Governance and Politics of China 9780333716939, 9780333693353, 9781137445278, 9781137445308, 1137445270

The success or failure of China's development will impact not only its own citizens but also those of the world. Ch

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Governance and Politics of China
 9780333716939, 9780333693353, 9781137445278, 9781137445308, 1137445270

Table of contents :
Cover......Page 1
Half-Title......Page 2
Title......Page 4
Copyright......Page 5
Dedication......Page 6
Contents......Page 7
List of Maps, Boxes, Figures and Tables......Page 10
Preface to the Fourth Edition......Page 12
Romanization, Chinese Units of Measurement and Statistics......Page 16
List of Abbreviations......Page 17
Introduction......Page 19
1 Diversity within Unity......Page 27
A land of diversity......Page 28
The impact of CCP policy......Page 42
Parameters of policy debate......Page 55
Leaning to one side – China and the Soviet model: 1949–55......Page 58
The origins of a Chinese path to socialism: 1955–62......Page 62
The radicalization of politics and the resurrection of class struggle: 1962–78......Page 66
The Third Plenum and the initial reform agenda: 1978–84......Page 70
Economic troubles and political instability: 1985–91......Page 75
Return to economic reform, boom and moderation: 1992–97......Page 80
Managing reform without Deng: 1997–2002......Page 82
Attempting to balance growth with social equity: 2002–12......Page 84
Succession and the purge of Bo Xilai......Page 91
CCP and NPC congresses: November 2012–March 2013......Page 95
Political priorities......Page 100
Third Plenum of the Eighteenth Central Committee (November 2013): outlining a platform for action......Page 107
Party organization and membership......Page 111
The political culture of the CCP......Page 130
The role of the CCP in the political system......Page 135
5 The Central Governing Apparatus......Page 142
Evaluation and perception of government performance......Page 145
Central government......Page 149
The legal system, coercive control and rights......Page 163
The military and the political system......Page 172
The organization of local government......Page 180
The province as a unit of analysis......Page 184
Regional inequality......Page 193
Relations between the centre and the localities: the fiscal picture......Page 198
The consequences for local governance......Page 202
Perceptions of local government performance......Page 210
Analysing the local state: corporatism, predation and negotiation......Page 213
The Maoist period: an autonomous state and a state-dominated society......Page 217
State–society relations under reforms: a negotiated state......Page 224
Impact on the sanctioned organizational structure of representation......Page 230
Participation at the grassroots and the role of elections......Page 237
Non-sanctioned participation......Page 243
Rural–urban relations......Page 250
Migration......Page 255
Urbanization......Page 261
9 Economic Policy......Page 270
Policy-making and implementation......Page 271
General outline of economic policy......Page 275
A Chinese model of development?......Page 279
Industrial policy......Page 283
Rural policy......Page 293
10 Social Policy......Page 302
Family planning: problems of policy coordination and policy evasion......Page 303
Social policy and the transition in China......Page 308
Key features of China’s welfare system......Page 311
Pension reform in the urban areas: cutting the Gordian knot of the SOEs......Page 318
Healthcare in rural China......Page 324
Poverty alleviation and social assistance......Page 329
11 Foreign Policy......Page 339
China and globalization......Page 340
China and the region......Page 347
China and the United States......Page 353
China’s foreign economic relations......Page 364
The challenge of constraints: environmental degradation and resource shortages......Page 370
The internal challenge: corruption......Page 380
The information challenge: blogs, tweets and the Internet......Page 390
The final challenge: good governance and political reform......Page 394
Further Reading......Page 401
Bibliography......Page 407
Index......Page 429

Citation preview

Governance and Politics of China

COMPARATIVE GOVERNMENT AND POLITICS Published Maura Adshead and Jonathan Tonge Politics in Ireland Rudy Andeweg and Galen A. Irwin Governance and Politics of the Netherlands (4th edition) Tim Bale European Politics: A Comparative Introduction (3rd edition) Nigel Bowles Government and Politics of the United States (3rd edition) Paul Brooker Non-Democratic Regimes (2nd edition) Robert Elgie Political Leadership in Liberal Democracies Rod Hague and Martin Harrop * Comparative Government and Politics: An Introduction (9th edition) Paul Heywood The Government and Politics of Spain Xiaoming Huang Politics in Pacific Asia B. Guy Peters Comparative Politics: Theories and Methods [Rights: World excluding North America] Tony Saich Governance and Politics of China (4th edition) Eric Shiraev Russian Government and Politics Anne Stevens Government and Politics of France (3rd edition) Ramesh Thakur The Government and Politics of India Forthcoming Tim Haughton Government and Politics of Central and Eastern Europe Robert Leonardi Government and Politics in Italy * Published in North America as Political Science: A Comparative Introduction (7th edition)

Comparative Government and Politics Series Standing Order ISBN 978-0-333-71693-9 hardback ISBN 978-0-333-69335-3 paperback (outside North America only) You can receive future titles in this series as they are published by placing a standing order. Please contact your bookseller or, in the case of difficulty, write to us at the address below with your name and address, the title of the series and one of the ISBNs quoted above. Customer Services Department, Macmillan Distribution Ltd Houndmills, Basingstoke, Hampshire RG21 6XS, England, UK

Governance and Politics of China Fourth Edition

Tony Saich




© Tony Saich 2001, 2004, 2011, 2015 All rights reserved. No reproduction, copy or transmission of this publication may be made without written permission. No portion of this publication may be reproduced, copied or transmitted save with written permission or in accordance with the provisions of the Copyright, Designs and Patents Act 1988, or under the terms of any licence permitting limited copying issued by the Copyright Licensing Agency, Saffron House, 6–10 Kirby Street, London EC1N 8TS. Any person who does any unauthorized act in relation to this publication may be liable to criminal prosecution and civil claims for damages. The author has asserted his right to be identified as the author of this work in accordance with the Copyright, Designs and Patents Act 1988. First edition 2001 Second edition 2004 Third edition 2011 Fourth edition 2015 Published by PALGRAVE Palgrave in the UK is an imprint of Macmillan Publishers Limited, registered in England, company number 785998, of 4 Crinan Street, London, N1 9XW. Palgrave Macmillan in the US is a division of St Martin’s Press LLC, 175 Fifth Avenue, New York, NY 10010. Palgrave is a global imprint of the above companies and is represented throughout the world. Palgrave® and Macmillan® are registered trademarks in the United States, the United Kingdom, Europe and other countries. ISBN 978–1–137–44528–5


ISBN 978-1-137-44527-8 ISBN 978-1-137-44530-8 (eBook) DOI 10.1007/978-1-137-44530-8 This book is printed on paper suitable for recycling and made from fully managed and sustained forest sources. Logging, pulping and manufacturing processes are expected to conform to the environmental regulations of the country of origin. A catalogue record for this book is available from the British Library. A catalog record for this book is available from the Library of Congress. Typeset by MPS Limited, Chennai, India. Library of Congress Cataloging-in-Publication Data Saich, Tony. Governance and politics of China / Tony Saich. — Fourth edition. pages cm 1. China--Politics and government — 1949- 2. China — Economic policy — 1949- I. Title. JQ1510.S26 2015 320.951--dc23 2015013586

To Alex, Amanda and Junko

Contents List of Maps, Boxes, Figures and Tables Preface to the Fourth Edition Romanization, Chinese Units of Measurement and Statistics List of Abbreviations Introduction

x xii xvi xvii xix


Diversity within Unity A land of diversity The impact of CCP policy

1 2 16


Political History: 1949–2012 Parameters of policy debate Leaning to one side – China and the Soviet model: 1949–55 The origins of a Chinese path to socialism: 1955–62 The radicalization of politics and the resurrection of class struggle: 1962–78 The Third Plenum and the initial reform agenda: 1978–84 Economic troubles and political instability: 1985–91 Return to economic reform, boom and moderation: 1992–97 Managing reform without Deng: 1997–2002 Attempting to balance growth with social equity: 2002–12

29 29 32 36


China’s New Leaders and Their Challenges: 2012–Present Succession and the purge of Bo Xilai CCP and NPC congresses: November 2012–March 2013 Political priorities Third Plenum of the Eighteenth Central Committee (November 2013): outlining a platform for action

40 44 49 54 56 58 65 65 69 74 81


The Chinese Communist Party Party organization and membership The political culture of the CCP The role of the CCP in the political system

85 85 104 109


The Central Governing Apparatus Evaluation and perception of government performance Central government The legal system, coercive control and rights The military and the political system

116 119 123 137 146


viii Contents 6


Governance Beyond the Centre The organization of local government The province as a unit of analysis Regional inequality Relations between the centre and the localities: the fiscal picture The consequences for local governance Perceptions of local government performance Analysing the local state: corporatism, predation and negotiation

154 154 158 167 172 176 184 187

The Chinese State and Society The Maoist period: an autonomous state and a state-dominated society State–society relations under reforms: a negotiated state Impact on the sanctioned organizational structure of representation Participation at the grassroots and the role of elections Non-sanctioned participation

204 211 217


Urbanization and Rural–Urban Relations Rural–urban relations Migration Urbanization

224 224 229 235


Economic Policy Policy-making and implementation General outline of economic policy A Chinese model of development? Industrial policy Rural policy

244 245 249 253 257 267

Social Policy Family planning: problems of policy coordination and policy evasion Social policy and the transition in China Key features of China’s welfare system Pension reform in the urban areas: cutting the Gordian knot of the SOEs Healthcare in rural China Poverty alleviation and social assistance




Foreign Policy China and globalization China and the region

191 191 198

277 282 285 292 298 303 313 314 321

Contents ix


China and the United States China’s foreign economic relations

327 338

China’s Future Challenges The challenge of constraints: environmental degradation and resource shortages The internal challenge: corruption The information challenge: blogs, tweets and the Internet The final challenge: good governance and political reform


Further Reading

Bibliography Index

344 354 364 368 375 381 403

List of Maps, Boxes, Figures and Tables Map The People’s Republic of China


Boxes 1.1 1.2 1.3 1.4 2.1 2.2 2.3 2.4 2.5 3.1 3.2 3.3 4.1 5.1 6.1 7.1 7.2 9.1 10.1 12.1 12.2 12.3 12.4 12.5

Beijing’s Xinjiang Problem SARS and the Media Village Leadership and Clans A Tale of Two Religions – Buddhism and Christianity Key Dates of the Communist Revolution, 1911–49 Key Political Dates, 1949–78 Stages of Collectivization in the Chinese Countryside, 1952–59 Key Political Dates, 1978–2014 Staging the 2008 Summer Olympics The Xi Family What Does General Secretary Xi Dream About? Brother Wristwatch and Uncle House Criticism CCP-Style: Chen Boda’s Denunciation of Wang Shiwei The Problem of Implementing Court Decisions Governing Hong Kong and the Limits to Democratic Rule Cleaning up the Green Han River Yantian Village: Home of the Deng Lineage Measures to Improve the Status of the Private Sector Designing a New Pension System Winter Smog Getting Cars off the Road Catching the Biggest Tiger: Zhou Yongkang The Rainbow Economy Grass-Mud Horses and River Crabs Do Battle


6 11 13 15 33 33 35 45 62 66 76 78 107 138 155 210 216 266 294 346 349 356 362 364

List of Maps, Boxes, Figures and Tables xi

Figures 4.1 4.2 5.1 5.2

Organization of the CCP, 2014 Central Organization of the CCP (simplified), 2014 Governance Indicators for China, 1996–2012 Governance Indicators for Selected Countries in Asia, 2012 5.3 Percentage of Citizens Relatively Satisfied or Extremely Satisfied with Government 5.4 Central Organization of the Chinese Government, March 2014 6.1 Levels of Government under the State Council, 2014

86 91 120 121 122 128 157

Tables 3.1 6.1 6.2 6.3 6.4 8.1 8.2 10.1 10.2 10.3 10.4

Standing Committee Members: Key Characteristics Regional Disparities in China, 2012 Central and Local Expenditures on Key Categories, 2010 Citizens’ Impressions of the Attitude of Local Government in Executing Policy, 2003 and 2011 Comparison of Citizen’ Attitudes towards Government Behaviour, 2003–11 Urban–Rural Household Income Ratios Rural–Urban Health Indicators, 2012 Family Planning Policy in the 1990s Structure of Health Expenditures, 1980–2011 Public and Private Expenditures on Healthcare, Selected Countries, 2011 Official Rural Poverty Statistics

70 171 177 185 186 228 229 278 288 289 305

Preface to the Fourth Edition The fourth edition of this textbook is substantially revised and updated to cover not only the leadership of General Secretary Hu Jintao and Premier Wen Jiabao but also that of General Secretary Xi Jinping and Premier Li Keqiang. The new leadership has sought to restore Chinese Communist Party (CCP) prestige and strengthen the role of the market in economic reforms. The textbook has kept the same basic structure as previous editions with two new chapters added and materials from two deleted chapters absorbed elsewhere if relevant. The study of Chinese politics has evolved significantly over the last three decades. Not only is more statistical data available but also greater use can be made of survey research, interviews and fieldwork. This has changed significantly the nature of research on China and has meant that its study is more amenable to comparative research questions. Previously, research on China was mainly characterized as ‘area studies’ that placed the emphasis on questions of continuity and change and the extent to which traditional patterns of authority still influenced the contemporary polity. Research that was not ‘Sinocentric’ explored the differences between the Chinese communist experience and that of the Soviet Union. If Chinese politics was taught at all, it would be as a subset of a course on comparative communist systems. This approach also dictated research themes with attempts to apply concepts developed in the study of the Soviet Union to see whether they applied, or not, to the Chinese situation (Goodman, 1984). Fieldwork tended to comprise a visit to Hong Kong and interviews with refugees. The academic community was relatively small, it was possible to keep abreast of most areas of study and the field was relatively isolated from ‘mainstream’ political science. Reading a couple of newspapers and journals could make you an expert on almost anything to do with China. Reform tore up this cosy existence: the language changed, publications proliferated, access opened up, and academic specialization not only became possible but also necessary. Now the study of China involves fruitful engagement with questions of comparative development and the involvement of non-China specialists who bring their own comparative research questions to the empirical hunting ground of China. China has become an important area of research for those interested in questions of transitional systems – especially the relationship between an authoritarian polity and a more liberalized economy – one-party political systems or the East Asian developmental state. Those working on China have developed xii

Preface to the Fourth Edition xiii mid-range theories to explain the politics of transition, the resilience of authoritarian polities and how high growth can occur under a nondemocratic system. However, as Perry (Perry and Goldman, 2007) has warned, China’s development experience and its revolutionary experience have still shaped outcomes. As a result, she is cautious about the extent to which Soviet studies, theories about ‘run-of-the-mill authoritarianism’ and the East Asian development state are useful comparators. There is a residual impact from Maoist institutions and practices. This has heightened relevance with the ascent to leadership of Xi Jinping to General Secretary, who has promoted Maoist practices such as the ‘mass line’ and has been sharply critical of those who reject completely the development experience under Mao Zedong. The Introduction provides a brief outline of the topic, touching on the shift in attitude of the leadership following the global financial crisis and on four key transitions that have shaped the ensuing period. Chapter 1 shows how difficult it is to speak of China as a single entity given its geographic and ethnic diversity; it also looks at how the policies of the CCP have changed the physical appearance of the country. Chapter 2 covers the history of China since 1949. The focus is on the period of reform that began in 1978 but first looks at the legacies of the Maoist period that shaped reform policies and the institutions of party and state. A new Chapter 3 focuses on the recent leadership that was selected in 2012 and 2013 and reviews their policy priorities. Chapter 4 shifts from history to the institutions that govern the People’s Republic of China (PRC). Certain basic facts and institutional structures need to be described in order to understand the context within which policies are made and carried out. The CCP is the most important institution in China and the chapter outlines its organizational structure and the role that its organization department and party schools play in training and socializing the new elites. The chapter concludes with an analysis of the political culture of the CCP and how this impacts on policy choice. Chapter 5 outlines the structure of the central government, including the legal and coercive apparatus, the important role that the military plays in the political system and some views on what Chinese citizens think about government performance. Chapter 6 shifts the focus onto reviewing the structure and roles of local government. Sub-national government plays a crucial role in the Chinese political system and of particular importance is the fiscal relationship between different levels of government. Chapter 7 concludes this section by looking at the relationship between state and society. What formal and informal mechanisms exist through which citizens can engage with government? A new Chapter 8 on rural–urban relations starts the section on policy areas. Urbanization is crucial to China’s future and this chapter

xiv Preface to the Fourth Edition looks at both the policies for urban growth and the broader relationship between city and countryside. Chapter 9 analyses economic policy with a focus on rural and industrial policy with consideration of the extent to which China’s development experience can serve as a model for other countries. Chapter 10 covers social policy, reviewing the role that it has played in the developmental model, followed by a more specific focus on health care and poverty alleviation. Chapter 11 looks at what this development means in a global context by analysing China’s foreign policy, especially with reference to relations within the region, with the US and with its foreign economic relations. Chapter 12 concludes this textbook by looking at four key challenges that the new Chinese leadership must confront in the future: the environmental damage that the development model has created, the corruption that has increased as a result of economic reform within an authoritarian political structure, the challenge that new social media brings to traditional forms of communication, and whether a one-party system can manage effectively this complex process of change. I would like to thank Steven Kennedy, my publisher at Palgrave Macmillan. His persistence and good humour overcame my reservations about writing an introduction to Chinese politics. He was always helpful with creative advice and suggestions. He must have the patience of a saint. I would also like to thank Keith Povey and his staff for their tremendous editorial assistance. I would particularly like to thank my academic home, the Ash Center for Democratic Governance and Innovation, Kennedy School of Government, Harvard University, and the students who have attended my courses since 1999 in which I have tried out many of the ideas in this book. My understanding of contemporary China has been shaped by a number of teachers and friends, of whom David S. G. Goodman, Stuart R. Schram and the late Richard Baum and Gordon White deserve special mention. I trust that the references in the text do justice to the influence of the work of other colleagues. I would like to thank the various anonymous reviewers, including the two for this edition, who made very valuable suggestions to improve the work. I did not agree with all they wrote but they saved me from making a number of mistakes and caused me to amend some judgements. My formative experience of China was spent in Beijing and Nanjing at the end of the Cultural Revolution in 1976–77. This experience opened my eyes to the complexity of Chinese reality and to take nothing at face value. Many of the ideas expressed in the book were shaped by this early experience and by my five years as Representative of the Ford Foundation in China (1994–99). I learned an enormous amount from our Chinese grantees and staff at the Beijing Office. I enjoyed wrestling

Preface to the Fourth Edition xv policy issues with Mary Ann Burris, Phyllis Chang, James Harkness, Joan Kaufman, Stephen McGurk and Nick Menzies. In addition, Pieter Bottelier and Arthur Holcombe were always a source of advice. However, it is to my Chinese colleagues too numerous to mention that I owe my greatest debt. Since moving to the Harvard Kennedy School, I have had the good fortune to interact with many government officials, scholars and students from China and they have helped shape my views, especially with respect to the discord between official rhetoric and social realities. As usual, Nancy Hearst did a terrific job with the Bibliography and picked up a number of errors that saved me from embarrassing myself even further. I would like to thank Nancy for all her help to the family and myself over the last 25 years or so. Lastly I would like to thank Alex, Amanda and Junko – to whom this book is dedicated. Tony Saich

Note: updated material for this title is available on the publisher’s website at

Romanization, Chinese Units of Measurement and Statistics The system of Romanization for Chinese characters used in this book is the Pinyin system, as used by the PRC and scholars in the West. It may be adopted by Taiwan, which has traditionally used the Wade– Giles system. Students will come across this system not only in publications from Taiwan but also in most of the works written before 1979. Also, there are numerous names with familiar spellings in English that belong to neither of these two systems.

Chinese measurements Jin: weight measure equal to 0.5 of a kilogram. Mu: measure for land equal to one-sixth of an acre. Often spelt mou. Yuan: Chinese currency unit. The value varies but in the year 2014 there were 6.2 yuan to the US dollar, 10.47 to the pound sterling and 8.56 to the euro.

Statistics The statistics used in the text unless otherwise stated are all taken from Chinese official sources for 2013. The terms ‘the survey’ or ‘our survey’ or ‘author’s survey’ refer to a survey taken of approximately 4,000 residents of China drawn from a cross-section of geographies. The survey was conducted in 2003, 2004, 2005, 2007, 2009 and 2011. It does not include migrants or ethnic minority regions. It was conducted with the help of the Horizon Market Research Company.



agricultural producers’ cooperative Asia–Pacific Economic Cooperation Forum ASEAN Regional Forum Association of Southeast Asian Nations Brazil, Russia, India, China, South Africa (rapidly developing countries) Chinese Academy of Social Sciences Central Committee Chinese Communist Party Central Discipline Inspection Commission China Development Reform Foundation China Investment Corporation Central Military Affairs Commission China National Petroleum Corporation Central People’s Political Consultative Conference Communist Party of the Soviet Union discipline and inspection commissions Democratic Progressive Party Development Research Center extra-budgetary fund Foreign Broadcast Information Service foreign direct investment Great Leap Forward Guomindang (Kuomintang) Human Development Index merger and acquisition maternal and child healthcare minimum living support scheme North Atlantic Treaty Organization National Development and Reform Commission non-governmental organization National People’s Congress overseas direct investment People’s Liberation Army People’s Republic of China Special Administrative Regions severe acute respiratory syndrome State Asset Supervision and Administration Commission South China Morning Post South China Sea xvii


State Economic and Trade Commission special economic zone State Family Planning Commission small and medium-sized enterprise state-owned enterprise Summary of World Broadcasts (BBC): The Far East total health expenditure township and village enterprise National Union for the Total Independence of Angola value-added tax World Trade Organization

Introduction It is clear that the mentality of the CCP underwent a significant shift following the global financial crisis in 2008–09. While the impact on China’s financial system was much more limited than in the West, in part with the help of a large stimulus package, it fed into an ongoing re-evaluation of what China could learn from the West, in particular the US, and what was important in its own model of development. The Chinese leadership has become more assertive in that its model of an authoritarian political structure controlling a more marketinfluenced economy is preferable not just as a transition strategy but also for long-term development. General Secretary Xi Jinping has been more strident than his predecessor in extolling the virtues of the CCP-led model. This rediscovered pride in their economic and political model has meant that the Chinese leaders are less willing to be told by others how they should regulate their economy, value their currency and run their internal affairs. Yet, despite this form of hybrid or state-led capitalism, Premier Li Keqiang still called on the market to play a ‘decisive role’ in the future. It will be interesting to observe how state power and market forces interact over the next few years. Domestically, this positive view of its own history was reflected in the grandiose staging of the Olympic Games in 2008 and the October 2009 celebrations of the 60th anniversary of the founding of the PRC. Both revealed the CCP’s capacity to launch a spectacular event, mobilize resources and rally its people behind a dominant narrative of the indispensability of CCP rule to the nation’s progress. The splendour and military might on display for the 60th anniversary reflected the awe of China’s rising power and military might. For critics, such displays appear to be classic cases of mobilization of state resources to promote propagandistic aims. This new assertiveness has also been felt in the international arena, especially in the East and South China Seas. China has been especially strong in enforcing its territorial claims in disputed areas. This has led to heightened tensions with a number of its key neighbours, such as Japan, the Philippines and Vietnam. In May 2014, China’s decision to shift an oil rig into disputed waters led to major riots in Vietnam, attacks on what people thought was Chinese property, and the death of a number of Chinese citizens. This led to the worst deterioration of relations between the two since the brief border war in 1979. Whatever one’s interpretation of these questions, there is no doubt that economic growth over the last 35 years has radically changed every aspect of China’s society and that the country is now a major xix

xx Introduction player on the world stage. As the world’s manufacturing hub, not only have Asian economies shifted to integrate with the export-driven economy but also China’s economy has become intertwined with those of the US, the EU and Japan. There are few, if any, global problems that can be resolved without China’s active participation. Its economic weight and population size will mean that its legitimate national interests will have to be taken into account in global forums and its decision-makers will have to learn to shoulder a major role in future global politics and agenda setting. The institutional structures, development strategy and challenges are dealt with in the following chapters. Four concurrent transitions have shaped the tremendous changes that China has undergone. Hussain (2002) describes three concurrent transitions that have shaped the demands for social welfare policy; I have adapted these and added a fourth to help explain the complexity of the transition in post-Mao China. The first is a demographic transition, with the shift from low to high life expectancy and from high to low fertility resulting in an ageing population. China’s leaders are gambling that economic growth will mitigate the worst consequences of society growing old before it becomes rich. This is unlikely, however, and the ageing burden will weigh heavily on China’s economy and society, which will feel the negative effects of higher dependency ratios and greater expenditures on elderly care. The second and third are economic transitions. The second might be termed a ‘normal’ economic transition, with millions shifting from low-productivity agricultural labour and heavy industry to employment in higher-productivity manufacturing and service sectors. This follows a similar development pattern in other successful countries in East Asia. It has also moved hundreds of millions of people to old and newly constructed urban environments. Parallel to this, but unlike its East Asian neighbours, the third transition is the shift from a centrally planned economy to one that is more influenced by market forces. This has brought enormous benefits, but it has also created new problems of unemployment as inefficient state-owned enterprises (SOEs) have closed down or shed workers. This has been accompanied by an expansion of the state-led sector of the economy. To these three transitions we can add a fourth: the transition from a belief in the paramount importance of the collective in delivering individual benefits and the subordination of individual will and desire to a situation where individual choice, wants and needs dominate. Socialism rests on the principle that the individual can derive more from the collective than he or she can by working alone. Markets place individual choices and their regulation at the centre. Reforms have seen a shift from the collective as the organizing focus to one based on individual choice. This creates a problem for the CCP as its ideology is based on

