China Translated

A speech by Premier Wen Jiabao to celebrate the 30th anniversary of the founding of the Shenzhen special economic zone has attracted a lot of attention. 

An editorial in the free-thinking magazine New Century has used the Premier’s remarks as the basis for a call for far reaching political reforms, arguing that political reform is the precondition for further economic growth. 

The editorial itself has triggered some interesting comments by New Century’s readers, including this one on the mixed feelings evoked by the Chinese premier (my translation):

‘Concerning the Premier, my feelings are complex!  At floods, droughts, earthquakes, standing on farm land, his every action suggests deep love of this land.  But his every action points in the other direction.  House prices, everyday prices,  medical insurance, employment, worker strikes, how to make sense of this complex tableaux?  Which premier is real?  Which one is fake?  I think anyone with an average intellect can tell.’

You can see all this and other comments on the New Century editorial here.

Communist Party, Social Policy

At the climate change talks in Copenhagen, discussions on the future of the global economy in the G20, and the framing of a response to increasing tensions between North and South Korea, observers have discerned a new approach to diplomacy from an increasingly confident China.

One of China’s leading thinkers on international relations is the Director of the Center for Chinese and Global Affairs at Peking University, Prof Pan Wei.  Last night, I attended a presentation he gave organised by a group called Young China Watchers, where he outlined some suggestions for thinking about international relations in the 21st Century.  This is my notes on his remarks:

‘International relations is concerned with 3 main areas:

1. Power - hard military and economic power and soft cultural power

2. Transitions between old and new powers

3. Geo-politics - strategic alliances between powers

In the 21st Century, thinking about these 3 areas  has to answer 6 new questions:

1. Why is global peace sustainable and war between great powers difficult to imagine?  Why is there now no great enemy like the Germany of the first half of the 20th Century or the USSR of the second?

2. Why is there now no grand system of global alliances?

3. Why is the USA, which accounts for 50% of global military spending, considered a power in decline, but China, with a relatively weak military, considered to be in the ascendant?

4. Why is it that in the 20th Century we only saw nations falling from the first world to the second (Argentina, Russia), but in the 21st we are seeing nations rising from the second world to the first?

5. Why is it so difficult to identify the central concern of international politics - with weapons of mass destruction, islamic fundamentalism, financial crisis, climate change, and the rise of China all competing for attention?

6. Why has no one developed a feasible grand strategy for responding to the challenges of the 21st Century?

Finding an answer to these questions demands thinking past the old theories of international relations.

One way to conceptualise the new world order is to think about different sets of issues - economic, religious, political, natural resources and so on.

For any given issue, nation states can be in conflict, cooperation, or competition.  And nation states can be compete, conflict, or cooperate on one issue, whilst at the same time having a different relationship on another issue.

There are three major implications of this analysis:

1. It is a time of peace - since the potential for cooperation or peaceful competition on some issues means conflict on other issues should not be allowed to spill over into militaty conflict

2. No scope for hegemony by a single world power - because of the mulitiplicity of issues and power assymetries in different issues: ‘it is not sustainable to destroy US$100 tents with US$10mln missiles’

3. There is no scope for grand strategies, and instead nation states need to carefully evaluate their position across different issues areas, recognise uncertainties, and be prepared to respond nimbly to changes in the situation.’

In response to questions from the audience:

Prof Pan was sceptical about the conclusions of the official report on the Cheonan incident - noting that the South Korean ship was an advanced anti-submarine ship so it seems unlikely that it could be sunk by a primitive North Korean submarine.  He thought that the decision by President’s Hu and Obama to not address the issue at their meeting on the sidelines of the G20 meeting was sensible, since there was no easy resolution.

He thought that as China’s engagement in the world increased, and its citizens found themselves in more far flung corners, the scope for Chinese engagement to protect their lives and interests increased, but he anticipated that China would attempt to resolve issues through diplomatic rather than military means.

On the outlook for foreign policy under the Xi Jinping and Li Keqiang generation of leaders, Prof Pan noted that the next generation are cautious and do not reveal what their policy stance is.  He thought they see themselves as better educated and more worldly than the generations of leaders that have come before, and keen to surpass their achievements.  The danger in this is that they will be overly bold. 

On Xi Jinping’s famous remarks in Mexico on foreign leaders that have nothing better to do than criticise China, he said that China’s leaders often made extravagent remarks at private events, that Xi Jinping was actually a rather mild mannered individual, and that this comment was not revelatory of a new assertiveness amongst the next generation of leaders.

