday that he did not believe China's armed forces were a threat and played down the prospects for hostilities in the Taiwan strait.

“Clearly, both the United States and China have enormous military capacity, but equally clearly neither country has the intent to go to war with the other. So absent of intent, I don't find threat," General Peter Pace, chairman of the Joint Chiefs of Staff said.

"We should not focus on how to fight each other but how to prevent military action. That is what my government is focused on, and that is what my Chinese counterparts here have said their government is focused on."

Pace arrived in Beijing Thursday for a four-visit which as he said is aimed at boosting military ties

Pace said he had discussed the sensitive topic of Taiwan with the Vice Chairman of the Central Military Commission, Guo Boxiong, Defence Minister Cao Gangchuan and Foreign Minister Li Zhaoxing.

"It is not surprising that in each of the meetings, the issue of Taiwan came up. It is clearly a fundamental issue with China," he said.

Asked about the possibility of a conflict over Taiwan, he said: "I believe there are good faith efforts among all the leadership to prevent that."

Pace said he had repeated US President George W. Bush's position that the US leader "would not support Taiwan independence" and that Washington wanted the issue to be handled peacefully.

Pace's visit follows a US announcement last month that it plans to provide over 400 missiles to Taiwan.

China's military is proposing officer exchanges and other confidence-building measures with the US Army and may be inching closer to setting up a "hotline" for emergency communication with Washington, according to Pace.

Pace said he immediately agreed to study the proposals put forward Friday by Gen. Liang Guanglie, chief of the PLA's General Staff Department.

"To me this was a very good, open discussion and one that I found very encouraging," Pace told reporters in Beijing.

Liang's proposals included sending Chinese cadets to the Army academy at West Point as well as participating in joint exercises and humanitarian and relief-at-sea operations "that might be able to build trust and confidence amongst our forces."

Military exchanges were largely suspended following a collision between a US spy plane and a Chinese jet fighter over the South China Sea in 2001.

Pace said the sides agreed to keep discussing setting up a "hotline" between either military or civilian leaders that would help ease any future friction.

"The Chinese military understands as well as I do that the opportunity to pick up the phone and talk to somebody you know and smooth out misunderstandings quickly is a very important part of relations between two countries," Pace said.***

Conditions of the Working Classes in China

2007-03-21T22:16:00.000-07:00

by Stephen Philion and Chi Hua
March 20, 2007

Robert Weil’s recent (June 2006) Monthly Review article “Conditions of the Working Classes in China,” provided concerned activists and scholars with a rarely visited and lucid view of the impact of China’s turn to markets on both the economic and political decline of China’s working class. Such work, based on in-depth field interviews, can only serve as a basis for a deeper understanding of both the contradictions of China’s economic growth and potential for present and future organization in defense of China (and the world’s) working class. However, despite these laudable strengths, Weil’s article falls short at the level of analysis, which reflects that of political and/or social based movement activists on whom he relied for his information. The result is an insufficient conceptualization of what we believe is in urgent need of analysis, namely the level of actual working class organization in China.

Weil details the divisions in China’s working class as the thrust toward increasing privatization and foreign export based growth has shaped Chinese inequality in the advent of WTO membership in 2001. This Weil accomplishes by documenting the fragmentation of China’s working class into rural producers who are faced with unjust tax burdens, private sector based contractual and ‘migrant’ workers who are subjected to manifold forms of economic and political discrimination, and urban workers¹in the state sector who face huge setbacks in their social position due to mass layoffs and lack of opportunities in labor markets reserved for younger and more educated workers. The point of his essay is captured straightforwardly in this excerpt:

The gains that economic development has brought—especially wider access to consumer goods and foods and increased mobility and job opportunities—are being undercut for millions by the ever-widening class divide and growing insecurity. As a result, China is entering a period of sharpening class struggle and political uncertainty that will not be easily resolved. The path forward for the working classes will be very difficult, and the revival of the left, though highly significant, is still at a very early stage. This essay explores these complexities and possibilities.

The essay was based on extensive travel and interviews with working class activists who support the political empowerment of China’s working class as a means to protect China from the inequalities generated by corporate led globalization, privatization, and the like. There is frequent reference to the previous Maoist period, during which, by law, workers, especially state workers productive sectors the Party deigned critical, were guaranteed far more extensive social and economic security. Weil’s highlighting of the differences between that period and the new forms of market led social instability and outright suffering of China’s working class today is complemented by a reliance on Chinese sources who were cadres and activist during the height of the Cultural Revolution of the 1960’s and 70’s until Mao’s death. These sources have been very active in generating support for workers’ rights, especially political rights, in the last decade or so, in the face of the declining position of workers in China. And this type of activism cannot but be, at the start, affirmed, in the pages of any left publication.

Having said this, we, nonetheless, believe that Weil’s analysis is affected by his over-reliance on such sources. Weil aptly summarizes the way key divisions within the working class are exploited by the government to prevent unity among workers with ostensibly similar enemies and grievances. High rates of unemployment in the rural regions make it easy, for example, for the government to, in some instances as Weil cites, hire peasants to fight workers instead of police! And, at the ideological level, even activists appear to buy into the divide and conquer strategies, referring to urban or rural migrant workers as less than worthy of respect in one regard or another. These are all perceptive and accurate critiques raised by Weil.

Furthermore, as Weil notes, the need to unify and broaden struggles from individual factory to city wide or even provincial wide ones is an obvious transition that will have to take place if there is any hope for a powerful workers’ movement in China’s future:

The activists we talked with there were planning a big demonstration of workers from all the factories in the city for later in the year. But prospects for such united action are uncertain. There are many remaining divisions within the urban proletariat—economic, generational, and even political—with some more supportive of the “reforms” and the government and others holding to the socialist perspective. Even a Zhengzhou park in the middle of a working-class district that we visited is divided physically between right and left groupings of workers and retirees, with the former dominating certain areas, especially during the daylight hours, and the latter more prevalent in other parts, particularly at night… There is a desire to get together, but differences in both their conditions and their treatment by the government work against such higher levels of unification.

Having ourselves a considerable familiarity with the struggles that Weil refers to in Zhengzhou and the various political groupings that meet in the park to discuss politics, we’re not as impressed by the significance of the ideological divisions between these groupings. If anything, we have found some noteworthy overlap in terms of praxis, verbal differences notwithstanding—the former of which we find far more in need of analysis and critique than the latter.

Zhengzhou and the struggles that privatization has spawned provide a good case study of what problems confront the Chinese workers’ movement and it is not apparent that the sources Weil relied on have a solid grasp of them. It is not an accident that Weil spends considerable time on the activism in Zhengzhou, there has occurred quite high levels of protest militancy in reaction to the fraudulent sell-offs at least 50 state enterprises in Zhengzhou since the mid and late 1990’s. Weil quotes one activist stating,

Activists helping organize all the working classes are trying to bring about the move toward unification, but it is a long and difficult process, that has only begun to bridge the gap between them.

Weil continues to quote a former Cultural Revolution era Red Guards from Zhengzhou stating:

As one former Red Guard in Zhengzhou put it, the understanding of a “two-line struggle,” a clear demarcation between the socialism of the revolution and the capitalism of the present, is now coming out primarily from the working classes themselves, and not mainly from the intellectuals.

These quotes come from a section hopefully, arguably too hopefully, entitled “Return of the Left”. However, our knowledge of the leftists’[whom Weil interviewed] reaction to worker activism in Zhengzhou leaves us less optimistic about its ‘return’ or prospects for a future without facing the real sources of its present weakness vis a vis the workers movement as it has transpired in Zhengzhou.

For example, the Zhengzhou Paper Mill, which served as a ‘model’ for worker organization against privatization in China’s state sector actually fell far short of its potential as a ‘model,’ despite the presence of a cadre of leftists from the Cultural Revolution era in Zhengzhou and nearby municipalities. It served as a bright spot precisely because of the determined forms of collective self-organization that the mill workers pursued in 2000, when they realized that their factory land was going to be sold to speculators, in violation of privatizers’ promises to reinvest in production and compensation to workers. The workers elected a new Workers Representative Congress [WRC] and took over their factory in May, 2000 demanding that property rights be turned over to the WRC, which would restore production under the principle of worker democratic self-management². Instead, the workers were met with police repression on August 8th, 2000. Despite that repression, workers struggles at the Paper Mill led to the agreement on the part of the Zhengzhou City Government to return property rights to the Paper Mill WRC.

How then could such a victory not lead to the further growth of the left and the workers’ movement in Zhengzhou in the time period since? A careful dissection of the failure of the Paper Mill struggle to result in more than a hollow victory, and in some senses a demoralizing ‘model’, helps answer this question in ways the Zhengzhou cadres do not. While the Paper Mill WRC did manage to win back property rights to the factory and land, it could not translate that victory into its ultimate goal of restoring production in a democratically managed fashion. To the extent the Paper Mill succeeded in accomplishing that goal, it would have provided a very positive model for other factories in very similar, indeed nearly identical circumstances 1] , 2] could have provided a base for training workers from other factories how to both fight for rights and create an alternative that could democratically restore production in the face of globalization led factory closure, and [3] provided a base for the political education of workers involved in similar struggles around China.

This was not the outcome however. Instead, once the WRC won back property rights to factory assets, the WRC encountered a serious structural barrier to that strategy, namely assumption of the enterprise debt that years of corruption and insider scheming engendered. In a nutshell, the lack of capital and state support put workers’ leaders in a position of not knowing what possible means existed to find the capital necessary to invest in production with the aim of providing state enterprise workers with social and job security. If anything, this pushed some leaders in the direction of consigning their futures to restructuring along lines of corporate shareholding once rights to factory assets and land were restored to the WRCs.

However, the lack of options in the ZZP case was hardly set in granite. If anything, the belief that looking for private stock purchasers as a means to save the factory in the face of the debt the ZZP was saddled with contributed to the undermining of the strength of the WRC that led the struggle for repossession of the factory for almost 5 years after the 2000 factory takeover. Interviews conducted in August 2005 reveal that a labor activist from Beijing frequently met with the ZZP WRC in 2002 to persuade them to stick to their plan to rely on direct worker participation in decisions that affected the fate of the Paper Mill:

Labor Activist Lai: This is what was most frustrating because this inclination to look to private investors for investments in the ZZP after the WRC retained its property rights to the factory is what undermined their solidarity. Many regarded the WRC’s internal battles as a result of personality clashes. That certainly had something to do with it. But there was more to it than met the eye. Instead of turning to the workers to debate and decide on different options, they took it upon themselves to find outside sources of capital and invariably that led to WRC representatives identifying with the goal of bringing in private investors instead of strengthening their bond with workers. While I advocated strongly for making the issues known to the workers and letting them debate what route to go, in the end the representatives went each their own way frantically trying to win outsiders’ interest in the factory and not involving workers in that process. This is what really led to the failure of the WRC to carry through their original plan to implement worker control of the factory after taking it back from the fraudulent ‘private capitalists’ who stole it from them (August 2005 interview, Beijing).

There was one other factor that added to the detour from the WRC’s road to worker controlled production after the battle to win back factory property rights was won. That would be the politicized orientation of local3 older cultural revolutionaries [i.e. Weil’s main source for information about Zhengzhou] who were interested in establishing a relationship with the various SOE workers’ leaders who organized collective actions against fraudulent privatization in Zhengzhou from 1999 onward. Their involvement, although most welcome from workers seeking outside support also added to the difficulties in developing the conditions needed to develop the capacity for worker controlled factories in Zhengzhou becoming the basis off of which to build workers’ political strength:

Activist Lai: These older supporters who were activists in the Cultural Revolution have sought to rebuild a type of militant political atmosphere that they lived through 40 years ago. That’s all well and good, but by not prioritizing what the workers movement needed in Zhengzhou to grow through the establishment of real models of actual worker controlled alternatives to privatization, they caused harm to the workers’ leaders.

Question: How so?

Activist Lai: Their interests were in building their own social movement, primarily by encouraging workers’ leaders to join their Mao Anniversary Movement⁴. There’s no better gift to the police than to politicize the workers’ movement in this fashion, it gives them the perfect excuse to round up workers’ leaders. At a time when leaders are needed to develop the base of the workers’ movement, their potential is wasted in jail and the general public comes to associate the workers’ protests with taboo political causes, which they naturally fear (Ibid.).

What we believe is the significant lesson to be drawn from failures such as the Paper Mill struggle is not that the working class in China is too divided and thus easily conquerable [albeit that is a real issue and the cleavages Weil draws out are very helpful]. Instead, there are also ideological differences over what the priorities of organizing a new left in China should be, i.e. what is its heart of the growth of a new left presence in China: workers’ collective self-organization [and here we plainly are not merely referring to the liberal goal of free trade unions] or street protests that garner attention in the short-term in the western [mainstream and left] media? The propensity toward the latter among the older left in China, shaped greatly by its Cultural Revolution experience, is, we would argue, one that has not given enough attention to what it means to organize China’s working class.

It is not surprising that Weil reports that his sources claim to see evidence of increasing size and militancy of political oriented demonstrations, ostensibly reflecting a new ‘higher’ level of working class ‘organization’ and ‘ideology’:

In an attempt to get beyond this relatively isolated form of struggle, which has in most cases proved inadequate to halt the overall march of privatization, unemployment, and lost services and securities, workers from the different enterprises in Zhengzhou are beginning to link up. In Kaifeng too—where most state-owned enterprises have closed, leaving 100,000 jobless—workers have expressed the need for greater unity in order to succeed. Only recently, those from the different plants—including the many who have already lost their jobs and the few who are still currently employed—have started to get together, holding meetings with representatives from each of the enterprises, and organizing joint protests drawing participants from all of them. The activists we talked with there were planning a big demonstration of workers from all the factories in the city for later in the year.

However, it is doubtful that this is really the case as much as something that Weils’ sources would like to happen as a result of their organizing strategy5. And it is here where the pitfalls of organizing strategy on the part of the left in China needs to be more carefully interrogated. We believe, given what we’ve seen of organizing campaigns such as those that have occurred among Zhengzhou’s state workers and elsewhere, that leftist organizing in China [to the extent it’s possible in a one-party state deeply committed to restructuring markets in line with the needs of global investors] needs to be more organically tied to actual forms of strong workers’ self-organization [especially in the state sector where the ideological adherence to socialist goals remains highest among China’s working class] that have more than clarion calls for demonstrations and attention in headlines abroad as their basis for the Chinese left’s expansion. We know that such thinking and rethinking of what it means to organize a left in China is occurring among this generation of Chinese Marxists and will continue into the future. We also suspect it is where the hope for a regeneration of China’s left as a powerful presence in Chinese society, one day able to actually take real power, is centered.

Notes:

¹.By ‘urban workers’, we mean those workers who have official residence in cities and the requisite access to public schooling, some health insurance, and varied benefits that come with possession of official urban residence status.

². The idea was one that many WRCs in China hope to implement when confronted with similar crises, not unlike, say, workers have done far more successfully in Argentina in the last decade. See Naomi Klein, “Argentina's Luddite Rulers,” http://www.countercurrents.org/argentina-klein25403.htm .

³. By ‘local’ I refer to those from Zhengzhou and nearby cities about 40 miles from Zhengzhou.

⁴. This refers to activities every September 9th to commemorate Mao in Zhengzhou on his birthday by marching to one of the few remaining statues of Mao and handing out leaflets critical of the Party for departing from Mao’s policies and becoming corrupted by capitalism.

⁵. The labor activist we quoted above contends that the numbers of marches such as the yearly Anniversary of Mao’s Birth Marches in September are exaggerated to create the impression their strategy of bypassing actual workers organization and going straight to political and social movement oriented street demonstrations is effective.

* Stephen Philion teaches Sociology at St. Cloud State University, currently working on a book with Routledge/Taylor Francis on Workers’ Democracy and China’s Transition from State Socialism, scheduled for publication in spring, 2008. Chi Hua is one of many Chinese leftists who support workers’ struggles against corporate led globalization in China.

An interview with author James Mann

2007-03-19T21:10:00.000-07:00

James Mann is author in residence at Johns Hopkins University's Paul H Nitze School of Advanced International Studies. He is the author of the New York Times best-seller Rise of the Vulcans: The History of Bush's War Cabinet, and two books about China: About Face: A History of America's Curious Relationship with China, from Nixon to Clinton, and Beijing Jeep.

His most recent book is The China Fantasy: How Our Leaders Explain Away Chinese Repression. For a review of this book, see The third way for China . Mann was previously a diplomatic correspondent and foreign-affairs columnist for the Los Angeles

Times, serving from 1984 to 1987 as Beijing bureau chief. He lives in Silver Spring, Maryland. Mann spoke to Benjamin A Shobert.

Benjamin A Shobert: I would like to start with the most general question: Why write this book now?

James Mann: No singular event prompts writing this book now. Enough has happened since the developments of the '90s, beginning with the formulation of what I call the "China fantasy", without fundamental change, that it seemed time to look back and note how little change has occurred and examine our assumptions. I have done two other books on China, one focusing on business and one on diplomacy, and had been thinking for some time that I wanted to write this book.

BAS: Would you quickly characterize the three scenarios for China that you present?

JM: The first is the "Soothing Scenario": China is going to evolve and develop toward political liberalization and democracy, and that trade will help with this change. The second is what I call the "Upheaval Scenario": to use the vernacular, that China is going to "blow up" - for example, that some serious rupture in their banking system will in turn lead to dramatic political change. One book which argues for this is Gordon Chang's The Coming Collapse of China.

There is what I call the "Third Scenario": politically, what we see in China is what we are going to get - one political system, no organized opposition, no independent judiciary. There are all kinds of nuances on the ground within China, so I don't mean to say that China is not changing. Small-scale changes are taking place, but these may not lead to fundamental changes.

BAS: Given your experience in China and the analysis you completed for this book, what do you believe are the primary crises that could derail China's modernization efforts?

JM: I think their economic growth is likely to continue; the banking system could be a problem. But I don't see a crisis within that sector leading to political change.

BAS: Is there any one particular crisis that you believe is most under-appreciated or misunderstood within the US policy community?

JM: It is difficult for many to appreciate the pressure that is building up within China to preserve the status quo. For obvious and understandable reasons, people travel to Beijing and Shanghai, then meet and talk to the urban elites. Outsiders don't go into China and talk to migrants; they talk to people who are highly educated, brilliant, really sophisticated, and get the idea that China is destined for political change. What they don't see is that the urban elites have it in their interest to maintain the status quo. They are doing quite well and are extremely nervous about political changes.

BAS: Your suggestion that China's middle class, because of their interests in seeing the economic system continue to grow, might represent some of the most strenuous resistance to political change within the country stopped me cold. I found it profoundly important.

JM: I am glad that point came through clearly.

BAS: At the last US-China Economics and Security Review Commission hearing, your testimony about the inadequacies of what you call the "Soothing Scenario" seemed to be unevenly received by some. How would you characterize the early criticism of your book, and your particular point that justifications by the "Soothing Scenario" might not be appropriate?

JM: Different ideas in my book do run against the grain of beliefs people have had for some time. These ideas should be up for debate.

BAS: Reading your book, it seemed to me that you want policymakers and the American public to ask themselves a pretty basic set of questions about how Americans think about engaging China. If you were to reduce your analysis to a one-or-two-sentence question or point for these communities, what would you ask them to think about?

JM: I would ask them to drop or put aside the prediction that political change is inevitable and look at the likelihood of the Chinese system staying as is. I am hoping people will begin to think about American policy and China's future with these things in mind.

BAS: How would you respond to those who point toward, as one example, the gradual transition of Hong Kong's pre-1970 political system and its incremental accommodation of various reforms with the suggestion that similar gradual changes are taking place in China, and will have similar ultimate results?