Introduction xxi the former premise and it has been struggling to offer effective guidance in the new society. The resultant conflicted morality with a raw capitalist outlook under the rhetoric of an existing socialist system presents a problem for any future leader as there is no civil society that might provide a bond in the event of a CCP collapse. For the individual it creates confusion as official rhetoric bears little resemblance to reality as lived on the streets. The result can be distrust of government, an attitude of putting oneself first and a moral vacuum. These four transitions have brought enormous benefits to China’s people but they have also created new challenges for their leaders to resolve. Subsequent chapters deal with the impact of these transitions and changing social norms. The Chinese leadership has continually confounded those critics who have seen its imminent demise and questioned its ability to deal with the consequences of socio-economic progress. If anybody had said to me when I was studying in China during the last throes of the Cultural Revolution (1966–76) that the country would witness such monumental progress, I would have dismissed them as crazy. Yet the problems facing China during the next phase of its development are daunting. To do justice to this complexity in an introductory text is no easy matter. In the chapters below I have tried to present some of the complexities in governing the most populous country in the world. The danger is that on the one hand almost anything one writes seems too simple, yet on the other hand too many qualifications tend to confuse as much as they clarify. It is a difficult line to tread. I hope that the book will be of interest not only to those beginning to thread their way through the maze of Chinese politics, but also to those who already know the basics as well as to students of comparative politics, transitional regimes, communist and post-communist politics and the politics of development. There are a number of specific problems involved when writing an introduction to Chinese politics. First, few have knowledge of the country before starting a university or other programme. China barely figures as a subject on the syllabi of secondary schools, although its economic growth is slowly forcing it onto course choices, and the study of the language is expanding. In addition, the general assumption that the institutions, theories and practices developed within Europe and the US are the norm of politics means that the study of countries such as China are often pushed to the periphery of the syllabus. Second, China is changing so fast that it is difficult to keep abreast of developments. When I began to study China in the early 1970s, with the exception of the fact that it was rare to be able to visit there, it was an easy task. There was so little information available and very

xxii Introduction few original Chinese sources. The pace of change and the new abundance of information has set a challenge to any attempt to highlight what is significant and enduring and to ignore what is irrelevant and ephemeral. China is a maze of intricacies, complexities and contradictions. At the meetings of the 2012 and 2013 Eighteenth Party Congress and the Twelfth National People’s Congress (NPC) new leaders were appointed and subsequently a number of new policy initiatives were launched; others will certainly follow. Third, all political systems experience a disjuncture between political practice and rhetoric on the one hand and between social reality and the desires of the political centre on the other. This disjuncture is even greater in China. When the UK Prime Minister or the US President makes a speech about their vision for their respective country, no one believes that this entirely reflects the political and social realities. Such pronouncements provide a policy blueprint or political aspiration that is contested within the bureaucracy and by the local political authorities and society. Such visions represent an ideal type of the kind of society that the leaders would like to see. In the past some observers of the Chinese political scene took what the leaders said to represent the social reality and saw the political system as geared to implementing the pronouncements of the CCP general secretary. Perhaps the fact that China’s ruling party still calls itself a ‘communist party’ conjures up a vision of a totalitarian political system that functions with one heart and mind from top to bottom. Reality is quite different. Contrary to much press reporting and general perceptions, the political centre does not control the system throughout, and there is significant deviation of central policy across bureaucracies and at the local level. In some senses, real politics in China is local politics. It is at the local level that policy and social equity problems have to be solved. Policy implementation can vary enormously, even within one province, in accordance with the local distribution of power. This pluralism of policy outcome has led to differing analyses of the Chinese state as being essentially predatory, corporatist, clientelist or bureaucratic-authoritarian. Making sense of this seemingly contradictory country is what makes the study of its politics and society so endlessly fascinating. Together with the notion that history and institutions matter, this complexity is one of the main themes that runs through this book. Reform did not begin with a blank slate in 1978 and even the best macroeconomists have to deal with the fact that policy implementation is predicated on responses drawn from historical and cultural repertoires and mediated through political institutions that have been inherited from the Maoist years. The focus is on the politics and governance of China during this process of transition. The use of the term ‘governance’ moves us beyond the functioning of government institutions

Introduction xxiii and administrative departments to the broader issues of how individual citizens, groups and communities relate to the state. It includes processes and institutions, both formal and informal, that guide and restrain policy challenges. Included are issues of accountability and transparency and the potential role of actors within civil society and the international community. Three main themes emerge from the chapters below. First, the economic reform programme has been more consistently successful than many outside observers have predicted over the years, though it is now facing significant challenges. The CCP has shown a remarkable capacity to adapt to the rapidly changing environment, and its performance is particularly impressive when compared to developments in post-Soviet Russia. However, the question now arises as to whether the limits of the current development strategy have been reached. Many of the problems now confronting China’s leaders are those of delayed reform. Much of the initial success and popular support stemmed from the fact that there were relatively few losers and those who did lose out were politically marginalized. It is now apparent that, as reform moves to the next stage and China integrates further into the world economy, there will be significant losers, including those workers and institutions that form the core of the CCP socialist system. To date, the shake-up of the state-owned sector and the resultant job losses have not led to a major challenge to CCP rule. The easy reforms have been completed and China has benefitted enormously from a process of catching up with its East Asian neighbours. The Chinese leadership now has to deal with ensuring that development is sustainable, that environmental damage does not erode the economic gains and that institutional adaptation can keep pace with changes elsewhere in the system. Muddling through may no longer be sufficient. Most of the problems and challenges stem from inadequacies in the system of governance. Corruption is present at all levels of government, has increased greatly in scale under reforms and is fuelled by the lack of budget transparency and the close relationship between political power and economic actors. Attempts to improve the environment are undermined by the skewed incentives for local government agencies and the weakness of the environmental watchdogs. Governance is also a problem in the commercial sector where the poor corporate governance led one senior reform economist to describe China’s stock markets as ‘casinos’. None of these problems is insuperable but they do require the CCP to accept greater oversight of its activities by independent organizations and society. To date, the CCP has been reticent to allow this. While state dominance of the economy has declined significantly, the private sector is still treated as second class, finding it difficult to obtain the necessary financing to expand operations. This is important

xxiv Introduction as the non-state sector has been the major provider of jobs in recent years. The service sector needs to expand but this requires a significant shift in resources to invest in education. Without this, China will suffer from a continual shortage of skilled labour that will leave much of the country on the lower rungs of the production chain, thus preventing it from following the development trajectories of Japan, South Korea and Taiwan. The new leadership is hoping that urbanization will push the economy forward through the ‘middle-income trap’ by maintaining economic growth, helping to smooth out inequalities and facilitating more equitable public service provision. This will require solutions to rural challenges. Here policy needs to come to grips with land management and ownership. Second, China, like many transitional economies, has not been able to deal so effectively with the social transition, and the development of social policy has greatly lagged behind economic development. In greater part, this derives from the CCP’s bias towards what it sees as the productive forces, to which the health and education level of its population are not factored in sufficiently. Yet failure to tackle social policy effectively could lead to undermining the progress of the economic reforms. The earlier favourable demographics of China are beginning to fade and will become problematic over the next 10–15 years. Building a social welfare platform for those excluded was a key feature of the Hu Jintao–Wen Jiabao leadership, but it requires further consolidation to prevent the gains in this generation being undone in the next. Despite this, the leadership must still grapple with the unequal distribution of the benefits of reform. One distinctive feature of China’s development in comparison with other East Asian polities is its toleration and even encouragement of inequality as a driving force for change. The development strategy has favoured the coast over the inland areas, the urban over the rural, and male over female. The leadership has recognized that an inability to develop the hinterland will act as a brake on economic growth as it will limit the size of the domestic market; hence the campaigns to ‘Develop the West’, ‘Revive the Northeast’ and the ‘Rise of Central China’. It will also provide the potential for social conflict as the politics of resentment may arise. The urban bias of current policy needs to be changed and the structural impediments that block rural dwellers from benefiting fully from the reforms need to be removed. While women have enjoyed the general benefits of reform, more freedom of choice and rising prosperity, they have been disfavoured by comparison with men. They have been encouraged to retire early, are the first to be laid off from SOEs, bear the brunt of the family-planning programme, and shoulder a disproportionate amount of the rural labour. It is not surprising that women have no effective representation in the political system.

Introduction xxv The third theme is that while there has been substantial adaptation of institutions, genuine political reform has been insufficient. Institutions have been set up to manage the new economy and a legal system has been revived and extended to preside over it. Social organizations with varying degrees of autonomy have been established to meet people’s material and leisure needs and, to a much lesser extent, their spiritual needs. However, with the exception of the village election programme, little has been done to make the system more accountable. The CCP still rules as an autocratic elite, often out of touch with the consequences of its own economic policies. As good Marxists this elite should recognize that substantive change in the economic base must impact on the political superstructure. The truth is that Marx is irrelevant to their visions of the political future and those who read more liberal tracts on the need for checks, balances and accountability may keep quiet for fear of being branded a ‘bourgeois liberal’. By default, theories of authoritarianism hold sway. At the local level, at its worst, this system can lead to rule by corrupt, despotic cabals who see the local population merely as a source of revenue. Xi Jinping has launched a major campaign promising to weed out corrupt officials, no matter what their position is. This seems to be moving beyond the removal of political foes but carries the risk of raising insecurity and opposition from those within the elite who have profited unduly from reforms.

The People’s Republic of China


Chapter 1

Diversity within Unity Some years ago, I was in a jeep driving down a mountain road in rural Sichuan and was held up by a long queue of traffic meandering down the hill to a new bridge that was being dedicated. Getting out of the jeep I wandered down to the bridge to witness an elaborate ceremony complete with the lighting of incense and various actions to ward off the evil spirits. Somewhat facetiously, I began to ask those waiting what the Communist Party must think about this ceremony as it clearly represented an example of ‘superstitious practice’ so soundly denounced during the Cultural Revolution (1976–77) and still denounced today, albeit with less severity. I was greeted with puzzled faces before one person replied that the man in the exotic robes leading the ceremony was the party secretary. As the most important person in the village, he had no choice but to dedicate a new bridge that would link it to the world outside and bring greater wealth. The event set me thinking about the relationship between the party, the state and society and between China’s tradition and modernity. Did the party secretary believe in the ceremony and its power to conjure up good spirits to protect the bridge or was he simply going through the motions to increase credibility among the local population? Was the party secretary importing the power of the party into the village community or bringing heterodox beliefs into the party or both? The traditional nature of the ceremony contrasted with the objective of building the bridge that would integrate the local community with the world outside. The bridge provided the link to the market that is the driving force for development in the post-Mao years. Such small events are daily occurrences throughout rural and urban China and they cause us to question any notion of the country as a monolith. China comprises a patchwork of local cultures and histories that the Chinese Communist Party (CCP) and its nationalist and imperial predecessors have tried to weld into a unitary entity. While the CCP may have tried to penetrate society more thoroughly than its predecessors, the last 35 years have revealed the residual power of local cultures. More recently, I was walking out of the tranquillity of the cradle of the communist revolution in Yan’an, where Mao had moved his Red Army in the mid-1930s, only to be besieged by the trinket sellers who are the products of China’s economic reform – from Mao Zedong’s


2 Governance and Politics of China China to Deng Xiaoping’s within a few paces. The market responds to the desires of consumers rather than to those of communist ideologues, something clearly seen by the books on sale. While those sold inside Yan’an, such as Mao Zedong Enters Yan’an, tell the official story of the revolution, the books on sale outside, often under the counter, tell a different tale. They range from Mao Zedong’s notorious womanizing, through the inner secrets of who destroyed whom in the party’s new headquarters (Zhongnanhai in Beijing), the corruption of former leaders of Beijing and Shanghai, to unofficial biographies of former general secretaries, Hu Yaobang and Zhao Ziyang. These are the CCP’s hidden histories, those the conservative party veterans do not want their people to know about – yet they are the ones that the people with interest and money want to buy. Rather than a revolutionary world full of selfless heroes, they tell stories of betrayal, corruption and greed. Whose history, whose politics? This warns us not to take official pronouncements at face value but to peer behind the public facade to discover the reality of how the Chinese polity really works. This chapter and subsequent ones seek to introduce the reader to the diversity of China, its land and its peoples, and how CCP policy since 1949 has affected them.

A land of diversity As the two anecdotes reveal, China is a very complex land where multiple realities are operating beneath a facade of a unitary nation-state. However, this does not mean, as some have claimed, that China may fall apart into its regional components as a result of the reforms (Segal, 1994) or that a de facto federalist structure is emerging (Wang, 1995). Rather we should be careful about any generalization we make and be aware that the same policy will impact on different areas and different groups in China in a variety of ways, sometimes with unexpected results. China’s land, climate and peoples exhibit a broad diversity. The country’s land mass is roughly equal to that of the USA (9.6 million sq. km) but is home to a population of around 1.36 billion (just over four times that of the USA). Every fifth child is born in China. However, this population is not spread evenly across the land and, while the images of teeming cities full to bursting are correct, there are massive expanses of China where one can roam the hills or deserts for days and barely see a soul. While the population density is 144 per sq. km for the country as a whole, the figure is 2,747 per sq. km for Shanghai and only 2.23 per sq. km for Tibet. In general, the density of the western provinces is under 100, while it is over 600 in the wealthier eastern coastal provinces.

Diversity within Unity 3 This population spread has always been the case, with the predominantly peasant population concentrated along the river deltas and basins of the east, providing the bodies for the development of the mega-cities of Shanghai, Tianjin, Beijing and, further west, Chongqing (see map). By contrast, the high Tibetan–Qinghai plateau is home to a sparse, scattered population engaged in pastoral activities. The plateau lies some 4,000 metres above sea level and occupies a full 20 per cent of China’s land mass. Radiating out from the plateau are the major rivers of China, South East Asia and the Asian sub-continent. The Yangzi, Yellow, Mekong, Red, Ganges and the Brahmaputra all find their sources here on this desolate plateau. Beyond it there is a series of smaller descending plateaus and basins that eventually give way to the major plains of the east, such as the Yangzi Delta, the North China Plain and the Northeast (Manchuria) Plain. The huge oceans to the east, the plateau to the west and the surrounding mountain ranges have protected China throughout its history. This, combined with the continuation of some form of the Chinese state over two millennia, contributed to an insular attitude to alternative modes of thought and an ethnocentrism that the dominant Han Chinese felt was justified by the heritage to which they were the unique heirs. This insularity is reflected by the name of China itself, Zhongguo, which literally means the middle or ‘central’ kingdom. Yet even here there have been variations. China has witnessed periods of extensive dealings with foreigners, such as in the Han (205 bc–ad 220) and the Tang (ad 618–907) dynasties. These were periods of extensive trading when foreign products were well received in China and when Chinese goods reached far-flung corners of the globe. This trade was even accompanied by the influx of foreign systems of thought. Most noticeable was the increasing influence of Buddhism, which arrived from India beginning in the late Han period. The later Qing period (ad 1644–1911), despite some attempts to keep foreigners out, and the Republican period (1911–49), were both influenced by foreign trade and the influx of new ideas. The Taiping Rebellion (1850–64), with its strange mix of half-baked Christianity, iconoclasm and traditional notions of peasant rebellion, mounted a major challenge to Confucian orthodoxy (Spence, 1996). The May Fourth Movement (1915–19), in part a response to the decision to cede the German concession of Shandong to Japan following the First World War, also witnessed a major attack on the Confucian tradition and revealed an intellectual fascination with a whole host of foreign ideas ranging from liberalism to Marxism to anarchism (Chow, 1960). Indeed, during the reform period from the late 1970s, the CCP has tried to make use of the more cosmopolitan trading of China’s coastal regions as a key element in its economic programmes. Policy has

4 Governance and Politics of China favoured a development strategy that relies heavily on coastal trade and investment by revitalizing historic links with the overseas Chinese communities in South East Asia and beyond. Given that China has such an expansive and varied landmass, it will come as no surprise that there is enormous climatic variation, much more so in the winters than the summers. While most of the country lies in the temperate zone, the north-east freezes, with temperatures dropping as low as minus 25–30 degrees Celsius, and even the capital of Beijing can still get the occasional winter day of minus 10–15 degrees, although the average temperature in January hovers just a few degrees below zero. By contrast, Kunming in the south-west province of Yunnan is known as the city of eternal spring, Guangzhou (in Guangdong Province) enjoys winters at around 15 degrees and the island of Hainan has a balmy tropical climate. This north–south climatic divide led the CCP to decree that south of the Yangzi River public buildings would not be heated in winter. I have never been so cold in my life as during the winter of 1976–77 when studying at Nanjing University just south of the Yangzi River. We used to look forward to occasional trips across the Yangzi by ferry to sit in the local post office north of the river that was allowed to provide heating. Rising affluence has changed this, with those who now can afford heating able to purchase it as they please, as long as supplies are available. The forces of nature have not been tamed as fully as in the more advanced countries, and this has resulted in different problems. Rainfall is variable and each summer one is treated to the news that while certain areas have been subjected to flooding (Jiangxi, Zhejiang, Hunan, Jiangsu), other areas are suffering from severe drought (Hebei, Henan, Shanxi); people refer to ‘north – drought, south – floods’. South China depends on the vagaries of the monsoon for its rainfall whereas most of the north and west of China do not receive its effects. The severity and diversity of these problems may be illustrated by the fact that in 1981 millions of people in north-central China faced quite severe food shortages because of extensive drought; in the western province of Sichuan, 1.5 million people lost their homes because of floods. The water shortages in the north have been exaggerated by the industrial development and urbanization of recent years and the water table of the North China Plain has been dropping precipitously. This has led to the ambitious government programme to divert water from the abundant rivers of the south to the north. This will provide some relief but not enough, and China needs to adopt policies that will price water more realistically and will promote water conservation. These climatic and topographic variations have caused a rather varied environment for agricultural production. It is only in the areas around the Yangzi River and the south that the flooded paddy fields

Diversity within Unity 5 are commonplace. In fact, most of China is dependent on dry-field cropping of wheat and millet. The staple for most in the north is noodles and steamed bread rather than the rice that many associate with being Chinese. This dependence on staple grains has meant that traditionally the overwhelming majority of China’s population has settled along the fertile plains and basins that provide suitable arable land. By contrast, the grasslands of Inner Mongolia and Ningxia, the far north-west and Tibet are home to livestock with vast stretches of land for grazing. The periphery in the north-east and south-west is home to China’s principal remaining forest cover. This forest cover has been declining rapidly, now covering only 18 per cent of the landmass (in the US it is 30 per cent), and perhaps as much as 90 per cent of the remaining coverage is threatened. The current coverage is considered insufficient for economic needs and everyday use. While the government often blames local practices, such as swidden (slash and burn) agriculture in the south-west, for the decline in the remaining forests and the subsequent soil erosion and flooding, it is clear that the major culprit in recent times has been the government itself through its massive forestry industry. Although the authorities have moved aggressively to cut down on illegal logging, the practice continues but on a much smaller scale. One unexpected consequence of the crackdown has been the intensification of logging in neighbouring countries in order to meet Chinese demand. With the decline of forest cover and the expansion of arable land and urbanization, there has been a decline in China’s great biodiversity and wildlife. Animals such as elephants, tigers and the golden monkey are to be found only in small parts of remote Yunnan, while the giant panda can be found only in declining numbers in a few Sichuan reserves. These more remote areas are home to most of China’s 55 recognized national minorities (there were 400 to 500 applications from such minorities to be recognized, Blum, 2000, p. 74). While these minorities comprise less than 10 per cent of China’s total population (still around 105 million), with the remaining Han Chinese they occupy over 60 per cent of the total landmass. This includes the very sensitive autonomous regions of Xinjiang, Tibet, Inner Mongolia and Guangxi Zhuang that border Russia, Mongolia, Kazakhstan, Kyrgyzstan, Tajikistan, Afghanistan, Pakistan, India, Nepal, Bhutan, Myanmar and Vietnam. Yunnan, home to 25 minorities, borders on Myanmar, Laos and Vietnam. Over time, China has had difficult relations with virtually all of these countries. These peripheral areas have always been important to Chinese security concerns and have provided a buffer zone to protect the ‘Han-core’ from possible invaders. Beijing’s concern about these areas is increased by the fact that they possess vital natural resources and are the last areas into which China’s growing population can expand (Grunfeld, 1985).

6 Governance and Politics of China This concern with security from external threat explains in part why Beijing is so concerned with consolidating its rule over the border areas and has adopted various policies to encourage more Han to move into them so that they will form the majority population group in many such areas. However, regions such as Tibet and Xinjiang have also been the site of considerable domestic opposition to CCP rule and tensions have increased because of the settlement policies. Both have experienced sporadic resistance to Beijing’s rule and both are viewed with suspicion by the centre. In Tibet, many still pledge their allegiance to the exiled Dalai Lama, who fled to India in 1959 after the People’s Liberation Army (PLA) crushed the Tibetan revolt. In March 2008, on the 49th anniversary of the failed 1959 uprising against CCP rule, a major riot broke out in Tibet with much of the violence directed against Han people. While the CCP blamed the unrest on the exiled supporters of the Dalai Lama, it seemed to be sparked by the economic inequality that has developed under reforms between local Tibetans and Han and other outsiders. Similar tensions exist in Xinjiang, and Beijing fears that people might forge links with radical Islamic groups that have been more active since the break-up of the Soviet Union. July 2009 again witnessed ethnic unrest in Xinjiang, and again Beijing blamed the situation on groups in exile. In 2013 and 2014, sporadic attacks occurred both within the province and outside, including in Beijing, which the authorities blamed on ‘separatists’ (see Box 1.1). Until the CCP develops policies that allow greater religious freedom and permit the spoils of economic growth to be distributed more equitably to local communities, the threat of unrest will persist. The CCP has adopted a paternalistic, not to say patronizing, attitude towards these communities. Before the 2008 demonstrations in Tibet, at the annual National People’s Congress (NPC) meeting, the party secretary of Tibet stated that ‘the Communist Party is like the parent to the Tibetan people, and it is always considerate about what the children need’. He also noted that the central party committee is the ‘real Buddha for Tibetans’ (Reuters, 2 March 2007).

Box 1.1 Beijing’s Xinjiang Problem On taking power in 1949, the CCP adapted the Stalinist notion of national or ethnic minorities and created an institutional infrastructure to deal with them that included the State Nationalities Affairs Commission with sub-national branches and a university and college system. The adaptation separated the idea of nation and ethnicity and simply falling under Beijing’s jurisdiction did not mean that one was counted as being Chinese, or more correctly as being Han Chinese. The idea that the ‘minorities’ had

Diversity within Unity 7

a common language, culture and lived within the same geographical space led to the establishment of autonomous regions (the equivalent of a province) and autonomous counties, cities, etc. The fiction is that they enjoy a certain level of autonomy from Beijing. In addition to the dominant Han Chinese, 55 national minorities were recognized by the central state. The break-up of the Soviet Union and the disintegration of Yugoslavia created a problem for China with the fear that its ‘national minorities’ might seek independence. As a result, the English term ‘ethnic minority’ was preferred and some began to change the Chinese usage (Bulag, 2000). As noted in the text, the two autonomous regions that have presented the greatest challenge are Tibet and Xinjiang. Both enjoy a distinct culture and history with an external point of reference. Frictions will not go away and opposition in Xinjiang has turned violent, with the latest incident in September 2014 resulting in the deaths of some 50 people. The fear in Beijing is that domestic opposition will link up with radical Islamic groups in the Central Asian region and beyond. The CCP has found it difficult to respond, resorting to a mixture of repression, suppression of traditional culture, blaming ‘outside entities’ for stirring up trouble and hoping that greater investment will ‘develop’ the problem away. After a May 2014 attack in Urumqi, over 300 people were arrested and the authorities claimed that 23 extremist groups had been broken up. The repression has not been limited to groups that have carried out violent attacks and proposed independence but has also included moderate critics such as the academic Ilham Tohti. In September 2014, he was handed a life sentence for his criticism of Beijing’s policies towards Xinjiang. He has argued consistently against ‘separatism’ and tried to present a more moderate critique of Beijing’s policies. Instead, the leadership clings to the belief that the ‘ethnic minorities’ are in some way inferior to the Han Chinese and that investment in education and higher living standards will ameliorate the problem. For example, in May 2014, it was announced that free secondary-school education would be granted to those living in southern Xinjiang and one member of each household would be guaranteed employment (The Guardian, 30 May 2014). Bilingual education will also be promoted. Beijing has also moved to undermine cultural practices. In July 2014, the government banned staff from fasting during Ramadan and beards and veils have been discouraged. Limits have been imposed on Uighur traditional weddings and funerals as well as stricter reviews of who may go on the hajj pilgrimage. Control has included a long-term policy of inmigration of Han Chinese so that they make up around 40 per cent of the population. In a more recent move, officials in southern Xinjiang began to offer cash and other incentives to promote intermarriages between the communities. Qimao (Cherchen) County officials offered a payment of 10,000 yuan per year for five years to newly weds if one was Han and the other a member of an ethnic minority. The households would also receive priority for housing and employment, better support for their children’s education and healthcare. The local county head said that such marriages

8 Governance and Politics of China

produced ‘positive energy’ through which Xinjiang could realize Xi Jinping’s calls for a ‘China Dream’. Xi had called for more Uighurs to be moved to Han-dominated parts of China. He called on the party to ensure that ‘correct views about the motherland and the nation’ be established among China’s ethnic groups so that all would recognize the ‘great motherland’ (New York Times, 2 September 2014). Such approaches are unlikely to resolve the problem and, while repression may work over the short term, it and the suppression of Uighur culture and identity will create the ground for unrest and resentment over the long term.