Communist Party, International Relations

Labour unrest looks set to be one of the stories for the summer in China’s economy, and that means a continued focus on the All China Federation of Trade Unions (ACFTU) - China’s only official trade union.

An opinion piece in the latest edition of free thinking broadsheet Southern Weekend (南方周末 Nanfang Zhoumo) argues that if the ACFTU is to have any credibility with workers, then the system for selecting union representatives needs to be changed.  This is my translation of the key points:

‘If the ACFTU is to play its proper role in representing the interests of labour, it needs the trust of those it represents.

Today’s ACFTU leaders are, in large part, distant from the workers they claim to represent.  A large number are drawn from the ranks of the Communist Party or are closely linked to company management.  How could workers ever trust this kind of leaders to fairly represent their interests?

What is required is union leaders chosen through election by the workers.  Only then will the ACFTU be an organisation that pays attention to the needs of workers, and can be trusted to represent their interests.’

Direct election of leaders?  Sounds like a dangerous precedent to me.  You can see the entire article here.

Communist Party, Industry, Labour markets

Honda parts suppliers in Guangdong, Taiwanese rubber producers in Kunshan, computer parts firms in Pudong, sewing machina makers in Xi’an… employee strikes seem to be one of the hottest fads of the summer in China. Although media coverage within China has now been toned down under guidance from above, the press outside of China has been latching onto the story with vigour (see this FT article for example).

The question many are asking is whether all this unrest is going to push up wages and lead to inflation. The answer to both questions is probably yes, but there’s nothing to get too worked up about yet. For starters, strikes are (with the exception of the scale of the Honda disruption) quite normal as I mentioned before. We’re basically back to where we were in 2007-08 when the export sector was thriving and firms were scrabbling around trying to find workers, so workers were doing their best to exploit their strong bargaining position. It’s true some of the pay rises being announced are pretty impressive, but the media figures need to be treated with a pinch of salt.

I find it very difficult to believe, for example, that Foxconn is really going to be doubling the pay of all its workers–it would make them hugely overpaid relative to their skill level, although with somewhere between 300,000 and 600,000 workers being employed by Foxconn’s parent Honhai in China it really would be a bombshell for the market if it happened. The China Labour Bulletin’s Geoff Crothall notes that there seem to be strings attached to the pay deals they’ve announced.

Besides, the pay rises announced this year, as well as the increases in the minimum wage (which seem to be averaging between 15-20% this year), need to be seen in the context of the pay freeze that was in place for most regions last year. Meanwhile many firms are offering much lower increases, especially in services, where competition is still tough for places. KFC’s Shenyang unit recently settled on a 5% annual pay rise deal with a minimum monthly salary level of Rmb900 a month (although one stressed KFC worker complained that they were really short of staff as ”as soon as interviewees hear [the pay level] they run”). With economic growth set to cool in the second half, some of the upward pressure on wages may ease as we head into 2011.

The elephant in the room in all of these pay stories is the All China Federation of Trade Unions. Experts in the labour field say it’s been doing a terrible job managing worker-management relations, and that many in government and the Communist Party have been criticising its failures. It’s hard to generalise across the country, of course, and some branches do much better than others, but it wouldn’t be surprising to see some reshuffling at the ACFTU or policy rethinking if the rash of strikes continues, or escalates.

Duncan Innes-Ker is a senior economist with the Economist Intelligence Unit in Beijing

Communist Party, Guest contributor, Industry, Labour markets

Wen Qiang, the corrupt former police chief from Chongqing, is a bad dude, guilty of accepting millions of yuan in bribes for the protection of criminal gangs that treated the city as their personal fiefdom.

Wen’s trial has recently ended and Liaowang has got hold of the unfortunate former cadre’s statement of repentance (悔过书 huiguo shu).  Taken together with similar statements from other bent bureaucrats, it makes interesting reading.

Wen’s repentance leads in with a litany of complaints about the poor treatment he received in the course of his career.  He spent ten long years as deputy head of department, always feeling that he was the on top of the job and making major contributions.  The sight of colleagues from the level below, or even two levels below, being promoted more quickly than him, was difficult to bear.  Liaowang notes that complaints about being overlooked for promotion, or left to languish in middle management, are fairly common in the reflections of corrupt cadres.