JM: Two points: it is always a mistake to draw conclusions comparing Hong Kong to China, just as it is a mistake to compare China with Singapore or South Korea, a point I make in my book. Second, yes, China is allowing small changes in Hong Kong, but the meaning these changes have for China is ambiguous at best. You can see limits to the democratic changes China is going to allow in Hong Kong.

BAS: Is it, in your mind, a situation where the sum of the parts of small changes may not equal the whole of real reform?

JM: Yes.

BAS: It seemed to me that a sub-text of your book is that the world might be selling its soul - looking the other way on basic questions of freedom and liberty - because of the mutual economic incentives that exist between China and the world. Is that correct and, if so, what would such a compromise suggest about US culture and politics?

JM: I don't want to get bogged down in language, but I think "selling its soul" is overstating things. People who believe that an economic relationship will result in liberalization can believe this sincerely, but consequently serve certain business interests. In a larger sense, this shows the American belief that the world wants to become like us and a reluctance on our part to recognize that a country like China is determined to follow its own path. People look at China and assume it will develop just like us.

BAS: If we take your criticism seriously, what types of changes would you suggest policymakers look for within China to indicate which of your scenarios is playing out?

JM: We need to look at the right to dissent. We need to look at the ability of organized political opposition to come together. We need to look at whether judges can be truly independent of the Communist Party. We need to look at controls on the press.

BAS: Should the US focus on holding China accountable to a specific set of reforms beyond the mandatory World Trade Organization compliance items and, if so, what types of reforms do you believe would be most efficacious at drawing out substantive change within China?

JM: These things [business and political change] can run on their own track. There is a strong and legitimate interest by American and other - European and Japanese - countries for China to develop a predictable rule of law and system for dispute resolution. It is not hard for China to set up two tracks of dissent, to focus on the rule of law in a business sense, but not for individuals.

BAS: As someone quite provoked by your cautionary analysis, I finished this book with one looming question: If the current model of "engagement" and "integration" is inadequate (two words you want the US to use carefully), what is the right way to engage China?

JM: I don't have a detailed five-point answer on what our strategy should be. "Engagement" as a concept is incredibly important; of course we should talk to China's leaders, but as a small "e", not a big "E" of engagement. I would like to see America start to have a discussion on what policies we should use and whether we will be comfortable with the possibility of an economically powerful one-party Communist China in 20 years.***

Benjamin A Shobert is the managing director of Teleos Inc (www.teleos-inc.com), a consulting firm dedicated to helping Asian businesses bring innovative technologies into the North American market.

China rate hike aimed at cooling economy

2007-03-19T21:06:00.000-07:00

Mar 20, 2007

BEIJING - The move by the People's Bank of China (PBoC) on Saturday to raise interest rates is aimed at cooling the Asian powerhouse's red-hot economy by helping to rationalize the growth of investment and lending, maintain price stability and curb excess liquidity, say experts.

"By raising the interest rates, the central bank signaled its concern over the trend towards a higher inflation rate and an overheated economy," said Tang Min, chief economist with the Asia Development Bank Mission in China.

Qin Chijiang, deputy secretary general of the China Society for Finance and Banking, said: "The monetary policy must ensure

balanced economic development, as the serious problem of excess liquidity is affecting every aspect of the economy."

The one-year benchmark interest rates are raised by 0.27 percentage point as of March 18. This will raise the one-year rate for deposits to 2.79% and that for loans to 6.39%, according to the central bank's announcement.

Boosted by the rate hike, the yuan's exchange rate opened on Monday morning at 7.7351 to US$1, slightly up nine basis points from Friday's closing. The Shanghai and Shenzhen stock markets opened lower but soon rebounded.

But Chinese economists generally believe the rate increase will help cool down the overheating stock and property markets.

This is the first interest-rate rise in 2007 after the central bank raised commercial banks' deposit reserve ratio by 0.5 percentage point twice this year to rein in excessive bank lending.

China raised borrowing costs twice last year as the country strove to curb lending growth, reduce overcapacity and prevent prices from surging.

The latest interest-rate hike was widely anticipated by the markets.

"China's recent macroeconomic data showed the country's growth is still pretty fast and faces problems such as excess liquidity," said Zhu Yan, a Bank of China analyst. "The interest-rate rises had been expected, although the timing was a bit surprising as the market had speculated the central bank might wait for the March figures to decide."

A series of economic data released this month reflected that China's economy continues to remain on a fast track with mounting liquidity.

The country's trade surplus hit $23.76 billion in February, the second-highest monthly figure. Money supply added 17.8% last month, the fastest growth in six months, and fixed-asset investment jumped 23.4% in the first two months.

The Chinese government planned to keep the country's Consumer Price Index, a major inflation indicator, below 3% this year but the index rose 2.7% in February, picking up from a 2.2% increase in January, and is still likely to rise further.

Premier Wen Jiabao said on Friday that China's economy still faces big challenges, such as structural instability and imbalances, after years of rapid growth. Wen said problems include "too-fast rises in investments and bank loans, excessive monetary liquidity as well as imbalances in trade and international payments".

PBoC governor Zhou Xiaochuan also said last week that he believed the nation's consumer prices have grown "a bit faster" in recent months. Zhou said the central bank would further use interest rates, bank reserve requirements and bond issuances to soak up liquidity.

China will employ a full range of monetary-policy tools to adjust money and credit supplies to address the problem of excess liquidity in the banking system, according to this year's government work report.

"The reserve ratio adjustments in January and February were effective in absorbing excess liquidity in banks but failed to curb commercial banks' excessive lending," said Yin Jianfeng, an expert with the China Academy of Social Sciences, adding that "the interest-rate rise will help control the overall supplies of money and credit".

Qin said: "To withdraw excess liquidity, the central bank [has] employed a full range of monetary-policy tools, including issuing notes, raising deposit reserve ratio and increasing the benchmark interest rates."

Statistics show the PBoC has withdrawn nearly 980 billion yuan ($129 billion), including 660 billion yuan withdrawn through open market operations and 320 billion yuan through the lifting of the required reserve ratio. Withdrawn money this year is 2.21 times that in the same period of 2006.

The withdrawing of nearly a trillion yuan has not caused the tightening of funds in commercial banks, but showed that the central bank will adopt monetary policies to withdraw liquidity to control credit growth.

Tang said he believes an increase of 0.27 percentage point in the interest rates is merely a "slight adjustment" and does not herald the end of the central bank's control policy.

The central bank usually raises the deposit reserve ratio when there is excess liquidity in the banking system and inflationary pressures remain moderate, said Tang. But various measures - including an interest rate-rise - will be adopted once inflation pressures increase, he said.

Yin said: "The central bank usually raises the benchmark interest rates by 0.27 percentage point, because sharp adjustments will make too strong an impact on the market."

Qin said: "An interest-rate rise may cause overseas idle funds to enter the country.

"Economic restructuring is the fundamental way of curbing excess liquidity and preventing a rebound in investment."

The rate hike may help curb fixed-asset investment, a major source for the overheating economy.

The National Bureau of Statistics said on Friday that fixed-asset investment in China's urban areas rose to 653.5 billion yuan in the first two months, up 23.4%, which was just 0.6 percentage point slower than in the whole of last year.

Investment in real estate, a sector the central government has been desperately trying to rein in, grew 24.3% to 178.6 billion yuan, according to the report.

In the January-February period, investment in projects in the first two months of this year authorized by the central government increased by 21.7% and in local government-approved projects by 23.6% over the same period last year.***

(Asia Pulse/XIC)

Property law denies farmers the good earth

2007-03-19T21:02:00.000-07:00

By Antoaneta Bezlova

BEIJING - China's national parliament passed a controversial property law on Friday that, despite lofty-sounding clauses and media hype, fails to safeguard the ownership rights of more than half the population.

China's 750 million rural residents cannot own farmland, a legacy of Maoist collectivization in the 1950s, which violently persecuted landowners. Instead, they must lease from the state and have little or no recourse when local officials move to take it. The new law does nothing to change this reality.

"How can you enact a piece of national legislation that is inapplicable to some 60% of the country's population?" mused Wen Tiejun, a senior expert on rural issues at Renmin University in Beijing. "It only goes to show that China's rural and urban division is going to continue for a long time."

This divide is visible on the fringes of China's booming cities, where peasants witness the wealth accumulated by their urban countrymen while failing to become prosperous themselves.

In Beijing, where the government is proudly preparing to host next year's Summer Olympic Games, the building boom is blamed for depriving thousands of people of their land. As the capital is expanding its airport, building a new, futuristic terminal to enable it to handle 60 million travelers a day, peasants on the city outskirts have been forced off their land and cheated out of their compensation.

"We didn't even get our noise-compensation fee," said a villager from Loutai, which has been slated for eviction and demolition.

"Local officials told us they would use the noise-compensation fee paid by the airport developer to build us cheap new housing, but we are worried we will never see the money and we will still be asked to pay a lot to buy the new houses,'' complained Gang, a Loutai villager in the Shunyi area who requested that only his first name be revealed.

While the new property law is a milestone in China's rapid dismantling of the foundations of the state-planned economy, its provisions will benefit mainly homeowners in the cities. Their numbers have risen dramatically in recent years since the government stopped providing free housing in the 1990s, as part of the socialist "cradle to grave" welfare system.

Enshrining private-property rights in legislation for the first time since China's communist takeover in 1949, the law stipulates: "The lawful property of an individual person shall be protected by law, and illegally taking possession, looting and destruction of such property by any unit or individual is prohibited."

However symbolic in a country that is still nominally communist, the new private-property law does not alter the supremacy of state ownership. All the land still technically belongs to the state, but in the cities, urbanities may now buy and sell their properties under leases of between 50 and 70 years.

In the countryside, by contrast, farmers enjoy only land-usage rights over periods of time and not title deeds that can be bought or sold. Even for the limited time that peasants are allowed to use the land, they are barred from borrowing against it to invest and expand agricultural production.

True, no other piece of legislation has generated so much controversy and debate. Yet the way this property reform ignores Chinese peasants - the bulk of the country's population - is hardly the most contentious issue angering opponents of the law.

Ideology has been the buzzword ringing through a record seven readings by top legislators and more than 100 working meetings of the National People's Congress, China's parliament.

Old-style leftists have attacked the legislation for straying too far from the Marxist foundations of communist China and embracing capitalism. They worry that the law could lead to a fire sale of state assets and have blocked its passage for years.

Gong Xiantian, a leading Marxist economist who was a critic of the law in its draft form, argues that it undermines the legal foundation of China's socialist economy, which is based on public ownership.

"Equal protection of private and public ownership is the feature of the market economy, not a socialist economy," he said.

Chinese leaders have responded to the leftists' concerns by allowing rare public discussion. The revised draft of the law includes lengthy paragraphs concerning the primacy of the "socialist system" and "state ownership".

What the new legislation lacks, though, advocates of farmers' rights argue, are any provisions that protect farmers from land grabs. Local governments that often work hand in hand with greedy developers will retain the power to convert agricultural land to other uses if it is deemed to be in the public interest.

"The new law would make little or no difference to the situation in the countryside," said rural expert Wen Tiejun.

Many localities rely on these sales to finance their underfunded budgets, a trend that has led to a wave of rural protest in the country with complaints of unfair compensation.

Appropriation of land from farmers is the most frequent subject of petitions by Chinese farmers, which when left unanswered often triggers violent protests.

Government officials ''should not turn a deaf ear to farmers' requests", warned a senior agricultural researcher recently. A single petition could lead to a "mass incident" or even a riot, said Chen Xiwen, director of the government's central group on rural work.

The Ministry of Public Security said 87,000 mass incidents were reported in 2005, up by 6.6% from 2004. More than 65% of mass incidents in rural areas are attributed to land expropriation.

Chinese Premier Wen Jiabao has called land the "core issue" facing Chinese farmers. Last year, he vowed harsh punishment for those who seize farmland illicitly. But farmers continue losing land, with official figures stating that nearly 200,000 hectares of rural land are taken from them every year for industrial purposes.***

(Inter Press Service)

New law strengthens China's private property rights

2007-03-19T05:14:00.000-07:00

10.15am
Staff and agencies Friday March 16, 2007
Guardian Unlimited

China today took a further step away from its communist past as parliament passed legislation strengthening private property rights for individuals and companies.

The highly symbolic law - which also removed preferential tax rates for foreign companies operating in China - was overwhelmingly passed by the National People's Congress (NPC) on the final day of its annual two-week session in Beijing.

Despite the huge majority - 2,799 delegates voted in favour with 52 opposed and 37 abstaining - the law is controversial.

It had been vigorously opposed by a small but influential group of scholars and retired officials, who described it as a move towards unrestrained privatisation that would further widen social divisions.

The law, which has been debated for 14 years, effectively puts the final, official seal on the way China's still officially communist economic system has been transformed by private enterprise and foreign investment over the past three decades.

The economy is increasingly dominated by the private sector, which now accounts for 65% percent of China's gross national product.

Along with private businesses, the new law also aims to bolster the rights of homebuyers who have pushed the urban home ownership rate to more than 80%.

It is also intended to help farmers who have frequently lost their land to infrastructure and housing projects with little or no compensation.

The tax law unifies the tax rate for foreign-financed companies with those of Chinese enterprises at 25%, ending an era that saw China create special economic and technology zones with lower taxes.

This year's NPC session was marked by promises from the Chinese leadership to tackle the growing gap between the rich and poor.

Wen Jiabao, the Chinese prime minister, emphasised that aim in his closing speech to the parliament today, saying the Communist party needed to focus on those left behind by the economic boom.

"The priorities now are promoting equality in education opportunities, adopting progressive employment policies, narrowing income gaps and building social security networks that cover both the cities and the countryside," he said.

In a two-hour press conference he also said the world should not be afraid of China's increasing military might.

In January, the country's military successfully tested an anti-satellite space weapon, and a 17.8% increase in military spending has been announced.

"China always advocates for the peaceful utilisation of outer space, and we are always opposed to an arms race in outer space," Mr Wen said.

Prior to the opening of the NPC, Taiwan's president, Chen Shui-bian, angered China by again talking of possible independence for the island, which split from the mainland in 1949 and which Beijing promises to invade if it formally secedes.

"We will never allow anyone to change the history, the reality and the universally recognised legal status of Taiwan - that is Taiwan has been an inalienable part of Chinese territory since ancient times," Mr Wen said.

He said China was willing to talk with the Dalai Lama "as long as he recognises that Tibet is an inalienable part of Chinese territory ... and as long as the Dalai Lama gives up his efforts to split the country".

China has occupied Tibet in an often brutal fashion since invading it in 1951. The Dalai Lama fled into exile in India following a failed uprising eight years later.***

Democracy with Chinese Characteristics

2007-03-17T21:10:00.000-07:00

www.chinaview.cn 2007-03-16 14:18:57
Special Report: NPC, CPPCC Annual Sessions 2007
By Xu Xuejiang

BEIJING, Mar. 16 (Xinhuanet) -- The annual sessions of the National People's Congress, China's top legislature, and the National Committee of the Chinese People's Political Consultative Conference, the top political advisory body, are a display of democracy with Chinese characteristics.

"The atmosphere of democracy is growing steadily during the annual sessions. The democratic system with the Chinese style is becoming a new model for the democratic system in the world," noted the Indian Information Network, which published articles and commentaries on the annual sessions.

The network said that there does not exist the western democracy model in the world only. So long as the essence of democratic essence is adhered to, namely, people are the masters of their country, the democracy is an effective democracy … China's democratic system is suited to its national conditions.

This conclusion is one of the reports and commentaries that are objective, the Xinhuanet commentary said, adding that its view on the diversity of democratic models accords with the reality in the world.

As an old saying goes, "The onlookers see most clearly."However, some Chinese living in the environment of China's political democracy, do not necessarily have a profound understanding of their own democratic system, with the result that they do not treasure the fruit of their own political democracy.

Why is it that the democratic system with the Chinese style is a new model for the democratic system in the world, the commentary posed the question. Because it has distinct Chinese characteristic that differ from those of other models of democracy. The two sessions are regarded as a good illustration.

Democracy with Chinese style ensures that one fifth of world population enjoy unprecedented democratic rights

In recent years, the two sessions held every year have been attended by more than 3,000 NPC deputies elected through democratic election and 2,000 CPPCC members elected through democratic consultation

The deputies and members come from all walks of life and all parts of the country. With the sense of responsibility for the country and the people and bearing the expectation and entrustment of voters, they meet in Beijing to spend half a month discussing and deliberating the government work repot, and examining and adopting laws.

Moreover, they make proposals and offer advice on national political guidelines, national construction and development, and various issues closely related to people's immediate interests.

Their discussions involve a wide range of hot topics in Chinese society today, including the anti-corruption campaign, soaring housing prices, education reform, the reform of the medical care system, employment, rural issues, the widening gap between the rich and the poor, the imbalance of development, environmental pollution, the social security system, security, and population.

In spite of their different social status and posts, the participants in the annual sessions sit down on an equal footing as "deputies" and "members,"and air their opinions freely. This form and scene of democracy are rarely seen in the world.

Annual sessions system reflects unique design of China's democratic system

The commentary noted that the unique creation of China's democratic system finds expression primarily in the design of the people's congress system and the system of multi-party cooperation and political consultation under the leadership of the Communist Party of China (CPC).

The NPC and the CPPCC National Committee are similar in some functions to the House of Representatives (or lower house) and the Senate (or the upper house) in the West. Yet they have many characteristics that foreign parliaments do not have.

"Above all, the NPC and the CPPCC National Committee are more people based, namely, the people enjoy more rights to participate directly in democracy and political affairs," the commentary said.

The people's congress system is China's fundamental political system and the organizational form of the state power. The NPC is the highest institution of state power, national institution of legislature, and the supreme state power.

It pools the voice and will of the people all over the country. Through the voting right of more than 3,000 deputies, it adopts national laws, examines the government work report, elects the state's leaders, and performs other major functions. The people's congress system provides a smooth channel for democracy, and enfolds a large arena for democracy and the legal system as well.

The system of multi-party cooperation and political consultation under the leadership of the Communist Party of China is a basic political system in China, and serves as a concentrated display of party politics with Chinese feature.

Because of the choice by history, the CPC is the party in power in China, while the eight non-communist parties cooperate with the CPC in managing state affairs, and are not opposition parties. The CPC and other political parties follow the principle of "long-term coexistence and mutual supervision."

As an organization involving the broadest united front, the CPPCC performs such functions as holding political consultations, exercising democratic supervision, and participating in discussing state affairs.

The 10th CPPCC National Committee has 2,238 members, with CPC members making up 40 percent, and non-CPC members the rest. Among the non-CPC members, 666 are members of the eight non-Communist parties, and 262 members are from 55 ethnic groups, and other mass organizations and religious groups, as well as celebrities. They are very active in exercising their democratic rights during the annual sessions.

China's democracy is characterized by combination of officials and common people

The commentary said that the NPC deputies and CPPCC National Committee members have a proportion of government officials and common people from all walks of live, who are able to participate in managing and discussing State affairs.

Meanwhile, government officials consist of both senior ones and a great many grassroots cadres. For example, common people account for 30 percent of deputies of the Tenth NPC. This is different from the fact that the western parliament members are all professional politicians.

During the annual session of the NPC, the representatives of common people serve as the "congress members" in managing and discussing state affairs, deliberating laws and the government work report, and exercising their voting power.

When they return to their workplaces, they are just common people. This organizational structure is conducive to exchanges and interaction, the commentary said. Government officials can directly hear the voice of the deputies and members from grass-roots units, including the comments on and criticism of the government work.

Meanwhile, the NPC deputies and the CPPCC members from grass-roots units can also directly hear the opinions of their official counterparts. Via media coverage, various opinions are heard by the people around the country.