However, the Tibetans (6.3 million) and the Uighurs (10.1 million), the main ethnic groups in Xinjiang, are not united groups internally. With respect to Tibet, the CCP has had some success in trying to circumvent the authority of the Dalai Lama by developing local Buddhist leaders more sympathetic to Beijing. The Panchen Lama, the second most important religious leader, did not flee to India and was used by Beijing to mediate with Buddhist groups domestically. However, the former Panchen’s death in 1989 and the debacle of finding a successor, combined with the heavy hand of repression from the late 1980s, seem to have undermined Beijing’s attempts to build Tibetan loyalty. A further blow to Beijing came in December 1999 when the young religious leader, whom the CCP was grooming to mediate on its behalf with the Tibetan community, fled to join the Dalai Lama in India. The tension between Han and non-Han peoples is a legitimate topic for discussion in China; indeed it was legitimated by Mao in 1956 when he referred to it as one of the Ten Great Relationships that marked the post-1949 political landscape. However, in some cases it is the tensions between different minorities with their own unique cultural and historical origins that are more important. In the border areas of Yunnan, some villagers never met any Han Chinese. In fact, many minorities in Yunnan (constituting 33.4 per cent of the provincial population in 2012), such as the Bai (3.4 per cent), Miao (2.6 per cent) and Hani (3.6 per cent), are more likely to complain about the way the Yi (10.6 per cent) dominate the ethnic minorities’ administrative networks in the province. This, they feel, enables the Yi to dispense a disproportionate amount of largesse to their own group. Many of the ethnic groups living in the Yunnan border region are closely related to groups in Myanmar, Laos and Vietnam, and indeed the border is quite porous and seems to have become more so since the reforms began. Cross-border trade and work is common. While the main roads have border posts and each village has a border office, there is little attempt to stop this casual movement. In the village of Mengla

Diversity within Unity 9 one can see the hills of Myanmar across the fields and for many the border is secondary to economic activity. I met a former local head of the village driving a four-wheel drive Toyota jeep with Thai number plates, indicating the extent of his business travels. When asked about whether he needed to affix Yunnan plates to the car, he replied that as he had been head of the border patrols and knew the local police he could drive wherever he needed to go in Yunnan with the Thai plates and, besides, much of his work was across the border. His optimism was not entirely justified as at least once he was stopped by the police on his way to the provincial capital of Kunming. Many of the minorities, despite their special status, are for all intents and purposes assimilated. This is the case with China’s two largest minorities in 2010, the Zhuang (16.9 million) and the Manchu (10.4 million) and to a lesser extent with the Muslim Hui (10.6 million). The Zhuang live primarily in the Guangxi Zhuang Autonomous Region that borders on Vietnam. Despite their distinctive Dai language, a language common to a number of other groups in the south-west, they have effectively adopted a Han lifestyle. It was the Manchus who established the Qing dynasty (ad 1644–1911) and were the last imperial rulers before the Republic was established in 1911. Many have suggested that their survival as imperial rulers derived from the Sinification of their practices. While a Manchu language survives, it is used by very few. The Hui are an interesting group, with the largest concentration in the north-west (the Ningxia-Hui Autonomous Region) but they also live in many cities such as Xi’an (Shaanxi), Kunming (Yunnan) and even in Beijing. They speak the national language (Mandarin, or guoyu) and are indistinguishable from their Han neighbours except for their cuisine and worship in mosques. Last but not least, we should note that the broad classification of Han Chinese conceals great diversity within the group itself. Even the national language is a fairly recent construct and many of the Han Chinese actually speak other languages. These are more commonly referred to as dialects because the written script is the same. In reality, they can be as different as English and German. The national language is derived from the language spoken around Beijing. As a part of its drive to bring unity and to increase literacy, the CCP both simplified the written characters and promoted the use of the national language in schools and through radio and television. As a result, those who have enjoyed basic schooling can speak some of the national language. Whenever I am in non-Han villages one of the easiest ways to communicate is to seek out school-age children and to ask them to act as interpreters for their parents and grandparents, many of whom may speak only a few words of the national language at best. In one village, a couple of hours’ bike ride from the tourist destination of Yangshuo, I chatted with one of the village elders through his grandson who served as interpreter. He was

10 Governance and Politics of China particularly interested in trying foreign cigarettes. My colleague offered him one that he finished in one puff and dismissively discarded: not a patch on his home-grown tobacco, a whiff of which would seriously damage your health. He seemed blasé in the presence of foreigners, unusual at the time. I asked him if many foreigners came to the village. He thought for a second, drew on his cigarette and replied in a matter-offact tone, ‘Oh yes, one came here about 40 years ago’. The home language, even for many Han, is quite distinct, with about 30 per cent (some 350 million) speaking something other than the national language at home. In Guangdong the language is Cantonese (Yue), while various dialects of Minnan are spoken throughout Fujian; Gan is spoken in Jiangxi and Wu in Shanghai. Before communications improved it is said that travelling up the Yangzi Valley one would have to change languages at each county town. This may be apocryphal but it indicates how fragmented local Chinese society was until the 20th century. An important part of the nation-building process for the CCP has therefore been to build a common language. In this it has been fairly successful with, at least, the written script which is understood by all those who are literate. The official figures for 2012 claim that only 4.96 per cent of the population is illiterate (persons over 15 years of age), with Beijing leading the way in terms of illiteracy at 1.46 per cent and Tibet bringing up the rear at 34.81 per cent. Nationally, the illiteracy rate among men is 2.67 per cent and among women 7.32 per cent. For those who cannot read there has been a continual bombardment of officially approved news through radio and television, although now, with other outlets, official news can often be ignored. In the Cultural Revolution, there were even communal loudspeakers that dictated the pace of one’s life from when one woke up until one went to sleep. I remember lying in bed one morning trying to work out what was different and why I felt so relaxed before I realized that someone had cut the wires on the campus speakers. It was bliss to lie in bed and not listen to the blare of early morning wake-up routines and homage to the ‘Great Leader’, Mao Zedong. So long as the leadership speaks with one voice this system has been remarkably successful in providing acceptance for the official narrative. In 1991 I was visiting relatives in Shashi, a town of some 3 million inhabitants, a few hours up the Yangzi from Wuhan. They were considered free-thinking liberals in Shashi and I was surprised when we talked of the 1989 student-led demonstrations in Beijing and they referred to them as chaos and a counter-revolutionary uprising rather than using the milder phrases used by liberals in Beijing. When I asked them how they knew this, they replied that it was true because they had read about it in the People’s Daily, the official media organ of the CCP, and seen it on Central Television. In the same way, the

Diversity within Unity 11 CCP was successful in getting most of its citizens to believe that the NATO bombing of the Chinese Embassy in Yugoslavia in May 1999 had been a deliberate act of provocation by the USA. The use of the media to build up patriotic sentiment at the time of the Olympics in the summer of 2008 is another example of how effective the media can be. However, the rise of the new media provides China’s citizens with alternative information sources and presents the old propaganda system with a new challenge (see Box 1.2). Blogs and instant messaging have become commonplace, with many not carrying approved information or analysis. Nationalists have used the new media to push the leadership to undertake sterner policy positions towards Japan and the US than it may have done otherwise. In response, the CCP has employed an army of people to monitor the Internet and also to write pro-party messages and to attempt to guide discussion. This latter group has been ridiculed as the ‘50-cent party’ for the payment they receive for each pro-government posting. Under Xi Jinping, there has been a more concerted crackdown on Internet opinion leaders.

Box 1.2 SARS and the Media The outbreak of SARS in 2002–03 reveals the problems that the CCP has in controlling the message but also how quickly the propaganda system can adapt to new challenges. While some thought that the experience might lead to a shift in official reporting, as it did when the major Sichuan earthquake struck in 2008, there is little evidence of a systemic shift. In January 2003, initial reporting of a new disease by Guangdong authorities ridiculed the idea that there was a problem; and a February press conference took the same view. Earlier, provincial health authorities in Guangzhou had informed doctors of a new disease but requested that the public not be informed. It was instant messaging that forced the provincial leadership to make some kind of public acknowledgement. According to Guangdong Mobile the message ‘There is a fatal flu in Guangzhou’ was sent over 120 million times in the space of three days. Officials responded that there was indeed a disease but that it was completely under control. It wasn’t. This was the regular pattern. Eventually, a retired army doctor, irate at the cover-up, tried to notify the Chinese press of the problem and, when unsuccessful, passed the information to foreign outlets. The international coverage made it impossible for the government to maintain the stance that there was only a small problem and that basically everything was under control. Belatedly on 20 April a press conference was held that appeared to signal a significant change in government attitude and openness. However, the traditional propaganda system soon moved into gear with a new campaign to mobilize people’s support for the struggle

12 Governance and Politics of China

against SARS while introducing restrictions on reporting. This was more familiar ground and the media was filled with patriotic accounts of individuals struggling against heroic odds and making personal sacrifices to defeat SARS, including patriotic ditties such as ‘Angels in White Coats’. Traditional CCP language now took over and, sure enough, on 1 May, Hu Jintao declared that China was engaged in a ‘people’s war’ against SARS for which the ‘masses’ should be mobilized. Constraints on the media were soon put back in place and the limited openness about SARS did not spread to other areas. Publications were requested to stop reporting on sensitive issues and media outlets and academics were warned not to analyse how the government had dealt with the virus. Some of those who had reported honestly came in for criticism and official rebuke. Source: Saich, 2006.

The aforementioned linguistic affiliations and local ties have, if anything, strengthened with the reforms. Within the localities, these ties are reinforced by various local festivities and deities and even, for many, by the local cuisine. There is a clear cultural divide between the north of the country and the south. The southern parts were effectively integrated into China only in the later part of the Song dynasty (ad 960–1279) (Blum, 2000, p. 82). The north is the political capital and operates under a more bureaucratic culture while the south represents the more open, cosmopolitan trading culture. The rise of a nationalist discourse in the mid-1990s and anti-American tracts such as The China That Can Say No (Song et al., 1996) and Behind the Scene of Demonizing China (Li et al., 1996) also led to a rise in publications that stressed local identity and cultural essence. Books appeared on what it is to be Shanghainese or Sichuanese and even related local cooking to identity. The spicy food of Sichuan and the chilli tastes of Hunan cooking contrast markedly with the fish and steamed food of Guangdong or Shanghai, or the noodle soups of Shaanxi. Hunan even had Mao Zedong patronize the phrase that you could not be a revolutionary if you could not eat peppery food. It is also in the south that lineage and clan play an important role in rural life, much more than in the north. In many villages I have visited in the south, large lineage halls have been restored or built anew and clearly form the most important organizing point for political and socio-economic exchange. This re-emergence of more overt traditional power structures has made the implementation of party rule more difficult. In many villages the party group is ineffective and often, where it is effective, the party secretary and lineage head are one and the same (see Box 1.3). A number of officials involved with the programme to

Diversity within Unity 13 introduce direct elections into China’s villages complained that the elections are decided by the most important lineage and that there is little the party or the higher-level administrative authorities can do to alter this.

Box 1.3 Village Leadership and Clans Yantian Village lies just over the border from Shenzhen and has become a key part of the global production chain, having been home at its peak to over 400 foreign-invested enterprises and 150,000 migrant workers. Village life, economics and politics are dominated by the Deng clan. Their ancestral hall has pride of place in the village, listing all the Dengs in China over the last 1,000 years, with a special room for Deng Xiaoping, who they count as one of their own. A Deng has always been party secretary and, in 2014, six out of the seven village party committee members were surnamed Deng, as were four out of the five villagers’ committee members and six out of the seven members of the village economic shareholding cooperatives that oversee the wealth of the village and its distribution. Source: Saich and Hu, 2012.

These local identities are reinforced by religious practices and customs. While China is officially an atheist country, the CCP has had no choice but to tolerate religious practice so long as it is not seen as a challenge to state power. The CCP has adopted a series of secular official celebrations that mark key dates of the revolution or communist tradition (such as 1 October – National Day; or 1 May – International Labour Day), but the most important festivals have to do with Chinese tradition (Chinese New Year – a week in January or February; or Qing Ming, grave sweeping – early April) and local customs. Local religious worship and traditional practices have blossomed since the reforms began but organized religion that stresses an allegiance beyond the CCP is viewed with suspicion and usually repressed. This is the case not only with Tibetan Buddhism, because of the presence of the Tibetan governmentin-exile under the spiritual leadership of the Dalai Lama, but also with Christianity. Not surprisingly it is difficult to get a number of how many people practise these religions. Official statistics estimate around 100 million religious believers, but a 2007 survey led by Fenggang Yang of Purdue University suggested that only 15 per cent of the Chinese people were actually ‘atheists’. Even 17 per cent of the CCP or Youth League members identified themselves with a specific religion, with 65 per cent claiming to have engaged in religious practices during the previous year. Buddhism dominates with 185 million self-identified followers (and 12

14 Governance and Politics of China per cent of CCP members!), while a much lower 33 million identify as Christian, although a further 40 per cent said they either believe Jesus existed or they had participated in Christian activities. Most, however, followed traditional practices with 754 million engaging in ancestor worship. Fully 175 million adopted Daoist practices, while 23 million identified themselves as Muslim (Yang and Hu, 2012). As noted, Buddhism is widespread across three main branches: Tibetan Buddhism (with four major sects), Theravada Buddhism and a mixture of Chinese folk traditions and Buddhism. However, practitioners may also follow another religion, such as Daoism, thus making it difficult to assess the true numbers (Blum, 2000, p. 88). Figures are similarly imprecise concerning followers of Daoism and folk religion but are in the realm of 250 million (Donald and Benewick, 2005, p. 84). The CCP’s attitude towards local religion is also ambivalent. It denounces what it sees as ‘superstitious’ practices and in the Cultural Revolution it destroyed not only places of worship but also sought to stamp out practices such as ancestor worship and fortune telling. However, unless there is a perceived political threat, it now tolerates a wide range of locally based religious worship. In fact, there has been a debate about the value of belief within the CCP and in recent years a more positive view has been apparent. Some of these local practices can be quite striking. In Yunnan, I watched a video of the exorcism of spirits that had possessed the body of a young, female researcher from the Yunnan Academy of Social Sciences; I have also witnessed traditional ceremonies to welcome young men into manhood, overseen by local party officials. The young anthropologist in the video had been carrying out research in a remote mountain area and the village elder took pity on her when she was about to return to the city possessed by an evil spirit. Normally, he did not care about city folk and did not care whether they carried away evil spirits. But he felt that she was a good person and as a result he was personally willing to oversee the lengthy process to exorcise the evil spirits before allowing her departure. The local and national CCP has to make accommodation for these religious practices. Generally, worship of local deities and ancestors is tolerated but organized religion or beliefs that have external connections are monitored more closely. However, should a belief system develop an extensive following that crosses administrative jurisdictions, it may come in for harsher treatment. The Central Party School has set up a research group in recent years to study belief and moved towards the conclusion that it could play a positive role in providing social cohesion. The consensus view was that individuals could decide on their own spiritual beliefs but that it was the role of the state (read CCP) that would define the moral direction for society as a whole.

Diversity within Unity 15 The CCP refuses to recognize the authority of the Catholic Church and cracks down hard on those who profess allegiance, often arresting priests who accept the Vatican’s authority. Instead, practising Catholics are required to belong to the Chinese Catholic Patriotic Association, an organization that follows the ranks and salary scales of the state administrative system. CCP suspicion of Christianity is compounded by the association of missionaries with imperialism before 1949. As a result, all missionary activity is banned in China, though it is not very difficult to find active missionaries in both the cities and the countryside. The number may exceed 10,000 and there is a large underground trade in Bibles. Some missionaries have been involved in rural development projects and the local authorities have tolerated their work as long as they do not become too public with their beliefs. Accommodation is seen best in those areas where overseas Chinese investment has been vital to local economic health and where these investors have allied with the local population to demand the restoration of local lineage houses or temples (see Box 1.4). Should traditional practices link up across localities and be perceived as a threat, the CCP will move swiftly to crack down. This was the case with a qigong-related sect (a type of exercise and breathing regime) called the Falun Gong (Skills of the Wheel of Law) that came to prominence after a large gathering of its followers surrounded party headquarters in Beijing in April 1999 following criticism of its organization. This woke up China’s senior leaders to the potential of such faith-based movements to inspire loyalty. This concern and the humiliation that senior leaders felt at being caught by surprise led to a draconian crackdown on the organization and a subsequent campaign to discredit it as a superstitious cult. Thousands of its members have been arrested and it has also led to the investigation of a number of similar organizations.

Box 1.4 A Tale of Two Religions – Buddhism and Christianity In Wuxi, overseas Chinese have donated money to erect an enormous gold leaf Buddha that overlooks the local lake. It is the dominant site in the locality. However, it was not constructed without controversy. The local propaganda bureau set the building of the Buddha as one of the three great tasks for completion in 1997, one of the other tasks being to strive to ensure the successful return of Hong Kong to Chinese sovereignty. This caused an uproar when reported to the Propaganda Department in Beijing, which claimed that the erection of a Buddha representing a backward

16 Governance and Politics of China

superstition could in no way be equated with the ‘glorious task’ of regaining sovereignty over Hong Kong. The Wuxi party authorities were forced to withdraw it from the glorious three tasks for 1997, yet the Buddha was finished the next year! Source: Field visit, 1999.

In Wenzhou, there was a more complex outcome surrounding the demolition of the Sanjiang Church that was constructed after US$3.2 million had been raised and the local government had described it as a ‘model project’. Wenzhou is home to a large Christian community, with claims that 15 per cent of the 7 million inhabitants attend church. The church as constructed was around five times the original plan that was approved, and in 2013 and 2014, as local governments were instructed to crackdown on illegal structures, it became a focus of attention. Despite a reported compromise and attempts by local worshippers to protect the church it was bulldozed and demolished entirely. Perhaps out-of-plan party and government buildings will receive similar treatment! Source: Kate Tray, Christianity Today, 2 May 2014.

The impact of CCP policy The CCP’s vision of a modern state and its policies have had a marked impact on the physical structure of towns and countryside as well as on people’s lives. The CCP came to power in 1949 with a vision of the future that was inspired by the Soviet Union. To be modern was to be urban, industrial and with production socialized. The CCP despised the private sphere, and policy during the early1950s sought to eradicate what remained of private industry in the urban areas. Yet, at the same time, there was a suspicion of the cities as carriers of indolence, corruption and other traits that ran counter to the perceived revolutionary heritage. The urbanization rate was only 17.9 per cent in 1978 and, although it has risen to 52.6 per cent in 2012, it is still relatively low in terms of the level of economic development. The effects of post-1949 CCP policy produced a uniform, drab urban environment. With the exception of a few cities, such as Beijing, Xi’an and Pingyao that have an imperial heritage, or Shanghai with its confluence of colonial styles, virtually all other cities adopted the dour, grey architecture of the Soviet era. Many city walls, even including much of Beijing, were ripped down to make way for the new, wider roads and work-unit apartment blocks. Those who favoured urban planning that would have afforded greater protection to China’s

Diversity within Unity 17 historical heritage were often drowned out by those who favoured the Soviet-style plan. During the anti-rightist campaign of the 1950s and the Cultural Revolution, defenders were denounced for their bourgeois and/or feudal thinking. Much of what remained of the old cities was torn down to accommodate the building boom of the 1990s. Some even calculated that more of old Beijing was lost to real estate developers in the 1990s than in any other decade during the 20th century, which included the Cultural Revolution, the Japanese invasion and the civil war. The post-1949 desire to build up rapidly the industrial base also had a major impact on the urban landscape as the CCP sought to develop the heavy industrial sector. Smokestack factories became a familiar part of many cities, with little notion of zoning and protection of green areas. Scenes of the new urban industrial China were proudly displayed on the propaganda posters of the time. Even depictions of rural China would include a smoking chimneystack or a hanging power line. In part, the industrialization of the First Five-Year Plan (1953–57) was built on the legacy of the past. The north-east became the industrial powerhouse with its legacy from the Japanese control of Manchuria that featured the chemical, steel and coal industries. This made the urban north-east one of the privileged areas of the Maoist period, a privilege that has steadily eroded since the reforms were introduced in 1978, so much so that in 2003 a ‘Revive the North-east’ programme was introduced (Chung et al., 2009). The second main area for heavy industrial development was Sichuan, especially Chongqing. This had two origins. First, the Guomindang (GMD; Kuomintang, the Nationalist Party with which the CCP fought two civil wars to gain power) that retreated to Chongqing after the Japanese invasion of 1937 moved significant industry to the southwest. This inheritance was built upon by the CCP with the post-1949 policy to industrialize the hinterland as well as to protect security concerns. Following the Sino-Soviet split (1960), Mao became increasingly concerned about the potential of war with the Soviets and even the possibility of nuclear conflict. This led to the policy to develop the industrial ‘third front’, that was based in Sichuan and further in the south-west, and that built on earlier investment in the north-west (Naughton, 1988, pp. 351–86). There was a massive redeployment of investment, almost 50 per cent, from the mid-1960s to the mid-1970s to build an industrial base and nuclear facility that could resist a Soviet attack. By the 1990s it presented Sichuan and Chongqing with significant problems of outdated industry. In the countryside the CCP first abolished the old landlord system and, as a result of peasant expectations and the pre-1949 policy, carried out land reform by way of redistribution to the household.

18 Governance and Politics of China However, by the mid-1950s steps were taken towards collectivization in order for the state to extract the funds necessary to feed its industrialization programme. The division of China into 50,000 rural communes brought uniformity to political administration in the countryside that lasted until the early 1980s when the communes were dismantled and a return of household farming was promoted. The promotion of the communes brought a far greater uniformity to the visual impression of rural life than the varied topography would suggest. It also allowed the CCP to push nationwide policies while ignoring the law of comparative economic advantage. The most damaging of such policies was the promotion of ‘taking grain as the key link’ to accompany the industrial policy of ‘taking steel as the key link’. The former led many communes to turn over ill-suited land to grain production. Slopes were cleared of tree cover and grazing land was ploughed under to meet mandatory grain production targets. Not only did this depress local incomes, it also caused significant environmental damage (Shapiro, 2001). The other major policy that transformed the physical image of the countryside was the promotion of small-scale industry during the Great Leap Forward (GLF) (1958–60) as a concerted programme for rural industrialization. The most notorious result was the ‘backyard steel furnaces’ that produced a huge volume of useless steel that consumed scarce resources. Other experiments such as the creation of small electric power generators and chemical fertilizer plants provided the legacy for an equally dramatic transformation of the countryside in the 1980s and 1990s with the massive growth of township and village enterprises (TVEs). The Maoist lack of concern and the privileging of production over all other factors enhanced the degradation of the environment. This perspective was enthusiastically adopted by Mao Zedong, who saw nature as something to be conquered and tamed and who did not appreciate that there are natural limits that resource endowments place on growth. Not only did the development strategy favour rapid exploitation of natural resources to build up the heavy industrial base, but the associated policy of below-cost pricing for water, coal and other inputs contributed further to such exploitation. Walking by office buildings with lights burning during the weekends and past bathrooms with constantly running taps that could not be turned off even if one tried revealed the irrelevance of water or electricity prices to workplace and domestic budgets. The rapid economic growth and urbanization in the years after 1975 have come at the cost of enormous environmental damage – and natural resource constraints are a potential brake on China’s future development. The political economy of the reforms has in many ways been

Diversity within Unity 19 inimical to the development of an effective policy to control environmental pollution (for a critical analysis, see Economy, 2004). In 2010, an official report estimated the cost of environmental degradation was roughly US$230 billion, 3.5 per cent of GDP, a three-fold increase from 2004 (New York Times, 29 March 2013). The economic reforms introduced since 1978 have also had a significant impact on the physical look of both urban and rural China while binding the two closer together than during the Mao years. The reforms have released the tight grip of the party and state over local society and have allowed space for the return of local enterprise and even private entrepreneurship. Cities in contemporary China are certainly livelier and less homogeneous than they were in Mao’s China. The drab Stalinesque town centres have been transformed in many cities with the rise of gleaming, glass-fronted skyscrapers housing luxury offices, shopping malls and the ubiquitous McDonald’s. These new symbols of modernization have been brought about by the bulldozing of much of the old architecture and housing that survived the Maoist blitz. While it is true that much of the housing was sub-standard, the redevelopment and loss of family homes to relocate to sterile new apartments far from the city centre have met with resistance and sit-ins. The historical heritage has often been bulldozed away in the name of a new concept of progress. Kunming was chosen to host the International Flower Exhibition in the late 1990s and this led to a frenzy of development and demolition. As a result, many of the charming old lanes around the Cuihu Lake area were demolished to make way for new buildings. When I asked a local official why they preferred demolition to restoration, he replied that the old lanes represented the past and backwardness and the foreigners who would come to the Exhibition would think of China as a poor country if they were to see them. As a result, communities were broken up and dispersed in the name of modernity. The new buildings represented the future and the modern. Unfortunately, to Western eyes, the building material of choice in south-west China is white tile, making most buildings look like inverted public lavatories covered with opaque deep-sea-blue glass. In hosting the World Expo in 2010, the Shanghai authorities organized neighbourhood training sessions on correct behaviour. They were particularly concerned about laundry, especially underwear, hanging out on the streets to dry and the habit of old men to roll up their undershirts in the hot weather to reveal their torsos. These were explained as things that would give a bad impression to foreigners and might be interpreted as ‘backward’ habits. China’s cities are now playgrounds for the world’s major and most adventurous architects. The vision of downtown Manhattan has replaced that of the Soviet Union for what a modern city should look

20 Governance and Politics of China like. The array and design of skyscrapers are impressive and lax controls over building codes has meant that designs that might require extensive review in the West can be developed and constructed in record time in China. It is not surprising that many foreigners have joked that the crane is the national bird of China. However, the rush to urbanize has also led to speculation, the construction of ‘ghost towns’ and citizens who have tried to resist forced removals, living on in their ‘nail houses’, while demolition goes on around them. The poster child for a ‘ghost city’ has been Ordos in Inner Mongolia. The city is in the coal-rich area of the province that contains almost one-sixth of the nation’s reserves. Within Ordos, Kangbashi New District was planned to house 1 million residents by 2010 but today it has a population of only 30,000 to 50,000. The urbanization drive pushed by the national government has led some local governments to boost GDP rates by building empty urban areas. This latent rush to urbanize has caused many forced relocations and every now and then pictures have been posted of individuals who have tried to hold out and hope for better compensation or housing or merely to preserve their traditional homes. This new architecture also reinforces the view of state power as being reified in the many new gleaming, marble-decked buildings constructed to house the local party, government and judicial authorities. In Wuxi, an affluent reform-minded city in Jiangsu several hours from Shanghai, I asked local officials about this phenomenon. I wondered aloud whether they thought that such ostentatious signs of state power and public spending were appropriate in the modern world and whether local citizens felt disturbed to see so much spending on civic buildings. The local officials were dumbfounded and amused by my question. It had never occurred to them to think about this, and when they did, they replied that it was indeed appropriate as it was the party that had provided the correct guidance and policies for China’s take-off. They may be correct, and such graphic demonstrations of state power are a universal phenomenon. Interestingly, sitting on the hills overlooking the famous lake of Wuxi is not only the Gold Buddha, representing the return of belief, but also the enormous villa that belonged to one of China’s top capitalists, Rong Yiren, who also served as president of China, representing the return of the legitimacy of private capital in China. So there in one city, the architecture represents three facets of modern China that have to find a new modus vivendi – state power, popular religion and private capital. Even in poorer provinces such ostentatious buildings for party and state are common. This is changing. Slowly but surely, citizens and Netizens, those who are active online, have become more critical of lavish spending on government and party facilities. Certainly Xi Jinping has sought

Diversity within Unity 21 to control the construction of lavish government and party buildings. In 2012, it was announced that China’s largest government building, indeed one of the largest buildings in the world, in Shandong’s capital of Ji’nan had been completed at a cost of a cool $641 million, causing much outrage. The People’s Daily (13 May 2013), the CCP’s official mouthpiece, noted that ‘luxury buildings are built to satisfy the pompous selfish desires of certain people, but have hurt the feelings of the common people’. The article criticized offices built in the fashion of the White House and local squares bigger than Tiananmen in the heart of Beijing. The new icons of urban modernity tower above a more varied urban environment that is a product of the reforms. I remember in 1976 the delight with which we greeted a street vendor in central Beijing who was selling homemade toys for a few cents. Now the streets teem with so many vendors that one is more likely to run away and seek refuge from the hawkers and traders. The gradual release first of rural markets and later of rural produce to be sold in the cities has led to a much more diverse urban street life. The markets, restaurants and discos are signs of the new entrepreneurship or official organizations moonlighting to make a bit of extra money. The restaurants and nightclubs are filled with the beneficiaries of reform: the private entrepreneurs, those involved in the new economy, the managerial elites and the politically well connected. Periodic curbs on government entertaining are met with horror by the owners of these establishments. When Xi Jinping took power he launched an austerity campaign on government spending. As a result, in 2012 money spent on meetings, international trips and vehicles fell by 53, 39 and 10 per cent respectively. In the first nine months of 2013, sales of Remy Martin fell 12 per cent. Cunning managers of five-star hotels scrambled to downgrade their ratings so that officials could still wine and dine there. The reforms have also changed what is for sale in stores. During the Cultural Revolution by and large one bought what one could get if one had the money and the correct ration coupons. Entering a department store was not a particularly energizing experience as choice was limited, quality was poor and service distinctly surly. Two phrases that you quickly became acquainted with were mei youle (don’t have it) and mai wanle (sold out). Now film and rock stars are used to promote new products and open stores. Competition has caused even state-run stores to become more entrepreneurial and to offer services with grudging smiles rather than scowls. Most of the luxury goods that were kept in special stores for senior officials and foreigners are now generally available for anyone who has the money. Chinese consumers are now major buyers of luxury products, representing 29 per cent of the global total. However, many of these purchases

22 Governance and Politics of China are made outside of China, making the Chinese the global leaders (The Economist, 25 January 2014). In 2013, there were 93.7 million foreign journeys from China, and Chinese tourists are now the biggest global spenders (US$129 billion in 2013, The Economist, 19 April 2014). Reform has even changed the content of official bookstores such as the Foreign Languages Bookstore on Beijing’s main shopping street. Its transformation has been a bellwether of the reforms. In the 1970s and 1980s its main stock was the collected works in foreign languages of China’s leaders, posters of revolutionary icons such as Stalin and Enver Hoxha, and English-language textbooks that carried revolutionary parables or stories of friendship between Chinese and foreign citizens. When I have visited in recent years, there was barely a collected work in sight and no revolutionary icon to be found. In their place were Harvard Business School textbooks and manuals on how to make money or manage financial transactions. The posters had been replaced by a wide choice of Western novels, cassettes and DVDs introducing the latest sounds and fashions. Learning English by revolutionary parable has been replaced by learning English through business management. The urban one-child per couple policy, now being relaxed, has affected shopping. Toy shops and department stores are now the icons of a happy family life, with parents lavishing relatively large sums to pamper the ‘new little emperors’ of modern China. As one old party wag commented, they are the hope for greater party accountability in the future. In his view they have been so spoilt and they so dominate household spending and priorities that there is no way that they will listen passively and unquestioningly to party directives when they grow older! They will be more likely to demand results to improve the quality of their lives and to provide greater accountability. Not all have money to spend in this new urban China. There have been beneficiaries but there have also been losers – workers in inefficient state-owned enterprises, the aged with no family dependents and some migrants and farmers engaged exclusively in grain production. The increasing pressure of marketization and the need to cut costs and increase profits have led to a rapid increase in lay-offs from the old SOEs in the 1990s. While the worst effects for many were cushioned either through supplemental income from the state or the retention of lowcost housing and medical provisions, there is no doubt that for some it has been a hard transition. The favoured north-east and Sichuan of the Maoist period have become the rust-belts of the early 21st century. It is noticeable that provinces such as Liaoning and Jilin that used to be among the wealthiest during the Mao years have become relatively poorer in the reform period. By contrast, Guangdong, one of the poorest provinces under Mao, has become the wealthiest under reform.