Another regular feature is complaints about the relative penury of life on a government salary.  Mr Yu, another bad egg from Chongqing, complains: ‘I worked diligently for many years, all for the public good, and yet still had to eek out a life in poverty.  When I think about my wife having to mend our clothes, shop for bargains and never buy the latest trends, and the people who get rich quick without ever making the same contribution I did, I feel sick at heart.’

Corrupt cadres also like to list their achievements.  Mr Zhou, who worked in the public utilities company in Chongqing before his prosecution for corruption, says: ‘My writing has been published in national magazines and received favourable comments, I received an award as an outstanding leader.’  Mr Yu notes that ‘I placed 4th in the government entrance exam and departments were fighting amongst themselves to have me join.’

Corrupt cadres blame the degeneration in their moral code for their slide into evil-doing.  Wen Qiang says ‘I relaxed my moral code, forgot who gave me authority, for whom I should wield authority, and who I served.’  But Liaowang wonders whether the frequency with which the repentant sinners play this particular card indicates that it is more a convenient formulation than a heartfelt confession.

The explanation which I think cuts closest to the bone comes from one Luo Kaijing, who says: ‘everyone was on the take, and there was never any negative consequences.  I just went with the flow.’

For those interested in the causes of corruption in today’s China, Liaowang’s review of the repentance books of Chongqing’s mafia politicians makes interesting reading.  A rapidly developing economy in which government posts control access to economic opportunities, but do not themselves offer the same rewards as those available to entrepreneurs，means both motive and opportunity to put a private hand in the public purse.   Cadres‘ high estimate of their own self worth and contribution to the pubic good provides a self serving moral justification for feathering their own nests.

Communist Party

10 suicides so far this year at Foxconn raises a lot of questions.  For Communist Party official’s favourite magazine, Liaowang, those questions are about the system failures that contributed to the tragedy.

An article in the latest edition of Liaowang leads in with the problems with working conditions, noting that workers were routinely asked to sign away the legal protections which control overtime, that salary without overtime was just CNY900/month - barely enough to subsist, and salary with overtime could be between CNY2000-3000/month.

An 18-year old employee called Zhang Jianhua comments that the factory is run ‘half like a military establishment’ and adds that ‘there’s more than a thousand security personal in the factory, they are very aggressive, beating and cursing employees.’  Another employee, from Jiangxi, confirms that the ‘relationship between the security staff and the other employees is strained.’

Concerns about excessive overtime, a military style regime, and aggressive security staff are familiar from other coverage of the affair.  What’s interesting about this Liaowang article is that it goes on to raise questions about the dogs that didn’t bark on the Foxconn factory environment.

First, the authors ask why the security personnel were not properly registered with the Shenzhen public security bureau.

Next, Liaowang wonders what role the Communist Party’s committee in Foxconn played, whilst worker’s living conditions deteriorated to the point where suicide became a common choice?  Prof Qi Shanhong of Nankai University says: ‘the Communist Party group at Foxconn enjoyed substantial investment but they strayed from their principles and lost the sensitivity to the conditions of workers, in fact their voice in the company was very small.’

Finally, where was the All China Federation of Trade Unions?  The authors note that the union rep for Foxconn was not willing to accept an interview, and that the workers they spoke to did not even know there was a union branch in the factory.  Beijing Teaching University Professor Shen Youjun notes that ‘if union representatives find themselves in conflict with management, they can also find themselves in line for a beating.  This is in stark contrast to the powerful position enjoyed by labour representatives in France or the UK.’

Liaowang concludes that the Foxconn suicides are a wake up call to the Party and the Union to pay more attention to workers’ rights.  I think lots of readers reviewing Liaowang’s own material would draw different conclusions.  The Communist Party committee would be more attentive to workers’ conditions if there were other parties competing for workers attention.  The trade union would show more concern for workers’ plight if they were more than an appendage of the Party.  The problem is not that these institutions did not do their job, but rather that the system within which they operate makes it impossible, or at least very unlikely, that they will be able to do so.

Communist Party, Industry, Labour markets, Uncategorized

Hu Yaobang is former Party Secretary of the Communist Party, ousted from power in 1987 for his failure or unwillingness to deal with a wave of student protests.  His death in 1989 is seen as one of the catalysts for the more widespread protests that year, which ended so tragically.