China's democracy is suited to national conditions

China's modern democratic politics originates in its vast land, and is deep-rooted in its long cultural tradition. It is inalienable from China's national conditions, and the practice of China's revolution and socialist construction led by the CPC.

For instance, the principle governing political consultation is contained in the Constitution, the NPC Law and the CPPCC Constitution, the commentary said.

The country is the common homeland for all ethnic groups and the government is the government for all people. To build into a strong country, it is imperative to mobilize all positive factors and unite all forces that can be united with.

The commentary noted, "Any legal political party should not be excluded from the national political life, the interest of any group should not be neglected and the initiative of any individual should not be suppressed."

Therefore, all eight non-Communist parties participate in managing state affairs, with their leaders taking seats in national leadership. China is a big family of various ethnic groups so that 55 minority ethnic groups not only enjoy the regional autonomous right, but also have NPC deputies and CPPCC members who have the opportunity to play a role in the national political arena.

Also heard during the annual sessions are the voices of the representatives of the 30 million compatriots in Hong Kong, Macao and Taiwan Province, as well as a large number of overseas Chinese living under a different social system.

Positive results of human civilization are absorbed in promoting China's democratic process

In accordance with the Constitution, the term of office of the NPC and its Standing Committee is five years, and leaders of the Chinese Government are elected every five years. The term of office of local people's congresses at all levels is also five years.

Since China initiated reforms and the opening-up drive, the CPC has continuously improved China's democratic system by summarizing its governing experience, the experience in the global Communist movement and some successful experience in foreign democracy.

For instance, the system of the term of office has been introduced for Party and government leaders at all levels. Under the new system, Party and government leaders can serve the second time at the same position. The total term of the leaders at the same position shall not exceed 15 year. The implementation of the term of office for leaders at all levels has excluded the possibility of life-long tenure, making China's democratic system more healthy and vigorous.

"Practice has proven that that China's democratic system is an effective system," the commentary said.

The NPC deputies and the CPPCC members working in all parts of the country and in different departments serve as the bridge to link people throughout the nation.

Having learned about people's pressing problems, they submit thousands of proposals and bills to the annual sessions every year, which are then sent to various government departments at all levels for handling.

After receiving the feedback reports on handling the proposals and bills from government departments, the standing committees of the people's congresses and the CPPCC at all levels should deliver work reports to all deputies and members at the annual sessions.

Thus, the people's congresses and the CPPCC at all levels not only serve as the arena to promote democracy, but also have become the authoritative institution to help solve many the issues concerning the national economic development and the people's livelihood.

The key criteria for judging whether a democratic system is good or bad lies in whether the people's will is fully reflected, whether their right to serve as the maters of their country is fully exercised, and whether their legitimate rights and interests are fully protected.

The commentary noted, "China's democratic system can stand the test of the time and have been proved by practice as a good system,"the commentary said.***

Editor: Pan Letian

Premier: China's military expenditure at very low level in world

2007-03-17T21:00:00.000-07:00

Premier: China's military expenditure at very low level in world
www.chinaview.cn 2007-03-16 12:58:28

Special Report: NPC, CPPCC Annual Sessions 2007

BEIJING, March 16 (Xinhua) -- Chinese Premier Wen Jiabao said here Friday that China pursues a defensive national defense policy and its military expenditure is at a very low level in the world.

"China is at a very low both in aggregated terms or relative terms of the quantity of armed forces and military spending, compared with the developed countries and even some developing countries," the premier told reporters at a press conference after the conclusion of the parliament annual session.

China is a country with a territory of 9.6 million square kilometers and a population of 1.3 billion people. It also has 22,000-km-long land boundary and 18,000-km-long marine boundary, he said.

After the opium war in the 1840s, the Chinese people had been subject to aggression and oppression by imperialist powers. The Chinese nation knows fully well the tremendous sufferings of being enslaved and subject to foreign aggression, said the premier, adding, "We are most sincere in our commitment to peaceful development."

"We have a defense policy that is defensive in nature. The limited arm forces that China has are completely serving the purpose for safeguarding the country's security, independence and sovereignty. On this matter, we are completely transparent."

On the recent anti-satellite test Chinese scientists conducted, Wen said, China targets or threatens no other country and breaches no international treaties.

"China advocates the peaceful use of outer space and opposes arms race in outer space," he said, adding that the position remains unchanged.

Wen also called on countries concerned to sign international conventions on the peaceful utilization of outer space as soon as possible.***

Equal rights, equal rules under new law

2007-03-16T18:35:00.000-07:00

By Cao Li (China Daily)
Updated: 2007-03-17 06:30

China's top legislature adopted the landmark Property Law on Friday after a 14-year-long debate and one of the most complicated legislative processes in the country.

Also adopted is the Corporate Income Tax Law, which gives equal footing to domestic and foreign-invested companies and a reduction in the general corporate tax rate.

Among the 2,899 legislators who attended the closing ceremony of the National People's Congress' (NPC) 2007 session, 2,799 voted for the law, with 52 against and 37 abstaining. The 247-article law, which will come into effect on October 1, 2007, defines the citizen's rights in a wide range of economic activities, from owning a piece of land or house to using a parking space.

The newly enacted law guarantees equal rules and rights for property owners of the State, collectives and individuals.

It is the first time in China that the protection of private properties, a concept already enshrined by the Chinese Constitution, has been written into a specific law.

"The Property Law is a new milestone in the country's progress in its economic reform," Li Weizu, a legislator from Chongqing, said.

The NPC, with more than 97 percent support rate, on Friday also approved the new Corporate Income Tax Law, which will take effect on January 1, 2008.

(China Daily 03/17/2007 page1)

Wen's vision for China's bright future

2007-03-16T18:29:00.000-07:00

By Zhao Huanxin (China Daily)
Updated: 2007-03-17 06:30

From the war on corruption, military spending, global warming to how to further promote socialist democracy, Premier Wen Jiabao paved the way forward for China on Friday.

Using part of his nearly two-hour interaction with the press after the end of the annual legislative meeting, the premier had his frank position on the surge in corruption cases in China, blaming the over-concentration of power without effective and proper restraints.

"To address the problem, we must first and foremost focus our efforts in the institutions and systems," Wen said.

The war on corruption will be unrelenting: "No matter in what areas the corruption cases are taking place, who are involved and how high-ranking they are," he said.

He said people were encouraged to "oversee and criticize the government" in building a socialist democracy.

In particular, matters that need the administrative examination and approval must be reduced in number, and they must be done in an "open, just and transparent" manner, he said.

Moving forward, China will focus on political system reform aimed at developing democracy, in addition to advancing economic reform.

"It is particularly important that we need to make justice the most important value of the socialist system," he said.

Wen said the government will strive to give everyone equal opportunity to education, particularly to improve the living standards for economically disadvantaged groups.

"If we improve the living conditions of those in difficulty, we improve the well-being of the whole society," he said

The premier reassured that the country was advancing along a peaceful development path, with a responsible attitude to the world.

"We are most sincere in our commitment to peaceful development," he said when asked to comment on Chinese scientists' recent anti-satellite test.

The test did not target or pose a threat to any other country and has not breached international treaties, he said.

"China always advocates the peaceful utilization of outer space, and opposes an arms race in outer space," he said.

The nation knows fully well the tremendous sufferings of being enslaved and subject to foreign aggression, the premier said.

"We have a defense policy that is defensive in nature. The limited arm forces that China has are completely for safeguarding the country's security, independence and sovereignty. On this matter, we are completely transparent."

Regarding international environmental obligations, the premier said China is in favor of the Kyoto Protocol. And although as a developing country China had no obligatory target to meet the protocol, nonetheless formulated a response plan based on international treaties concerning greenhouse gas emissions.

(China Daily 03/17/2007 page1)

China Offering Property Protection

2007-03-16T18:10:00.000-07:00

By CHRISTOPHER BODEEN
Associated Press
March 16, 2007 posted 10:31 am EDT

BEIJING (AP) - The People's Republic of China's legislators on Friday passed a law providing the most sweeping protection for private businesses and property since the nation's move toward a more capitalist-style economy beginning in the late 1970s.

The law offers the same protection for private and public property, a recognition of the private sector's rise since the start of economic reforms. The private sector, including foreign investment, has grown to account for 65 percent of gross national product and up to 70 percent of tax revenues.

The measure was strongly opposed by a small but highly influential group of scholars and retired communist officials, who called it a threat to the state's guiding role and a vehicle for unrestrained privatization that will feed a growing income gap between rich and poor.

"The law basically ignores the constitution's upholding of socialist public property as sacred and not to be violated," said Gong Xiantian, a Peking University professor.

Such opposition and the communist leadership's ambivalence about reducing the primacy of state property caused the law to be kicked around for 14 years before a final version was submitted this year. It passed in a vote of 2,799 delegates in favor with 52 opposed and 37 abstaining on the final day of the annual two-week session of the National People's Congress.

Perhaps aiding the law's passage was the status of state industries, which have shed influence along with employees of late. China's labor minister said earlier this week that jobs need to be found this year for another 5 million laid-off state enterprise workers.

Along with private businesses, the law also aims to bolster the rights of house buyers who have pushed the urban home ownership rate to more than 80 percent, as well as farmers who have frequently lost their land to infrastructure and housing projects, with little or no compensation.

The legislature also passed a new tax law that unifies the tax rate for foreign-financed companies with those of Chinese enterprises at 25 percent, ending an era that saw China create special economic and technology zones with low taxes to attract nearly $700 billion in foreign investment that fueled this nation's rise to become the world's fourth-largest economy.

Under the old system, Chinese companies paid 33 percent of profits in tax, while new foreign investors were exempt from taxes for two years, get a 50 percent cut for three more and after that could receive breaks that kept rates as low as 10 percent.

That system had led to frequent complaints about unequal treatment.

Meanwhile, Premier Wen Jiabao said at a news conference at the end of the legislative session that the world should not fear China's military rise. He also repeated attacks on old foes Taiwan and the Dalai Lama.

During the two-hour appearance, Mr. Wen also sought to allay concerns by America and others about China's rising military power, saying sharply higher defense spending was still lower than most developed countries and that a recent test of an anti-satellite weapon test did not target any other nation or violate any international treaties. He also pledged to foster nascent detente with regional rival Japan.

Mr. Wen said China is opposed to the militarization of outer space despite the January test, which prompted wide international criticism.

" China always advocates for the peaceful utilization of outer space and we are always opposed to an arms race in outer space," Wen said, adding Beijing was repeating its calls for an international convention banning weapons in outer space.

Noting that despite four years of double-digit growth, the economy was overly dependent on investment and exports, not consumption, he said that imbalance has left China flush with money but also the potential for careless investing. Investing foreign exchange reserves that now total $1 trillion "is a major problem," Wen said.

An agency being set up to invest a portion of the reserves, mostly held in secure American dollar-denominated assets, will be looking to preserve and increase their value, Mr. Wen said.

"I can assure you that by instituting such a foreign exchange company, it will not have an adverse impact on U.S. dollar-denominated assets," Mr. Wen told reporters.

He acknowledged the political system needs an injection of public accountability, especially to deal with endemic corruption by officials that has fed public anger that he said was growing "more and more severe." He called for greater transparency in decision-making.

Regarding Taiwan, Wen said China had not changed its stance.

"We are strongly opposed to any secessionist activities aimed at achieving Taiwan independence," Wen said of the self-ruled island that Beijing considers part of its territory.

But he said China was willing to have a dialogue with the Dalai Lama as long as he gives up efforts for Tibetan independence.

"As long as the Dalai Lama recognizes that Tibet is an inalienable part of Chinese territory ... and as long as the Dalai Lama gives up his efforts to split the county, we will be in a position and we are willing to have consultations and dialogue," Mr. Wen said. "The door is always open."

___

Associated Press writer Charles Hutzler contributed to this report.

"Two sessions" show grassroots democracy

2007-03-15T08:11:00.000-07:00

BEIJING, March 15 (Xinhua) -- Chinese legislators and political advisors, who also act as farmers, factory workers, village officials and residential committee heads, are bringing their motions and proposals concerning the immediate interests of the public to the ongoing "two sessions" in Beijing.

"The problems we have brought forth are quite simple and common but they are really happening around us," said Chen Xueying, a lawmaker from Huizhou City, south China's Guangdong Province, having promised to take grassroots voices to Beijing.

Chen, who left her rural hometown 21 years ago to do a temporary job in the southern city, is now a workshop director andhas been a deputy to the country's top legislature for nearly ten years.

The "two sessions" refer to the once-a-year full conferences of the National People's Congress (NPC), China's parliament, and the National Committee of the Chinese People's Political Consultative Conference (CPPCC), the country's top advisory body.

Chen and some other NPC deputies jointly submitted a suggestion demanding the country's "big four" commercial banks to stop collecting inquiry fees (about 30 cents for each service).

"Although the sum is small, it's really a big deal for commoners like farmers and workers," said Chen, adding she will put forward any problem concerning public interests to the top legislature, no matter how small it is.

Like most national lawmakers, Chen has made a thorough research and investigation by visiting neighborhoods and talking to individuals living in his precinct before submitting motions or suggestions to the top legislature. She usually brings possible solutions back after the "two sessions."

NPC deputies at various levels are key channels transmitting grassroots voices, and an effective reflection of local opinions and problems, said Jiang Hongbin, a lawmaker from China's northeastern province of Heilongjiang.

"A sound development of grassroots democracy offers fundamental nutrition to the country's overall democratic situation," he said.

"Residential and village committees produce the China-style grassroots democracy as the problems with immediate concerns to the public can be effectively resolved," Jiang said, adding the two sessions this year put more emphasis on grassroots problems, which have been brought forth by grassroots deputies who keenly understand public concerns.

For instance, Jiang said, if an NPC deputy wants to reveal the real situation of agriculture to the top legislature, she or he visits farming households and collect their opinions.

"It's an entire chain linking people's aspirations, national targets and lawmakers' responsibilities," Jiang said.

In Luonan Village of Foshan City, Guangdong Province, villagers regularly cast their votes to elect members of the village committee or deputies to local people's congress at township or county levels, after listening to candidates' campaign speeches.

"Villagers are enthusiastic about choosing those who can fully represent them," said Guan Runyao, director of the Luonan Village Committee.

The central government is striving to spread such democracy in villages across the country. In some poor villages, people only gather in the backyard of the village head, sit on the stools theybring with them from their homes, and talk or debate for hours about village affairs until they find a solution.

"Each progressive step of grassroots democracy can have some impact on higher levels of political life, and finally reaches the top and influences the country's political landscape," said Liu Laiping, an NPC deputy and a judge from Guangdong.***

By Xinhua writers Li Huizi, Wei Wu and Qiu Lin

What's behind increase in the military budget

2007-03-15T07:51:00.000-07:00

Xu Guangyu
Updated: 2007-03-15 06:39

At the Fifth Session of the 10th National People's Congress, it was announced that the country's military budget for 2007 is 350.92 billion yuan, or roughly US$44.94 billion. This marks a 17.8 per cent increase over the previous year, or $6.8 billion.

The increase has drawn wide attention from the international community. Many express misgivings out of shear misunderstanding. But some look at the increase through stained lenses or stretch the matter to suit their own ends. Others try to use the growth in China's military spending to create a propaganda splash.

A famous Chinese saying goes: "Seeking truth after facts." There is a similar saying in the West: "Facts speak louder than words." These two sayings apply to evaluating China's military spending increase.

I would like to offer my point of view in the hope of clearing away misunderstanding.

First comes the question: Why the increase by the unprecedented wide margin of 17.8 percent?

The growth is primarily caused by the sharp increase in the wages, living expenses and pensions of 2.3 million People's Liberation Army officers, civilian personnel, soldiers and army retirees. The pay rise came in the latter half of 2006.

Large numbers of officers from battalion level down and non-commissioned officers received the sharpest pay rise 100 percent.

These people constitute the backbone of the military forces, directly involved in leading soldiers in military duties, training programs and logistical activities. On the personal side, they are the primary source of income for their families. Over a long period of time, their wages have remained very modest.

In view of all this, it is imperative to raise their pay by large margins.

The pay of the officers from the regimental level up, civilian personnel and army retirees has also been increased by 80 percent.

At the same time, all rank-and-file soldiers' living allowances and board expenses have also been increased.

The composition of the Chinese military expenditure is roughly the same as that of the United States. Wages, housing and services take up almost one-third of the total spending.

Take 2006. These categories of expenditure stood at $12 billion, within the total $38.1 billion. Of this $12 billion, $8 billion went to wages, living costs and pensions.

With the rise in these budget by an average of 60 percent in 2007, the total increase in these categories reaches $4.8 billion. This accounts for the lion's share in the growth of 2007's total military spending.

Of course, spending on hardware research and development and weapons procurement has also increased. And the money spent on training and exercises and on maintaining military activities has risen, too. But this kind of spending growth pales beside the increase in personnel expenditures.

It is unlikely that military personnel wages will go up by large margins every year. So, the possibility is extremely low that the country's military spending will increase dramatically in the coming years.

There is another question: Does China's military expenditure outstrip its actual needs now that the 2007 Chinese military budget has surpassed Japan's $42 billion and Germany's $37.5? It still trails Britain's $62.38 billion and France's US$50.78 billion. It is a fraction of the United States' $532.8 billion,

China's military spending falls far behind that of many other countries, whether in terms of actual amount, military personnel per capita expenditure, or the general population per capita military spending.

The country's military budget ranks fourth among the world countries and its GDP also stands fourth in the world. Coincidence? Maybe. I think the two No 4 positions are logically connected to each other.

China is a big country. The military is, therefore, obligated with overwhelmingly heavy tasks in defending the country. To compound this, the country is threatened by separatism, terrorism and hegemonism. In view of all this, China's sizable military spending is totally justified.

My latest research shows that a country would find it hard to achieve military modernization when military personnel per capita spending remains below $100,000.

The US military's per capita budget in 2007, for instance, is $383,000, the highest in the world. Next comes Britain ($324,000), followed by Japan ($175,000), Germany ($148,000) and France ($146,000).

In contrast, China's per capita spending on its soldiers is only US$19,540. The country has set a rather moderately paced timetable by today's international standards to modernize its military forces. Extending to 2050, it covers three stages: from 2006 to 2010, from 2010 to 2020, and from 2020 to 2050.

It is predicted that, during these three phases of military modernization, China's military budget will increase moderately each year to keep up with the country's economic development and its defense needs. This is aimed at closing the wide military strength gaps between the country and the world's military powers.

Does China's military expenditure outstrip its actual defense needs? Facts constitute the best gauge.

Western military analysts are very clear that Chinese fleets, air force, ground troops and strategic rocket forces are on a secondary tier with the world's leading military powers in terms of quality and quantity of its core battle equipment.

The basic facts and stark reality determine that it is impossible for China to enter an arms race with the world's military powers. Most important of all, China's State strategy and military strategy are geared to peaceful development and active defense.

The ultimate goal is to build a harmonious society inside the country and a world in harmony outside. So the country needs no military expansion or a strategy designed for military interference overseas. China has no military bases overseas and the country has never launched pre-emptive attacks against others.

By all measures, Chinese military expenditure is still very humble.***

The author is a council member of China Arms Control and Disarmament Association

An Interview with Yan Yuanzhang

2007-03-14T20:45:00.000-07:00

13/03/06
Stephen Philion

On February 22nd, the Chinese government shut down the China Workers' Website and Discussion Lists because, according to the order of closure, the owner of such a website must make a 10,000,000 Yuan (US $1.2 million) deposit to register it as a legal one. The editorial collective responded that they would not be able to pay the fee since they were mostly farmers and employed and unemployed workers without access to such a huge sum. Thus the first leftist-run website in China that enabled workers and farmers to talk about their struggles to defend socialism in today's China was shut down.