Diversity within Unity 23 The impact of restructuring has fallen unduly heavily on women. In most SOEs, they were the first to be laid off and were the last to be rehired. In many state organizations, women are being persuaded to take early retirement – usually around age 45 and, on occasion, even earlier. The chances of finding new, legal employment are slim. The elderly and the single have also been vulnerable. With workplaces shedding their social welfare responsibilities and a new system only slowly coming into place, old age or divorce are much more threatening than in the days of cradle-to-grave socialist care for the elite of the urban industrial working class. A rise in the divorce rate has been a by-product of reforms and there has been much hand-wringing in the Chinese press. While some see it as a breakdown of social mores, others have heralded it as a positive sign of modernization, pointing to the higher divorce rates in the ‘developed West’. The divorce rate rose from 0.44 per 1,000 marriages in 1985 to a high of 2.29 in 2012, with extra-marital affairs being the main cause of divorce. The north-east provinces and Chongqing have comparatively high divorce numbers and Sichuan (250,984 in 2012) has the highest, perhaps reflecting the economic distress of those areas. Tibet has the lowest rate (1,339 in 2012). The rates might seem low but, for a society coming out of the Mao years of enforced social conformity and repression of sexual desire (unless you happened to be Mao himself), it is still seen as a disturbing increase. The early rise in divorce rates was related to people shaking off political marriages that they undertook during the Cultural Revolution. In those years, rather than feelings of love, correct class background and political stance were more important for finding urban marriage partners. This led to many loveless marriages in urban areas for the now 60-somethings, leading not only to rising divorce rates but also to increases in extramarital affairs as well as the enormous popularity of books and films like The Bridges of Madison County. I have sat through many discussions with older urban residents about nostalgia for the old days. Forgetting the famine of the Great Leap Forward and the chaos and violence of the Cultural Revolution, they reminisce about the ‘golden days’ when life was secure, there was basic healthcare and the streets were safe. For many, reforms have meant bewildering choices, loss of security, rising crime and declining personal safety, and a younger generation who treat their elders with less respect. Many such people have been attracted by the ‘leftist’ manifestos published by former Maoist party veterans. These criticize the ‘capitalism’ and ‘materialism’ and new inequalities of current policy and call for a return to stricter discipline, party control and central state planning. Others have been attracted to a variety of religious and popular movements such as the Falun Gong. This is just the tip of the

24 Governance and Politics of China iceberg as many seek to find something that brings meaning to their life in such a turbulent world. It is the migrants who have received popular and official blame for the increase in crime, dirt and disease in urban China. While such hyperbole is usually unjustified, migrants are a feature of the postMao reforms. There have been previous waves of migration post-1949 but, at the end of 2012, the migrant population was estimated at over 262.6 million. The decline in farming incomes and the pull of betterpaid work in the cities have led many young men, and increasingly women, to abandon the harsh conditions of rural labour for higher wages in the cities. The construction boom starting in the mid-1990s was a major source of employment as was the expansion of township and village enterprises and the foreign-invested manufacturing enterprises that have mushroomed in the Special Economic Zones (SEZs). However, life in the cities, while perhaps not as harsh as that in the countryside, has not been easy. Migrants tend to live in sub-standard or shanty-housing or in dormitories provided by their employers. In the former, they often live together in native-place villages. A major problem for the migrants is that their place of registration is still considered to be in the countryside and thus they have been frustrated with respect to receiving medical care or access to education, despite the policy reforms. One development has been the growth of ‘urban villages’ in major cities, which are low-cost, illegal settlements. Another has been the development of ‘ant tribes’, communities of university graduates who have not yet found decent jobs and live in small communities, often underground, where rent is cheap. As noted, the migrants have been important to the growth of not only the non-state sector but also to the development of new growth areas along the coast. The CCP has promoted a strategy of coastal growth while allowing a progressive running down of the old industrial areas. This began with the promotion of trade as a key component of the new policy and the licensing of the four SEZs in 1980 that provided a series of incentives for foreign enterprises and joint ventures. They were set up primarily to absorb overseas Chinese investment, thus turning Hong Kong millionaires into billionaires. The programme expanded from the four zones (Shenzhen, Zhuhai, Shantou and Xiamen) under Zhao Ziyang by the late 1980s to a coastal zone development strategy. Shenzhen, the first major zone over the border from Hong Kong, was just a small, sleepy village when I first passed through in 1976. On the train ride from the border with Hong Kong to Guangzhou one passed endless rice paddies, small clustered village hamlets and the occasional water buffalo pulling a plough or swishing their tails while bathing lazily in the river. A decade later, Shenzhen was Asia’s newest metropolis with an urban centre full of towering

Diversity within Unity 25 skyscrapers rising from the former paddies. It is now the most crowded city in China with around 14 million residents in 2012 (of whom only 30 per cent have permanent resident status). In 1979, the population was only 30,000. Interestingly, it is said to be home to 20 per cent of China’s PhDs (Shenzhen Daily, 13 June 2007). Very few rural areas have undergone such a dramatic transformation but official figures show a dramatic decline in the percentage of those living in extreme poverty from over 80 per cent when reforms began to just 12 per cent in 2010. It should be noted that there is the emergence of an urban poor, with 21.43 million in 2012 receiving the minimum living support. As these figures suggest, the reforms have been equally dramatic in their effect on rural China. The communes have been abandoned and farming returned to a household basis. As a result, the wide fields and expanses of land have been divided up into small parcels that are often guarded as crops ripen. The breakdown of communal farming has led to an increase in theft of crops in the countryside. Migration has also affected the demographics of many rural villages and many who have remained behind have pulled out of farming where there is a viable alternative. For the first time, in 2011 the number of those registered as living in the countryside fell below 50 per cent. Those still farming are increasingly reliant on non-farm sources of income such as remittances from migrants or wage labour in TVEs or household businesses. Even for those who remain in agricultural production there has been a shift away from the Maoist obsession with grain production to other products that fetch a higher price in the urban markets. Generally, with the low returns for grain production, most only keep fields to fulfill their quotas. For a country that has such a heavy pressure on the available land, it is disconcerting to see so much good agricultural land being abandoned either because families do not want to farm it or cannot because of migration or redeployment to more profitable non-agricultural work. The composition of those farming has also changed. In many villages, males have moved in search of off-farm employment as have many women of pre-marriage age. This has left farming in many areas to the elderly and married women. Because of the low status and income from these activities, there has been discussion as to whether we are witnessing the ‘feminization’ of not just agriculture but also poverty. Many villages seem to comprise only the elderly, children, the sick and married women, who have to deal with all the household and production affairs. Migration and other social changes have also led to the increase of sexually transmitted diseases and HIV/AIDS. For example, the incidence of syphilis has increased from 0.17 per 100,000 in 1989 to

26 Governance and Politics of China 30.44 in 2012. Viral hepatitis and pulmonary tuberculosis remain, however, the most prevalent communicable diseases (102.48 and 70.62 per 100,000 respectively). The figures for HIV/AIDS are not especially high, with a prevalence of only 2.93 per 100,000, with the highest mortality rate at 0.8591; but the disease has spread from original atrisk populations (intravenous drug users and commercial sex workers) to the population at large. Migrant male workers who have contracted sexually transmitted diseases have brought them back to the village where there may be no adequate healthcare. The spread of HIV/AIDS has also been linked to poverty. Ethnic minorities represent 9 per cent of the population but 40 per cent of the absolute poor and 36 per cent of reported HIV/AIDS cases (information from Joan Kaufman). While HIV/AIDS is now spreading among the heterosexual community and from sexual activity with prostitutes, much of the spread has come from needle sharing by drug addicts and earlier from the poor who had to sell their blood to ‘blood snakes’ and to the government. The mortality profile is changing as lifestyles change and, increasingly, resembles that of urban, wealthier societies. In 2012, heart disease (11.8 per cent of deaths), malignant tumours (22.96 per cent) and cerebrovascular disease (20.61 per cent) were the main causes of death in the rural areas. With reforms rural China has become more varied than in the past, with greater freedom for households to decide on what to produce, where to sell it and how to deploy their labour force. However, reforms have not favoured all in the rural areas and the extension of household-based farming and markets to areas where they are inappropriate has had adverse effects. For the absolute poor, many of whom live in remote mountainous areas, liberalization and the increased use of market forces have been of little benefit as they have little if anything to sell. In fact, with increased prices for agricultural inputs and the collapse of medical access, their living standards have almost certainly declined. In addition, with financial pressures increasing on local authorities, many have resorted to raising illegal fees and levies that fall on the poor disproportionately. The CCP’s vision of modernity has also intruded into rural life. Clearly, the CCP still sees the future as urban and industrial. Policy has always privileged these areas but other policies have also impacted on rural life. In particular, the CCP sees nomadic or other traditional farming practices as ‘backward’. As a result, CCP policy has tried to organize nomadic and shifting cultivators into more permanent habitats. More permanent settlements, of course, make it easier to control activities and to pursue unpopular policies such as family planning. In addition, policies have been pursued to bring urbanization to the countryside.

Diversity within Unity 27 The CCP has to rule over this increasingly diverse society while trying to guide China into further integration with the world economy. This is a daunting challenge. The CCP has also to provide an explanation to its people of where the country is heading and offer some kind of a moral compass. This is hard to do not only because of the diversity but also because ideological orthodoxy appears to run counter to the direction in which the economy and society are heading. It is hard for General Secretary Xi Jinping, or any other senior leader, to provide a genuine vision of China’s future as at best it would suggest a radically transformed role for the CCP and at worst perhaps no role at all. If the future is an economy increasingly dominated by market forces and integrated with the world economy, is a CCP that still professes commitment to socialism and the state-owned sector, while harbouring suspicion of foreign motives, the most effective organization to manage this? However much practice may move away from Marxism, the ideology remains a crucial component of the CCP’s self-legitimation (Kelly, 1991, p. 23). To abandon adherence would be impossible. The gap between official rhetoric and social practice has widened significantly under the reforms and is perhaps even greater than in the Soviet Union and Eastern Europe in the late 1980s. While China’s leaders claim ‘only socialism can save China’, students laugh that ‘only China can save socialism’. The leadership has adopted a number of linguistic phrases that seek to explain current reality while retaining allegiance to socialism. The latest is that China is a ‘socialist market economy’, while the phrase ‘socialism with Chinese characteristics’ has been used to cover a multitude of policies that are difficult to describe as being conventionally socialist. This leads the CCP to think up snappy phrases to encapsulate how they see the present and future. Hu Jintao’s ‘scientific outlook on development’ is probably not as catchy as Xi Jinping’s ‘China Dream’. While Chinese society has become less ideological and even more pluralistic, CCP ideology sets limits to how far reform can go. Party leadership has retained its commitment throughout to socialism, however much the definition of its content may have changed. The reforms have not been intended to introduce either democracy or a capitalist economic system but rather to find a way for socialism to survive (on this point see Huang, 2008), or perhaps more correctly for the CCP to stay in power. This explains the residual commitment to the SOE sector, the slow, grudging approval given to the private sector and the attempts to make foreign investment support the CCP’s policy objectives. Whether such an approach to development is still tenable is one of the major challenges the CCP faces in the 21st century. In a prescient observation, Kelly has remarked that one outcome of transition may be the ‘installation of a New Authoritarian regime that dispenses

28 Governance and Politics of China with Marxist state ownership and its attendant social welfare functions but retains the self-legitimating apparatus of Marxist ideology’ (Kelly, 1991, p. 34). Certainly, within society and even among party members there is little faith that traditional socialism can provide a guiding light for China. Socialism is very rarely raised these days in discussions with foreigners and when mentioned is usually met with an embarrassed giggle by those sitting around the table. When bored listening to the development plans of local officials, I often ask them about the relevance of socialism to their plans. They usually pull up short and mutter something about social stability, party guidance and that the kind of socialism being pursued is one with Chinese characteristics. The appeal to the primacy of social stability and the appellation of Chinese characteristics seem to justify most things one wants to do. Whether such linguistic conundrums can suffice in the future is hard to say. It is clear that many party members and citizens have a highly instrumental view of the party. As long as it has sufficient patronage to deploy and continues to deliver the economic goods there is little incentive to seek alternatives or to rock the boat. This makes legitimacy highly conditional, and the party has struggled to provide deeper reasons for attachment, best seen in its promotion of nationalism. One significant legacy of Deng’s reforms is that the overwhelming majority of people do not have to worry about the CCP anymore and it does not interfere directly in their lives. This is an important advance from the Mao years and even from the 1980s when political campaigns in which all were supposed to participate were commonplace. Withdrawal could be interpreted as lack of support and punishment could be harsh. Now campaigns generally only affect the 86.7 million party members (as of July 2014) and even then many do not have to take them seriously. This is something Xi seems dedicated to changing and certainly the campaign against corruption has caught the attention of party members. Some citizens have not been willing to withdraw into a private realm of activity but have joined a variety of religious and spiritual organizations. A very small number have even joined underground political and labour organizations. Such individuals have clearly transgressed the limits of the permissible and such organizations are broken up and key individuals arrested as soon as they are discovered. Many more inhabit a grey zone of local religious organizations, clans, lineages, gangs or social organizations that operate at the margins of the politically acceptable. Providing governance over this diverse people and territory is an increasingly complex challenge.

Chapter 2

Political History: 1949–2012 The political history of post-1949 China covers a dramatic story that has seen the nation develop from one of the poorest to become an economic powerhouse and an increasingly influential global player. The history contains numerous twists and turns as the Chinese Communist Party (CCP) sought to find a suitable path for development. The initial flirtation with the Soviet model, which conflicted in some fundamental ways with the pre-1949 experiences, was dumped by the mid-1950s. Instead, the CCP launched its own path to development that led to economic and political chaos through the Great Leap Forward and the Cultural Revolution. Finally, through the 1980s and beyond the CCP experimented with a variant of the kind of authoritarian politics combined with a guided market economy that has proven successful in other East Asian countries (see Amsden, 1989; Wade, 1990). China’s entry into the World Trade Organization (WTO) in the new century provided a huge economic boost and the CCP gained further confidence in its own development path following the global financial crisis of 2008–09. This chapter reviews first the framework of the debates and tensions within the revolutionary inheritance, how Mao Zedong and the CCP moved from triumph to disaster, from statebuilding to state destruction, and how the post-Mao leadership has wrestled with those legacies to maintain its grip on power and develop the economy.

Parameters of policy debate Two sets of issues have framed policy debates through the 1950s to the present day. The first is a set of debates that have been common to all socialist systems operating under a one-party political structure managing a centrally planned economy. The second is a number of tensions derived from the Chinese revolutionary experience. The nature of the socialist system (see Kornai, 1992) means that the possibilities for change are limited and the areas of policy debate tend to oscillate along a continuum of a key set of policy alternatives. The main determining features are a centrally planned economy with predominant, if not total, social ownership of the means of production overseen by a hierarchical highly centralized political power structure 29

30 Governance and Politics of China concentrated within a one-party state and with an atomized society within which the agents of civil society are weak or ineffective. It was only when reformers in the Soviet Union and China began to undermine these pillars that fundamental change became feasible. In today’s China, only one-party rule remains decisive. This structure results in recurrent debates on a number of specific questions. In the economic sphere, there is the question of the relationship between the government and the state-owned sector of the economy and the extent of the supplemental role to be played by the collective and private sectors. In the new century, the role of the non-state sector has become increasingly vital. What is the relationship between consumption and accumulation? How extensive a role should foreign trade play in the development of the national economy? Debates in this field focus particularly on the level of trade with ‘advanced capitalist countries’. Even before China’s entry into the WTO, trade played a significant role in post-1978 economic policy. In addition, there have been sharp debates over how best to motivate managers and labourers to work effectively. Should material incentives in the form of bonuses or piece-rates be expanded or should moral exhortation and social recognition be used as a primary form of stimulus? This has been resolved pretty conclusively in favour of the former. The cyclical debates have also included the management and administration of the economy. First, in terms of broad economic management there has been oscillation between the role of directive planning and the use of economic incentives to direct the behaviour of economic actors. This is related to specific questions of how much autonomy should be granted to the production enterprises and in which functional areas. A further area of debate concerns the division of economic decision-making powers between the central administration and its various local agencies. Under reforms, local jurisdictions have gained considerable freedom of manouevre leading to the centre finding it difficult on occasion to assert its policy priorities. In the political sphere, there have been oscillations between the level of authority to be enjoyed by party officials vis-à-vis other state administrative cadres and enterprise managers. Just how much specific decision-making power should reside with party secretaries? What is the role of the intelligentsia and technicians in the process of policy formulation and how much academic freedom should they be accorded and in which areas? Last but not least, there are debates about the extent to which any institution or organization outside of the partystate should be permitted to exist. Despite ebbs and flows, we have seen a significant liberalization of pre-reform practice but there are still clear limits to the permissible in terms of expression and organization.

Political History: 1949–2012 31 In addition to these generic debates, the specifics of the CCP’s rise to power contributed legacies that framed the post-1949 debates. The Chinese revolution had been fought in the countryside, and this raised fundamental questions about whose interests the new regime would serve: those of the social force that brought it to power (primarily the peasantry)? Or those in whose name it was brought to power (the proletariat)? Or, as some have suggested, its own bureaucratic structures and personnel? The preference for the proletariat, if not urban China, was clearly understandable from CCP ideology. Even though the CCP had had no effective contact with the proletariat during the years before seizure of power, its leaders never dropped their commitment to an ideology based on its supremacy and leadership over the peasantry, as represented in the Soviet-inspired vision of the future. As soon as conditions permitted, the party reasserted the primacy of urban work over that in the countryside. However, the socialization drive of the new party-state ran against the material interests of both the farmers and the proletariat. This disregard for the interests of the two primary classes the CCP was supposed to represent derives from the party’s ‘privileged’ position in relation to them before 1949. In the absence of an actual proletariat in the revolutionary base areas, proletarian rule in practice meant rule by its vanguard, the CCP. The party adopted the habit of speaking in the name of the proletariat without the nuisance of having to listen to an actual, existing class. This affected CCP rule after 1949 and its autonomy to act. The party speaks on behalf of all social forces, cognizant that it knows best what is in the real class interest. As a result, after the CCP came to power it enjoyed significant autonomy from the specific interests of all social forces. While reform has created a strong set of ‘vested interests’, the CCP still claims to be the sole representative of all in society. This autonomy of the CCP was heightened externally by its relationship with the Soviet Union, the head of the communist movement worldwide. The Chinese revolution was distinct from the ‘baggage train’ governments that followed the extension of Soviet power into Eastern Europe following the Second World War. The revolution was indigenous and Mao made it quite clear that the CCP was not fighting a war to become the ‘slaves of Moscow’. Obviously the influence of Marxism–Leninism as an ideology and the practical help of Soviet Russia cannot be denied, but the end product of Mao Zedong Thought was a distinctive approach geared to and influenced by Chinese realities. The CCP was willing to ignore Soviet advice when it ran counter to national interests and to abandon the Soviet approach to development once its internal inadequacies and its inapplicability to the Chinese situation became apparent. This desire for strong

32 Governance and Politics of China independence was enhanced by China’s humiliation at the hands of foreigners in the century before the CCP took power. Last but not least, there was a legacy of institutional overlap and tensions between individual and institution. In the revolutionary war, institutions were very fluid and often the military was a more visible expression of communist power than the CCP itself. Individuals held positions in multiple institutions without any apparent contradiction. It was impossible to identify a senior CCP official, for example, as having a military background or representing a military interest as all senior CCP leaders had been military leaders before 1949. This bred a somewhat cavalier attitude to institutions and their use to achieve other policy objectives. This combined with the dominance of Mao Zedong prevented the institutionalization of more enduring political structures. The post-Mao leadership has sought to institutionalize structures and the transfer of power but the tension between individual and institution remains.

Leaning to one side – China and the Soviet model: 1949–55 In October 1949, after 22 years of conflict with its nationalist rivals domestically, and with Japanese invaders, the CCP was able to announce the founding of the People’s Republic of China (PRC) (see Box 2.1). While CCP leader Mao Zedong told the Chinese people that they had stood up, the country was economically backward, predominantly agrarian and contained considerable opposition to communist rule. Victory returned the CCP to the cities they had been forced to abandon following repression by the nationalists. Its leaders now had to return the revolution to the cities, build an industrial base and a working class whom they were supposed to represent, create new political institutions and train officials to staff them. The economy suffered from dislocation and rampant inflation. The period up until 1978 is marked by impressive initial achievements followed by an increasing descent into economic and political chaos. By the mid-1950s the country, with the exception of Taiwan, was unified, the rural revolution completed, inflation tamed and solid economic growth achieved. One might have thought that China’s search for a suitable form of state to help the nation modernize and take its rightful place in the world would have ended and institutionalization would have been completed. Yet, only a few years later the CCP led its people through a series of disastrous movements that ripped apart the ruling elite, caused social dislocation and famine on a massive scale, and culminated in the Cultural Revolution (see Box 2.2).


Box 2.1 Key Dates of the Communist Revolution, 1911–49 1911 1912 1919

1921 1923 1926 1927 1928 1933 1935

1936 1937

1941 1945

1946 1949

Uprisings bring down the Qing dynasty and Sun Yat-sen is proclaimed president of the Republic of China 14 February, Sun steps down and Yuan Shikai, a former Qing official, takes over 4 May, students protest against their government and the Japanese in response to provisions of the Versailles Treaty at the end of the First World War 23 July, the CCP opens its founding Congress 12–23 June, Third CCP Congress agrees to collaboration with the Guomindang (GMD) 9 July, Chiang Kai-shek with CCP and Soviet support launches the Northern Expedition to unify China 12 April, Chiang Kai-shek’s soldiers massacre communists in Shanghai and a purge of communists begins in many eastern and southern cities 24 April, Mao and Zhu De unite to form the Jinggangshan base January, Party Centre flees to the Jiangxi Soviet 15–18 January, enlarged politburo meeting at Zunyi criticizes past military policy and elects Mao to the Standing Committee of the Politburo 12 December, kidnap of Chiang Kai-shek by his own troops facilitates formation of second united front January, CCP moves its headquarters to Yan’an 7 July, clash between Japanese and Chinese troops at Marco Polo bridge near Beijing provides pretext for full-scale Japanese invasion of China September, the Rectification Campaign is launched April–June, CCP Seventh Congress convenes marking culmination of Mao’s rise to power 14 August, Japan surrenders unconditionally 10 October, with the fall of Kalgan to GMD troops the CCP announces that civil war is inevitable 23 January, Beijing falls to CCP troops and Shanghai falls on 27 May 1 October, Mao Zedong announces the establishment of the PRC

Box 2.2 Key Political Dates, 1949–78 1949 1953 1955

1 October, PRC established October, First Five-Year Plan launched, although formally ratified only in 1955 July, Mao rejects that collectivization could be subordinated to mechanization

34 Governance and Politics of China



1960 1962 1966 1969

1971 1972 1973 1974 1976

1977 1978

25 February, Khrushchev’s secret speech denounces Stalin 25 April, Mao’s talk ‘On the Ten Great Relationships’ May, ‘Hundred Flowers’ Campaign’ launched 8 June, People’s Daily article signals start of ‘Anti-Rightist Campaign’ September–October, Third Plenum of Eighth Central Committee (CC) adopts radical measures that pave the way for the Great Leap Forward (GLF) July, Soviet Union withdraws all its technical personnel from China 24 September, Tenth Plenum of the Eighth CC, Mao stresses the continued existence of class struggle 16 May, circular marks start of Cultural Revolution March, Soviet and Chinese forces clash along the Ussuri River 1–24 April, Ninth Party Congress marks the return to top-down rebuilding of party and state 13 September, Lin Biao’s plane crashes in Mongolia 25 October, China is admitted to the UN; Taiwan’s status revoked 21 February, President Nixon arrives in Beijing August–September, Tenth Party Congress attempts to forge a new leadership 10 April, Deng Xiaoping reappears to speak at the UN 8 January, Zhou Enlai dies and Hua Guofeng is appointed acting premier 5 April, Tiananmen demonstrations used to purge Deng Xiaoping 9 September, Mao dies 6 October, ‘Gang of Four’ arrested August, Eleventh Party Congress calls an end to the Cultural Revolution 18–22 December, Third Plenum of the Eleventh CC announces shift to economic modernization as core of party work

Initial policy did not propose a full-scale socialist transition strategy but focused on recovery and what was projected to be a decade of gradual development. Policy was to benefit not only the workers and peasants, but also the petty bourgeoisie and those capitalists who had supported the CCP. By contrast, landlords, unsympathetic industrialists, those with foreign interests and those connected with the GMD were to be dealt with harshly. While those who were classified as capitalists were initially allowed to develop their industries, they were bound into state patronage with the CCP moving to transform the mixed economy to its own advantage without a major disruption in production and distribution. Those who had not given up were soon bought out. Small-scale private enterprise would not reappear until the 1980s while large-scale private entrepreneurship only boomed after the turn of the century.