Hu was also the mentor for Premier Wen Jiabao and, 21 years after Hu’s death, Wen has published a reminiscence of a rural inspection tour they made together to a town called Xingyi in Guizhou in 1986.  This is my translation of the central part of the story:

‘Comrade Yaobang beckoned me to join him, and said ‘Jiabao, I have a task for you, wait a while, then take some of the comrades out of the town and check the conditions in one of the nearby villages, but don’t tell our hosts what you are doing.’

I remembered hearing that, on inspection tours, Comrade Yaobang often liked to deviate from the planned route, to meet with the people, and to check conditions at a grass roots level.  He would explain to his hosts, the local party chiefs, ‘I want to see an area you have not prepared for my visit’.  So when Comrade Yaobang gave me this task I knew he wanted me to find out about the real conditions at a local level.

After it was dark, I lead several comrades out of the guest house and into the countryside.  At that time, Xingyi township had only one road, the houses alongside it were low, the street lamps dim, and the street empty.  We walked along the road for 10 minutes before arriving in the outskirts of the town.  Here, everything was farm land, it was pitch black, and we could not tell north from south or east from west. 

In the distance, we could see the lights of a village, we felt our way forward.  Entering the village, we called on a number of houses.  Seeing a group of outsiders arriving in their dimly lit village at night time, the simple country folk were a little perplexed.  But when they knew the purpose of our visit they enthusiastically greeted us.

At around 10pm that night, we finally returned to the guest house.  I entered Comrade Yaobang’s room to find him seated on a bamboo mat waiting for me.  I gave him a detailed report on the conditions in the village we had visited.  Comrade Yaobang listened attentively, and frequently asked questions.  He told me that leadership corps must visit the lowest levels of society to find out the true situation, experience the hardship of the people, listen attentively to their voice, and grasp first hand the real state of affairs.  The greatest danger, is for leaders to separate themselves from reality.  Many years later, those words still echo in my ears.’

Premier Wen is, of course, noted for his media friendly visits to the sites of disasters: the Sichuan earthquake, the fractious crowd at the railway station at Chinese New Year in 2008, the latest trip to drought blighted Guizhou which inspired this reminiscence.  But I wonder whether he still leaves his minders behind to make unplanned stops, check on local conditions that have not been carefully prepared by local party chiefs, and have unscripted conversations with people on the ground.

I wonder also about the significance of this latest move to rehabilitate Hu Yaobang, whose name, along with that of Zhao Ziyang, is closely associated with political reform.

Here’s a link to Wen’s complete essay.

Communist Party, Social Policy

Today Wen Jiabao convened a meeting of China’s State Council.  On the agenda, a discussion of the economic situation in the first quarter and a charting of the course for economic policy in the months ahead.

A readout of the meeting has now been published, with what looks like a realistic assessment of the state of the recovery and the challenges ahead. 

One of the things I find interesting about these statements is that they generally end with a few inspirational words for the troops.  I guess this is a hangover from the old days of government by campaigns and strugles.

The statement from this meeting concludes with the following invocation (my translation):

‘The Council requires all areas and departments to…

-act carefully and according to the situation

-effectively conduct investigation and research

-strengthen their work ethic

-firmly implement and perfect policy measures

-improve the quality of regulation

-work in a practical way

-focus on delivering results

-and make great efforts to bring about the positive and rapid development of the economy.’

There’s nothing wrong with any of these sentiments.  Acting in accordance with the real situation, conducting careful research, and focusing on results are all admirable objectives.  But what I think statements like this miss is any recognition that to change behaviour, some thought about the institutions and incentives that shape it is necessary.  

You can see the complete State Council statement here.

Communist Party, Culture

The National People’s Congress - China’s annual two week policy talking shop - kicks off this Friday.  Last year’s NPC set the course for a year of extraordinary economic stimulus.  This year, it is possible that the government will use the meeting to build consensus around support for a normalisation of economic policy.

The Economic Observer reports the outcome of an pre-meeting press conference where an official spokesman spelled out the main thirteen issues for discussion.  It’s the usual laundry list of refining macro-economic controls, expanding domestic demand, giving priority to education and health, fighting corruption, and so on.

One of the Economic Observer’s readers hits the nail on the head with a comment posted on the article:

‘Every year its the same, there’s nothing new here.  But the question is not whether these problems are old or new.  The question is when will the solutions be delivered.

We hear these problems so often that we are numb, everybody is numb.