Below is an interview I conducted on February 26th with one of the administrators of the China Workers Website editorial collective in Beijing. He, as well as other members of the collective, is evidence of a new generation of leftists in China who are actively involved in struggles of workers and farmers, stepping into the role that the Party rejected long ago.

Q: Now, why would the Chinese government, a socialist government in name, be concerned about a website run by leftists discussing the kinds of things that were discussed on the China Workers Website?

A: Well, because the government is not making socialism.

Q: Of course. I'm asking because outside China there are still some leftists who see China as a socialist country.
A: Well, hearing such nonsense would reduce a pig to tearful fits of laughter!

Our web discussion is designed for workers and farmers to discuss their issues and struggles. This is the kind of thing a socialist democracy would want, for workers to have the kind of democracy that capitalism couldn't provide.

A National People's Congress will be convened soon, and the government knows that workers and farmers' voices will be heard by representatives and might even make way into the speeches made at the Congress. The government doesn't want that -- it actually fears even the possibility of it. So, when the national representatives speak, workers are supposed to keep their mouths shut.

Q: The Worker-Farmer discussion list is not routed through a port outside China, but other socialist discussion lists in China have ports abroad and can still be accessed by the Chinese. Why the difference?

A: We believe that a discussion list for Chinese workers should be run within China, for Chinese workers to participate in. There's no need to go to foreign discussion lists or to seek out foreigners in order to have discussions. If you want to open a web discussion list from an address abroad, you need to negotiate with the government, and it will end up being shut down or administered through a dummy port that requires types of software and technological skills that many workers and farmers don't possess. The result is a discussion list dominated by intellectuals, which will only turn off workers and make them not want to participate.

Q: Is this web discussion list managed by workers?

A: No, it's mainly managed by intellectuals. We do have a forum that is called "Management Issues Forum" that many workers have participated in.

Q: What differences are there between the ways workers and intellectuals engage in discussions on this list? Topics discussed? Ideologies?

A: Well, intellectuals who are able to come to our discussion list and participate in discussions with workers about workers' issues in China are already pretty ahead of the curve. Actually quite a few workers in China's enterprises are intellectuals also.¹

The main topics discussed are workers' labor relationships with enterprises and economic rights of workers. In this regard, state enterprises are acting more and more like private ones, treating workers as little more than wage laborers, and workers face issues such as forced overtime and low wages. The similarity between exploitation in state enterprises and that in privately owned ones is a special topic of interest to workers.

Ideologically, yes, there surely are different positions and factions. But, overall, those who participate in the discussions share sympathy with workers' struggles in China. They're able to talk about this issue in terms of class and struggle.

Q: Do liberals show up to participate in the discussions often?

A: Rarely, very rarely.

Q: Why?

A: Well, when liberals encounter Chinese workers and their problems, they suddenly have difficulty expressing themselves. They have little to contribute. They can express sympathy for workers, but the thing is that the Chinese workers on these lists generally are against capitalism. Also, workers in these discussions express nostalgia for the Maoist period, which liberals naturally don't share. Of course, liberals believe that today's economic problems are a product of economic policies pursued by Mao.

Also, workers have conflicting feelings about the Communist Party. Today's Chinese workers in discussions express the belief that the Party is dictatorial and is their enemy. Liberals' main slogan is "Down with the Communist Party." But workers differentiate between the Communist Party of the Maoist period and today's Party, which further puts them at odds with liberals.

At the same time, a fair proportion of workers in the discussions also have considerable illusions about capitalist democracy. So, ideologically, Chinese workers are all over the map. They have contradictory feelings about the CCP and about capitalist democracy.

But this is to be expected, since so much of what happened during the Maoist period has been completely repudiated by the media.

Q: Now, how does the Chinese government explain its closing of such a web discussion list?
A: From their vantage, our discussion list has made available information about workers' strikes in China, right? Right-wing websites that are declared enemies of the CCP then take that information and transfer it to their sites. This is detrimental to the image of the Party since foreign media will pick up on such information and use it to attack the CCP. So our website from their vantage is like a stick of dynamite.

Q: And how do you answer such charges?
A: Well, I answer with this analogy. If I go to market to buy a butcher's knife to cut meat with and someone steals it from me and commits murder, am I to understand that I'm the guilty party?

Secondly, if you want to prevent attacks on the Communist Party, it's best you do the right thing in the first place. So, if you're going to violate the rights of workers, how do you get off complaining about attacks on your Communist Party?

If you claim you're the leader of the working class and then you turn around and lay off a huge mass of state-owned enterprise workers, without doing anything to protect the power or interests of the workers' unions, of course you're going to face an angry response from workers.

When they hear this, though, there's no possibility for discussion -- they just tell you to close up shop. And they expend not a small amount of resources to make sure you do that -- police, bureaucratic officials, etc, all on this case.

Q: What exactly did they say in response?
A: They claim this is a controversial website, one that is political in content. Recently a law was passed that such websites must meet certain conditions before being set up: you need to have 10 million Yuan (1.2 million US Dollars) to register your site. Well, I haven't got that kind of money. As you can see in the announcement that we put out on our website, we stated that we are average working people, not in possession of 10 Million Yuan.

Q: So you have to be a millionaire to open a website for workers to discuss their situation and struggles in China?
A: On one of our forums, someone suggested that, since there have been many millions of state workers laid off in the last decade, each one of them can invest 1 Yuan and save the China Workers' Website!

Q: And is it possible?
A: If it were allowed, I could definitely find the support needed from workers to raise that fee. But the Party would allow no such thing. A Chinese student studying in the US wrote a piece in response asking, "Does this mean that if you have no money you have no right to speak your opinion?" Workers should have the same right to expression that elite business owners have.

China today is basically controlled by a new capitalist class. So, really, to come back to your question about how China is understood by Marxists and leftists outside China: you have to ask what ruling group has most power, in order to understand the nature of the government and its motives.

Ok, once we've established that, we can see that the class that they most fear and despise is the workers and the farmers. But the ones they most deeply dread are those who were originally state-sector workers, who formed the vanguard of China's working class. Why? Well, this is the angriest group because they've seen their "spouse" [i.e. the CCP and state enterprises] stolen by this new and corrupt class of capitalists in China. So, they struggle to get their "spouse" back. Naturally this raises ire in this new China.

Q: Tell me a little about the main topics of discussion among rural farmers who are on your web discussion list.
A: Most prominent are land ownership, rights issues, health care [inability to pay for medical services], children's education crisis [likewise tied to costs of schooling]

Q: How should leftists outside China understand the significance of your website being shut down by China's authorities?
A: It's possible that not many on the left abroad even know about this matter, since ours is a small website and our reach is not that great outside China. I think they should regard this as part of a struggle on the part of China's workers and farmers to secure their right to express themselves.

You realize at this time some one third of China's business owners are members of the Communist Party! What in the world is this? Who says capitalists can speak for the workers of China?

There are so many workers in China who want to participate in our website and speak their minds. The support they've shown for this website is not for this website in particular -- it's for their right to speak out.

Some have said that we on the left in China shouldn't make such a big deal of this, we should find a way around the blockade with the aid of foreign webports, etc. Well, I say, even a little sheep when it is bitten will let out a big yelp -- it has to, for that matter. The same for those of us responsible for this little website. The shutting down of a website like ours is, in effect, the silencing of workers who face hardships in today's China. We can't rely on intellectuals to accurately express the terms of those hardships. Nor can we expect them to lead the struggles to resolve the class conflicts that cause their pain.

So it comes down to this: what do we amount to if we don't use our abilities to aid workers in China to express themselves amid their struggles?

So, you asked me if we could do this or that to get around the blockade. Those are technical issues; for us, the issue at hand is the right of Chinese workers to run their own web discussion lists to express themselves without having to encounter obstacles in their own country. It's for this reason that we must continue to struggle and fight for this right. And it's our hope that leftists outside China will support Chinese workers in this endeavor as they fight for their right, demanding the restoration of this workers' website.

Notes:

^An. "intellectual" in this context does not mean a "professional academic" but one who has educational training at one level or another, such as an accountant, an engineer, a more highly skilled craft worker, etc.

Stephen Philion, now is a PhD as of April 2004, when I completed my dissertation at the University of Hawaii on "The Discourse of Workers Democracy as a Terrain of Ideological Struggle in the Moment of Transition from State Socialism in China." That dissertation is now being turned into a book titled "Workers' Democracy and China's Transition from State-Socialism," to be published by Routledge Press in early 2008. A taste of the book can be found in a forthcoming article in the next edition of Socialism and Democracy.

Too much of a good thing for China

2007-03-14T06:48:00.000-07:00

Mar 15, 2007

BEIJING - Senior Chinese officials say it will take time to reduce China's trade surplus as latest statistics show that the country's trade surplus in the first two months of this year reached US$39.61 billion, more than triple that in the same period last year.

The total value of China's imports and exports hit $297.81 billion in the first two months, surging 31.6% year-on-year, according to the latest statistics released by the General Administration of Customs.

Of the total, the value of exports reached $168.71 billion, leaping 41.5%, while the value of imports hit $129.1 billion, climbing 20.6%. In February alone, the import and export value amounted to $140.4 billion, rising 32.9%. This included exports of $81.1 billion, soaring 51.7%, and imports of $58.34 billion, climbing 13.1%.

The trade surplus in February reached $23.76 billion, and that in January-February came to $39.61 billion. According to data from the Ministry of Commerce, China's trade surplus in the first months of 2006 totaled $12.02 billion.

General trade made up a bigger proportion of China's foreign trade in the January-February period, while the proportion of processing trade declined. Statistics show that China's import and export through general trade hit $133.76 billion in the period, rising 39.8%, 17.5 percentage points higher than growth in the year-earlier period, and making up 44.9% of total foreign trade in the same period, 2.6 percentage points more than the proportion in the same 2006 period.

Meanwhile, import and export through processing stood $135.17 billion, rising 23.9% and making up 45.4% of total trade, which declined 5.6 percentage points and 2.8 percentage points respectively as compared with the growth in the year-earlier period.

At the same time, bilateral trade between China and its major trade partners has maintained rapid growth since this year, with the growth of bilateral trade between China and its four major trade partners all exceeding 20% in the first two months of this year.

According to customs statistics, the European Union (EU) remains China's largest trade partner, with Sino-EU bilateral trade volume topping $51.08 billion in January-February, surging 42.7% year-on-year, and the growth rate was 23.3 percentage points higher.

The United States is China's second-largest trade partner, with Sino-US bilateral trade volume totaling $43.86 billion in the two months, up 32.2% year on year, and the growth rate increased 6.9 percentage points.

Japan is China's third-largest trade partner, with a bilateral trade volume of $33.49 billion, up 22.4% year on year, which was 10.7 percentage points higher than that during the same period last year.

Bilateral trade volume between China and the Association of South East Asian Nations (ASEAN) amounted to $27.68 billion, up 30% year on year. ASEAN continues to be China's fourth-largest trade partner.

Customs released the latest trade statistics on Monday as two senior Chinese officials said it will take time to adjust the trade imbalance between China and some of its trade partners.

"China wants to reduce its trade surplus, but we cannot imagine the issue being solved in the short term or by measures solely in the trade sector," said Commerce Minister Bo Xilai.

"The surplus does not come solely or mainly from trade, but is caused by the overall structure of the industrial sector and international economy."

China's trade surplus totaled $178 billion for last year. And the country recorded a trade surplus of $15.9 billion in January and $23.8 billion in February this year.

Zhou Xiaochuan, governor of the People's Bank of China, the country's central bank, said the most effective approach to addressing the imbalance would be to adjust the structure of the country's economy.

Some domestic measures that have been floated include expanding consumption and developing the country's service industry. Other steps include increasing imports and encouraging Chinese companies to invest overseas, he said.

"It will take time to adjust. It should be a slow, gradual process," he said. "But an adjustment of this sort should be essential to addressing the imbalance."

As an auxiliary tool, modifying the country's exchange rate policy could also have some effect in adjusting the balance between exports and imports, he said.

The country's trade surplus has been a source of friction between China and its trading partners. Bo said that last year 37% of the anti-dumping cases in the world targeted China.

These cases, together with anti-subsidy cases, affected 8,500 Chinese enterprises and 500,000 workers. "We have to take the issue seriously," he said. Bo said China hopes to resolve these disputes through consultations.

"But we should also respect our trading partners' decisions to take their concerns to the World Trade Organization's dispute-settlement system if they would like to do so," he added.

(Asia Pulse/XIC)

Washington-China Trade

2007-03-14T06:38:00.000-07:00

Between Politics and Markets: How is China’s Media Evolving?

2007-03-14T05:20:00.000-07:00

Wednesday, March 14, 2007
Minxin Pei and Hu Shuli

On March 14, 2007, the Carnegie Endowment hosted the event “Between Politics and Markets: How is China’s Media Evolving” with Hu Shuli, the founder and editor of Caijing Magazine. Carnegie Senior Associate and China Program Director Minxin Pei moderated the event.

Hu Shuli discussed the media in transition, the changes that have been made and the obstacles it still faces. China is in transition from a state-planned economy to a market economy; such a transition requires changes in many other areas, such as the media. Hu believes that the Chinese people demand a free press, but thus far, for various reasons, this has not come to fruition.

Hu Shuli gave many examples of how Caijing has been at the forefront of exposing corruption in China’s business and financial worlds and how such investigative stories have influenced the Chinese government to take steps to prosecute corrupt businessmen and make changes to the system to make such acts more difficult in the future.

During the 1980s, there were a limited number of newspapers that were all state-controlled. Journalists lacked the tools that were necessary to take on the new role that the great changes in reform era China required. In the next phase, in the 1990s, fringe papers sprouted. The business and financial sector requires transparency to attract investment; because of this, journalists emerged to become influential as watchdogs.

Because of these changes in Chinese society, Hu had the opportunity to launch Caijing, with financial sponsorship from in private investors who had formed a think tank on stock market reforms in China. From the beginning, Caijing had editorial independence. Its first edition investigated and published a story about corporate fraud. The magazine was almost banned, but that first edition sold all of its 50,000 copies.

Another story that Caijing ran was about government-backed fund management companies, which manipulated the stock market. After the story ran, other media became less reluctant to report on business and finance corruption. The story had a lasting effect on improving market regulations in China. Chinese stock market regulators adopted reforms to address the problems exposed by Caijing’s story. The magazine also reported on a company, Yin Guangxia, which had reported false revenues. Within 10 hours after Caijing published this story, the government suspended Yin Guangxia’s stock; courts sentenced its President and accountants to prison terms. The story even compelled the government to push new legislation about lawsuits.

Another story run was about the former chairman of the China Construction Bank, Zhang Enzhao. Zhang resigned, citing personal reasons. However, Caijing exposed the truth; a U.S. civil suit was brought against Zhang for corruption. In this story, the Chinese press cooperated with other international news agencies; this signaled to the rest of the world great progress in the Chinese news media.

With these stories came many changes in the media. Bad news was no longer taboo-issues like natural disasters and embezzlement stories were fair game. For example, Caijing covered both SARS and Avian Flu stories.

Caijing has not only been successful editorially, but also financially. This has encouraged investment in the media industry in general, causing the number of non-official financial media to increase substantially since 2000. The Chinese media is working hard to try to match the quality of their international counterparts; they also understand their role as watchdogs.

Major challenges remain for the media because of institutional problems. For example, the media still faces pressure and interference from the government. This interference is not because of ideology, but more because of personal relationships between the government and businessmen. Furthermore, there are few mechanisms to protect Chinese journalists. Chinese media also faces commercial challenges; accuracy remains a serious problem. The commercial pressure has at times undermined the professional integrity of journalists, causing them to mislead (even if accidentally) their readers.

Hu is optimistic about the media’s role as a public watchdog. The public is becoming more and more used to non-official journalism and has started to insist on knowing what is happening in their communities.

During the question and answer session, Hu Shuli addressed the issue of journalists blackmailing companies to get money for not exposing their corruption. Hu also explained how businessmen with connections could attempt to prevent negative stories about them through their official connections. She described how independent media and Internet emerged around the same time; they have mutually reinforced one another. Caijing tries to hire journalists that share the same values. Caijing also has a very strict fact checking system; the journalists need to identify their sources to the magazine (though not publicly) and must also have printed sources. Hu believes that Caijing does have an impact on a cleaner investment environment in China and helps to pave the way to a freer press in general.***

This summary was prepared by Oriana Skylar Mastro, Junior Fellow in the China Program at the Carnegie Endowment for International Peace.

The Dark Side of China's Rise

2007-03-13T19:08:00.000-07:00

Minxin Pei
Foreign Policy, March/April 2006

China’s economic boom has dazzled investors and captivated the world. But beyond the new high-rises and churning factories lie rampant corruption, vast waste, and an elite with little interest in making things better. Forget political reform. China’s future will be decay, not democracy.

The only thing rising faster than China is the hype about China. In January, the People’s Republic’s gross domestic product (GDP) exceeded that of Britain and France, making China the world’s fourth-largest economy. In December, it was announced that China replaced the United States as the world’s largest exporter of technology goods. Many experts predict that the Chinese economy will be second only to the United States by 2020, and possibly surpass it by 2050.

Western investors hail China’s strong economic fundamentals—notably a high savings rate, huge labor pool, and powerful work ethic—and willingly gloss over its imperfections. Businesspeople talk about China’s being simultaneously the world’s greatest manufacturer and its greatest market. Private equity firms are scouring the Middle Kingdom for acquisitions. Chinese Internet companies are fetching dot-com-era prices on the NASDAQ. Some of the world’s leading financial institutions, including Bank of America, Citibank, and HSBC, have bet billions on the country’s financial future by acquiring minority stakes in China’s state-controlled banks, even though many of them are technically insolvent. Not to be left out, every global automobile giant has built or is planning new facilities in China, despite a flooded market and plunging profit margins.

And why shouldn’t they believe the hype? The record of China’s growth over the past two decades has proved pessimists wrong and optimists not optimistic enough. But before we all start learning Chinese and marveling at the accomplishments of the Chinese Communist Party, we might want to pause for a moment. Upon close examination, China’s record loses some of its luster. China’s economic performance since 1979, for example, is actually less impressive than that of its East Asian neighbors, such as Japan, South Korea, and Taiwan, during comparable periods of growth. Its banking system, which costs Beijing about 30 percent of annual GDP in bailouts, is saddled with nonperforming loans and is probably the most fragile in Asia. The comparison with India is especially striking. In six major industrial sectors (ranging from autos to telecom), from 1999 to 2003, Indian companies delivered rates of return on investment that were 80 to 200 percent higher than their Chinese counterparts. The often breathless conventional wisdom on China’s economic reform overlooks major flaws that render many predictions about China’s trajectory misleading, if not downright hazardous.

Behind the glowing headlines are fundamental frailties rooted in the Chinese neo-Leninist state. Unlike Maoism, neo-Leninism blends one-party rule and state control of key sectors of the economy with partial market reforms and an end to self-imposed isolation from the world economy. The Maoist state preached egalitarianism and relied on the loyalty of workers and peasants. The neo-Leninist state practices elitism, draws its support from technocrats, the military, and the police, and co-opts new social elites (professionals and private entrepreneurs) and foreign capital—all vilified under Maoism. Neo-Leninism has rendered the ruling Chinese Communist Party more resilient but has also generated self-destructive forces.

To most Western observers, China’s economic success obscures the predatory characteristics of its neo-Leninist state. But Beijing’s brand of authoritarian politics is spawning a dangerous mix of crony capitalism, rampant corruption, and widening inequality. Dreams that the country’s economic liberalization will someday lead to political reform remain distant. Indeed, if current trends continue, China’s political system is more likely to experience decay than democracy. It’s true that China’s recent economic achievements have given the party a new vibrancy. Yet the very policies that the party adopted to generate high economic growth are compounding the political and social ills that threaten its long-term survival.