Political History: 1949–2012 35 Social and rural policy attacked gross inequalities of the old system and sought to build or consolidate new bases of support. Women were accorded freedom in the choice of marriage partner, infanticide was outlawed and land reform broke up traditional power relations by giving the farmers a right to work the land, an average of 2 to 3 mu each. The landlord class was broken and perhaps as many as 800,000 were killed in the land reform campaign (1950–52). However, by the mid-1950s, policy began to take a more radical turn and the move away from the Soviet Union was prompted not only by Mao Zedong’s concerns about applicability of its model to China but also by his response to Khrushchev’s secret speech denouncing Stalin. The CCP dallied with a Soviet-inspired plan only for a very brief period before it struck out to find its own road. The shift was felt first in the countryside, ironically following the Soviet method of collectivization. It was never likely that the CCP would tolerate a household-based farming system for long. As CCP leaders began to think about pushing ahead with socialism, a rural sector based on private farming and markets was anachronistic. CCP leaders also felt that the small units of land would make rational use impossible, the popularization of new farming techniques difficult and large-scale capital construction projects problematic. In addition, the CCP leadership took on the Soviet notion that bigger was better, that fast growth regardless of quality was paramount and that to be modern meant to be urban and industrialized. These factors meant that gradualism was abandoned, the reorganization of the rural sector into larger collective units began and the role of rural markets was curtailed. The Soviet-style emphasis on heavy industry meant that little capital was available for investment in agriculture, yet more efficient agricultural production was necessary to feed the industrialization programme. The solution was to cooperativize agriculture. This process began slowly at first in 1952 with the formation of mutual-aid teams that shared seasonal work and other chores, but gradually gathered pace until the crash programme of communization was embarked on in the late 1950s (see Box 2.3).

Box 2.3 Stages of Collectivization in the Chinese Countryside, 1952–59 1952–54 Formation of mutual-aid teams. Five to eight households combining for work in particular seasons, with up to 20 households cooperating on a year-round basis. Animals, tools and redistributed land were in private hands but labour was pooled.

36 Governance and Politics of China

1954–55 Formation of lower-stage agricultural producers’ cooperatives (APCs). Voluntary associations of roughly 30 households pooling not only labour but also property, land, farm implements and draught animals. Farmers received income in relation to the proportion of the size of the shares of property originally invested. 1956–57 Formation of higher-stage APCs. These contained between 100 and 300 households, depending on the terrain. Income distribution was now decided on the basis of work-points earned; 750,000 were set up. 1958–59 Formation of people’s communes. A total of 24,000 communes were set up to carry out not only agricultural work but also such things as industrial work, trade, education, military affairs, health, village administration and social welfare. In 1962 the number of communes was increased to 74,000. Three levels of ownership were introduced: commune, brigade (equivalent to the higher-stage APC) and the production team (equivalent to the lower-stage APC) as the basic accounting unit.

Despite Mao’s reservations about the Soviet Union, in June 1949 he outlined the policy of ‘leaning to one side’ that entailed learning from the Soviets. As the Chinese economy revived, the leadership thought it could be developed through the application of five-year plans. In October 1953, the First Five-Year Plan was launched, although it was not formally ratified until 1955. The Soviet Model was the only socialist plan for modernizing an economically backward country and, as far as the CCP leaders were concerned, it had already demonstrated its success. Indeed, initially it appeared successful in China before the kinds of problems that have plagued other Soviet systems also began to emerge in China. The concentration on heavy industry created imbalance and bottlenecks, quality of production was neglected in favour of quantity, worker enthusiasm was low because of poor incentive systems and consumption was repressed as funds were accumulated for capital construction. On the political front, this approach to development led to the formation of new elites: technocratic managers and a political elite of party professionals; both were anathema to Mao.

The origins of a Chinese path to socialism: 1955–62 These concerns led Mao to a critique of the Soviet experience (Mao, 1977) combined with collectivization and a dash for industrial growth. For agriculture, Mao rejected the notion that mechanization should precede collectivization, sweeping aside the objections of those who felt that steady mechanization should come first. On the economy,

Political History: 1949–2012 37 the more moderate reforms proposed by economic planner Chen Yun were rejected. Chen had proposed granting financial autonomy to state-owned enterprises and the use of more economic incentives, as in Eastern Europe. For agriculture, Chen proposed the ‘free-freedoms and one guarantee’: freedom to sell over production surplus, free plots, free markets and a guaranteed quota production. Instead of these ideas, the Third Plenum of the Eighth Central Committee (September–October 1957) took a different approach that adopted the radical measures that paved the way for the GLF. Rather than incentivize individual enterprises, authority was to be decentralized to the regions. Decentralization only to the regions would allow greater flexibility while ensuring continued party control and conformity with central planning. It would permit mobilization techniques to promote production enthusiasm rather than the use of material incentives. Mao came out against detailed economic planning and wanted to promote local initiative and the politics of mobilization. He tended to stress the revolutionary potential of socialism rather than the evolutionary mechanistic aspects. The GLF was marked by voluntarism with the idea that objective laws and the constraints of nature could be overcome by human endeavour. Mao wanted to fast-forward the development process, and an express aim of the movement was to overtake Britain’s output of major industrial products within 15 years. Better agricultural production would increase the amount of capital that could be accumulated for investment. The strategy rejected the notion that high-level development of the productive forces was a necessary prerequisite for socialist transformation; its theoretical foundations lay rather in Mao’s notion of ‘permanent revolution’. Permanent revolution would prevent the institutionalization and bureaucratization of the revolution, with continuing or new contradictions resolved by a series of qualitative changes as a part of the process of realizing Mao’s developmental goals. An integral part of the strategy was the policy known as ‘walking on two legs’. This promoted the dual use of modern, large-scale, capitalintensive methods of production and traditional small-scale methods. Mao hoped that this combination would tap the huge reservoir of hitherto unexploited resources in the rural areas so that they would be capable of providing their own industrial goods, manure and agricultural tools. The most notorious result of this approach was the ‘backyard steel furnaces’ that produced a huge volume of often useless steel. Other more successful small-scale projects were the creation of small electric power generators and chemical fertilizer plants. This use of intermediate technology remains the greatest legacy of the movement and many of the small-scale production plants formed the basis of the rural industrial take-off of the 1980s.

38 Governance and Politics of China The GLF proved to be a disaster both in terms of the economy and also in human terms, with at least 30 million people having died (Yang, 2012). The campaign style with which it was pursued and the dominating radical political atmosphere very quickly pushed it to excesses. Most communes and industrial units falsified production figures to show that they were more ‘red’ than their neighbours. This contributed to setting even higher targets in subsequent plans. It is clear that although many people doubted the exaggerated figures they were afraid to speak up for fear of being criticized. Planning was rendered totally ineffective. The imbalance within the structure of the national economy, combined with inevitable bottlenecks, meant that stoppages in production occurred and many enterprises overextended their productive capacity. As a result, from 1959 production in all sectors began to fall. Between 1958 and 1962, China’s GNP fell by about 35 per cent. The communization programme also encountered major problems and resistance. Many peasants resented communal living and the confiscation of private plots. Other problems arose from the unwieldy size of the communes and the lack of competent personnel to administer them. Two external factors further contributed to the failure of the strategy. First, during the summer of 1960 the Soviets withdrew their aid following the Sino-Soviet split. Second, floods and droughts were extremely severe. This latter factor enabled Mao and his supporters to shift the blame for failure onto natural disasters, claiming that they were 70 per cent responsible. Foreign observers have always blamed the strategy itself, and the post-Mao leadership has been less charitable about the catastrophe too, blaming instead the strategy for 70 per cent of the damage. Adjustment policies were introduced, led by Liu Shaoqi and Deng Xiaoping, to try to revive production. Agriculture was given priority in economic development, followed by light industry, with the formerly favoured sector of heavy industry placed last. The communes were reformed and were reduced in size with fewer functions, and private plots were slowed once more, while more small enterprises were given responsibility for their own profits and losses. Yet, the economic recovery that these policy measures brought led to divisions within the elite re-emerging and even becoming more acute. The policies had affected groups in society in different ways. The programme had proved especially advantageous to skilled workers and technocrats, and the social and political tensions that resulted led some to question whether the programme should be continued. The new priority given to agriculture was not disputed but there were differences over the substance of specific policies. The main source for disagreement stemmed from continued debate over the GLF. Nobody proposed a complete return to the strategy and Mao acknowledged that a more cautious approach

Political History: 1949–2012 39 to planning was necessary. Even so, Mao was not willing to see all the GLF policies abandoned in favour of ones less concerned about the means through which economic development was to be achieved. By the 1960s, Mao found that he was unable to direct the policy-making process and referred to himself as a ‘dead ancestor’. Further trouble was brewing and this time it took the form of radicalization in the political realm. In fact, the first indications of political radicalization had pre-dated the GLF and significant criticism of CCP rule had begun to surface. The external origins were derived from the death of Stalin and Khrushchev’s February 1956 ‘secret speech’ denouncing Stalin’s crimes and attributing them to the cult of the individual. The internal causes were derived from resistance by workers and peasants to the rapid pace of socialization. Mao was not willing to go as far as Khrushchev in his denunciation of Stalin – to do so might have reflected badly on himself – but accepted that he had made mistakes. It did cause him to think about leadership and he outlined his own methods on correct leadership in the Ten Great Relationships (Mao 1956, in Schram, 1974, pp. 61–83). He reaffirmed that a balance must be struck between democracy and centralism and argued that there would be ‘long-term coexistence and mutual supervision’ between party and non-party people. This theoretical position, together with Mao’s reaction to the 1956 uprising in Hungary and his desire to shake up a party apparatus that he felt was becoming increasingly conservative and institutionalized, led to the launching of the ‘Hundred Flowers’ Campaign’ (May 1956). Mao felt secure that the intelligentsia basically supported his revolution and that, while he decried the nature of the criticism unleashed in Hungary, what was needed in China was not repression of complaint but the encouragement of open criticism of the party apparatus. However, the depth of the criticism was unexpected and ranged widely, even calling into question the legitimacy of the party and the revolution itself. Mao was bitterly disillusioned with the intellectual elites and on 8 June 1957 the Campaign was brought to a swift close when the People’s Daily published an editorial denouncing the ‘rightists’ who had abused their freedom to attack the party and socialism. This marked the start of the ‘Anti-Rightist Campaign’ during which hundreds of thousands of intellectuals were investigated, demoted, fired or imprisoned. Perhaps more alarmingly, the socialization drive of the new partystate had begun to run against the material interests of both the workers and the peasants. Evidence suggests that peasant withdrawal from the cooperatives in the winter of 1956–57 was extensive and was dubbed a ‘small typhoon’ (Teiwes, 1987, p. 140). Research by Perry shows how the socialization of industry was not universally approved

40 Governance and Politics of China of by the new working class (Perry, 1997). Those protesting, on the whole, were rejecting the process of socialization. Thus, while the immediate causes were economic, the ultimate consequences quickly became political.

The radicalization of politics and the resurrection of class struggle: 1962–78 During this time, Mao began to hatch the ideas that would justify the massive attacks on the party and state apparatus during the Cultural Revolution (1966–76). He rejected the idea that socialism was an independent mode of production but rather was a transitional social form, a stage between capitalism and socialism. Thus, society was riddled with contradictions between the economic base and superstructure and within the relations of production themselves. This meant that he still viewed classes and class struggle as the motivating force in socioeconomic development. This lay behind his view that Yugoslavia, a proxy for the Soviet Union, had become revisionist as the persistence of capitalist factors within a socialist economy (commodities, money and wages) formed the basis for a return to capitalism from socialism providing the possibility for a new bourgeoisie to develop. Mao and his supporters came to the conclusion that the problem lay within the CCP and that Liu Shaoqi and Deng Xiaoping, who had overseen the policies of economic revival, were leading the party back down the capitalist road. The Great Proletarian Cultural Revolution is the most complicated and one of the most misinterpreted events in the history of the PRC (for the best account see MacFarquhar and Schoenhals, 2006). Attempts to understand it have not been helped by simplistic explanations that it was a two-line struggle between socialism and revisionism. Feeling frustrated by the party bureaucracy, Mao turned to an explosive cocktail of the mobilization of students as Red Guards, younger more radical party members who gathered around his wife, Jiang Qing, and, crucially, PLA officers loyal to Defence Minister Lin Biao. Documents issued in May and August 1966 drove the radicalization, with the latter claiming that the aim of the movement was now the ‘overthrow of those persons in authority within the party taking the capitalist road’. The situation quickly degenerated as factions fought openly and even Mao became aware of the need to bring the situation under control and to rebuild some kind of party and state structure. The process of restoring order fell to the PLA and a form of ‘military Maoism’ ensued. The model of the Paris Commune that was raised in

Political History: 1949–2012 41 Shanghai was rejected and instead the revolutionary committee was proposed. Not all authority was to be considered bourgeois and these committees were to comprise a ‘three-in-one alliance’ of revolutionary mass organizations, leading members of the local PLA units and revolutionary leading party-state cadres. The first such committee was set up in Heilongjiang Province. By September 1968 the last of the provincial revolutionary committees was established and in April 1969 the Ninth Party Congress was convened, marking the abandonment of the attempt to rebuild the system from the bottom up. The need to rebuild was also spurred by the March clashes with Soviet troops along the Ussuri River, clashes that we now know were initiated by China (Goldstein, 2001, pp. 985–97). The clashes following the Soviet invasion of Czechoslovakia, justified by the Brezhnev doctrine that asserted the Soviet right to intercede in the affairs of other socialist countries, gave impetus to Mao’s recognition that rebuilding was necessary. This must have convinced Mao of the need to restore order. It also prompted him to improve relations with the United States that culminated in President Nixon’s February 1972 visit to Beijing. The Congress resolved nothing and soon after the most radical members of the ‘left’, such as one of Mao’s speech writers, Chen Boda, were purged and denounced as ‘sham Marxists’. The next step was to reduce the influence of the PLA, best symbolized by Lin Biao, now Mao’s designated successor. This was accomplished following Lin’s death while supposedly fleeing to the Soviet Union after an alleged coup d’état. This enabled the purge of his military supporters at the centre (Teiwes with Sun, 1996; Jin, 1999). With these two groups removed, the party turned to many of those who had been purged early in the Cultural Revolution. The best example was Deng Xiaoping, who had been criticized as the ‘number two person in authority taking the capitalist road’ (Liu Shaoqi had died in prison). In fact, it appears that Mao had always intended to bring Deng back once he had been ‘taught a lesson’. This process of rehabilitation gained momentum at the Tenth Party Congress (August–September 1973). The Congress reflected an attempt to put together a leadership that could command sufficient support to allow economic development not to be disrupted, but at the same time could maintain some of the revolutionary momentum of the Cultural Revolution. The rehabilitated Deng and the ailing premier, Zhou Enlai, represented those who wished to focus on economic development, represented by the slogan of the ‘Four Modernizations’ (agriculture, industry, science and technology, and national defence), a policy that Zhou had first presented in 1964. The associated policies envisaged a two-stage programme, with the first objective being to build an ‘independent and relatively comprehensive industrial and economic

42 Governance and Politics of China system’ by 1980, and the second being to bring the national economy to the front ranks of the world by the year 2000. This ran counter to Mao’s more radical ideas and appeared to revive the potential for a ‘capitalist restoration’. Mao’s radical ideas were developed by the group later denounced as the ‘Gang of Four’, in particular by Yao Wenyuan (1975) and Zhang Chunqiao (1975). They sought to explain how a socialist economy might regress back to a capitalist one. They identified ‘bourgeois rights’ and the persistence of capitalist factors, such as commodities and differential wages, as providing a material base for the reproduction of capitalism. Such factors also provided the source of power for a new bourgeoisie to emerge and prosper. Further, the division of labour created an ‘intellectual aristocracy’ who ruled over the production units, denying the workers access to real power. In their view, it was necessary to enforce the ‘dictatorship of the proletariat’ to prevent capitalism from being restored and a new bourgeoisie from taking power. Their wrath turned on the policy of the ‘four modernizations’, and in one of their memorable phrases they claimed they would rather have ‘a late socialist train’ than ‘a capitalist one that ran on time’. To prevent capitalist restoration there would have to be many ‘cultural revolutions’ to eradicate the remaining capitalist factors. Their solution had direct policy consequences that affected the lives of hundreds of millions. Intellectuals and those engaged in management were viewed with particular suspicion and were required to undertake regular manual labour and even to spend many years in the countryside to ‘learn from the peasants’. Perhaps the most important impact of this policy, as with the ‘revolutionary travels’ of the Red Guards, was to expose to the urban elite just how poor and backward China really was. It convinced many of the need for drastic reforms. To prevent the power of a new management class from developing, the workers’ control of the enterprise was to be secured through worker participation in management. This did not mean, however, that the workers ran the factories, but it did provide various institutional mechanisms through which their voices could be heard. In particular, the ‘Gang of Four’ sought to reduce and even eliminate the material privileges that could succour the ‘new bourgeoisie’. Grades on salary scales were to be limited to reduce income differentials and piece-rates and bonuses were to be curtailed or even eliminated. In the countryside private plots were criticized as was production outside of the plan as the ‘tails of capitalism’. On the communes, while more moderate voices wanted to keep accounting at the team level, the ‘Gang of Four’ wanted to raise it to the level of the brigade as this would make the countryside appear more socialist. These and other measures would eradicate a material base for the ‘new bourgeoisie’ from emerging. This

Political History: 1949–2012 43 policy put the collective above the individual and was accompanied by an egalitarian distribution policy and austerity in consumption. Austerity was promoted by campaigns to be frugal and adopt plain living (something Mao’s wife, Jiang Qing, never took to apply to herself) and was reinforced through an intricate system of rationing. Combined with the emphasis on ‘self-reliance’ in production under which most areas produced for their own needs, it meant that consumption was limited to a small number of basic goods. Finally, the ‘Gang of Four’ took a negative view of the role of international trade in development. The principles of ‘self-reliance’ extended to foreign trade, with it playing at best a residual role, and all efforts were made to restrict the import of bourgeois ideas. In particular, they attacked Deng Xiaoping’s plans to import technology on a large scale and to pay for it through the export of China’s minerals. They accused Deng of being a traitor and of turning China into an ‘appendage of imperialism’. Given these divergent views, it is no surprise that the political coalition fell apart. After Zhou Enlai died (January 1976) and Deng Xiaoping was purged for the second time, it was the radical group that was eventually swept away as only they enjoyed influence in the education and propaganda systems. Mao’s death (September 1976) was fatal to their survival and, in the following month, Jiang Qing and her closest supporters were arrested in a palace coup. It fell first to the little known Hua Guofeng, who had been the surprise appointment as premier following Zhou’s death, to conjure up a solution to the nation’s problems. In some ways he pursued ‘Maoism without Mao’ but favoured a ‘quick-fix’ approach to the economy, setting ambitious planning targets and using the selective import of high-level technology. Heavy industry was again given pride of place. This initial post-Mao strategy served only to compound the problems. The importing of modern technology, the ‘Great Leap Westward’, far outstripped both China’s export capacity and its ability to absorb the imports. The trade deficit with ‘capitalist’ countries grew from US$1.2 billion in 1977 to US$4.5 billion in 1979. In the political realm, Hua also failed to address the problems of the Maoist legacy. Little attention was paid to political-administrative reform. For the most part, such problems were put down to the excesses of the ‘Gang of Four’, the ‘bad work style’ to which officials had grown accustomed as a result of the Cultural Revolution, and the remaining influences of a ‘feudal’ way of thinking. No moves had been made to redefine party– society relations or to reduce the excessively leader-dominated system. Hua and his supporters retained certain ideas from the Cultural Revolution period along with the ambiguities. Further, their attitude towards the party’s role in society was designed to complement their

44 Governance and Politics of China optimistic proposals for economic development. Essentially, Hua and his supporters proposed the continuance of the party as a vehicle of mobilization to conduct mass campaigns, both economic and political, to achieve the ambitious economic targets. They persisted with the Maoist ambiguity that, while the party was to be in command, the masses were to monitor abuses by its officials. This view caused suspicion of the party to remain while failing to create organizations with legitimacy. It was too dependent on the more ‘radical’ aspects of Mao’s legacy and the creation of a new personality cult around Hua to resist policy shifts to the new economic programme. The quaint poster that was widely distributed of the aged Mao handing the youthful Hua a piece of paper with Mao’s inscription ‘With you in charge, I am at ease’ smacked far too much of the emperor passing on the Mandate of Heaven to his chosen successor. By the late 1970s, it was becoming clear to the group of veteran leaders around Deng Xiaoping, who had been rehabilitated again in July 1977, that solution of the economic, political and social problems required a major overhaul of the system. The economic malaise was combined with a longer-term dissatisfaction about stagnating living standards on the part of much of the population. The government’s consistent overconcentration on accumulation at the expense of consumption meant that rationing, queuing and hours spent on laborious household chores were the daily fare for most urban residents. In the countryside, the attacks on private plots of land and free markets as ‘capitalist tails’ had caused farmer resentment by undermining alternative sources of income. Although the collective functioned effectively in some regions, many farmers saw it as an alien entity that made unfair demands on their time without supplying just returns. It seems no exaggeration to conclude that China’s population had probably had enough of tightening their belts in return for the promise of a bright future. Behind all this was a ticking population time bomb. Mao’s 1950s view that a larger population would increase China’s strength had meant that it had boomed from 540 to 930 million by the time of his death. Unemployment and under-employment were serious problems, and it was clear that a major overhaul was required to resolve the problems; the Third Plenum of the Eleventh CC (December 1978) began to articulate a new policy course.

The Third Plenum and the initial reform agenda: 1978–84 The criticism of Mao Zedong and the attempts by Deng and his supporters to dismantle the personality cult meant that Mao’s name

Political History: 1949–2012 45 could no longer be invoked effectively to underpin legitimacy. As a result, they chose to promise a bright economic future for all within a relatively short space of time, meaning that CCP legitimacy would be linked closely to the ability to deliver the economic goods. The political breakthrough for Deng came at the Third Plenum of the Eleventh CC held in December 1978 (see Box 2.4). The plenum implemented three decisions that had a lasting impact. First, economic modernization was made central to all party work. Ideology and class struggle were downplayed and policy-making became more pragmatic, summed up in the slogan ‘practice is the sole criterion for testing truth’ (the slogan was launched in May 1978) and the corresponding policy line of ‘correcting mistakes wherever they are discovered’. Second, despite the plenum’s decision to forget about the past and concentrate on the future, the new ‘practice’ slogan was used both at the plenum and subsequently to reverse a whole series of previous political judgements. These were used both to undermine the legitimacy of Hua Guofeng, the party chairman, and his supporters, and to establish the credibility of Deng’s and Chen Yun’s policy positions. Despite later hagiographic writings about Deng, the initial policies owed most to Chen Yun. Essentially, Mao’s increasing radicalism in his later years was denounced while previous attempts to moderate ‘economic excesses’ through a policy of economic liberalization were praised. To award themselves the mantle of popular legitimacy the anti-‘Gang of Four’ demonstrations of April 1976 were reassessed and proclaimed a revolutionary movement that had demonstrated support for both Zhou Enlai and Deng Xiaoping. Third, the plenum formed the source of a new policy direction that gradually increased the influence of market forces in the Chinese economy. This was felt first in the rural sector. The voluntarism of the past was rejected in favour of following ‘objective laws’. The plenum ducked two pressing political issues: no assessment was made of the Cultural Revolution nor of the role of Mao. Given that Hua Guofeng and others had risen to power because of these two factors, this was not surprising.