Today a meeting, tomorrow a meeting, but when will there be a solution?’

Here’s a link to the Economic Observer article.

Communist Party

I Just finished reading an article in the official magazine Liaowang on the growing wealth of China’s super-rich, the sources of their fortunes, and the social implications of a  widening divide between the haves and the have nots.  This is my translation of the main points:

‘Mr Chen sits in his CNY200,000 chair in his CNY12m house on a fashionable street in Beijing.  This is not Mr Chen’s primary residence, but rather a home he keeps for meetings with business associates and officials.  He points to antique carvings of dragons that line the walls.  ‘I’m not an expert collector’ he says, ‘I just think they are good fun.’

Mr Chen and his type, the company directors, high level managers, and professional investors who form China’s super-rich, have attracted increasing attention in recent years.  In the West, the economic crisis of the last year eroded the wealth of the super rich, but in China this group has seen their wealth increase over the course of the crisis.

According to Forbes, in 2009 the threshold to enter the list of the 400 richest people in China was CNY2.05bn, up from CNY1.22bn in 2008, and 40 people had personal wealth of CNY7bn, up from 24 people in 2008.

China’s super-rich are concentrated on China’s East coast, especially in Beijing, Guangdong, Shanghai, Zhejiang and Jiangsu - where around 60% of China’s richest individuals live.

For China’s super-rich, the road to riches was bright and clear.  The most important route is the real estate market, with the capital market in second place.  In the US, according to Forbes, there are just 50 real estate moghuls amongst the 400 richest names in the country.  In China, that number is 154. Of China’s richest 10 individuals, 5 are involved in real estate.

Hu Run, an expert in China’s rich-list, says that in China the real estate sector surpasses manufacturing, finance, and investment as the way to the top.  Hu notes that China’s special system for controlling land rights, and the rapid pace of urbanisation explain why fortunes can be made in the real estate sector.

Becoming rich in China can also happen more quickly than in the US.  According to Hu, in China the average age of individuals with a net worth of CNY10m is just 39, and of individuals commanding CNY1bn, 43 - much younger than overseas.

In one way, getting rich quick is a sign of the vibrancy of the Chinese economy.  But in another, it points to iniquities in the Chinese economy.  One financial adviser with whom we spoke said that the super-rich clients with whom he worked typically fell into one of three categories: 1) those who relied on power to amass wealth 2) those who had ‘grey’ sources of income and 3) mining magnates and people with monopoly control over a sector of the economy.  He estimated that only about 30% of the super-rich has achieved their wealth through hard work.

The excessive concentration of wealth is an early warning signal of broader problems with the distribution of resources in a society.  Zhejiang Academy of Social Science Professor Yang Jianhua has been researching this question for 10-years.

Prof Yang notes that the experience of other countries is that in the process of development, income distribution gets worse before it gets better.  Specifically, in the income range of USD1000-3000/capita income distribution becomes more unequal, after annual income/capita exceeds USD3000 distribution starts to become more equal.  But the situation in China defies this pattern.

Prof Yang’s research into the distribution of income in Zhejiang shows that even though annual income has now reached USD6000/capita, the gap between rich and poor has not started to narrow, and in fact continues to widen.  Prof Yang notes that the distribution of income in China today does not resemble a pyramid, with a broad base narrowing gradually toward a peak, but rather an inverted ‘T’ with a massive base of people struggling to get by, and a tiny tip of people who control a disproportionate amount of wealth.

One scholar, who was not willing to reveal his name, said that today there were a growing number of cases where government officials, their families or agents controlled access to resources and used them to generate personal wealth.  This conversion of public power into private wealth is a new challenge for the anti-corruption authorities.

China’s new rich do not appear to have strong social or charitable convictions.  One financial advisor with whom we spoke said that many of the super-rich were desparately seeking government offiice, but they did so only as a means to amass more wealth or protect their interests. ‘They don’t believe in duty, only in money’ he said.’

By coincidence, I just finished reading ‘China’s Trapped Transition’ by Minxin Pei.  There is a lot in this article which resonates with Pei’s bleak vision of today’s China:

-The monopoly control of economic rents by those with political power

-An accelerating effort by this privileged group to turn their power into wealth, indicating a lack of faith in the future and an attempt to cash in as quickly as possible

-A collapse in the ideological values which might provide a check on the abuse of power

You can see the original article here.

Communist Party, Financial Crisis, Property, Social Policy