Command and Control

After a quarter century of gradual economic reform, has China succeeded in transforming its old command economy into a genuine market economy? Not nearly as well as most people would guess. Although China was one of the earliest socialist economies to begin serious reform, recent data on the country’s regulation, international trade, fiscal policy, and legal structure place China in the bottom third of 127 countries surveyed for economic freedom, below most Eastern European countries, India and Mexico, and all of its East Asian neighbors, save Burma and Vietnam.

The Chinese state remains deeply entrenched in the economy. According to official data for 2003, the state directly accounted for 38 percent of the country’s GDP and employed 85 million people (about one third of the urban workforce). For its part, the formal private sector in urban areas employed only 67 million people. A research report by the financial firm UBS argues that the private sector in China accounts for no more than 30 percent of the economy. These figures are startling even for Asia, where there is a tradition of heavy state involvement in the economy. State-owned enterprises in most Asian countries contribute about 5 percent of GDP. In India, traditionally considered a socialist economy, state-owned firms generate less than 7 percent of GDP.

But China’s tentacles are even more securely wrapped around the economy than these figures suggest. First, Beijing continues to own the bulk of capital. In 2003, the state controlled $1.2 trillion worth of capital stock, or 56 percent of the country’s fixed industrial assets. Second, the state remains, as befits a quintessentially Leninist regime, securely in control of the “commanding heights” of the economy: It is either a monopolist or a dominant player in the most important sectors, including financial services, banking, telecommunications, energy, steel, automobiles, natural resources, and transportation. It protects its monopoly profits in these sectors by blocking private domestic firms and foreign companies from entering the market (although in a few sectors, such as steel, telecom, and automobiles, there is competition among state firms). Third, the government maintains tight control over most investment projects through the power to issue long-term bank credit and grant land-use rights.

China’s business cycle is therefore driven by Beijing. Private-sector firms have very limited access to finance or new markets. The state even dominates many ostensibly deregulated sectors, such as the brewing industry, the retail sector, and textiles. Of the 66 publicly traded retailers in the country, only one is private. There are only 40 private firms among the 1,520 Chinese companies listed on domestic and foreign exchanges.

The Parasitic State

To many observers, Beijing’s tight grip on the Chinese economy means only that its reform process is incomplete. As China continues to open itself, they predict, state control will ease and market forces will clear away inefficient industries and clean up state institutions. The strong belief in gradual but inexorable economic liberalization often has a political corollary: that market forces will eventually produce civil liberties and political pluralism.

It’s a comforting thought. Yet these optimistic visions tend to ignore the neo-Leninist regime’s desperate need for unfettered access to economic spoils. Few authoritarian regimes can maintain power through coercion alone. Most mix coercion with patronage to secure support from key constituencies, such as the bureaucracy, the military, and business interests. In other words, an authoritarian regime imperils its capacity for political control if it embraces full economic liberalization. Most authoritarian regimes know that much, and none better than Beijing.

Today, Beijing oversees a vast patronage system that secures the loyalty of supporters and allocates privileges to favored groups. The party appoints 81 percent of the chief executives of state-owned enterprises and 56 percent of all senior corporate executives. The corporate reforms implemented since the late 1990s—designed to turn wholly state-owned firms into shareholding companies—haven’t made a dent in patronage. In large- and medium-sized state enterprises (ostensibly converted into shareholding companies, some of which are even traded on overseas stock markets), the Communist Party secretaries and the chairmen of the board were the same person about half the time. In 70 percent of the 6,275 large- and medium-sized state enterprises classified as “corporatized” as of 2001, the members of the party committee were members of the board of directors. All told, 5.3 million party officials—about 8 percent of its total membership and 16 percent of its urban members—held executive positions in state enterprises in 2003, the last year for which figures were available.

An incestuous relationship between the state and major industries can doom developing countries, and China is more susceptible than most. The combination of authoritarian rule and the state’s economic dominance has bred a virulent form of crony capitalism, as the ruling elites convert their political power into economic wealth and privilege at the expense of equity and efficiency. The state’s economic dominance preserves systemic economic inefficiency as scarce resources are funneled to local elites and bureaucratic constituencies. The World Bank estimates that, between 1991 and 2000, almost a third of investment decisions in China were misguided. The Chinese central bank’s research shows that politically directed lending was responsible for 60 percent of bad bank loans in 2001–02. The problem persists today. Chinese economic planners revealed in early 2006 that 11 major capital-intensive manufacturing industries were overproducing. For example, the country’s steel industry, the world’s largest, has 116 million tons (or about 30 percent) of excess capacity.

State enterprises are also miserably unprofitable. In 2003, a boom year, their median rate of return on assets was a measly 1.5 percent. More than 35 percent of state enterprises lose money and 1 in 6 has more debts than assets. China is the only country in history to have simultaneously achieved record economic growth and a record number of nonperforming bank loans.

Party membership and business acumen do not often go together. Because of the party’s fixation with high growth, government officials are rewarded for delivering, or appearing to deliver, precisely that. This incentive structure fuels a massive misallocation of capital to “image projects” (such as new factories, luxury shopping malls, recreational facilities, and unnecessary infrastructure) that burnish local officials’ records and strengthen their chances of promotion. The results of these mistakes—gleaming office complexes, industrial parks, landscaped highways, and public squares—tend to impress Western visitors, who view them as further proof of China’s economic prowess.

The Chinese economy is not merely inefficient; it has also fallen victim to crony capitalism with Chinese characteristics—the marriage between unchecked power and illicit wealth. And corruption is worst where the hand of the state is strongest. The most corrupt sectors in China, such as power generation, tobacco, banking, financial services, and infrastructure, are all state-controlled monopolies. None of that is unprecedented, of course. Tycoons in Russia, after all, have looted the state’s natural resources. China, at least, boasts genuine private entrepreneurs who have built prosperous companies. But China’s politically connected tycoons have cashed in on China’s real estate boom; nearly half of Forbes’ list of the 100 richest individuals in China in 2004 were real estate developers.

Various indicators, pieced together from official sources, suggest endemic graft within the state. The number of “large-sum cases” (those involving monetary amounts greater than $6,000) nearly doubled between 1992 and 2002, indicating that more wealth is being looted by corrupt officials. The rot appears to be spreading up the ranks, as more and more senior officials have been ensnared. The number of officials at the county level and above prosecuted by the government rose from 1,386 in 1992 to 2,925 in 2002.

An optimist might believe that these figures reveal stronger enforcement rather than metastasizing corruption, but the evidence suggests otherwise. Dishonest officials today face little risk of serious punishment. On average, 140,000 party officials and members were caught in corruption scandals each year in the 1990s, and 5.6 percent of these were criminally prosecuted. In 2004, 170,850 party officials and members were implicated, but only 4,915 (or 2.9 percent) were subject to criminal prosecution. The culture of official impunity is thriving in China.

What’s worse, corruption is now assuming forms normally associated with regime decay. Corruption involving large numbers of officials used to be rare. Now it’s rampant. Regional data suggest that large-scale corruption rings account for 30 to 60 percent of all the cases of graft uncovered by authorities. In some of the worst instances, entire provincial, municipal, and county governments were found to be tainted. In Heilongjiang Province, a corruption scandal involved more than 400 local officials, including the former governor, the former organizational chief of the party’s provincial committee, a vice governor, the chief prosecutor, the president of the provincial high court, and eight of the province’s 13 party bosses. According to official reports, in Shenyang (the capital of Liaoning Province), Fuzhou (the capital of Fujian Province), and more than 30 other counties and prefectures, groups of senior local officials, including party chiefs and mayors, have been on the payroll of organized gangs involved in murder, extortion, gambling, and prostitution.

As ominous as the corruption itself is what these scandals are beginning to reveal about the government’s legitimacy. In their confessions, corrupt officials often blame their misdeeds on a loss of faith in communism. There is anecdotal evidence that senior party officials have taken to consulting fortune-tellers about their political careers. The ruling elite in China, it appears, is drifting and insecure. Fearful about what the future may hold, some officials do not want to wait even a few years to turn their power into wealth. In 2002, almost 20 percent of the officials prosecuted for bribery and nearly 30 percent of those punished for abuse of power were younger than 35. In Henan Province in 2003, 43 percent of local party bosses caught up in corruption were between 40 and 50 years old (as compared with 32 percent older than 50). China has seen its future leaders, and a disproportionate number of them are on the take.

The Two Chinas

With elites cashing in quickly, ordinary Chinese are falling behind. Estimates from various sources, including the World Bank and the Chinese government, suggest that income inequality has increased at least 50 percent since the late 1970s, making China one of the most unequal societies in Asia. A recent study reports that less than 1 percent of Chinese households control more than 60 percent of the country’s wealth (by comparison, 5 percent of the households in the United States own 60 percent of the wealth). Rising inequality, to be sure, is not unusual in countries moving toward a market economy, but China’s neo-Leninist system, warped incentives, and elitist policies have amplified the trend.

A generation ago, the offspring of the ruling elite took up positions in the government or military; today, they go into business. The social ramifications of their self-dealing are particularly evident in real estate, where peasants regularly earn less than 5 percent of the value of their land while developers pocket 60 percent, with the remainder going into local government coffers. Privatization, too, offers insiders a chance to hit it rich by gobbling up state assets on the cheap. A recent study showed that 60 percent of privatized state enterprises were sold to their managers. As a result, 30 percent of all private-firm owners are now party members.

Meanwhile, basic services and good governance for ordinary Chinese are falling further behind. According to the World Bank, China’s governance ranks in the bottom half of all the countries in the world. China underinvests in crucial social services, especially education and public health. Government expenditures on education fell nearly 20 percent as a share of total education spending in the 1990s. In rural areas, home of China’s poorest citizens, 78 percent of the education budget must be raised from peasants through local taxation and fees, while Beijing provides only 1 percent of the funding for rural education.

In public health, the consequences of misspending are even more severe. Government money, which accounted for 36 percent of all health expenditures in the 1980s, plunged to less than 15 percent by 2000. China has hospitals and equipment, and its per capita spending is higher than comparable developing countries. But these resources are among the most unequally distributed in the world. The World Health Organization rated the fairness of the Chinese healthcare system below all countries except Brazil and Burma. According to China’s own Ministry of Health, two thirds of the population lacks any type of health insurance, and about half of the sick do not seek professional medical treatment at all.

Democracy Delayed

Rapid economic growth has not yet produced China’s much-anticipated political pluralism. Perhaps, some observers speculate, China is still too poor to afford democracy. But with a per capita income of nearly $1,500 ($4,500 if you consider people’s purchasing power), China is richer than many poor democracies. It’s not poverty that is holding up democracy; it’s a neo-Leninist state and the crony capitalism it fosters.

In part, democracy itself has been a victim of the country’s economic expansion. However flawed and mismanaged, the country’s rapid growth has bolstered Beijing’s legitimacy and reduced pressure on its ruling elites to liberalize. Democratic transitions in developing countries are often triggered by economic crises blamed on the incompetence and mismanagement of the ancien régime. China hasn’t experienced that crisis yet. Meanwhile, the riches available to the ruling class tend to drown any movement for democratic reform from within the elite. Political power has become more valuable because it can be converted into wealth and privilege unimaginable in the past. At the moment, China’s economic growth is having a perverse effect on democratization: It makes the ruling elite even more reluctant to part with power.

Lavish government spending on law and order helps to ensure that power-sharing won’t be necessary in the near future. Since the Tiananmen Square tragedy, the party has invested billions in beefing up the paramilitary police force (the People’s Armed Police) that has been deployed in suppressing internal unrest. To counter the threat posed by the information revolution, and especially the Internet, the Chinese government has blended technological savvy with regulatory might. The Chinese “Internet police,” officially known as the Ministry of Public Security’s Internet and Security Supervision Bureau, is reportedly more than 30,000 strong. Its Beijing branch proudly claimed that, in 2002, it participated in a multi-agency exercise to see whether the government could rid the Internet of “harmful content” within 48 hours of the onset of an emergency. (During the exercise, all “harmful content” was removed in 19 hours.) The party’s refined strategy of “selective repression” targets only those who openly challenge its authority while leaving the general public alone. China is one of the few authoritarian states where homosexuality and cross-dressing are permitted, but political dissent is not. Domestic opposition groups and individuals who might challenge the party’s authority are left isolated and powerless.

The emerging social elite, by contrast, is co-opted and coddled. The party showers the urban intelligentsia, professionals, and private entrepreneurs with economic perks, professional honors, and political access. For example, nationwide, 145,000 designated experts, or about 8 percent of senior professionals, received “special government stipends” (monthly salary supplements) in 2004; tens of thousands of former college professors have been recruited into the party and promoted to senior government positions. At least for now, the party’s charm campaign is working: The social groups that are normally the forces of democratization have been politically neutralized.

China’s neo-Leninist regime has formidable resources—but much more serious defects. State-directed investment, made to secure the political loyalty of key constituencies and advance personal careers, will prevent China from realizing its economic potential. The corruption of the state will likely deepen. The deterioration of the public health infrastructure and education systems will generate social tensions and mass alienation, thus eroding the party’s base of support and increasing its vulnerability to the economic or political shocks that will inevitably come.

China has already paid a heavy price for the flaws of its political system and the corruption it has spawned. Its new leaders, though aware of the depth of the decay, are taking only modest steps to correct it. For the moment, China’s strong economic fundamentals and the boundless energy of its people have concealed and offset its poor governance, but they will carry China only so far. Someday soon, we will know whether such a flawed system can pass a stress test: a severe economic shock, political upheaval, a public health crisis, or an ecological catastrophe. China may be rising, but no one really knows whether it can fly.

Minxin Pei is senior associate and director of the China Program at the Carnegie Endowment for International Peace. He is the author of China’s Trapped Transition: The Limits of Developmental Autocracy (Cambridge: Harvard University Press, 2006).

Interview With Wang Chaohua

2007-03-13T17:29:00.000-07:00

Wang Chaohua, Beijing Student Leader. Now a Ph.D. candidate in modern Chinese literature at UCLA, Wang was a graduate student in 1989, and older than many of the students involved. She spent much of the Cultural Revolution in the Chinese countryside, then returned Beijing to study civil engineering just before the Cultural Revolution ended. She entered graduate school in Chinese literature in 1987.

What impact if any, do you think the student movement had on changes that have taken place in China up to now on issues ranging from, for example, personal freedoms, openness of the political system, and tolerance for dissent?

There have been changes in China since 1989, in regard to personal freedoms, political system, or tolerance for dissent. In my view, these changes are not yet supported with well-articulated political positions. For example, personal freedoms might be in one way or another broadened from that prior to 1989, but they are not openly justified as "personal freedom" by citizens, or publicly acknowledged by the authorities as so as to be fully guaranteed and protected by the Constitution and laws. For another instance, greater tolerance for ideological dissent can be observed in various field, but tolerance for political dissent has been under strict control. In terms of political system, "political system reform" as an official leading slogan has virtually disappeared in the part ten years, if we remind ourselves how much Zhao Ziyang - and even Deng Xiaoping - talked about it prior to 1989.

Taking these observations into account, I do not think the changes in today's China have come about as a result of the '89 student movement. On the contrary, many explicit slogans of that movement, such as "upholding the authority of the Constitution," or "Freedom of speech and freedom of press," have been deliberately suppressed by the authorities, and selectively "forgotten" by the society.

Thinking about it now, do you think what the students were asking the government to do was what they should have been asking? Given the chance to go back, how would you change the goals of the movement?

Talking about the "goals" of the movement for me is at the same time talking about "strategies." Unfortunately, we students in 1989 often mixed the two, and let the latter easily take over the former. Thinking about the whole process today, I would suggest that we students should have insisted on official recognizing/legalizing our autonomous organization, and we should have not made any compromise over this essential issue, while having been more flexible on other "strategic" issues.

My opinion on this issue is based on the following understanding of the actual process: when the government refused to hold formal dialogue with our autonomous organization (in early May 1989), we set up another separate student group (The Dialogue Delegation) in order to have open dialogue with the government, with the internal excuse to ourselves that during the course of dialogue we could always push the government to recognize us; when the hunger-strike started on May 13, this issue of recognition was pushed further to background, and asking for an open, live-broadcast dialogue became the immediate "goal."

In my view, this process in a casual manner exhausted our strategic potentials and obliterated our utmost important goal to pave the way for long-term democratic changes in China.

As for how certain strategies and tactics were chosen and others were dismissed, I must admit there was not a fixed procedure and it was always different from one case to another. Anyone who wants to understand the student movement must remember that the Chinese students in 1989 had no previous experience of non-official, autonomous organization, and the political situation was putting tremendous pressure on their newly-born organization to make decisions every day, if not every few hours. In my view, this inexperience, along with inadequate ideological preparation, also played into the disadvantage on the student side in terms of selecting available strategies and tactics.

Based on your experiences during the demonstrations, if you could ask one thing of the current government in China, what would it be?

Give us freedom of assembly and freedom of speech.

If you were advising Chinese students today on how to bring about support for human rights improvements and democratic change, what would you tell them?

I'd suggest that they think for themselves and respect minority opinions. In my view, these are some basic qualities for today's students to become tomorrow's intellectuals in the cause of leading China to a democratic path.

What motivated you to join the students in Tiananmen Square? At what point during the movement did you decide to join? What was your role from the time you joined until June 4?

I joined the students during the night of April 21-22, when Hu Yaobang's funeral was to be held in the morning of April 22. The size of the student columns that night and their spirit of self-discipline were the two main factors that convinced me that this time the masses might be able to play a decisive role in pushing the government to change towards democracy. I was curious to know how the highly-disciplined demonstration was achieved.

To be frank, my discovery was not very encouraging. The highly-disciplined appearance of the student demonstration was mostly a spontaneous reaction to the government. Consequently, I was convinced that I should try my best to turn the spontaneous self-disciplining spirit to a long-term organization. Due to this conviction, I was more interested in getting into organizational work than participating in exciting demonstrations. This was not at all the case with most of the student demonstrators in 1989. So, in less than a week, on April 28, I became a member of the Standing Committee of the Autonomous Association of Beijing College Students (Beijing gao xiao xuesheng zizhi lian hui).

As I said earlier, the student organizations in 1989 were highly volatile, and inexperienced. My "official" title changed a few times during the whole process, but my activities were mainly around the center of those leading student organizations, particularly this Autonomous Association of Beijing College Students.

Where has your participation in the movement left you personally?

My participation in the movement left me with determination that I must keep my effort in searching for a better future for Chinese people. There could be various ways to do things under such a broad statement. Personally, I was left with the belief that there has not been an adequate political, ideological line for a democratic movement to fully mobilize Chinese people.

I would say this is an intellectual weakness in China on the one hand. On the other hand, this is also due to the weakness of the West. When Chinese people look westward, they do not see convincing positions in the West that speak for "them" as a collective of non-Western people, not just for the future of the "nation" or the "state," nor just for "people" without a collective "national" goal.

Before 1989, I was neither politically nor intellectually very active. Since then, I have had the belief that I must pursue knowledge, pursue self-consciousness, especially political consciousness. I shall also try to share my ideas with others. These can summarize what I've been doing since then. In other words, I've been less involved in organizational activities.

If you are in contact with any of your colleagues who remained in China, do you know what kind of impact their participation in Tiananmen Square has had on their lives?

People I knew who participated in Tiananmen Square in 1989 are unable to forget that experience, but their experience differs. Some activists were imprisoned for years, and couldn't live a normal life after their release. They were frequently harassed by police. Some then became silent in political terms in order to keep a relatively peaceful life.