Box 2.4 Key Political Dates, 1978–2014 1978 1979 1981


December, Third Plenum of the Eleventh CC shifts policy to economic reform March, Deng puts forward the ‘Four Basic Principles’ January, trial of ‘Gang of Four’ completed June, resolution on party history criticizes both the Cultural Revolution and Mao October, CC document proposes major urban industrial reform


1986 1987 1989



1997 1998 2001 2002 2003 2004

2007 2008

2009 2010



December, student demonstrations lead to the purge of Hu Yaobang (January), and Zhao Ziyang becomes acting general secretary October, the Thirteenth Party Congress favours continued economic and political reform 15 April, Hu Yaobang dies, sparking student demonstrations 3–4 June, PLA troops brutally clear students from Tiananmen Square 23–24 June, Fourth Plenum of the Thirteenth CC formally removes Zhao Ziyang and Jiang Zemin becomes general secretary 9 November, Deng Xiaoping steps down as head of the Military Affairs Commission January–February, Deng tours south China to kick-start economic reform 12–18 October, Fourteenth Party Congress approves renewed economic reform 11–14 November, Third Plenum of the Fourteenth Party Congress adopts the document ‘Establishment of a Socialist Market Economic System’ 19 February, Deng Xiaoping dies 1 July, Hong Kong reverts to Chinese rule March, Ninth NPC Premier Zhu Rongji unveils a dramatic package of reforms December, China approved for entry into the WTO November, Sixteenth Party Congress installs Hu Jintao as general secretary March, Tenth NPC appoints new government with Wen Jiabao as premier September, Fourth Plenum of the Sixteenth CC, Jiang Zemin retires from the Central Military Affairs Commission to be replaced by Hu Jintao October, Seventeenth Party Congress convenes and adopts Hu’s idea of the ‘Scientific Outlook on Development’. August, summer Olympics held in Beijing November, China announces a massive stimulus package for the economy to overcome the global financial crisis October, celebration of the 60th anniversary of founding of the PRC March, Premier Wen highlights the need to boost spending and redistribute wealth October, Fifth Plenum of the Seventeenth CC announces new Five-Year Plan March, Bo Xilai removed from his post as Party Secretary of Chongqing November, Eighteenth Party Congress selects Xi Jinping as general secretary March, Li Keqiang appointed premier. Xi starts campaign against corruption

Political History: 1949–2012 47


November, Third Plenum of the Eighteenth CC puts forward ambitious reform proposals calling for a greater role for the market October, Fourth Plenum of the Eighteenth CC outlines programme for rule of law

Economic policy revolved around the promotion of market mechanisms to deal with the inefficiencies of allocation and distribution that occurred with the central planning system. Awareness of the ‘new technological revolution’ increased the Chinese leaders’ desire to make their system more flexible and thus more amenable to change. To take advantage of the market opportunities, more power of decision-making was to be given to the localities and in particular to the units of production themselves. Production units were given greater autonomy to decide what and how much to produce, and where to sell. At the core of this system was the ubiquitous contract that was expected to govern economic activity. Correspondingly, material incentives were seen as the major mechanism for causing people to work harder, and the socialist principle of ‘to each according to their work’ was to be firmly applied. Egalitarianism was attacked as a dangerous notion that retarded economic growth. These reforms of the domestic economy were accompanied by an unprecedented opening to the outside world in the search for export markets and the necessary foreign investments, technology and higher-quality consumer goods. Change was rapid and dramatic in the rural sector and moderate in the urban sector, while political reform was ineffective and ultimately divisive. Reversing the policy of the Cultural Revolution, farmers were given the green light to work private plots and engage in sideline production with markets allowed for them to sell their products. Rural towns began to emerge as bustling centres of exchange. The drab, sparsely stocked state-run store was soon supplemented with a street market selling a range of foodstuffs that was far more varied and of better quality. However, the leadership faced a fundamental dilemma of how to boost productivity without increasing state spending. This time, the answer was radically different and led to the abandonment of the collective through a major restructuring of farmer incentives, away from the use of production quotas and towards a focus on the household as the basis of production. This process was encapsulated in the phrase ‘production responsibility system’. Yet it was farmers in poor areas who first made the break with the collective by contracting output to the household, a practice that spread throughout other areas of rural China. It is worth noting that as late as 1981 Deng remained agnostic as to whether this was

48 Governance and Politics of China a good or a bad thing (personal communication from Fred Teiwes). By 1982–83, the centre tried to restore control by taking decisions to standardize the new system; and decollectivization was enforced throughout the country with a speed reminiscent of the collectivization of the 1950s. The new State Constitution (1982) returned the political and administrative powers of the commune to the resurrected townships, leaving the communes as an economic shell. In 1983 the ‘responsibility system for agriculture’ was officially endorsed with the household as the basis for contracting. This was reconfirmed in 1984 when cropping contracts were extended to 15 years and measures were introduced to concentrate land in the hands of the most productive households. Abandonment of the collective as the key economic unit in the countryside was complete. The aim was to improve the distribution of commodities and reward further efficient producers with the expectation that wealthier farmers would reinvest capital and labour on the land. Change in industry and the urban areas was much less dramatic. The embedded institutional interests in the industrial sector made a radical overhaul more difficult to achieve than in the rural sector and, as a result, policy was a stop–go affair with radical proposals getting bogged down once the negative effects began to bite. The October 1984 ‘Decision on Reform of the Economic Structure’ promoted policy to bring the kinds of incentives and use of market forces that had proved successful in the rural areas to bear in the industrial sphere. It outlined the need for reform and pulled together the piecemeal experiments into a more thoroughgoing reform blueprint. The key was seen as making enterprises more economically responsible; profit retention was introduced and the system of tax-for-profit, introduced in 1983, was confirmed; losses, in theory, would no longer be covered by the state. To enable enterprises to take advantage of the limited market opportunities, managers were to be given greater power of decisionmaking with respect to production plans and marketing, sources of supply, distribution of profits within the enterprise and the hiring and firing of workers. It was clear, however, that enterprise reform was to form part of a comprehensive reform strategy. Not surprisingly, these reforms created differences of opinion, and the acuteness of the debate about the way forward was sharpened by the overheating of the economy in late 1984 and early 1985. It is not true to say that the period witnessed no political reform, but it was limited in scope to administrative reform while more radical proposals for change were criticized. The period 1978–80 was a high tide for suggestions about political reform, with not just the Democracy Wall Movement activists but also highly placed party members floating ideas on far-reaching change. Deng Xiaoping indicated his approval

Political History: 1949–2012 49 for political reform in August 1980 when he called for people’s democracy to be developed to the fullest extent possible. The early promise of extensive reform was not followed by sufficient substantive change, thus causing many intellectuals and students to become frustrated. Substantive change was ruled out by the refusal of senior party leaders to accept the kind of structural reform that would lead to a redistribution of power to other groups and organizations in society. Some were swayed by the rise of Solidarity in Poland in 1980 that convinced them that too great a relaxation of party power would lead to loss of control. For Deng and other senior leaders, the experiences of the ‘Hundred Flowers’, the GLF and the Cultural Revolution caused them to be suspicious of participation that took place outside direct party control. They preferred a ‘revolution from above’, with the party defining the limits of the permissible and stopping the possibility of degeneration into chaos. This was best seen in the promotion of the slogan of adherence to the ‘Four Basic Principles’ that Deng put forward in March 1979. These principles enshrined the leadership of the party and adherence to socialism and were used by ideological conservatives to launch campaigns against heterodox ideas in 1980–81 and 1983–84. Until 1986, Deng was fairly successful in stopping these divisions from becoming destabilizing and the limited political reforms taken had been to his advantage or had supported his attempts to get the Chinese system moving again. The outstanding political issues from the Cultural Revolution were resolved in 1980–81. In February 1980, at the Fifth Plenum of the Eleventh CC, Hua Guofeng’s closest supporters were removed from office and the former president, Liu Shaoqi, was posthumously rehabilitated. Hua relinquished the premiership to Zhao Ziyang in September 1980 and resigned as chair of the party in June 1981, turning affairs over to Deng’s protégé Hu Yaobang. In 1981, the year of verdicts, the ‘Gang of Four’ together with ‘supporters’ of Lin Biao were sentenced and an official resolution on party history was adopted that was critical of both Mao and the Cultural Revolution.

Economic troubles and political instability: 1985–91 By 1985, problems were brewing in both the economy and the political realm, with opposition to the reforms becoming more apparent and bursting out for all to see in 1986 and 1989. By the end of 1984, the rapid pace of rural growth had slowed down and, ironically, the next phase of reform adversely hit the farmers’ pockets. In 1985 when the state abolished its mandatory grain purchases, prices on the market dropped significantly. This led to several years of cat-and-mouse

50 Governance and Politics of China games between farmers and state agencies, with farmers cutting back on production or buying on the market when prices were low and selling to the state when it was obliged to pay the higher price. In addition, declining returns were setting in as the one-time boost farmers received from the organizational changes and other incentives worked their way through. With the decline in grain yields and the spiralling state food subsidies paid out to keep the costs down for urban workers, Chen Yun proposed stopping the second phase of reforms. Many farmers were forced back into grain production, which they had abandoned because of its lack of profitability. Not surprisingly, farmers resented the curtailment of their new-won freedoms. Stringent production quotas for grain were reimposed and the attempts to dismantle the state monopoly over distribution were effectively abandoned. Farmers were forced to sell to the state at belowmarket prices. Further, many farmers left the land either to work in more lucrative jobs in the rural industrial sector, which was by 1984 producing nearly 25 per cent of industrial output, or to migrate to find work in the cities. In the industrial sector, problems had emerged with the transition to a market-influenced economy. The lifting of price controls and the new incentive system in enterprises led to a major overheating of the economy by late 1984 and early 1985, with a surge in inflation in 1985. As a result, the Seventh Five-Year Plan presented by Premier Zhao Ziyang (April 1986) struck a note of caution, with balanced growth and a lower growth rate (7.5 per cent) as its theme. Under the phrase of a ‘socialist commodity market’, Zhao proposed further extension of the market and also that a new form of macro-management be established with the state gradually moving from mainly direct to indirect control of enterprise management. Nonetheless, opposition was coalescing and the issue of political reform and the student demonstrations of 1986 enabled opponents to manoeuvre to remove reformist party secretary Hu Yaobang. By summer 1986, it was clear that political reform had become a severely divisive issue within the political leadership. During the spring and early summer, critical intellectuals began to raise ideas for radicalizing the reforms, yet by the end of the year their views had been rejected and Hu Yaobang, who was thought to be sympathetic, had been dismissed from his post as general secretary. Disagreements led to the postponement of an expected decision on political reform until the Thirteenth Party Congress (October 1987). In fact, the Sixth Plenum of the Twelfth Party Congress (September 1986) instead of discussing political reform passed a resolution on the need to improve work in the ideological and cultural spheres. These are issues more closely identified with those seeking to limit the extent of political reform.

Political History: 1949–2012 51 The opponents of more radical reform continued to link wide-ranging changes with bourgeois contamination. These opponents comprised those who opposed economic reforms and were drawn from the old central planning apparatus, those worried about the consequences of liberalization for the social fabric of China and some senior military figures who had been close to Mao. The student demonstrations in late 1986 provided these opponents with their chance to launch a counter-attack and remove Hu Yaobang. Faced with this opposition, Deng Xiaoping was remarkably successful until the end of 1986 in limiting its impact. In 1982, he ‘retired’ many veteran party members to the newly created Central Advisory Commission of the CC. In 1984, he oversaw the largest retirement ever of senior PLA officers; in June 1985, the regional command structure was reorganized and in September military representation on the Politburo was reduced (six members were retired with no replacements). However, the PLA would not accept either of Deng’s chosen heirs to head the Military Commission (Hu Yaobang in 1985 and Zhao Ziyang in 1987). This was a serious blow to pragmatic reformers. The differences were apparent at the Thirteenth Party Congress (October 1987) at which Zhao Ziyang delivered a speech that on balance favoured commitment to continued reform, despite containing some elements of compromise on crucial issues. He reiterated the necessity to ‘uphold the four basic principles’ while pursuing reform, but the first five items of his work report dwelt on reform and the conservatives’ demand for ‘the building of a spiritual civilization’ came last on the list. Most importantly, Zhao confirmed that China was in the ‘initial stage of socialism’, a phase that would last for around 100 years. The intent was to remove ideology from thwarting reform and to concentrate on improving material standards. With China entering uncharted waters, theory was to be defined as policy developed, thus freeing China’s decision-makers from the restraints of Maoist dogma. In the economic sphere Zhao attacked the two traditional shibboleths of state socialism: central planning and state ownership. A dramatic reduction in the role of the plan in controlling the economy was proposed, giving the green light to the non-public sectors. He also advocated not only the use of commodity markets for consumer goods and means of production but also ‘markets for … funds, labour services, technology, information and real estate’. Moreover, Zhao broke with the principle that the only source of income was ‘distribution according to work’ (Zhao, 1987). However, Zhao’s report showed elements of compromise on crucial economic questions. First, the Maoist obsession with grain production was not totally eradicated: Zhao committed China to major increases

52 Governance and Politics of China over the coming decade. More importantly, Zhao was cautious on the crucial topic of price reform. It had become increasingly obvious that the industrial reform programme would not succeed without a thorough reform of the pricing and subsidy system. Yet each time the reformers put this on the agenda they retreated rapidly in the face of the inflation that was unleashed. This would become a major issue after the Congress. Zhao was also clear that political reform, the issue that had led to Hu’s dismissal, should continue. He reaffirmed that it was indispensable if economic reform was to continue, but he was vague on what should be done. He did, however, call for a redistribution of power both horizontally to state organs at the same level and vertically to party and state organs lower down the administrative ladder. The most important measure proposed was the abolition of leading party-member groups in units of state administration. After the Congress the economy faltered and inflation took off as China experimented with price reform. Initially, it looked as if with Deng’s support China might stay the course but by the summer of 1988 Deng started to back away and shifted the blame for the attempts to make a radical breakthrough on to Zhao. The economic situation increased general disgruntlement among the populace while many critical intellectuals were frustrated at what they saw as the lack of political reform. The leadership might have navigated the troubled period without crisis if it had remained united, but the facade of leadership unity began to crack under the strains of management and was blown apart by the massive student-led demonstrations that erupted throughout urban China in the spring of 1989. The catalyst for widespread disruption was the worst inflation in PRC history in 1988 that began to discredit calls for more radical reform and which led, by 1989, to a programme of economic retrenchment. Urban anger was increased by the higher visibility of official corruption. Abuse of public position and private accumulation from public function by the late 1980s was the worst since 1949. By 1989, for many urban dwellers the party’s incompetence and moral laxity had eroded any vestigial notions that the party was a moral force in Chinese society. Once the students breached the dams, a flood of supporters was waiting to defend them and attack the authorities. Since 1986 student agitation had festered on the campuses where critical intellectuals had given regular lectures. The specific cause of the demonstrations was the unexpected death of Hu Yaobang (15 April) during a Politburo meeting at which it was rumoured he had wanted to discuss education and was engaged in a major argument with party conservative Bo Yibo. The student demonstrations quickly found resonance with large numbers of the urban citizenry. The initial government response was slow

Political History: 1949–2012 53 and incoherent, in part because of the size of the demonstrations and the pending visit of Soviet President Gorbachev, but also because of severe leadership division about how to handle the demonstrations and future policy direction. The potential for a tough regime response had been signalled in a People’s Daily editorial of 26 April, issued when Zhao Ziyang was out of the country. The editorial condemned the movement as a ‘planned conspiracy’ directed against the party and constituted a ‘political conspiracy’ aimed at negating ‘the leadership of the CCP and the socialist system’. Despite the early decision to take a hard line, it took another six weeks before the protests could be crushed. Apart from the problem of using force against unarmed students, Zhao Ziyang came to oppose a tough response, favouring instead a limited dialogue. Following the start of a hunger strike (13 May), the demands of the movement became more directly political and sharply focused. The secret dismissal of Zhao was followed by the imposition of martial law (20 May) that paved the way for the brutal clearing of Tiananmen Square on the night of 3–4 June. Subsequent events showed both the capacity for the orthodox party faction to frustrate those reforms it opposed, and its lack of strength to roll back the momentum of economic reform for long. The scale of the demonstrations also meant that the leadership had to appear to respond to the criticisms. While Deng Xiaoping reaffirmed his belief in the primacy of the party he was concerned that a policy of economic austerity entailed a critique of his own reform programme. In late June 1989, the Fourth Plenum of the Thirteenth CC announced the removal of Zhao Ziyang and supporter Hu Qili from the Politburo Standing Committee, with Zhao criticized for ‘grave errors and mistakes’, including ‘splitting the party’. He was not allowed to defend himself at the plenum. Shanghai Party Secretary, Jiang Zemin, was appointed to replace Zhao as general secretary primarily on the basis of the effective way he had dealt with the demonstrations in Shanghai. The manner of Zhao’s dismissal and Jiang’s appointment by the party elders in secret showed how little progress had been made with the institutionalization of the political system. Zhao’s purge also opened the way for a critique of the economic reforms, including the role of the non-state sector and the Special Economic Zones (SEZs). However, even as early as May 1990 there were clear signs that the orthodox attacks were being blunted. The austerity programme did not deal with the fundamental structural problems of the economy and, in fact, exacerbated many of them by denying their existence. The economic squeeze dampened demand but did not improve productivity nor remodel the irrational structure as had been promised. Shaken by the economic downturn and fearing social dislocation, measures were quietly introduced to ease the

54 Governance and Politics of China austerity programme despite resistance by fiscal conservatives at the centre. Many initiatives associated with the disgraced general secretary, Zhao Ziyang, again became key elements of policy. In addition to the programme of economic austerity, the leadership responded, or tried to give the impression of responding, to the movement’s political demands. On 28 June 1989, the Politburo adopted a seven-point programme to deal with corruption and a widely publicized campaign followed. This addressed issues such as closing down firms that had engaged in potentially corrupt activities, preventing the children of senior officials from engaging in commercial activities, limiting perks derived from official positions, such as entertaining, travel abroad, special supplies of scarce goods and driving around in imported cars. None of these measures proved successful. Further, one of the students’ main demands was met when, on 9 November 1989, Deng Xiaoping stepped down from his last official position as chair of the party’s Military Affairs Commission.

Return to economic reform, boom and moderation: 1992–97 When the CCP celebrated its 70th anniversary (1 July 1991) the chances of dramatic change looked slim. The party remained defensive in the aftermath of Tiananmen and felt threatened by enemies from both within and without. Yet, the party prided itself on the fact that it had ridden out the storm of protest in 1989 and had been spared the consequences of the dramatic collapse of the communist regimes in Eastern Europe and the profound changes then taking place in Gorbachev’s Soviet Union. Open dissent had been quashed and innerparty battles kept within acceptable limits. General Secretary Jiang Zemin, in his speech commemorating the party’s founding, reaffirmed the hard line by claiming that ‘class struggle’ would continue for a considerable period of time within ‘certain parts’ of China, a marked contrast with Deng Xiaoping’s claim that the struggle was dying down and that the main focus of work would be placed on economic development. As far as the West was concerned, CCP policy was still to focus on resisting the capitalists’ presumed attempts to transform China through ‘peaceful evolution’ (Jiang, 1991, pp. 1–14). In addition to the need to deal with the structural problems in the economy, two other factors combined to convince Deng Xiaoping and his allies that it was necessary to reassess the hardline policy and to push China once more along the road to reform. The first was the fallout from the failed coup in the Soviet Union (August 1991), and the second was the need to lay down a clear agenda for the Fourteenth

Political History: 1949–2012 55 Party Congress that would define his legacy. While Deng was bitterly critical of Gorbachev for undermining socialism, he realized that unless the CCP could satisfy the material aspirations of the population, it might be destined for the same fate. Debates about the future direction were brought into sharper focus by the fact that the Fourteenth Party Congress was scheduled to be convened before the end of 1992. The year 1992 proved to be a watershed and led to the dramatic economic boom and building craze that has characterized much of China since. Politically, criticism shifted to focus on those ‘leftists’ who opposed further reform, rather than ‘rightists’ and ‘bourgeois liberals’ whom party veterans had blamed for inciting the unrest of 1989. The shift of focus was made clear by Deng Xiaoping in his inspection tour of South China in January–February 1992. Further, Deng claimed that if China’s economic reforms were reversed, the party would lose the people’s support and ‘could be overthrown at any time’; he also ventured the view that it would certainly not have survived the trauma of Tiananmen. Interestingly, Deng absolved both Hu Yaobang and Zhao Ziyang, his first two choices as general secretary, of faults in the economic arena by stating that they had been removed from power because they had not opposed ‘bourgeois liberalization’ properly. Deng went beyond stating the general need for economic reform by implicitly criticizing those who sought to slow down the pace of change. He claimed that economic reform should not ‘proceed slowly like a woman with bound feet’ but should ‘blaze new trails boldly’. For Deng, the basic line of rapid reform was clear and it was to be continued for 100 years. This shift caused Jiang Zemin to submit a self-criticism (March 1992) and paved the way for more rapid economic growth. The Fourteenth Party Congress (September 1992) represented a triumph for Deng and his approach to reforms. First, the Congress praised Deng as ‘the chief architect of our socialist reform, of the open-door policy and of the modernization programme’ and credited him with developing the ‘theory of building socialism with Chinese characteristics’. It thus provided a way out of the sterile ideological battles that were waged over what constitutes socialist mechanisms of development. Second, the document sanctioned sweeping economic reforms under the formulation of a ‘socialist market economy’. This gave a greater role to market forces than that offered by any other ruling communist party to date. Third, the liberal view of economic affairs was paralleled by a strong commitment to political control. The reforms that Zhao Ziyang had suggested at the Thirteenth Party Congress were not mentioned, indeed ‘party cells’ were to be strengthened at all levels. The only proposals were to trim the size of the bureaucracy and clear up party and government overlap. After the Congress, the economy continued to boom on a diet of foreign investment and real estate speculation and it seemed as if most

56 Governance and Politics of China of urban China had turned into a massive building site. This set off inflation and yet another vicious stop–go cycle was in the making. However, this time a group of reformers gathered around Vice Premier and new Politburo Standing Committee member Zhu Rongji who articulated the most far-reaching plan for economic transformation to date. Almost for the first time the leadership seemed to be setting out a programme that would place it at the forefront of the reform process rather than appearing to react to short-term contingencies. In November 1993, the Third Plenum of the Fourteenth CC adopted a key economic reform document that argued for a renewed role for the centre in managing key macroeconomic levers (for details see Chapter 9), especially in reversing de facto economic decentralization. It proposed an extensive role for the market, modernization of the enterprise system and, importantly, for the first time, highlighted the need for restructuring the financial system. To back up the reforms, substantial policy innovation would be necessary to deal with the provision of social welfare, especially in the urban areas. From October 1995 onwards there were attempts not only to rein in a wayward economy but also a society that seemed to be evading political control by the party. The economic spurt unleashed by Deng from 1992 was accompanied by an attitude in society that anything went. Public security organs, PLA units and party members began to neglect other duties in order to join the rush to make money. In October 1995, Jiang Zemin delivered a speech ‘More Talk About Politics’ that supported attempts to exert more control over society. The speech was followed by: the registering of religious organizations and the crackdown on underground churches; the re-registering of publications and more concerted attempts to ban unwanted publications and to control content; a new law that set tougher limits on the activities of social organizations and tightened controls over their operations (Saich, 2000a); and new restrictions on research collaboration with foreigners in the social sciences. The attempt to revitalize the party and exert greater control over society became a hallmark of Jiang’s rule that became even clearer after the Fifteenth Congress, a trait continued by his successors, Hu Jintao and Xi Jinping. However, many of the controls have proved impossible to implement for any length of time, testifying to the decline in state capacity and threatening to result in continuing friction between the state and elements of society.

Managing reform without Deng: 1997–2002 The Fifteenth Party Congress and Ninth National People’s Congress (September 1997 and March 1998, respectively) were the first to be

Political History: 1949–2012 57 held without the presence of Deng Xiaoping who had died in February 1997. Zhu Rongji followed up with a number of concrete measures at the NPC meeting. Careful reform was made all the more urgent by the onset of the Asian financial crisis. The first measure to be unveiled was an overhaul of the banking system, the centrepiece of which was the reorganization of the local branches of the People’s Bank along regional lines to reduce political interference by powerful provincial party chiefs in lending decisions. Zhu announced six other major integrated reform measures. First, approving plans proposed a decade before, Zhu announced that China would set up a nationwide grain market to ease the country’s reserves. Most importantly, China would reduce the massive amount of government subsidies pumped into the system because of the remaining influences of the Maoist obsession with self-sufficiency in grain. Second, the investment and financing system was to be overhauled to prevent wasteful duplication of capital investment, with the Central Bank stepping up its regulatory functions and commercial banks being allowed to operate independently. Third, housing was to be marketized and ‘welfare housing’ abolished. Fourth, a new nationwide medical care reform programme was to be introduced in the second half of 1998. Fifth, the tax collection system was to be rationalized to prevent the charging of excessive fees and levies by local authorities who had been the source of much resentment and social unrest. Finally, Zhu announced a massive restructuring of the government bureaucracy, with half the officials to be laid off and reassigned to new jobs. In the ensuing five years progress was made in all the areas targeted for reform but the more radical intentions were blunted by interest groups at the centre and in the localities. Given the enormity of these reforms and the structural and social challenges that they would cause, it is surprising how little overt protest occurred. The fear of unrest did lead to reinstatement of subsidies and ‘policy loans’ to moderate possible state-sector job losses. The leadership also became worried about political activism in China. Apparently after a debate about whether open political activism could be allowed, the leadership decided to move quickly to crush any potential opposition. First, in a direct challenge to its rule, activists across China formed the China Democracy Party that after a delay in 1998 was harshly crushed. By the end of the year (November 1998) its key members had been arrested, others were periodically picked up and harassed. Second, in April 1999, members of a qigong sect, the Falun Gong, encircled the party headquarters in Beijing in a quiet show of strength to protest against criticism. After a few months of hesitation, in the build-up to the 50th anniversary of the PRC, leaders of the group were arrested, thousands of followers picked up

58 Governance and Politics of China and all publications concerning the movement banned. The concern that economic slowdown combined with political activism might threaten CCP rule was heightened by the sudden fall of the Suharto regime in Indonesia and the rapid systemic collapse. Here was a man who had presided over a long period of economic growth and who seemed securely in power, supported by the military and an authoritarian political system, and yet was swiftly swept away by street demonstrations. The potential parallels must have seemed alarming. Jiang did launch one major initiative with far-reaching consequences. In a speech in February 2000, that was intended both to portray Jiang as a great theoretician and to indicate that the CCP was still relevant to China’s future, he raised the idea of the ‘Three Represents’ (the CCP will represent the advanced social productive forces, the most advanced culture and the fundamental interests of all the people). This became a major campaign and the idea was adopted in the Party Statutes in 2002. The campaign sought to portray the CCP as leading not only the new and dynamic areas of the economy but also the newly emerged technical and economic elites. It furthered the process of distancing the CCP from sole reliance on the proletariat which the party had created 50 years earlier. The proletariat was consigned to the past as the CCP claimed a broader constituency of representation. The campaign suggested that the CCP wanted not only to welcome new constituencies but also to exert leadership over the new burgeoning sectors of the economy. This was accompanied by Jiang’s declaration on 1 July 2001 (the CCP’s anniversary) that, under certain circumstances, private entrepreneurs could become party members, a shift that generated howls of disapproval from the ‘old’ and some of the ‘new left’.