Another group, including myself, decided to launch vigorous intellectual inquiries into the alternatives for a better future for the Chinese people. They have been courageously critical of many aspects of the society today, even under great political pressure from the authorities.

There are others who have become rather pessimistic and have turned to cooperation with the government, believing that that is the only path to bring changes to China. Personally I do not agree with the position of this last group.***

Asian club of billionaires

2007-03-13T07:48:00.000-07:00

William Pesek
Tuesday, March 13, 2007

Follow the money. It is among the first things young reporters learn about covering business. Nowhere is this bit of wisdom more useful than here in Asia.

Take Forbes magazine's latest listing of billionaires. It showed a healthy increase in Asians, with the number of Indian and Chinese billionaires nearly doubling. India now has the most billionaires among the top 20 after the United States.

"It was a sizzling year in Asia," says Luisa Kroll, associate editor at Forbes.

Yet Forbes' latest tally says even more about what is happening within Asia. India wrestled the top spot in Asia from Japan, which held the title for two decades. India has 36 billionaires with a total of US$191 billion (HK$1.48 trillion); Japan has 24, with a total net worth of US$64 billion.

Following the money offers insights on the changing of the guard in the world's most-vibrant economic region. Japan once dominated Asia, yet developing powers such as India and China are moving to center stage. Expect more of the same in the years ahead.

South Korea, one of Asia's underappreciated investment destinations at the moment, added seven billionaires. That could serve as a reminder that Asia's third-biggest economy is creating more wealth than many appreciate. Warren Buffett is not among those selling Korea short; his Berkshire Hathaway recently disclosed a 4 percent stake in Posco, the world's third-biggest steelmaker.

Australia now has 12 billionaires - led by media magnate James Packer - up from six two years ago. Malaysia has nine, more than double Singapore's four. Taiwan has eight billionaires, while the Philippines and Thailand each have three. Indonesia now has two.

There also are insights into the India-versus-China debate. Virtually everyone seems to believe China's economy will overshadow India's in the decades ahead. Yet as Forbes reminds us, India is doing a more impressive job in creating wealth than Asia's No2 economy.

China has 20 billionaires. Sure, if you combine China's billionaires with Hong Kong's you get 41, but Hong Kong's economy is not really China's. And anyway, the total net worth of China-plus-Hong Kong - US$140 billion - still trails India.

Rich Chinese are more like Russians than Americans; most would rather not be on the Forbes list, as it attracts the attention of tax authorities. Still, you would think that with China's rapid growth and increasing global clout it would boast at least as many billionaires as India.

The message is that China may be growing faster, but India's progress in creating a living, breathing economy and stock market is far more impressive.

How many global investors have not heard of Indian software firms such as Infosys Technologies or Wipro? Ditto for drugmakers like Ranbaxy Laboratories and Dr Reddy's Laboratories.

China's 10 percent-plus growth masks the fact that it is heavily dependent on foreign direct investment. It still mostly serves the demands and needs of foreign-owned firms in foreign markets. There is a dearth of internationally known Chinese companies that operate on a global scale and market their products abroad.

India has daunting challenges to overcome, not the least of which are debilitating bureaucracy, dodgy infrastructure and crushing poverty. Yet it has a powerful entrepreneurial spirit that helped Indian-born Lakshmi Mittal in 2004 leapfrog Li Ka-shing, long Asia's richest man.

China may be getting most of the headlines, yet the steady increase in Indian billionaires is a reminder India's markets are far more developed. Its equity markets are more mature and trusted than China's, a dynamic that is pulling in overseas institutional investment.

The same is true of India's debt markets. China, after all, does not have much of a bond market to speak of. And while India's is a work in progress, its debt market gives expansion-hungry Indian companies a key advantage over Chinese ones.

Of course, the latest Forbes list also exposes the dark side of Asia's rise: a widening gap between extreme rich and extreme poor. Denting the veneer of affluence suggested by surging equity markets is the fact that two-thirds of the world's poor live in the region.

India, where three-quarters of the population survives each day on less than the cost of a Starbucks latte, is a case in point. A Unicef analysis found that nearly 46 percent of India's children below the age of three suffer from malnutrition - compared with roughly 35 percent in sub-Saharan Africa and 8 percent in China.

Even so, there are powerful pockets of innovation in India. Carefully cultivated and harnessed, the wealth created by the entrepreneurial class could spread. While that is still a big "if," the potential exists. So too for China. Its top-down economic model is not encouraging the kind of innovation that creates jobs from the ground up. Then again, China has a knack for surprising skeptics, so stay tuned.

Asia's influence will only grow as investors boost their interests in the region. If you want reassurance, perusing the latest Forbes should do the trick.***

BLOOMBERG

What Maoism Has Contributed

2007-03-13T05:18:00.000-07:00

Samir Amin
September 2006

This essay was prepared for the June 9-10, 2006 Hong Kong Conference: “The Fortieth Anniversary: Rethinking the Genealogy and Legacy of the Cultural Revolution” sponsored by the China Study Group, Monthly Review, and the Contemporary China Research Center of City University of Hong Kong. It was translated from the French by Shane Mage.

The Second International's Marxism, proletarian-and-European-centered, shared with the dominant ideology of that period a linear view of history—a view according to which all societies had first to pass through a stage of capitalist development (a stage whose seeds were being planted by colonialism which, by that very fact, was “historically positive”) before being able to aspire to socialism. The idea that the “development” of some (the dominating centers) and the “underdevelopment” of others (the dominated peripheries) were as inseparable as the two faces of a single coin, both being immanent outcomes of capitalism's worldwide expansion, was completely alien to it.

But the polarization inherent to capitalist globalization—a major fact because of its worldwide social and political importance—challenges whatever vision we may have of how to surpass capitalism. This polarization is at the origin of the possibility for large portions of the working classes and above all of the middle classes of the dominant countries (whose development is itself favored by the position of the centers in the world system) to go over to social-colonialism. At the same time it transforms the peripheries into “storm zones” (according to the Chinese expression) in natural and permanent rebellion against the world capitalist order. Certainly, rebellion is not synonymous to revolution—only to the possibility of the latter. Meanwhile, reasons to reject the capitalist model in the center of the system are not lacking either, as 1968, among other things, has shown. To be sure, the formulation of the challenge advanced at a certain time by the Chinese Communist Party—“the countryside encircles the cities”— is by that very fact too extreme to be useful. A global strategy for transition beyond capitalism toward global socialism has to define the interrelationship between struggles in the centers and the peripheries of the system

At first, Lenin distanced himself somewhat from the dominant theory of the Second International and successfully led the revolution in the “weak link” (Russia), but always believing that this revolution would be followed by a wave of socialist revolutions in Europe. This hope was disappointed; Lenin then moved toward a view that gave more importance to the transformation of Eastern rebellions into revolutions. But it was up to the Chinese Communist Party and Mao to systematize that new perspective.

The Russian Revolution had been led by a Party well rooted in the working class and the radical intelligentsia. Its alliance with the peasantry in uniform (first represented by the Socialist Revolutionary Party) ensued naturally. The consequent radical agrarian reform finally fulfilled the old dream of the Russian peasants: to become landowners. But this historic compromise carried within itself the seeds of its own limits: the “market” was, by its own nature, fated, as always, to produce a growing differentiation within the peasantry (the well-known phenomenon of “kulakization”).

The Chinese Revolution, from its origin (or at least from the 1930's), unfolded from other bases guaranteeing a solid alliance with the poor and middle peasantry. Meanwhile its national dimension—the war of resistance against Japanese aggression—likewise allowed the front led by the Communists to recruit broadly among the bourgeois classes disappointed by the weaknesses and betrayals of the Kuomintang. The Chinese revolution thus produced a new situation differing from that of post-revolutionary Russia. The radical peasant revolution suppressed the very idea of private property in farmland, and replaced it with a guarantee to all peasants of equal access to farmland. To this very day that decisive advantage, shared by no other country beside Vietnam, constitutes the major obstacle to a devastating expansion of agrarian capitalism. The current discussions in China largely center on this question. I refer the reader to the chapter on China in my book Pour un Monde Multipolaire (Paris, 2005) and my article “Théorie et pratique du projet chinois de socialisme de marché” (Alternatives Sud, vol VIII, N· 1, 2001). But in other respects the going-over of many bourgeois nationalists to the Communist Party would necessarily exert an ideological influence favorable to the support of the deviations of those who Mao termed partisans of the capitalist path (“capitalist-roaders”).

The post-revolutionary regime in China does not merely have to its credit many more-than-significant political, cultural, material and economic accomplishments (industrialization of the country, radicalization of its modern political culture, etc.). Maoist China solved the “peasant problem” that was at the heart of the tragic decline of the Central Empire over two decisive centuries (1750-1950).

I refer here to my book L'avenir du maoïsme (1981), p. 57. What is more, Maoist China reached these results while avoiding the most tragic deviations of the Soviet Union: collectivization was not imposed by murderous violence as was the case with Stalinism, oppositions within the Party did not give rise to the establishment of a Terror (Deng was put aside, he returned...). The aim of an unparalleled relative equality in income distribution both between the peasants and the workers and within each of those classes and between both and the ruling strata was pursued—of course with highs and lows—tenaciously, and was formalized by choices of development strategy contrasting to those of the U.S.S.R. (these choices were formulated in the “ten great relationships” at the start of the 1960's). It is these successes that account for the later developmental successes of post-Maoist China since 1980. The contrast with India, precisely because India had no revolution, thus has the greatest significance not only in accounting for their different trajectories during the decades from 1950 to 1980 but still for those characterizing diverse probable (and/or possible) perspectives for the future. These successes are the explanation for why post-Maoist China, committing its development thenceforward to its “opening” within the new capitalist globalization, was able to avoid destructive shocks similar to those that followed the collapse if the U.S.S.R.

Just the same, Maoism's successes did not settle “definitively” (in an “irreversible” fashion) whether China's long-term perspectives would work out in a way favorable to socialism. First of all, because the development strategy of the 1950-1980 period had exhausted its potential so that, among other things, an opening (even though a controlled one) was indispensable (cf. L'avenir du maoïsme, pp 59-60), an opening which involved, as what ensued showed, the risk of reinforcing tendencies evolving toward capitalism. But also because China's Maoist system combined contradictory tendencies—toward both the strengthening and weakening of socialist choices.

Aware of this contradiction, Mao tried to bend the stick in favor of socialism by means of a “Cultural Revolution” (from 1966 to 1974). “Bombard the Headquarters” (the Party's Central Committee), seat of the bourgeois aspirations of the political class holding the dominant positions. Mao thought that, in order to carry out his course correction, he could base himself on the “Youth” (which, in part, broadly inspired the 1968 events in Europe—consider Godard's movie La Chinoise). The course of events showed the error of this judgment. Once the Cultural Revolution had been left behind, the partisans of the capitalist path were encouraged to go over to the offensive.

The combat between the long and difficult socialist path and the capitalist choice now in operation is certainly not “definitively outlived.” As elsewhere in the world, the conflict between the pursuit of capitalist unfolding and the socialist perspective constitutes the true civilizational conflict of our epoch. But in this conflict the Chinese people hold several major assets inherited from the Revolution and from Maoism. These assets are at work in various domains of social life; they show up forcefully, for instance, in the peasantry's defense of state property in farmland and of the guarantee that all should have access to farmland.

Maoism has contributed in decisive fashion to ascertaining exactly the stakes in and the challenge represented by globalized capitalist/imperialist expansion. It has allowed us to place in the center of our analysis of this challenge the center/peripheries contrast integral to the expansion, imperialist and polarizing by its very nature, of “really existing” capitalism; and from this to learn all the lessons that this implies for socialist combat both in the dominating centers and the dominated peripheries. These conclusions have been summed up in a fine “Chinese-style” formula: “States want independence, Nations want liberation, and Peoples want revolution.” States—that is, the ruling classes (of all countries in the world whenever they are something other than lackeys, transmission belts for external forces) try to expand their room for manoeuvre in the (capitalist) world system and to lift themselves from the position of passive objects (fated to submit to unilateral adjustment whenever demanded by a dominant imperialism) to that of active subjects participating in the formation of the world order. Nations—that is, historical blocs of potentially progressive classes—want liberation, meaning “development” and “modernization.” Peoples—that is, the dominated and exploited popular classes—aspire to socialism. This formula allows an understanding of the real world in all its complexity, and consequently, the formulation of effective strategies for action. Its place is in a perspective of a long—very long—global transition from capitalism to socialism. As such it breaks with the “short transition” conception of the Third International.

Samir Amin, Egyptian-born and Paris-trained, Samir Amin is one of the better known Neo-Marxian thinkers, both in development theory as well as in the relativistic-cultural critique of social sciences. Promoter of the conscious self-reliance of developing countries, particular for the Arab world.

One China, Many Paths

2007-03-12T20:17:00.000-07:00

Edited by Chaohua Wang
Reviewed by Ban Wang

The truism that the outside observer of China sees a clear picture often proves wrong. Journalists and pundits outside China may notice the appearance of new McDonald’s restaurants or Starbucks franchises on the urban landscape, but they are often blithely oblivious to the hopes and fears of real Chinese people. A fuller understanding of China must take into account local agitations, the circumstances of lived experience, and critical expressions. In editing One China, Many Paths, Chaohua Wang has sought to measure the heartbeat of contemporary China’s sensitive and critical minds. This collection offers an ensemble of interviews and essays coming out of the thinking minds of the Chinese intelligentsia. Yes, the writers here still unabashedly see themselves as belonging to the intelligentsia and take it upon themselves to tackle the pressing issues of the day. One might call this book a handbook of major intellectual pronouncements about China in the past two decades. Originally written in Chinese, the essays were translated by experienced and informed hands, and academic discourse flows into pleasurable reading. Anyone who wants to understand the real issues and problems confronted by Chinese as shapers of their own fate will have with this volume a reliable guide. Scholars of China would do well to turn to this book for an appreciation of socio-historical contexts and discursive undercurrents when writing about Chinese fiction, film, or mass culture.

Wang’s lucid “Introduction” recounts a multilayered story of intellectual ferment and maturation. In a mini-history of intellectuals’ educational background and later stages of intellectual growth, she walks us through the mutating issues and debates from the 1980s to the 1990s. The distinction between the New Era reform of the 1980s and the economic boom of the 1990s is familiar enough, but the “Introduction” offers a clear trajectory of what has been at stake from one decade to the other. The 1980s was imbued with a forward and outward looking zeitgeist, filled with innocence and dreams. But the watershed events of Tian’anmen in 1989 and Deng Xiaoping’s tour in southern China in 1992 ushered in a decade troubled by complexity and heterogeneity, competing visions, and perplexed reflections. Economic dynamism, political stagnation, and deepening social divisions made this period “interesting times” that tried humans’ souls. As people groped for a future, space for discussion widened. Debates have transformed from those centering around the humanities to pragmatic issues of social and economic restructuring; academic discourse has taken on more political and policy overtones.Chaohua Wang actively participated in the Tian’anmen protest in 1989 and shares intellectual kinship with the writers and interviewees represented in this volume.Although it traces the footprints of her fellow travelers, the “Introduction” itself is a unique voice in the intellectual scene it describes.

The controversial struggle between liberalism and the New Left runs as a thread through the collection. In Wang Hui’s analysis, the question “Whither China?” defines the changing alignments of liberals and the New Left. The two contending positions emerged on the intellectual scene in response to international events: the Asian financial crisis shook faith in capitalism, and the NATO bombing of the Chinese Embassy in Belgrade prompted intellectuals to have second thoughts about American values and democracy and put liberals on the defensive. Although it is important to come to terms with the changing re-alignments and splits in the seemingly polarized camps, applying political labels can be misleading. This is not only because the two sides have so much in common, but also because one side can change places with the other or may make alliances before any position hardens. Still, it is useful to identify what intellectuals disagree about.

Generally, the liberals constitute a “right-wing”; they are often economists who idolize privatization and marketization without reservations or consideration of social welfare. More moderate liberals temper this market fundamentalism by critiquing and exposing the power monopoly and corruption that plague the “free” market economy. The New Left also has contradictory strains, but generally focuses its critique on the collaboration between the market and the state. Wang Hui suggests that a healthy market depends on healthy and productive state control. The market is not new to China, and the history of world capitalism has shown that the market was not opened by the allure of commodities or needs, but by gunboats and wars. It is not an act of God or nature, but a process of accumulating wealth and power. So New Left intellectuals like Wang Hui would like to see a good state organization of the market, with a public policy for the common good and protectionist measures to shore up the national economy (p. 64).

Here is a small confession. In reading this volume and seeing how ideological lines shift so quickly in this controversy, I had a change of mind. I have tended in my own scholarship to focus on the consequences of frenzied economic development and to express suspicion toward the gospel of the neoliberal market.However, the complex array of views expressed in this book push me somewhat toward the liberal side of the spectrum, because the liberal view is not necessarily the natural ally of the market and often utters the strongest call for social justice, equality, and moral responsibility in economic development. Very often one cannot tell a liberal from a left-leaning writer.One China, Many Paths show us that the controversy between the liberals and the New Left presents “a range that contains many intermediate and overlapping shades of opinion” (p. 40), reflecting the crossroads and uncertainties of the 1990s.

The main current of intellectual discourse of the 1980s diverged into smaller streams in the 1990s. Renewed attention was paid to scholarship and empirical studies of history and the tradition of learning. In launching Xueren (The scholar), a signal journal of research in the humanities, intellectuals sought to preserve the integrity of knowledge in the face of excessive political intervention. Chen Pingyuan suggests that intellectuals can only do so much in politics, but can play a significant role in developing professionalism and historical scholarship. This professionalism, which came on the scene as a reaction to the polemical, large-scale theoretical syntheses of the 1980s, promoted the solitary pursuit of research. Professionalism premised on a deep, intricate sense of history, however, may not be so apolitical as it seems. Wang Hui, Cui Zhiyuan, and Qian Liqun look to the history of national independence and socialist practice in an attempt to retrieve useful themes and forgotten motifs. By way of historical reflection they speak about politics and reform in an enlightened, historically sensitive way. Wang Hui discusses the need of late-developing countries to invent their own anti-modern modernity. This throwback to history can be traced in Wang Xiaoming and Wang Anyi’s essays and in the debate on the humanist spirit. Out of the cultural atmosphere in which market values were increasingly unbridled, resistance emerges. In the same vein, Qian Liqun looks at amnesia and the decline of historical memory as a product of commercialism. He rejects the simplistic interpretations of historical figures, such as Sun Yat-sen, Lu Xun, and Mao Zedong, in recent erasures of revolutionary and nationalist traditions, and retrieves the usable memory of self-critique and self-empowerment. Illusions of economic prosperity and consumer lifestyle screen out a sense of history; in response, empirical research and the new use of history can restore the spirit of human culture and enlightenment.

One remarkable characteristic of the writers represented in this book is their use of sociological, political, and economic analyses. This underscores the methodological soundness of approaching China as an unstable whole, pulled by many diverse strains and in many directions. This approach is as important for social scientists as for humanists. Prominent social scientists and historians, such as Qin Hui, He Qinglian, Hu Angang, Gan Yang, explore issues closely related to immediate questions of political structure, assets transfer, privatization, constitutional visions of mass participation in the political process, the disturbing polarization of social classes, the widening divide between the city and the countryside, the stock market, and the experience of Eastern European countries and Russia since 1990. Li Changping’s essay about the crises in the Chinese countryside is particularly poignant and may draw attention away from the fetishistic fixation on urban glamour and toward the yellow earth and the peasantry. In Qin Hui’s analysis, the peasant question is essentially a problem of China’s modernization. With all these pragmatic and policy-relevant essays, the book returns to a discussion of the primal scene underlying the intellectual ferment of the 1990s: the events on Tiananmen Square in the spring of 1989. In a dialogue moderated by Professor Leo Ou-fan Lee, Wang Dan, Li Qinqi, and Chaohua Wang, all student leaders in the June Fourth movement, discuss the meaning of the event. The movement is interpreted as a political awakening or as a harbinger of the headlong pursuits of personal freedom and material consumption. The different interpretations hark back to the liberal versus New Left controversy and offer parameters for envisioning China’s future.