Attempting to balance growth with social equity: 2002–12 The new leadership that was selected in 2002–03 inherited a booming economy but a society that was increasingly concerned about corruption and the rising inequalities and insecurity many felt because of the erosion of workplace welfare support. The Hu Jintao–Wen Jiabao leadership has been criticized for allowing economic reforms to stall and projecting no clear vision for China’s future development path. General Secretary Hu introduced the cumbersome phrase of the ‘Scientific Outlook on Development’. The new leadership did, however, expand the welfare reforms that began in the late 1990s to include those who had not benefitted so well from reforms and to extend benefits available to urban dwellers to the countryside.

Political History: 1949–2012 59 This discontinuity moved policy rhetoric, and even policy practice has become more people-centred with populist gestures combined with attempts to tighten control over state and society in the name of preserving social stability as the key foundation for continued economic growth. This policy approach may be termed ‘populist authoritarianism’. In the run-up to the Party Congress, a number of Chinese reports played up the fact that both Hu Jintao and Wen Jiabao had spent significant phases of their careers in poorer western provinces. This is in marked contrast to Jiang Zemin, Zhu Rongji and Li Peng who had worked in the developed metropolis of Shanghai or in the central ministries and bureaucracy in Beijing. The implicit message that the new leadership would show greater concern for those who had not benefitted as well from the reform programme was deliberate. It was of symbolic importance that the first two public visits by Hu Jintao as general secretary were not to the glitzy cities of Shanghai or Shenzhen but rather to Xibaipo, a town south-west of Beijing where Mao Zedong plotted his final push on the capital in 1949, and Inner Mongolia. Hu’s numerous references to ‘plain living and hard struggle’ in the speech he delivered at Xibaipo were clearly intended not only to draw a line of legitimacy from Mao but also to indicate that the agenda for building a comfortable society would include a broader constituency. While the leadership was set back initially by the outbreak of severe acute respiratory syndrome (SARS) in late 2002–early 2003, they moved forward with their people-centred policies. Indeed, the fear of a pandemic reinforced the view that the public health system in the countryside had eroded drastically. Their policies were pulled together at the Sixth Plenum of the Sixteenth CC (October 2006), that was remarkable for its focus on social development, where they put forward the slogan of ‘building a harmonious society’, while somewhat awkwardly still acknowledging that economic work was at the core. Hu had first put the slogan forward in 2004 but now it was given more content. Hu kept Jiang and his supporters on board by not rejecting entirely their growth-oriented policies but rather suggesting that they be moderated. Among the policy measures to be pursued were reducing income inequality, improving access to healthcare and education for those in the rural areas and migrants, improving and extending the social security system, moderating the environmental impact of economic development, and providing greater feedback opportunities from disgruntled citizens. The plenum also recognized the need to combat the moral vacuum that many see in China. The Chinese leaders called for a ‘socialist core value system’ that would lay down ‘moral and ideological foundations’ underpinning the policies to build the ‘harmonious society’. In addition

60 Governance and Politics of China to stressing Marxism, this was to comprise the ‘socialist sense of honour and disgrace’. Clearly, the new leadership was not willing to cede moral regeneration to neo-Confucianism alone. Hu remained undeterred by the cynicism that greeted the stress on Marxism and returned to the themes at the Fourth Plenum of the Seventeenth CC (September 2009). He claimed that the party’s goal for the new century was to ‘Sinicize Marxism’ (something supposedly completed by Mao Zedong in the previous century!) and render it ‘timely and popular’. Certainly, Hu proved to be more orthodox and conservative than his predecessor, Jiang Zemin. It should be remembered that Hu came to the attention of the central leadership through his imposition of martial law in Tibet in 1989, before its imposition in Beijing. Many Chinese were shocked by the harsh nature of his unpublished speech to the Fourth Plenum in September 2004, which contained rhetoric and language that had not been prevalent for many years. He attacked the spreading of ‘bourgeois liberalization’ by foreign and domestic groups and urged a crackdown on political problems. One report of the speech said that he referred to those within the party who advocated political reform as creating turmoil, although the context within which he said this is unclear. He also praised Cuba and North Korea for their control over ideology and the flow of information despite their ‘temporary’ economic problems, claiming that they had always adhered to a sound political line. This harsher line was prompted by concerns about rising inequality and corruption domestically and by the example of the ‘coloured’ revolutions in central Asia that showed what an activist civil society might achieve. The problems of controlling an increasingly articulate society and the party’s unwillingness to tolerate any signs of organized opposition was reflected in its response to the promulgation of Charter 08 to mark the 10 December 2008 anniversary of the Universal Declaration of Human Rights. This document, based on Czech Charter 77, was initially signed by 303 activists and called for the end of authoritarian one-party rule while laying out a vision of a rights-based society. Significant resources were dedicated to stopping its spread on the Internet and, in December 2009, Liu Xiaobo, one of the key organizers, was sentenced to 11 years’ imprisonment (subsequently, he was awarded the Nobel Peace Prize). The evolving policy platform was pulled together at the Seventeenth Party Congress (November 2007) and the Tenth NPC (March 2008). While Hu was clearly in charge, not everything went his way and his populist policies were tempered by those who favoured a primary focus on economic growth rather than redistribution. On the personnel front, there was the surprise promotion of Xi Jinping (then Shanghai

Political History: 1949–2012 61 Party Secretary) to the Standing Committee of the Politburo, indicating that he would replace Hu as general secretary in 2012. Hu’s report (2007) to the Seventeenth Party Congress outlined in broad terms the strategy for the next five years (2007–12) and laid the basis for Wen Jiabao’s report to the NPC. One major success for Hu was the incorporation into the party canon of his concept of the ‘Scientific Outlook on Development’. It was only at the end of his second term that former General Secretary Jiang Zemin’s concept of the ‘Three Represents’ was included. On this basis, Hu was doing well! The key policy slogans of the new leadership are now incorporated under Hu’s policy slogan. The definition of the ‘Scientific Outlook on Development’ has economic development as its key component and calls on the party to see development as its top priority in governing and rejuvenating the country. The only specific target mentioned by Hu at the Party Congress was a shift from quadrupling GDP by 2020 to quadrupling GDP per capita, thus evincing his confidence in the upside growth potential of the Chinese economy. However, Hu followed this imperative with the notion of ‘Putting People First’, therefore indicating that future development should be more balanced and sustainable than in the past. Thus, the concerns with reducing energy consumption and grappling with pollution remained important but local leaders might be able to find their way around tougher voices from the centre by claiming that continued economic development took priority. Hu’s concept of ‘Building a Harmonious Society’ that embodied the ideas of social justice and equity and improving the lot of those who had been marginalized by reforms did not receive significant attention in the report. While most of the elements within this policy initiative are included in the report, the phrase itself received little attention, which is surprising given its prominent use over the couple of years prior to the Congress. This is most probably because the use of the phrase had been by both the ‘old left’ and the ‘new left’ to criticize government policy, especially with respect to the rural healthcare system. This meant that pride of place was given to Hu’s notion of the ‘Scientific Outlook on Development’. The post-Congress leadership, that had expected to concentrate on the Olympics and the celebration of 30 years of reform in 2008 and the 60th anniversary of the founding of the PRC, were knocked off their stride by a series of unexpected disasters, both domestic and global. Riots in Tibet and Xinjiang used up political capital and put China in the international spotlight, while the snowstorms followed by the massive Sichuan earthquake produced international sympathy and allowed the central leadership to mobilize domestic sentiment in advance of the Olympics. However, it was the global financial crisis

62 Governance and Politics of China that threatened to rain on China’s big parade and pose long-term challenges. The shock of the crisis caused China’s leaders to refocus their energies on the economy. The leadership had already come to the conclusion that they would have to reform the economic model that had proven successful over the last three decades. There was a limit to the role that two of the main drivers of economic growth to date, state investment and foreign trade, could play in expanding growth further, and policies would have to be developed to boost domestic consumer demand as the principal driver of future economic growth. With a slowing of the world economy, the leadership realized it would have to promote policies to boost domestic consumption as a major engine of growth while ensuring macroeconomic stability. In the short term, the leadership resorted to state investment as part of a major stimulus package. In November 2008, China announced a 4 trillion yuan ($570 billion) stimulus package and, at the March 2009 NPC meeting, Premier Wen pledged to speed up delivery on the plan and also announced that more funding could be made available if necessary. The rapid application of the package kept up growth rates but it also affected the direction that Hu and Wen had wanted to take with respect to the reforms. While the massive injection did produce a V-shaped recession for China (economic growth in 2009 was 8.7 per cent), it did reverse the trend of promoting consumption as a more important driver of growth. The success in dealing with the financial crisis combined with the convening of the summer Olympics and the 60th anniversary of the founding of the PRC. This brought a new-found confidence to the leadership that they had discovered the right model for China’s development (see Box 2.5). As noted, this did not mean that it was without problems; there was still the need to: stimulate consumption as a driver of growth; deal with rising corruption; and manage the ecological and environmental consequences of rapid growth. These legacies were, by and large, left to the new leadership that was installed in 2012–13.

Box 2.5 Staging the 2008 Summer Olympics The convocation of the 2008 summer Olympics in Beijing, overseen by now General Secretary Xi Jinping, provided a perfect point for observing China’s development and the different perceptions between its leaders and many outside leaders. The Chinese leadership heralded the Games as a major success that confirmed the country’s emergence on the world stage as a major force. One could argue that seeking acclaim through such a

Political History: 1949–2012 63

well-trodden path as hosting the Olympics signalled China’s acceptance of the current world order and its desire to be seen as a reliable partner. By contrast, those who feared China’s economic rise would represent a threat to the established order were awed by the choreography of the opening ceremony, the resources mobilized by the central state to invest in the infrastructure, the ruthless efficiency with which old neighbourhoods were bulldozed away, the people moved, and the patriotic fervour that the Games produced. Careful observers of the Olympics opening ceremony noticed that there was no history between 1949, the founding of the PRC, and when reforms began in the late 1970s. China’s leaders still do not know how to confront their own tumultuous past. The clashes in a number of countries as the Olympic Flame passed through revealed different perceptions about China’s performance on human rights protection and its policies in Tibet. Followed by the grandiose celebrations the following year for the 60th anniversary of the founding of the PRC, the Olympics displayed a renewed confidence in China’s development. With the West embroiled in the global financial crisis, the two events marked a new assertiveness among the Chinese leadership.

The economic challenges faced in 2010 caused Premier Wen to refer to the year as the ‘most complicated’ in terms of managing the economy. The stimulus package not only saw the return of the state but also raised the danger of inflation, a misallocation of resources and boosted further a real estate bubble. While development was supposed to be ‘balanced’, the state was accumulating wealth at a much faster pace than China’s citizens. This pushed Hu to talk of ‘inclusive growth’, a concept included in the Twelfth Five-Year Plan (2010–15). These tensions persisted into 2011 and, by the end of the year, the elites became consumed by the leadership transition that was scheduled for 2012. In addition, the new leadership would have to decide how to deal with an increasingly diverse and sophisticated population that was using the Internet to propagate heterodox ideas and that was more willing to take to the streets in protest. Again external events combined to move the leadership to caution as it responded to the ‘Arab Spring’. This led to a renewed crackdown on key members of civil society. Hu Jintao in a February 2011 speech at the Central Party School raised the concept of ‘social management’ that sought innovative ways by which the party and state could manage these new tensions. In October 2010, the Fifth Plenum of the Seventeenth CC approved the Twelfth Five-Year Plan that was then adopted at the March 2011 NPC session. The emphasis showed how little had been achieved in the previous five years in terms of balancing and moderating growth.

64 Governance and Politics of China It was noticeable that the plan did not contain quantitative targets and that quality of growth was to be preferred over quantity. The GDP target was set at 7 per cent (actual GDP for the previous five years was 11 per cent). The plan confirmed the shift to domestic consumption as a primary driver of growth, called for a better linking of growth to incomes, reaffirmed support for expanding social welfare, and set aside $600 billion for investment in priority areas for the economy. There was an emphasis on energy savings and the environment, with a commitment to a 16 per cent reduction in energy intensity, for example. The plan was set to straddle the first years of the incoming leadership so as to maintain policy continuity. It would fall to Xi Jinping and Li Keqiang to follow through after their carefully choreographed succession. However, all did not go according to plan as a major rift in the elite threatened to tear up the script.

Chapter 3

China’s New Leaders and Their Challenges: 2012–Present In November 2012, seven men in dark suits, six sporting red ties, the other a blue one, were unveiled as the new members of the Standing Committee of the Politburo of the Central Committee. It might take more than one maverick sporting a blue tie amidst the red to devise creative policy solutions for China’s future challenges. There is a general consensus that the economic model that has served China so well in the past must undergo fundamental changes to maintain economic momentum, while the country will face increasing social challenges (for example, an ageing workforce, the integration of hundreds of millions of migrants into urban areas) and the political challenges posed by endemic corruption, the aspirations of the expanding middle class, and new social media. The new leadership under General Secretary Xi Jinping has made a bold start at dealing with the legacies and future challenges. They have chosen to reassert the primacy of the party and exert a tighter control over state and society, than has been the case for many years, while trying to make more effective use of the market in the economy. This strong policy beginning is all the more striking given the disturbance that the purge of Bo Xilai created during the planning of the succession.

Succession and the purge of Bo Xilai Bo Xilai was the charismatic party secretary of the South-western Municipality of Chongqing who, like Xi, was a ‘princeling’, one of the children of the original founders of the People’s Republic of China (PRC) and a part of the generation who felt that the nation was theirs to inherit (see Box 3.1). Bo used his position in this key municipality to state a claim for higher leadership through the development of what people referred to as the ‘Chongqing Model’. This involved a crackdown on corruption and the rapid development of the municipality by relying heavily on state investment to produce impressive growth. He also developed a populist strand by encouraging citizens to sing patriotic ‘red songs’. Bo became an idol of the ‘New Left’ in China as well as those who had a lingering affection for Mao Zedong. Interestingly, 65

66 Governance and Politics of China the need to eradicate corruption and an appreciation of Mao have been core components of Xi’s approach, while the investment strategy is common to most cities in China. The problem, of course, was that he was seen as using his base to view for, at least, a position on the Standing Committee of the Politburo and possibly even as a rival to Xi as general secretary. He might have expected to take over the security portfolio in the Standing Committee from Zhou Yongkang, with whom he enjoyed close ties. For a time his high profile actions seemed to be reaping benefits and in 2010 he was named by Time (29 April 2010) as one of the ‘world’s 100 Most Influential People’; he also received a number of high profile visitors who came to pay homage. This included a visit not only from Zhou Yongkang but also from Xi Jinping who praised Chongqing’s achievements. However, other leaders were clearly disturbed by his ambition and his style. Indeed, at the 2012 NPC meeting, just before his fall, Wen Jiabao, while acknowledging ‘significant’ achievements in Chongqing, attributed them not solely to Bo and warned of the damage that the Cultural Revolution had caused, in a clear allusion to Bo’s leadership style (The Economist, 15 March 2012).

Box 3.1 The Xi Family Xi Jinping enjoys a special place within the group referred to as ‘princelings’. He is the son of Xi Zhongxun who was one of the ‘eight immortals’, the key founders of the PRC. Xi senior was born in Fuping County, Shaanxi Province, and joined the CCP in 1928 while in prison for his participation in student demonstrations. He was one of the original founders of the North Shaanxi Soviet that formed the base for the Shaan-Gan-Ning Revolutionary Base Area after Mao Zedong’s troops arrived there following the Long March. After 1949, he first oversaw the propaganda apparatus but was purged from the leadership in 1962 and was persecuted during the Cultural Revolution. Between 1978 and 1981, after political rehabilitation, he held leadership positions in Guangdong and was the prime mover for establishing the Shenzhen Special Economic Zone. In 1982, he joined the Politburo, retiring in 1988. He was seen as a relatively liberal figure. Xi junior is China’s first leader to be born after 1949 and like his father suffered during the Cultural Revolution. However, he has risen to take leadership positions in party, army and state. He is a graduate of Tsinghua University in Beijing, after which he worked from 1979 to 1982 as secretary to Geng Biao, a vice premier and secretary general of the Central Military Affairs Commission. This gave him important connections to the military that would serve him well subsequently. His political career

China’s New Leaders and Their Challenges 67

started in Zhengding County, Hebei Province, but his work in the eastern areas of Fujian, Zhenjiang and Shanghai were important. In 2000, he became governor of Fujian where he worked to attract Taiwanese investment and was seen as relatively supportive of the private sector. He was touched but not implicated in a major scandal there that involved illegal imports. In 2002 he moved to Zhejiang and became party secretary. Zhejiang is viewed as one of the homes of private enterprise. Following Chen Liangyu’s dismissal as party secretary of Shanghai following a corruption scandal, Xi was moved to take over his position. He did not stay long, being promoted somewhat surprisingly to the nine-person Standing Committee of the Politburo in October 2007 and to vice president of the PRC in March 2008, thus indicating that he was the chosen successor to Hu Jintao. This duly occurred during the leadership transition in 2012–13. During his apprenticeship he successfully oversaw the preparations for the 2008 Olympics and the celebrations for the 60th anniversary of the establishment of the PRC. He has proved to be a strong leader dedicated to reviving the prestige of the CCP through his populist style and campaigns against corruption and official waste. He has promoted a blend of pseudo-Marxism and appeals to traditional Chinese culture. While supporting greater market reforms, he has followed a tough, conservative line in politics. In 1987, he married his second wife, Peng Liyuan, a popular singer from the PLA. She has played a much more US-like role of ‘first lady’ than the wives of Xi’s predecessors. Their daughter, Xi Mingze, was an undergraduate student at Harvard.

Bo began his rule with a campaign against organized crime (dahei), together with his chief of police, Wang Lijun, whom he had brought with him from Liaoning Province. Almost 6,000 were arrested in the campaign, including business people, police and government officials. The campaign proved popular in Chongqing, which had a notorious reputation for criminal activity. However, some were not so enamoured with the campaign, suggesting that it had ignored legal process, used torture to extract confessions and had been used to eliminate political foes. Bo’s populist stance was enhanced by his promotion of ‘red culture’ as a way to mobilize support. This included the singing of patriotic songs, showing revolutionary operas on television and even encouraging students to work on the farms, as had been the case in the Cultural Revolution. Bo and his team also sent out text messages to mobile phone users in the municipality, which were often quotes from Chairman Mao. He built support among those who had not profited so well from reforms by introducing a set of welfare changes which

68 Governance and Politics of China addressed the major challenges of rising inequality and the rural–urban divide. Significant funding was set aside to provide housing for lowincome residents, including migrant workers. Experiments were also pioneered in Chongqing to allow rural residents to obtain an urban residence permit that would allow better access to education and welfare facilities. Despite these initiatives, Bo’s colleagues were concerned about his ambitions and distrusted him. The leadership in Beijing divorced themselves from Bo’s achievements in Chongqing and it is noticeable that, when he was removed, the mayor was kept in place. His fall from grace is an amazing story of palace politics and intrigue, involving not only corruption but also murder, attempts at a cover-up and a flight to a US consulate (for details see Garnaut, 2013a). The trouble for Bo began in November 2011 when his wife, Gu Kailai, was accused of the murder of a British businessman. Things really fell apart when his chief of police, Wang Lijun, tried to seek asylum in the US consulate in Chengdu in February 2012. This followed a more intense review of goings on in Chongqing by the Discipline Inspection Commission. The exact circumstances of Wang’s fall from grace are unclear but clearly the murder had an impact and he may have confronted Bo about this. In any case, in February 2012, he was effectively demoted to a position as one of the vice mayors. Shortly thereafter he is said to have brought evidence about the murder to the US consulate and requested asylum, which was denied. Bo was dismissed from his post as party secretary in March following criticism of him by Premier Wen Jiabao at the 2012 NPC session and despite a robust defence of himself at a NPC press conference. It appears that a decision on Bo’s dismissal had already been taken at a 7 March Politburo Standing Committee meeting, during which security tsar, Zhou Yongkang, was said to have been a lone dissenting voice. Thus, it is not surprising that, following Bo’s dismissal, slowly but surely investigations of Zhou and his associates began. In April Bo was suspended from the Politburo and Central Committee (CC) while investigations into ‘serious disciplinary violations’ were conducted. In late September, he was expelled from the CCP for discipline violations that included not only his time in Chongqing and the murder case but also his work in Dalian and while at the Ministry of Commerce. His ‘neo-leftist’ supporters did not take his expulsion quietly and various websites expressed anger at his treatment. Bo was sentenced to life imprisonment in September 2013, having been found guilty of taking $3.3 million in bribes and abuse of power. This was the harshest punishment for a sitting Politburo member since 1981, when Mao’s widow was sentenced to death (subsequently commuted

China’s New Leaders and Their Challenges 69 to life imprisonment). Bo’s judgement on the sentence was that it was something ‘even the lousiest TV drama scriptwriter wouldn’t create’ (Reuters, 23 September 2013). Given the interest in Bo, it is important to note that the daily accounts of the trial were provided presumably to allow people to see his ‘evil doings’. It was a calculated gamble as some viewers and readers may have concluded that ‘life at the top’ was rotten to the core. With ideology no longer an effective weapon for removing political opponents, the weapon of choice has been charges of corruption to decide political struggles. Thus, Beijing Party Secretary Chen Xitong and opponent of Jiang Zemin was sentenced to 16 years on corruption charges in 1998; and Chen Liangyu, party secretary of Shanghai, and opponent of Hu Jintao was sentenced to 18 years in 2008. For our purposes, the need to clean house with Bo had two major impacts on policy. First, it meant that the leadership took their eye off the economy as it slowed in 2012 and, second, the leadership in waiting did not have the chance to float their own policy priorities in the runup to transition. Before Hu and Wen Jiabao took over in 2002, the press covered extensively their travel to the poorer parts of China, giving clear indications that they wished to shift policy from the previous growth-focused strategy to deal more effectively with those who had not benefitted from reforms. Thus, as the Eighteenth Party Congress approached, it was not clear what direction the new leadership would set; and this did not become completely clear until the Third Plenum was held in November 2013.

CCP and NPC congresses: November 2012–March 2013 As a result of the fall-out from the Bo Xilai affair, the Eighteenth Party Congress was delayed until November 2012 from the more usual date of September. In addition to policy questions, there were debates about the size of the Standing Committee of the Politburo: whether there should be seven or nine members and the portfolios that they should hold. Ultimately, the Standing Committee was cut back to seven members in order to make the process of decision-making easier. The leadership turnover at the Congress was the highest since the Thirteenth Party Congress in 1987. Five of the seven Standing Committee members were new, as were 15 of the 25 Politburo members, six of the seven members of the Secretariat, seven of the 11 members of the Central Military Commission, and 100 of the 130 members of the Central Discipline Inspection Commission. Of the 376 members of the CC and its alternate members, 240 are new (a 64 per cent turnover). Who are these new leaders? It is clear that factional ties, age and years of experience

70 Governance and Politics of China Table 3.1 Standing Committee Members: Key Characteristics


Age at appointment Position

Xi Jinping


Li Keqiang


General Secretary; President; Chair, CMAC Premier

Zhang Dejiang Yu Zhengsheng Liu Yunshan


Chair NPC




First Secretary of Secretariat, President Central Party School Chair CDIC

Wang Qishan 64 Zhang Gaoli


Executive Vice Premier

Former position

Allegiance to former leader

Vice President, PBSC; Vice Chair, CMAC Executive Vice Premier, PBSC Chongqing PS; PB Shanghai PS; PB Propaganda Head, PB

Jiang Zemin

Hu Jintao Jiang Zemin Jiang Zemin Jiang Zemin

Vice Premier, Jiang Zemin/ PB Zhu Rongji Tianjin PS; PB Jiang Zemin

Notes: PBSC: Politburo Standing Committee; PB: Politburo; PS: Party Secretary; CDIC: Central Discipline Inspection Committee; CMAC: Central Military Affairs Commission; CPPCC: Chinese People’s Political Consultative Conference; NPC: National People’s Congress.

dominated over policy preferences for those who were selected to be members of the Standing Committee (see Table 3.1). Those who expressed a policy preference, especially on questions of political or administrative reform (Bo Xilai, Li Yuanchao and Wang Yang), were excluded. The average age of the new leadership is 63 years and five of the seven will have to step down at the next Congress in 2017. Xi Jinping and Li Keqiang were the youngest members of the Standing Committee when they were appointed in 2007 and they remain the youngest members. This suggests that Xi will wield considerable power as those in the Politburo had to start jockeying for position and currying favour almost as soon as the Congress was over. In selecting the new leadership, the party chose caution. The five new members of the Standing Committee were those on the previous Politburo who would have had to step down if not promoted. The make-up of the Standing

China’s New Leaders and Their Challenges 71 Committee shows the clear influence of the retired elders, especially Jiang Zemin, who seem to have outmanoeuvred Hu Jintao. Five of the seven are more closely associated with Jiang than with Hu. It was a surprise when Xi emerged as the most likely candidate to be general secretary at the Seventeenth Party Congress (2007) and it is rumoured that the Vice President Zeng Qinghong, and confidant of Jiang Zemin, played a key role in ensuring his ascent. Xi did extremely well in the informal soundings that were taken among CC members at that time. He seems to be acceptable to the various different factions and, as a princeling, he is seen as a safe pair of hands who will do nothing to undermine the ruling hegemony of the CCP. This positive assessment, which has continued, is surprising, as when elections were held for the Fifteenth Party Congress (1997) he received the lowest vote among the alternative members, in part as a protest against the elevation of the princelings. Before moving to the centre to work, Xi worked in Fujian and Zhejiang provinces, then moving briefly to Shanghai in the wake of the arrest for corruption of the then party secretary (Chen Liangyu). In his prior positions he was seen as friendly to business and had promoted the development of the private sector. It was anticipated that Li was originally seen as the first choice for Hu to replace him as general secretary. In fact, this closeness to Hu may have been a major factor that allowed Xi to move above him in the succession stakes at the Seventeenth Party Congress. The new structure contains both positives and constraints for General Secretary Xi. On the negative side he was to have not one but two former general secretaries looking over his shoulder as he tried to assert his own policy preferences. Given this, he has moved with an unexpected strength to stamp his own character on policy preferences. On the positive side, he was helped by the return to the normal procedure of the general secretary taking over immediately as the Chair of the Military Affairs Commission. Unlike Jiang and Deng Xiaoping, who held onto this position for a couple of years, Hu Jintao stepped down as chair with immediate effect. Interestingly, the position of premier has been returned to the second ranking in the hierarchy as was the case back in 1992 when Li Peng occupied the position. The factional balance in the Politburo is more equally distributed than within the Politburo. This is to be expected as the younger set of new members are those who have progressed under Hu Jintao. The numbers are almost equally divided with a possible slight majority for Hu’s supporters. It will be important to see who emerges as frontrunners for promotion to the Standing Committee in 2017. Currently, those in the strongest position are rumoured to be Wang Yang and the two ‘core’ leaders of the sixth generation, Hu Chunhua and Sun Zhengcai. Wang has been promoted to vice premier, while Hu and Sun

72 Governance and Politics of China are serving their apprenticeships as party secretaries of Guangdong and Chongqing respectively. There are five general features that are worth noting about the new leadership. First, it is clear that experience at the provincial level of government is crucial for advancement to Politburo status. Of the 25 members, 19 have served as governor or party secretary at the provincial level, or its equivalent. Second, by contrast there has been a dramatic decline in those who have served primarily in the central bureaucracy. Third, there is a decline in those with a technical or engineering background. Seven of the nine outgoing Standing Committee members had such a background, whereas now only Yu Zhengsheng, who studied automated control systems for ballistic missiles, has. The leadership skills of the new members may make them more able to deal with complex societal challenges rather than adopting the linear scientific view compounded by the study of Marxism that dominated the previous leadership. Fourth, there is the continued increasing strength of those who are princelings. Fifth, the composition continues to reflect the functional roles of the membership. The party secretaries of all the municipalities under the central government are included (Beijing, Chongqing, Shanghai, Tianjin; only 6.3 per cent of China’s population), as is the economic powerhouse of Guangdong (comprising 7.8 per cent of the population, now China’s most populous province). The only party secretary included from the poorer provinces was that of Xinjiang. However, this is for reasons of security rather than because of concern for the underdeveloped areas of China. The new Politburo reflects the same pro-coastal and wealthier parts of China as did the previous one. The military, in addition to Xi as chair, retains the two positions for vice chairs of the Central Military Commission. One interesting fact is that the chair of the politics and law commission has been downgraded from a Standing Committee position to just a Politburo position. This reflects the decision to subjugate this work and to keep conflict around its activities out of the Standing Committee. It was also related to the fallout from the arrest of Bo Xilai with Zhou Yongkang, who held the portfolio, coming under increasing suspicion. This clearly subordinated the work of law and order to the Standing Committee leadership and, more specifically, to that of Xi Jinping himself, who subsequently took on the leadership of the National Security Commission (established in November 2013). The Congress had little to say about policy direction and initially most initiatives were designed to improve the image of the CCP. The major policy initiatives were presented at the Third Plenum (November 2013, discussed below). The Twelfth National People’s Congress (March 2013) completed the leadership transition, proposed limited administrative restructuring and gave a hint of future policy direction.