The editor lists a number of important issues omitted by this book, including literary criticism, legal reform, and national minorities. Another significant absence is discussion of international relations in the light of China’s ever-tighter integration into the global economy, though there are of course scattered comments in interviews about how geopolitical tension and economic rivalry bear on intellectuals’ understanding of China’s place in the world. But this understanding remains intuitive and undeveloped. Where China is going is part of the question of where the world is going. China impacts on the world and the world affects China ever more powerfully and directly. With its rapid economic growth, widening ties, and larger role in the WTO, many worry about the “rise of China.” Will it be “peaceful,” as the PRC state leaders insist, or violent? Global free trade might appear to the New Left as a sign of U.S. economic expansion, but globalization is not making China a loser in relation to the rich and powerful of the world, although it negatively affects both Chinese peasants and American workers. Rather, China is encroaching on the U.S. market like “Wal-Mart with an army” and is bankrolling America’s profligate spending habits. China is on its way to becoming the one country in the world that is likely to contest American power. This situation greatly challenges the conventional understanding of the nature of China’s political structure, policy agenda, reforms, and intellectual orientations. The rise of China is a remarkable fact that has been debated hotly by U.S. observers, but in China it has yet to be scrutinized through reasoned discourse and intellectual debate. A sequel to this valuable collection might fill the gap.

Wang Ban, Ban Wang is Professor in Chinese and Comparative Literature at Rutgers University.

The Wages of Neo-liberalism

2007-03-12T20:10:00.000-07:00

PART 2: The US-China trade imbalance

Henry C K Liu

(See also Part 1: Core contradictions)

A rising US trade deficit with China has generated much heat but little light about unfair Chinese trade practices.

While sensationalized reports over movie-copyright violations are highlighted by Hollywood special interests in the popular media to draw public attention, and in the halls of the US Congress to lobby for countervailing trade legislation against China, the validity of many of the complaints of unfair trade does not survive reality checks with actual macro-data. It is similar to Wal-Mart complaining about loss from shoplifting while raking in obscene profits from shoppers at the expense of its own workers and those of its suppliers overseas. Of course shoplifters deserve to be punished, but it is not a valid excuse for Wal-Mart's global low-wage policy.

In 1950, the United States imported US$11.4 billion of goods and services and exported $12.7 billion, for a foreign-trade total of $24.1 billion, constituting a mere 7.3% of a gross domestic product (GDP) of $329 billion. There was no trade with China because of a Cold War embargo by the US. The US trade deficit for 1950 was $1.3 billion, which came to an insignificant 0.4% of GDP. It was an amount the US could easily sustain as World War II had left the country the richest and most productive economy in a war-torn world.

Also, at that time the US was the world's only creditor nation, with a gold-backed dollar serving as a reserve currency for international trade as mandated by the Bretton Woods international finance architectural regime. The gold-backed dollar with fixed exchange rates ensured that war debts incurred by US allies would be duly paid back without dilution. Thus a US trade deficit was quite necessary for restoring a world economy severely damaged by war. And the dollars that the surplus trading economies received were returned to the US to pay for war debts but not to buy US assets, as foreign-exchange and capital controls were the order of the time. The minor payments imbalance was paid with a transfer of gold holdings between the trading economies. There was no foreign-exchange market beyond government exchange windows. In that arrangement, dollar hegemony was not a serious problem, as cross-border flow of funds were strictly controlled by all governments and the US was obliged to redeem dollars with gold.

The end of the Cold War in 1991 enabled the globalization of deregulated financial markets to allow cross-border flows of funds to be executed electronically with no restrictions for most economies. Since then, a huge foreign-exchange market has grown to more than $2 trillion of daily volume around the benchmark of a fiat US dollar. The reserve-currency status of the dollar has not been based on gold since 1971, but only on US geopolitical prowess, which managed to force all key commodities to be denominated in dollars. Finance globalization since 1991 has allowed the US to become the world's biggest debtor nation, with the largest trade and fiscal deficits, financed by a fiat dollar that continues to serve as a key reserve currency for not only international trade but, more important, for international finance.

Imbalance of payments and debt bubble

Dollar hegemony emerged after 1991 to allow the US to neutralize persistent trade and fiscal deficits that otherwise would lead to an imbalance of payments between it and its trading partners by erasing the payments imbalance from its trade deficit with a US capital-account surplus.

Separate from the trade deficit, the US fiscal deficit is financed by the Federal Reserve's monetary-easing policies to increase the money supply, causing an asset-price bubble that can absorb the rising debt without altering the debt-equity ratio, causing de facto but stealth inflation, renamed as "growth". This phantom growth is touted by neo-liberal economists as the reason foreign investment is attracted to US assets. What dollar hegemony does is to transform the dollar-denominated payments imbalance of the United States into a dollar-denominated debt bubble in the US economy. Holders of US debt and assets are rewarded with high nominal returns provided by a high growth rate reflecting rising asset prices denominated in money that constantly loses purchasing power.

World trade is now a game in which the US produces dollars by fiat and the rest of the world produces things that fiat dollars can buy. The world's interlinked economies no longer trade to capture a comparative advantage; they compete in exports to capture dollars needed to service dollar-denominated foreign debts and to accumulate dollar reserves to sustain the exchange value of their domestic currencies.

To prevent speculative and manipulative attacks on their currencies, the world's central banks must acquire and hold dollar reserves in corresponding amounts to their currencies in circulation. The higher the market pressure to devalue a particular currency, the more dollar reserves its central bank must hold. This creates a built-in support for a strong US dollar that in turn forces the world's central banks to acquire and hold more dollar reserves, making it even stronger. This phenomenon is known as dollar hegemony, which is created by the geopolitically constructed peculiarity that critical commodities, most notably oil, are denominated in US dollars. Everyone accepts dollars because dollars can buy oil. The recycling of petrodollars is the price the United States has extracted from oil-producing countries for US tolerance of the oil-exporting cartel since 1973.

# Ironically, as oil-producing economies benefited from a suddenly rise in the price of oil denominated in dollars, they developed a need to preserve the value of the dollar. Thus three conditions brought about dollar hegemony in the 1990s: In 1971, US president Richard Nixon abandoned the Bretton Woods regime and suspended the dollar's peg to gold as US fiscal deficits from overseas spending caused a massive drain in US gold holdings.

# Oil was denominated in dollars after the 1973 Middle East oil crisis, followed by other key commodities.

# Deregulated global financial markets began to emerge in 1991 after the Cold War, making the cross-border flow of funds routine.

A general relaxation of capital and foreign-exchange control in the context of free-floating exchange rates made speculative attacks on currencies regular occurrences. All central banks have since been forced to hold more dollar reserves than they otherwise need to ward off sudden speculative attacks on their currencies in financial markets. And dollar reserves by definition can only be invested in US assets. Thus dollar hegemony prevents the exporting nations from spending domestically the dollars they earn from the US trade deficit and forces them to finance the US capital account surplus, thus shipping real wealth to the United States in exchange for the privilege of financing US debt to further develop the US economy.

The US capital-account surplus in turn finances the US trade deficit. Moreover, any asset, regardless of location, that is denominated in dollars is a US asset in essence. When oil is denominated in dollars through US state action and the dollar is a fiat currency, the US in essence owns the world's oil for free. And the Quantity Theory of Money dictates that the more the US prints greenbacks, the higher the price of US assets will rise. And by neo-classical definition, a rise in asset value is not inflation as long as wages lag behind. Thus a strong-dollar policy gives the United States a double win while workers everywhere, including those in the US itself, are handed a double loss.

Through dollar hegemony, the US, unlike many Third World nations with similar trade and fiscal deficits, has been granted immunity from associated penalties of payments imbalance by having its trade deficit finance its capital-account surplus. But instead of reforming the fundamental structure of the US economy that creates such trade and fiscal deficits, many in the United States are seeking painless yet pointless solutions to a non-existent payments imbalance by engaging in irrational disputes over the issue of currency exchange rates of its trading partners, first Japan and Germany decades ago, and now China.

On top of this monetary scam, the US wants to push the exchange rate of the dollar further down to erode the value of the massive dollar holdings of its trading partners, as the exchange rate of the dollar affects only those who live, operate in or visit non-dollar economies. Because the Fed can print fiat dollars at will under a dollar-hegemonic regime, a dollar-denominated US trade deficit does not present a balance-of-payments problem for the United States, as it does all other countries that cannot print dollars. Thus a US trade deficit, being not a balance-of-payments problem, cannot be cured through manipulation of the exchange rate of the dollar. The solution has to come from reducing wage disparity between the two trading economies.

The numbers behind US-China trade

In 2005, US foreign trade of $3.30 trillion constituted 26% of its $12.7 trillion GDP. Exports were $1.27 trillion and imports $2 trillion, resulting in a goods-and-services deficit of $726 billion (5.7% of GDP), $109 billion more than the 2004 deficit of $618 billion.

For goods alone, exports were $893 billion and imports $1.7 trillion, resulting in a goods deficit of $782 billion, $117 billion more than the 2004 deficit of $665 billion. This meant that while the trade deficit for goods was large and growing, the US still exported goods in 2005 valued at 192.4 billion 1950 dollars, more than 15 times its export in 1950 and three times its 1950 GDP. For services, exports were $379 billion and imports were $322 billion, resulting in a services surplus of $56 billion, $8.5 billion more than the 2004 surplus of $48 billion.

The US trade deficit with China will greatly reduce if the US lifts high-tech-export restrictions to China.

For China, foreign trade in 1950 was non-existent because of the US embargo, except some memorandum trade with other socialist and non-aligned nations. For 2005, Chinese foreign trade reached $1.3 trillion (81% of GDP of $1.6 trillion), with a trade surplus of $102 billion (6.4% of GDP). About $100 billion of the Chinese trade surplus with the US went to pay for Chinese trade deficits with other countries.

These figures show that trade is now a precariously excessive portion of Chinese GDP. And without a trade surplus with the US, China would face a global trade deficit of about 6.25% of GDP, more than the United States' 5.7%.

China's addiction to trade

With any addiction, initial euphoria soon turns to agony. Chinese per capita GDP was $1,231 for 2005, while the country's per capita foreign-trade volume was $1,000. Take away foreign trade, and Chinese per capita GDP would be $231, or 63 cents a day. And that number is per capita GDP, not per capita income, which is usually lower.

In 2005, the per capita annual income of Chinese urban residents was 10,493 yuan, or $1,294 at the official exchange rate of 8.11 yuan to a dollar. The per capita annual income of rural residents was 3,255 yuan, or $401. In fact, in the rural interior, non-trade-related per capita GDP in 2005 was actually below overall per capita income, meaning that rural per capita income in region with no export trade had to be subsidized to the tune of $170 per capita, the gap between $401 and $231, or 47 cents a day.

The global poverty line is set at $2 per day, substantially higher than China's non-trade-related per capita GDP of 63 cents per day. Chinese policy of export-dependent growth is causing mounting social unrest with serious political implications, which the government is just beginning to acknowledge.

US per capita GDP in 2005 was $43,000, while per capita foreign trade was $11,196. Take away foreign trade, and US per capita GDP would be $31,804. Serious trade friction is unavoidable among all trading nations. But the macro-data show that the US as not greatly disadvantaged by trade with China.

The US per capita trade deficit with China in 2005 was $685, or 1.6% of per capita GDP, while the Chinese per capita trade surplus with the US was $155, or 12.2% of per capita GDP. But globally, the Chinese trade surplus was only $102 billion, putting the per capita trade surplus at $78.5, or 6% of per capita GDP. Furthermore, upwards of 70% of Chinese export is traded by foreign companies, leaving the per capita trade surplus in 2005 at around 50 cents net for China. Obviously, China is much more trade-dependent than the US, and it does not take much analysis to see that the US commands much more market power in trade negotiation with China.

With widening income disparity in China, the majority of the population would have income substantially lower than the average per capita GDP. China's overall Gini index (which measures income disparity) officially increased from 0.35 in 1990 to 0.45 in 2005, with zero being complete equality. Before 1978, China was the most equal society in the world. An unofficial survey put the Gini index at 0.6 for 2005.

According to the World Bank, the number of people living in poverty in China declined from 480 million in 1981 to 88 million in 2002, but in 2003, poverty rose again for the first time since 1978, as the ill effects of excessive export became statistically discernable.

The fault of GDP as a gauge for growth is plainly displayed in China, where double-digit GDP growth has given the country a booming economy on paper but one with widening income disparity that keeps the majority in poverty, irreversible environmental deterioration, rising moral apathy, systemic official corruption and spreading social unrest. It is hardly a picture that fits the world's second-largest creditor nation.

Dollar hegemony has not done better for the US, where the Gini index for 2005 was 0.41. A Gini index above 0.4 is considered socially destabilizing and economically inefficient.

The Cold War was won with neo-liberal trade

The Cold War was a political/military confrontation with an economic dimension. Underneath the militarization was an economic contest between the two superpowers, each providing aid to the less-developed allies within its own ideological bloc. There was little economic contact between the two separate and hostile blocs. Within each bloc, economic relations were conducted mostly through foreign aid. The name of the game during the Cold War was economic development, not trade.

Neo-liberals now regularly assert that socialism lost the Cold War to capitalism because freedom prevailed. Yet the issue was not that simple or clear-cut. It is true that governments that championed socialism, by being forced into a garrison-state mentality by hostile external forces, became their own worst enemy by depriving basic freedom to their citizens. But the assault on civil liberty during the Joseph McCarthy era did not bring down the US government and there was not much democracy in many US allies all through the Cold War. And one and a half decades later, the former socialist economies, from Russia to Poland, do not seem to fare better under market capitalism. China is an exception only because it hangs on to basic socialist commitments that the US is trying its best to dismantle.

The real Cold War was fought on the economic front between two drastically unequal adversaries. The socialist camp started out with a much lower level of development and a much higher level of poverty as a historical result of having been victims of century-long imperialist exploitation. Furthermore, the socialist camp did not have the benefit of a rich and powerful economy acting as the engine of growth, as the United States, leader of the capitalistic camp, was the only country undamaged by World War II. The socialist camp registered impressive growth both before and after World War II but began to lose momentum when the Soviet Union was drawn into trade with the capitalist camp to finance the Cold War arms race. The USSR led the socialist bloc to refuse Marshall Plan aid. COMECON (the Council for Mutual Economic Assistance) was founded in 1949 to create an economic bloc that endured until 1991. The word "trade" was not mentioned in COMECON documents.

The Marshall Plan grew out of the Truman Doctrine, proclaimed in 1947, stressing the moralistic duty of the United States to combat communist regimes worldwide. The Marshall Plan spent $13 billion out of a 1947 GDP of $244 billion, or 5.4%. This translates to $632 billion in 2004 dollars, roughly the same amount as the US trade deficit in 2004. The mission was to help Europe recover economically from World War II to keep it from communism. The money actually did not all come out of the US government's budget, but out of US sovereign credit. The most significant aspect of the Marshall Plan was the US government guarantee to US investors in Europe to exchange their profits denominated in weak European currencies back into dollars at guaranteed fixed rates, backed by gold at $35 an ounce.

The Marshall Plan concretized the Bretton Woods regime of using the US dollar as the world's reserve currency at fixed exchange rates. The Marshall Plan enabled international trade to resume and laid the foundation for dollar hegemony to emerge half a century later, after the dollar was taken off gold by Nixon in 1971 and the Bretton Woods regime of restricting cross-border flows of funds was dismantled. While the Marshall Plan did help the German economy recover, it was not entirely a selfless gift from the victor to the vanquished. It was more a Trojan horse for monetary conquest. It condemned Germany's economy to the status of a dependent satellite of the US economy from which it has yet to free itself fully.

The Marshall Plan lent Europe the equivalent of $632 billion in 2004 dollars. Japan's foreign-exchange reserves alone were $830 billion at the end of September 2004. In other words, Japan was lending more to the United States in 2004 than the Marshall Plan lent to Europe in 1947. And Japan did not get any benefits, because the loans were denominated in dollars that the US can print at will, and dollars are useless in Japan unless reconverted to yen, which because of dollar hegemony Japan is not in a position to do without reducing the yen money supply, causing the Japanese economy to contract and the yen exchange rate to rise, thus hurting Japanese export competitiveness. Thus dollar hegemony has gone beyond the "too big to fail" syndrome. It has created a world of willing slaves to defend the dollar out of fear that without a strong dollar, tomorrow's food may not be available.

What the Cold War proved was the thesis of Friedrich List (1789-1846), as expounded in his Das Nationale System der Politischen Oekonomie (1841), translated as The National System of Political Economy, that once a nation (or a bloc of nations) falls behind economically in the trade arena, it cannot catch up through trade alone without government intervention.

List's German Historical School is distinctly different in outlook from the British classical economics of David Ricardo and James Mill. It argues that economic behavior and thus laws of economics are contingent upon their historical, social and institutional context. When a nation is forced to adopt the national opinion of another nation with different historical conditions as natural laws of international economics, it will always be the victim of such laws. Such views have been validated by the experience of postwar Japan and Germany, which had to pay the price of being client states of the US in exchange for trickled-down prosperity.

For the socialist camp, trading with the capitalist camp was the strategic error that caused it to expose itself unprotected to a game it could not win and that it would lose from the outset and never catch up. In that sense, neo-liberals are on target in claiming that free trade promotes capitalistic democracy, but they are dishonest in claiming that free trade is a win-win game for all participants. International free trade is only good for the hegemon, as domestic free trade is good for the monopolist. Socialism works only if development is not preempted by external trade. The World Trade Organization is a regime designed to favor the capitalist hegemon. The current anti-WTO movements around the world are early signs of a grassroots realization of this truism.

In the US, List's views evolved into institutional economics, which subscribes to the notion that government policies are central to promoting development, not market forces. List had been inspired by the views of the statesman Alexander Hamilton in the early days of the US as a nation.

The US Supreme Court under chief justice John Marshall in McCulloch vs Maryland (1819) established the principles that the federal government possesses broad "implied powers" to pass laws and conduct policies, programs and measures, and that the states cannot interfere with any federal agency. Marshall ruled that the Union and its government were created by the people, not by the states, and that the federal government is fully sovereign and "supreme in its own sphere of action" as long as it is not explicitly prohibited by the constitution. Marshall's opinion was one of the most significant decisions in the history of US constitutional law. It gave constitutional grounds for a broad interpretation of the powers of the federal government. The case became the legal cornerstone of subsequent expansions of federal power and by extension US global power centuries later.

Hamilton's idea of sovereign credit through the establishment of a national bank, as opposed to a central bank, was designed to protect by government measures the weak, infant industries in a young nation and to oppose Adam Smith's laissez-faire doctrine as promoted by advocates of 19th-century British globalization for the advancement of British imperialist interests (see Banking Bunkum: The US experience, November 16, 2002). Later, after the War of 1812, Henry Clay's American System argued for the establishment of the Second Bank of the US, protective tariffs and federal appropriations through the use of sovereign credit for "internal development" such as infrastructure.

While World War II catapulted the United States into superpower status within half a decade, the cost of the Cold War, which lasted four decades, led the US into a Pyrrhic victory built on recurring cycles of fiscal deficits. Before the globalization of financial markets in the 1990s, fiscal deficits produced only one penalty: domestic inflation. Keynesian deficit financing turned out to be effective in smoothing out the cursed business cycle. And with foreign trade merely a minor factor, there was no foreign-exchange-rate implication as long as the dollar was on a gold standard and the US held most of the world's gold stock. The United States was indeed hit by domestic inflation by the 1960 and the effect on the US economy was stimulant enough for government economists in the administration of president John Kennedy to conclude that with the "New Economy" the US could afford guns and butter simultaneously, and even send a man to the moon, by putting up with a little inflation.

But because the dollar was the trade reserve currency and much of the US fiscal deficit was being spent overseas in the Korean and Vietnam wars and in funding the cost of the North Atlantic Treaty Organization in Europe and US bases in Japan, South Korea and other US allies in Asia and the Pacific, the Middle East and South America, a great deal of dollars flowed overseas, putting a drain of the stockpile of gold the US was holding in Fort Knox. Enough gold left the US vault at Fort Worth, Texas, to go into foreign vaults in the same building that president Lyndon Johnson was unable to fund his Great Society programs while trapped in the Vietnam quagmire in the late 1960s.

In August 1971, Nixon was forced to take the dollar off the gold standard to stop the outflow of gold into foreign accounts, and imposed a 10% import tariff that was removed by year-end with a devaluation of the dollar by 2.25% from the exchange rate fixed by the Bretton Woods regime. Two years later, the 1973 Middle East crisis gave the Organization of Petroleum Exporting Countries an opening to raise the price of oil tenfold, from $3 to $30 a barrel. The US accepted the new oil-price regime by forcing the oil-producing nations to denominate oil in dollars. It was not difficult to convince the oil-exporting governments, as most of them did not have large enough economies to absorb all the sudden wealth, and at the time the dollar was still the world's most stable currency and the US was politically more stable than any other country, and it was immune to terrorism.

The excess petrodollars went to finance Third World borrowing at a higher rate of interest than in the US, to be repaid by dollars earned by exports. Such loans were considered safe because as the chairman of Citibank, Walter Wriston, famously pronounced: "Countries don't go bankrupt." Citibank became the world's largest bank through aggressive international lending. This was the beginning of dollar hegemony.

But dollar hegemony did not emerge full-blown until the emergence, after the end of the Cold War in 1991, of deregulated global financial markets that allow the massive cross-border flow of funds, which the Bretton Woods regime had restricted. The breakdown of that restriction in 1991 was more important for facilitating dollar hegemony than moving the dollar off the gold standard in 1971.

With dollar hegemony, the US central bank, the Federal Reserve, transforms itself from a guardian of the value of the nation's money and a lender of last resort to a ubiquitous virtual money machine that starts printing at the earliest signs of a slowing economy. After 1987, the Fed under chairman Alan Greenspan led all the world's central banks in an orgy of liquidity injection.

The US, under Robert Rubin as treasury secretary, former bond trader at Goldman Sachs, discovered that all it had to do to make money was to print more dollars; and world trade has since become a game in which the US makes dollars by fiat and its trading partners make things that fiat dollars can buy, from oil to garments, to television set and automobiles. The US kept its defense industries and research and outsourced old-economy manufacturing first to Japan and Germany, and garments and low-tech products to Asia and Mexico. Most important, the US in essence created and ran a new finance sector with junk bonds and other structured finance products that other advanced economies did not catch on to until a decade later. The US moved into finance capitalism with dollar hegemony while its trading partners were stuck in industrial capitalism.

The flawed logic of currency revaluation

The logic of revaluing the Chinese yuan, or any currency, as a way of balancing trade with the United States is flawed. This is particularly true if prices are denominated in the currency of the consumer economy, as the dollar is.

It was ironic that US treasury secretary Lawrence Summers in the late 1990s repeatedly lectured Japan not to substitute sound balanced macro-economic policy with exchange-rate or interest-rate policies, because the US did exactly that with the Plaza Accord in 1985 and with its strong-dollar policy after the 1997 Asian financial crisis.

Robert Mundell, 1999 Nobel laureate in economics, observed while attending a conference in Beijing last year that never before in history had there been a case where international monetary authorities tried to pressure a country with a not freely convertible currency to appreciate its currency. He said China should not appreciate or devalue the yuan in the foreseeable future. "Appreciation or floating of the renminbi would involve a major change in China's international monetary policy and have important consequences for growth and stability in China and the stability of Asia," Mundell said.

A trade deficit reflects the structural deficiency embedded in a country's trade, monetary and exchange-rate policies. In 1975, the US had a trade surplus of $12.4 billion. By 1987, it had incurred a trade deficit of $153.3 billion, which was widely but mistakenly attributed to an overvalued dollar. The effects of the 1985 Plaza Accord to devalue the dollar by negotiation shrank the trade gap temporarily, but a lower dollar enabled the US economy to grow faster than those of its trading partners, and by 1991 the US trade deficit began rising again as finance globalization allowed the trade-deficit dollar to return to reinvest in US assets. Trade began to be linked with international finance.

With the development of a deregulated global financial market, the world financial architecture began to operate under the rules of dollar hegemony. The growth in the US was concentrated mostly in the deregulated financial sector, where the US was unquestionably the leader in innovation. The growing capital-account surplus made the growing trade deficit benign as the balance-of-payments problem was transformed into a US debt bubble.

The 1997 financial crisis in Asia sent local currencies plummeting, making Asian goods drastically cheaper. Yet China was the only Asian nation that did not devalue its currency. By that year, the US trade deficit had hit $110 billion, and heading higher. But net capital inflow to the US after July 1997 exceeded $100 billion, at 7.2% of GDP. The 2004 $666 billion trade deficit was equal to $784 billion in 1997 dollars, more seven times what it was in 1997. Surely that geometric increase was more than a foreign-exchange problem.

The White House Council of Economic Advisers reports that in 2004 the United States registered the world's largest net capital inflow at $668 billion (70% of world total), while Japan had the largest net capital outflow at $172 billion, followed by Germany at $104 billion, then China at $69 billion, Russia at $60 and Saudi Arabia at $52 billion. In 1995, developing Asian countries had net inflows of $42 billion, but had net outflows of $93 billion in 2004. China had $2 billion of net capital outflows in 1995, $21 billion of net outflows in 2000, and $69 billion in net outflows in 2004.

In 1995, developing and emerging-market countries as a whole received $84 billion in net capital inflows. A sudden reversal of capital flows to Indonesia, South Korea, Malaysia, the Philippines and Thailand from a net inflow of $93 billion in 1996 to a net outflow of $12 billion in 1997 represented a swing of $105 billion, or 11% of their pre-crisis GDP. In 2000, they experienced $91 billion in net outflows. In 2004, they experienced $367 billion in net outflows. While these countries remained net recipients of foreign direct investment (FDI) inflows, they became large net purchasers of foreign reserve assets made primarily by their central banks. This represents a capital outflow because the dollar inflows had to be absorbed by domestic debt to be invested abroad rather than within these countries.

The value of global foreign reserves, held primarily by central banks, rose from roughly $1.5 trillion to $3.9 trillion between 1995 and 2004, a 160% increase in a period when the value of global GDP increased by roughly 40%. Global reserves increased by more than $1.3 trillion in 2002-04 alone. Three countries accounted for nearly 60% of this reserve increase: Japan, China, and South Korea.

With $69 billion in net outflows, China was the world's third-largest net capital exporter in 2004. While China receives substantial foreign investment, it experiences even larger capital outflows because of foreign-reserve accumulation by its central bank that results from its foreign-exchange regime. Foreign direct investment (FDI) into China in 2004 totaled more than $153 billion in new agreements, up by one-third over 2003. Utilized FDI (the amount actually invested during the year) also surged to a record high of almost $61 billion, rising 13.3% over 2003.

As China's reserves have risen in recent years, its capital-account balance has moved toward larger deficits and its current account toward larger surpluses. In 2004, China's current-account surplus was equivalent to 4% of GDP, and is likely to have exceeded 6% of GDP in 2005. At the end of September 2005 it was $769 billion, with $58 billion added in the third quarter.

China's reserves have increased because of its rising current-account surpluses, net private capital inflows, and tightly managed pegged-exchange-rate system. To maintain this peg, China's central bank has purchased large amounts of foreign-currency assets in recent years. Even after modifying its exchange-rate peg last July, linking the yuan to a basket of currencies rather than the US dollar alone, China's foreign reserves have continued to rise, passing $800 billion by the end of 2005, and may rise to $900 billion or $1 trillion by the end of 2006. Between 2000 and 2005, China's foreign reserves increased by more than $600 billion. But this is not surplus national wealth, but a reflection of deficiency in social-security funding caused by market reform.

Neo-liberals argue that with a stronger currency, the global purchasing power of China's currency would rise, raising its income in global terms and consumption share, and thus reducing its rate of domestic saving. Yet under current terms of international trade, a higher exchange rate translates directly into a lower domestic wage scale for any economy heavily dependent on export, further reducing domestic consumption. China's social-security funding deficiency is being mistaken for a high saving rate.

Rising domestic demand through higher wages is essential for China's future growth. But dollar hegemony makes it impossible for China to move in this direction by siphoning domestic savings into useless foreign reserves.

Causal dispute over current and capital accounts

There is sharp disagreement among economists about the causal relationship between current account and capital account. It is an idle dispute about where a circle starts.

Market bears tend to see changes in the capital account as following passively changes in the current account. Market bulls tend to see causation running from the capital account to the current account, confident that the United States could run a huge trade deficit without any collapse in the foreign-exchange value of the dollar because foreigners have no choice but to sell their domestic currencies to buy US assets, supplying dollars for the US to buy foreign goods. The problem arises when many in the US are no longer happy with further selling of US assets to foreigners, or loss of jobs to outsourcing. But if the US capital-account surplus shrinks, the current-account deficit will re-emerge as a classic balance-of-payments problem.

Most US journalists, and almost all politicians, line up with the dollar bears in fixating on the trade deficit rather than on the capital surplus. And they blame that deficit on China as the newest scapegoat that carries a great deal of residual hostility from Cold War days and even from century-old racial prejudice.

According to the China-bashers, the US is a victim of Chinese mercantilism, notwithstanding that mercantilism involve the quest for gold, not fiat currencies. As they tell it, China has kept its currency undervalued to promote export-led growth. To back this assertion they point to China's rapid buildup of foreign-exchange reserves, which are really loans to the US to balance its trade deficits, notwithstanding the fact that the exchange rate has been in effect for more than a decade, that China withstood temptation to devalue the yuan after the 1997 Asian financial crisis, and that fixed exchange rates were a US idea at Bretton Woods when the United States was a creditor nation.

Furthermore, the US current-account deficit represents 1.6% of global GDP, while the current-account surplus for all the countries in emerging Asia without Japan accounts for only 0.5% of global GDP. Oil-exporting countries also account for a surplus of 0.5% of global GDP. Japan's surplus is almost as large, 0.4% of global GDP.

To correct the trade imbalances, if that's the game, would require much more than a revaluation of the Chinese yuan. The rapid rise in reserves accumulation was due only in part to trade, with the bigger contribution came from capital transactions, accounting for 29% of China's foreign reserve growth. Currency speculating accounted for 37%, betting that the yuan will be revalued upward to please irrational demands from Washington. Hedge funds engage in "carry trade" to borrow low-interest yen to buy dollars to send to China, accumulating Chinese sovereign debt denominated in yuan and contributing to the pileup of dollars in the People's Bank of China (PBoC), the central bank. The political intervention by Washington in Chinese monetary policy over rising Chinese reserves is driving an increase in dollar holdings by China.

Of course $800 billion of foreign reserves is no small number. But it is not anywhere big enough to fund what the US wants China to do to open up its financial market further. Because China cannot print dollars, it must keep enough dollars on hand, at least $500 billion, to meet routine foreign-transaction needs, given the size of the Chinese economy, its money supply and the import needs of its export sector.

A wholesale opening of China's financial sector as demanded by the US would require China to cure the massive non-performing-loan problem in the Chinese banking system as defined by the Bank of International Settlement (BIS). This is a structural problem that arose from shifting from a regime of national banking to central banking. This task is ultimately going to cost upwards of $1 trillion (see China: Banking on bank reform, June 1, 2002). Making the yuan freely convertible will require upwards of $500 billion to ward off speculation. Add it all up, and China needs foreign reserves on the scale of $2 trillion to implement financial liberalization. It is less than halfway there and will not reach the necessary target if current US policy on China prevails.

The US trade deficit finances the US capital-account surplus in the form of foreign (Chinese) purchase of US Treasuries with dollars that the PBoC purchased from China's export sector with Chinese sovereign debt denominated in yuan. What China earns is a meager commission on the foreign profit from Chinese export trade. And because of tax preference granted to foreign capital and export earnings, China's foreign-financed export sector has managed to externalize its social and environmental costs to the domestic sector. Such negative externalities are about to come due soon.

With a stronger yuan against the dollar, Chinese sovereign debt denominated in yuan will buy more dollars from China's export sector, which means each yuan will buy more US Treasuries. This will reverse the historical interest-rate disparity between the yuan and the dollar and cause a halt to the carry trade of borrowing low-rate dollars to invest in high-rate yuan asset and stop the flow of dollars to the PBoC to buy more US Treasuries. So revaluation of the yuan will not help the US.

The danger for the dollar is not that China might sell US Treasuries of which China is already too big a holder to sell without suffering substantial net loss in the market. The danger is that the US sovereign debt rating is now dependent on the credit rating or soundness of Chinese sovereign debt.

If the Chinese economy hits a stone wall, as it will when the US debt bubble bursts and Chinese export to the US falls drastically, Chinese sovereign debt will lose credit rating, causing yuan interest rates to rise, causing more hot money into China, causing the PBoC to buy more US Treasuries, forcing dollar interest rates to fall and more hot money to rush into China, turning the process into a financial tornado that will make the 1997 Asian financial crisis look like a harmless April shower. This happened to Japan, but with foreign trade constituting only 18% of GDP in 2003, Japan was able to contain the deflation domestically. Still, the impact of protracted Japanese deflation on the global economy was substantial. With China, where foreign trade hovers above 81% of GDP, with an economy already highly concentrated on the coastal regions and unbalanced with little breadth and depth, a financial crisis will transmit beyond its borders quickly. This is the real danger for dollar hegemony.

Surging capital inflows can be a double-edged sword, inflicting unwelcome and destabilizing side-effects, including a tendency for the local currency to gain in value above market fundamentals, undermining export competitiveness, and give rise to inflation. Capital inflows cause a buildup of foreign-exchange reserves held by the central bank, releasing local currency to expand the domestic monetary base without a corresponding increase in production, causing too much money chasing after too few goods, the classic cause of inflation. This creates an undesirable situation of the currency being worth more externally and being worth less internally, setting a perfect opportunity for attack on the currency by hedge funds. This is the situation facing China today and the problem will turn into a crisis as soon as the yuan becomes freely convertible.

Under dollar hegemony, capital flow is mainly denominated in dollars. Despite all the talk about the euro as an alternative reserve currency, the euro is still just a derivative currency of the US dollar, like all other currencies. To ease the combined threat of external currency appreciation and domestic inflation, central banks must implement what is known as the "sterilization" of capital flows. In a successful sterilization operation, the domestic component of the monetary base (bank reserves plus currency) must be reduced to offset the reserve (dollar) inflow, at least temporarily.

For the situation of external currency depreciation and domestic deflation, like the Japan experience, the reverse needs to be done. In theory, this can be achieved in several ways, such as by encouraging private investment overseas, but this option appears to have been blocked by US protectionism. Another way is to allow foreigners to borrow local currency from the local market, but this would invite currency attacks from unruly hedge funds. The classical form of sterilization under dollar hegemony, however, has been through the use of open market operations, that is, buying or selling US Treasury bills and other dollar-denominated instruments to adjust the domestic component of the monetary base. The problem is that, in practice, such sterilization can be difficult to execute and sometimes even self-defeating, as an apparently successful operation may raise or lower domestic interest rates and stimulate even greater undesirable dollar capital inflows or outflows.

The ability to sterilize has an inverse relationship with the degree of international capital mobility. If capital is highly mobile, attempts at sterilization will prove futile, because they can be rapidly overwhelmed by renewed inflows, particularly if the Fed continues to issue more dollars by lowering the Fed funds rate. Because of dollar hegemony, the United States is the only country that needs no sterilizations, as all inflows and outflows are in dollars. While sterilization may be useful temporarily for non-dollar economies, it cannot work for long if the capital inflows persist, because sterilization can deal only with the effect rather than the underlying cause of shocks to the system. The same is true with exchange-rate manipulation.

Also, the scope for classical open-market operations may be severely restricted by the instruments available, particularly in developing countries, including China, which are unlikely to have well-developed financial markets. Issuing a large stock of securities in an attempt to mop up the inflowing liquidity places a heavy debt-service burden on the government or central bank. It can lead to deterioration in the fiscal or quasi-fiscal balance, such as state-owned enterprises. For a central bank, operating losses can occur when the funds it raises are invested in foreign assets, which earn prevailing dollar interest rates often lower than rates the central bank must pay on the bills it has sold. Large-scale losses can even lead to the need for a recapitalization of the central bank or defaults.

In a worst-case scenario, the building up of a central bank or Treasury balance sheet may also expose it to greater credit risks, making the whole system more vulnerable to a sudden reversal in capital flows. This is more likely where much of the capital inflow is in the form of short-term portfolio investment, known as hot money, which can be reversed much more quickly and easily than foreign direct investment.

Next: China's internal debt problem

Henry C K Liu is chairman of a New York-based private investment group. His website is HenryCKLiu.com.

The Biggest Rubber Stamp

2007-03-12T20:04:00.000-07:00

Leader
The Guardian, Saturday March 3, 2007

The largest parliament in the world opens in Beijing on Monday. The National People's Congress has 3,000 delegates, but lasts for only 10 days a year and has never rejected a government budget or bill. A true reflection of Chinese-style "democracy", the congress is huge, showy and toothless. The real decisions await the autumn, when the 17th congress of the Communist party opens. Old habits die hard.

But this rubber-stamp parliament will be keenly watched. Top of the agenda is a "property rights bill", seven years in the drafting, which would contentiously give private firms equal status with state enterprises. Opponents say it rolls socialism back too far, and that it will protect the ill-gotten gains corrupt officials have made out of privatisations. Supporters say it is the indispensable next step in a transition that is producing unprecedented prosperity.

The measure's likely passage should not delude the outside world that China is now set on major political change. Earlier this week an article attributed to Premier Wen Jiabao in the official People's Daily warned China against running ahead of itself. It argued that the country "must stick with the basic development guideline" appropriate for the primary stages of socialism "for 100 years". It does not necessarily follow that democracy is a full century away, but the argument is a reminder that political change is likely to continue to lag economic reform for some time yet.

Wen's pronouncements matter because he has been tasked with preparing the ground for the all-important party congress. They corrected the impression given by a number of reformist voices that China is about to democratise swiftly. One has said that democracy could lessen the social tensions of industrialisation; another that China could become a Scandinavian-type social democracy.

But if damping down expectations is one of Wen's tasks, another is showing that China's society and politics are not fossilised, so one of the proposals that the delegates will consider next week is for "modifications" (of what type is not known) to the system allowing the police to send suspects to labour camps without trial. "Re-education through labour" has been in place since 1957 and has been widely used to detain dissidents and religious activists for stretches of up to four years.

The most powerful motor for reform may not be the stirrings of an industrial workforce, or rural turmoil over the dwindling stock of arable land, but the need to clear the decks before the 2008 Olympics. Either way, the coming year will be a critical one for China during which it will become clearer how bold the leadership is prepared to be in contemplating change.