China’s New Leaders and Their Challenges 73 Xi Jinping was confirmed as president and Li Keqiang as premier and other appointments moved ahead as expected. The only mild surprise was the appointment of Li Yuanchao, who missed out on a place on the Standing Committee of the Politburo as vice president, a position that has on occasion been associated with Standing Committee status. Major administrative reform was mooted throughout the Hu–Wen years, and the creation of ‘super-ministries’ was noted, but, as with previous reforms, the scale was limited with only a few significant initiatives (for details see Chapter 5). Similarly, little new policy guidance was offered by out-going Premier Wen Jiabao in his last Work Report. Mostly, Wen reiterated goals that had been the policy objectives over the previous ten years, indicating how hard it is to shift the Chinese economy and to combat the vested interests that reforms have produced. Wen called again for the shift from investment to consumption-led growth that would put the Chinese economy on a more sustainable path. Wen reiterated his previous comment that the growth model was ‘unbalanced, uncoordinated and unsustainable’ (Wen, 2013). It was accepted that China’s phase of super-growth had drawn to a close: GDP growth for 2013 was pencilled in for 7.5 per cent (actually it turned out to be 7.7 per cent). Wen retained his commitment to providing the necessary social welfare support, especially with respect to healthcare reform and to confronting the increasing problem of environmental pollution. This concern was reflected in the budget that projected a 28 per cent increase in spending for the former and an 18.8 per cent increase for the latter. Last but not least, Wen signalled that a future focus would be on reform of the financial sector, with attempts to improve financial markets, reform of interest rates and ensuring that the valuation of the currency was more market-based. This intent was reinforced by the decision to keep Zhou Xiaochuan as the head of the People’s Bank of China, even though he had passed the nominal retirement age of 65. Further, financial sector reformer, Lou Jiwei, was moved to the position of Minister of Finance. This is one area where those who wish to move China in a more market-oriented direction possess strength. Successful finance sector reform that would liberalize interest rates and move capital to those sectors of the economy that can produce jobs and wealth would have profound effects on society and the polity more broadly. At the conclusion of the NPC meetings, Xi and Li gave a brief inkling of new policy directions. General Secretary Xi (March 2013) in his closing address raised again his notion of the ‘China Dream’ and called for the ‘great revival of the Chinese nation’ by following the ‘Chinese Road’. This expressed his confidence in China’s experience to date and also bolstered his more nationalistic approach. Premier Li in his meeting with the press at the conclusion of the Congress noted that

74 Governance and Politics of China reform was inevitable as ‘we have no alternative, reform is about the destiny of our nation’. He suggested a greater role for the market, a stronger movement against corruption, and more attention to be paid to the environmental costs of development. This confirmed the trend for policy development with a more liberal approach proposed for the economy combined with the promotion of nationalism and a much tougher than most expected political environment.

Political priorities The new leadership have exuded a confidence that was lacking over the previous decade; Xi especially has moved swiftly to consolidate his power as the paramount leader. Since Deng Xiaoping’s domination of politics, one could argue that each succeeding leader has had a reduced level of authority as the system settled into one of collective leadership, admittedly with a special place for the general secretary. Not only did Xi take over as Chair of the Military Affairs Commission immediately, thus combining party, state and military power into one set of hands, but he has also been appointed head of two bodies created in 2013 that are to drive reform: the Central Leading Group for Comprehensively Deepening Reforms and the National Security Commission. Xi moved quickly to try to shore up the eroding legitimacy of the CCP, first by introducing a number of cosmetic measures to reduce pomp and circumstance and then by launching a major campaign against corruption within its ranks. The intention is to restore people’s faith in and support for the party. This was accompanied by both an emphasis on Chinese tradition and a reassertion of aspects of Maoist orthodoxy. Last but not least, Xi has clamped down hard on dissent and has proposed a number of constraints on expression, perhaps because of his recognition that achieving the necessary reforms will be tough and thus wants to minimize possible protest. With the talk of moral decay in China and the lingering influence of what is seen as ‘Western liberal’ values, China’s leaders have turned to aspects of Chinese traditional culture to bolster its appeals to socialism. Xi is not the first leader to do this, which has echoes in Hu Jintao’s and Wen Jiabao’s populism; even as far back as 1939 with Liu Shaoqi’s tract on ‘How to be a Good Communist’ that had traits of adopting a Confucian morality into a CCP context. However, Xi has been far more explicit about the positive role of Confucianism. In September 2014 at an international symposium to mark the 2,565th anniversary of Confucius’s birth, Xi stated that ‘Confucianism, along with other philosophies and cultures taking shape and growing within China, are

China’s New Leaders and Their Challenges 75 records of spiritual experiences, rational thinking and cultural achievements of the nation while it strived to build its identity’ (SCMP, 29 September 2014). It is remarkable to see Xi effectively describing the CCP as the defender of traditional virtues and noting that it is the ‘successor to and promoter of fine traditional Chinese culture’. One should remember just how strongly vilified Confucius was during the Cultural Revolution and especially in the ‘Criticize Lin Biao – Criticize Confucius Campaign’ (1973–76). The interpretation of Confucianism is used to bolster the current authority with a stress on social harmony, respect for one’s elders (and superiors), moral rectitude and a hierarchical principle of obedience with the CCP as the ultimate arbiter and moral authority. Little is made of traditional notions of the ‘right to rebel’. At the same time, Xi has been at pains to stress the importance of Marxism to the CCP. In December 2013, in a study session of the Politburo, he urged all party members to study Marxist philosophy to gain a better understanding of China’s situation. Contrary to the view of many that Marxism had little to offer in today’s China, he said that its theories, especially historical materialism, revealed the general view of the development of human society and still had ‘strong vitality and serves as powerful arms of thought for guiding communists to make progress’ (Xinhuanet, 4 December 2013). As with the promotion of traditional values, Xi sees a renewed emphasis on Marxism as a means to shift party members from obsessions with GDP growth and amassing individual wealth. Earlier in September, Xi had called for Marxism to be confirmed as a compulsory course in all educational institutions. Similarly, in the second half of 2013, all media organizations were instructed to train journalists in Marxist concepts of their role. Thus, the study of Marxism is seen as having an instrumental role in ensuring obedience to the party and its policies rather than providing a critical lens through which to view the Chinese polity. On taking power, the new leadership promoted more frugal behaviour as the norm for Chinese officials. This was encapsulated in the slogan of ‘four dishes and a soup’ to guide official banquets, rather than the lavish affairs that had become common practice. An attack was launched on waste in the ‘three public expenditures’ (overseas trips, banquets and excessive pomp and ceremonies, and vehicles), and in 2013 some 20,000 officials were punished for breaking these new rules, with 5,000 punished for abuse of official cars and some 900 for too elaborate celebrations (Reuters, 2 December 2013). In 2013, central government spending on the three public expenditures was cut by 35 per cent while official hospitality at the provincial level was down 26 per cent. Certainly, the effects are being felt. One report suggested that one-third of the local liquor vendors of the fiery drink that accompanies banquets in Maotai Village (Guizhou Province) had gone bankrupt

76 Governance and Politics of China (The Atlantic, 8 November 2013). On a trip in January 2014, my hosts at a government agency and I spent almost an hour discussing where the obligatory banquet could take place. It was recognized that as I was a foreigner it could be outside of the workplace, though it could not be too lavish; but then there was the fear that photos might appear on the Internet. Thus, the decision was taken to eat in their own canteen, pretty much the equivalent of a five-star restaurant in any case. There are now tough restrictions on how many days a year officials at different levels may spend abroad, and many training programmes have been cut entirely. The programme run for senior officials by the Harvard Kennedy School did survive the axe, but the number of participants was reduced, as was the number of days so as not to exceed 18 including travel. However, another programme that would allow vice ministers to spend a semester at the School was dropped. As a child of one of the founders of the PRC, Xi is proud of the achievements of the CCP and has criticized those who have sought to undermine its image and to separate out the Mao years from those of reform. Xi has used a combination of pride in China’s achievements with promotion of nationalism and the repression of dissent. He has put forward the phrase ‘China Dream’, which seems to entail the party leading the nation to prosperity while developing a collective pride and satisfaction that, in turn, will lead to a form of national rejuvenation (see Box 3.2).

Box 3.2 What Does General Secretary Xi Dream About? It is important for China’s leaders to establish the ‘vision thing’, a snappy phrase that encapsulates their policy and that will find its way into the Party Statutes. For Jiang Zemin, it was ‘the three represents’ that sought to acknowledge and integrate the new elites into the CCP. For Hu Jintao, it was ‘the scientific outlook on development’ that kept economic development at the core, but sought to ensure that it was more equitable and sustainable. For Xi Jinping, it is the ‘China Dream’ that encapsulates his vision of a rejuvenated nation. It seems that the inspiration for the dream came from the translation of Thomas Friedman’s ‘China Needs its Own Dream’ (originally in the New York Times, 2 October 2012). However, unlike the American dream, it contains the notion that individual desires can be best met through the success of the collective, and it seeks to forge an identity between individual achievement and the progress of the nation. Thus, rejection of Xi’s dream would be deemed unpatriotic.

China’s New Leaders and Their Challenges 77

Xi announced the China Dream on 29 November 2012 in a speech when he was visiting the National Museum. He noted that the ‘great revival of the Chinese nation’ is a ‘dream of the whole nation, as well as of every individual’ (China Daily, 5 March 2014). It contains a number of elements, and Xi proposed five dimensions relating to the concept: national, personal, historical, global and ethical. In essence, it covers the need for national rejuvenation, the improvement of people’s livelihood through better education and healthcare services, more stable employment, and a stronger military. Tying the individual to the fate of the nation, Xi noted that ‘history tells us that everybody has one’s future and destiny closely connected to those of the country and nation’. At the global level, it is intended to produce respect for China’s development and ensure that the ‘new global landscape’ will not be dominated by the Western powers but that international rules and practices will be formulated through the experiences of both developed and emerging countries. At a more specific level, it has been suggested that the Dream entails fulfilling the ‘Two 100s’: the material goal of China becoming a ‘moderately well-off society’ by 2021, the 100th anniversary of the founding of the CCP, and the goal of China becoming a fully developed nation by 2049, the 100th anniversary of the establishment of the PRC. Thus the China Dream seeks to boost CCP legitimacy by uniting the Chinese people around the common goal of reviving the Chinese nation that, in turn, will help them fulfil their own individual aspirations. The problem is, of course, that not all might share this dream or may disagree about the way to achieve it. Already, its mention has become de rigueur and it has spawned an industry advertising products and producing songs and television shows.

The other two main political aspects of the programme are a hugely stepped-up campaign to combat corruption and a much tougher control over state and society with greater repression of dissent and oversight of expression in both the physical and the virtual worlds, despite the emphasis on ruling the nation according to law (yifa zhiguo). As noted above the removal of Bo Xilai seemed to agree with the new form of inner party struggle but the new leadership has pushed well beyond this and, under the direction of the head of the Central Discipline Inspection Commission, Wang Qishan, has decided to go after ‘tigers and flies’ (i.e. ‘senior and junior officials’, Xinhua News Agency, 22 January 2013; see Chapter 12 for more details). The investigations moved on to those close to one of Bo’s allies, Zhou Yongkang, who headed the security apparatus as a member of the outgoing Standing Committee of the Politburo. This still fell within the confines of what might be seen as factional struggle. However, the campaign has moved well beyond these factional lines to include the former head of the Translation Bureau

78 Governance and Politics of China of the Central Committee, the former Minster of Railways, a deputy director of the National Development and Reform Commission and, perhaps most strikingly, the former deputy commander of the PLA’s General Logistics Department. The extent of the campaign seems to have unsettled former leaders Jiang Zemin and Hu Jintao, who may have worried that those in their camps might fall prey to charges. Further, they seemed concerned that the campaign might actually erode CCP credibility rather than strengthen it. Such an extensive campaign does entail risks as it is possible that either it could spin out of control or that it will increase the sentiment of many that the party has become intolerably corrupt and cannot reform itself. The party has clamped down on citizens’ actions that have sought to expose corruption by exposing online extravagant behaviour (see Box 3.3). Xi acknowledged the severity of the opposition to the campaign to curb corruption but indicated at a June 2014 Politburo meeting that he would not give up.

Box 3.3 Brother Wristwatch and Uncle House The use of blogging and the growing influence of social media such as Sina Weibo have led to closer scrutiny of the behaviour of officials and the assets that they possess. In particular, bloggers have started taking photos of officials sporting clothes or accessories such as wristwatches that were clearly beyond the capacity of their meagre salaries. One particularly notorious case was that of Yang Dacai, dubbed ‘Brother Wristwatch’. Yang was the head of the Shaanxi provincial work safety administration and as such rushed to the site of a major accident where a bus and tanker collision had resulted in the deaths of 36 people. Yang was caught on camera smiling at the tragic scene and one photo zeroed in on a very expensive watch that he was wearing. Yang and his wristwatches went viral and the phrase ‘Brother Wristwatch’ became a symbol of officials living beyond their means. He was discovered to have 11 expensive watches, including a $5,000 Montblanc and a $10,000 Omega, all, he claimed, bought legally on his official salary. Yang was sentenced to 14 years in prison for corruption and at his sentencing said ‘I worked for over ten years and eventually took the path of criminality … I plead that the court give me a new chance to behave with integrity’. Subsequently, officials have been very careful about what they wear in public and have taken to donning long-sleeve shirts. A colleague of Yang’s, Cai Bin from Guangdong Province, was a senior manager for urban housing and on his $20,000 a year salary had managed to acquire 22 homes with an estimated value of $16 million! He was later denounced as a prolific taker of bribes. He was dubbed ‘Uncle House’ by Netizens and was sentenced to 11 years and 6 months for taking bribes said to total $446,000. Sources: Guardian, 5 September, 2013; The New Yorker, 26 October 2012; The Global Times, 13 September 2013.

China’s New Leaders and Their Challenges 79 The next phase of reforms will be hard to push through the various vested interests that have been created by past reforms. The leadership has resorted to a mixture of Maoist practices and appeals to Marxist orthodoxy to bring unity to those within the party and to try to control the discourse of those in the wider society. The Xinhua News Agency (4 November 2013) noted that ‘some beneficiaries of reform have started to oppose further changes in the country, becoming “powerful vested interests” that obstruct China’s new reforms’. Xi has revived the practice of self-criticism by party members and of study sessions where members analyse the faults of their fellow comrades and study ideology as well as promoting economic development. It is difficult to know how much of this has now become a reflexive habit that has produced a pro forma obedience. It used to be possible to purchase online self-criticisms that could then be reformatted and personalized. Contrary to Jiang Zemin’s notion that the CCP represented a broad swathe of the ‘advanced elements’ of society, on May Day 2013, Xi reaffirmed its commitment to the working class. He stated that the party was the ‘pioneer of the working class’ and that it needed to ‘consolidate its class base among the workers’ (People’s Daily, 3 May 2013). Admittedly, this was delivered on Labour Day but it was striking in tone. He has also resurrected the use of ‘peaceful evolution’ to highlight what he sees as the West’s attempts to undermine the regime. As Gore notes (2014, p. 5), this term has not been used with such seriousness by senior party leaders since the aftermath of the 1989 demonstrations. The intellectual community in China was taken aback by the dissemination of the Office of the Central Committee ‘Document Number Nine’ dated 22 April 2013 and that outlined seven topics that should not be discussed. It is one of the most conservative documents that has been disseminated through official channels during the reform period. First, it criticizes those who promote ‘Western constitutional democracy’ as this negates the features of the Chinese socialist system. Second, it attacked those who promote ‘universal values’ as this shakes the party’s ideological and theoretical foundations. Third, those who promote ‘civil society’ were said to be undermining the social basis of the ruling party. Fourth, the promotion of ‘neoliberalism’ was an attempt to change China’s basic economic system. Fifth, the promotion of ‘press freedom’ challenged the principle of party control over press and publications. Sixth, those who preached ‘historical nihilism’ and criticized the party’s errors sought to distort the historical role of the CCP. Seventh, those who questioned reform and opening up and the socialist nature of the system with Chinese characteristics were denying the party’s line and principles. The document also blamed ‘Western influence’ for a number of China’s ills. It criticized Western embassies,

80 Governance and Politics of China consulates, media and non-governmental organizations for spreading Western values and cultivating anti-government forces. Outsiders were said to make use of ‘dissidents’ and ‘human rights activists’ to promote their objectives, and the self-immolations that had occurred in Tibet and the unrest in Xinjiang were blamed on ‘outside manipulation’. This tougher ideological stance has been accompanied by measures to dampen down citizen activism. One organization singled out for harsh treatment is the New Citizens’ Movement, together with its co-founder Xu Zhiyong. Xu had moved from being a lawyer on cases such as representing those who had been affected in a tainted milk scandal to broader concerns about social justice and transparency. When the new leadership launched its campaign against corruption, Xu and his supporters called for the assets of officials to be made public. In 2012–13, they organized a number of small protests; but this was too much for the authorities. Xu was arrested and sentenced in January 2014 to four years in prison for ‘gathering a crowd to disturb public order’. Subsequently, four other key supporters were sentenced and the organization’s website was shut down. The new leadership clearly fears the potential of new social media and in September 2013 an announcement was made that social media users who post comments that could be considered slanderous could face a prison sentence if the posting received 5,000 hits or was reposted over 500 times (see pp. 364–8). Showing concern about their own media, in December 2013, it was announced that when Chinese reporters wanted to renew their press cards, they would have to take an exam to ensure that they had the correct ideological predisposition. Despite these controls, since coming to power Xi Jinping has stressed the need to operate more effectively the rule of law. This formed the main topic of the Fourth Plenum of the Eighteenth CC (October 2014). The Decision adopted by the plenum pulled together strands of reform that had been put forward in other documents and the five-year plan for the courts (see p. 143). There is no intention, however, that this would mean that the CCP itself would be subject to the law but that individual party members might be held accountable more easily. In 2012, on a number of occasions, Xi had raised the need to govern in line with the constitution, comments that led to a debate about constitutionalism and by some on whether the CCP should indeed be subservient to constitutional demands. The uncertainty around what this might mean led to the phrase effectively disappearing from official pronouncements. However, it was included in the Decision of the plenum as ‘governing the nation in accordance with the constitution’ (yixian zhiguo), but little guidance is given as to what this might mean. A phrase similar to one used by Jiang Zemin was also included – govern the nation through virtue (yide zhiguo).

China’s New Leaders and Their Challenges 81 The Decision left no doubt that the law and the constitution would not provide independent checks on the party. It stressed numerous times that party leadership was vital and the most fundamental guarantee for the ‘socialist rule of law’, noting that the constitution had enshrined the leading position of the CCP. It notes that ‘the leadership of the party and socialist rule of law are identical’. The Decision did note a number of important reforms that were to be pursued, such as trying to prevent officials from interfering in legal cases, reducing local protectionism and ‘making the trial’ the centre of any case, rather than having the outcome determined before it was brought to court. In terms of Xi’s own individual stature within the party, the Decision called for realizing the ‘China Dream of the great rejuvenation of the Chinese nation’. While he does not yet have a phrase in the listing of each leader’s contribution to China’s development (for example Jiang Zemin’s ‘Three Represents’ or Hu Jintao’s ‘Scientific Outlook on Development’), the Decision and the Communiqué both refer to work over the last year ‘having deeply implemented the spirit of important speeches by General Secretary Xi Jinping’.

Third Plenum of the Eighteenth Central Committee (November 2013): outlining a platform for action The ‘Decision’ (November 2013) adopted at the Third Plenum was a major statement of reform intent that not only included measures for the economy but also included administrative changes and new key social provisions. It outlined 60 tasks to be pursued. For the economy, the ‘Decision’ confirmed the intent of the leadership to shift the growth model to one that was more balanced and sustainable. This meant maintaining the projections for lower growth rates – indeed the growth for the third quarter of 2014 was 7.3 per cent, the lowest rate since the first quarter of 2009. It also meant that the leadership would push ahead with an ambitious programme of urbanization (see Chapter 8). To facilitate this, the Decision suggested that it would allow local governments to experiment with different financing mechanisms such as property taxes and the issuance of government bonds. Much of the urban financing has been derived from the conversion of rural land to that for construction – often with inadequate compensation for the farmers, leading to unrest. The Decision builds on the policy of Hu and Wen from 2008 that called for the ‘gradual’ establishment of a ‘unified urban and rural market’ for construction land by removing the word ‘gradual’. As a result, the Decision suggests that the farmers be allowed to trade their land rights and be afforded more protection against rapacious local government officials. Their property

82 Governance and Politics of China rights will be strengthened and they will be able to use shareholding systems that are to be developed to serve as collateral. The ‘decisive role’ of the market was highlighted, but the Decision also retained mention of the importance of the state-owned sector. Premier Li had already stated in March 2013 that ‘the market is the creator of social wealth and the wellspring of self-sustaining economic development’. This was followed in the Decision by a clear commitment to an enhanced role for the market in determining resource allocation. Water, oil, gas, electricity, transportation and telecommunication prices were all to be determined by the market. However, there was no mention of breaking up the state-owned monopolies that dominate many of these sectors. The one major measure that will affect the state-owned sector is that they will have to surrender a larger dividend of 30 per cent to cover future social welfare expenditures. Crucial to the programme is reform of the financial sector. This included more private capital coming into the system with the intent of making loans more effective and made on economic rather than political terms. Interest rates are also to be loosened gradually. In terms of social policy, the most dramatic announcement was a further relaxation of the family planning programme. Policy was relaxed to allow couples to have a second child if either partner is a single child. This is an important measure to deal with the ageing of Chinese society and to address the major financial burden that will fall on a smaller working population in the future. However, the specifics of implementation and timing were to be left to the local authorities. In February 2014, Beijing Municipality announced its plan to relax the policy (Xinhua News Agency, 21 February 2014). It was estimated that this would lead to an extra 54,000 births per year for the first five years and an additional 40,000 per year from 2021. This will have funding consequences for schooling and pre-school facilities. On the important question of household registration (hukou), the Decision was far more timid. This system of registration underpins the unequal treatment that migrants and their families experience in terms of access to welfare services in urban China. Modification and even abolition of the system has been discussed for many years but, especially for major cities, it has remained extremely difficult to transfer status from ‘agricultural’ to ‘non-agricultural’. The Decision identifies the binary structure of town and country as a primary obstacle to effective urban development but retains the focus on the development of small and medium-sized cities. While a speeding up of reform is called for, the Decision makes it clear that the system will be kept in place and, again, reform will proceed in accordance with local conditions and the ability of those communities to absorb the migrant workers and their families.

China’s New Leaders and Their Challenges 83 To support the shift to a more market-influenced economy, the Decision called for a reduction in administrative red tape, a perennial call from China’s leaders. It was suggested that 60 per cent of investment decisions would no longer require review by the National Development and Reform Commission. Those that involved national security or concerned the environment or natural resources would still require review. The market was also to be used to ensure competition for the purchase of government services. However, the most striking administrative innovation was the creation of two new central agencies – the National Security Commission (Guojia anquan weiyuanhui) and the Central Leading Group on Comprehensively Deepening Reforms (Zhongyang quanmian shenhua gaige lingdao xiaozu), both to be headed by Xi Jinping. The National Security Commission will deal with not only international issues but also those of domestic security and will bring together under one body traditional and non-traditional security concerns (including terrorism, financial crisis, cyber security, food safety and environmental challenges). In addition to Xi as chair, there are two deputies, Premier Li Keqiang and NPC Head, Zhang Dejiang. This should help with better coordination for regime response to domestic challenges such as an earthquake or a terrorist attack and international ones that might arise from an unanticipated conflict in the East or South China Seas. Lack of coordination between civilian and military sectors has been apparent in a number of instances, both domestic and international. For example, when SARS struck (2002–03), poor coordination between the military and civilian medical systems deepened the impact. It was also clear that when the US plane EP3 was brought down on Hainan Island, following an accidental collision with a Chinese military aircraft, the slow and ineffective initial Chinese response was exacerbated by poor internal communications. The New Commission is modelled on that of the US and is seen as reflecting international best practice (Renmin ribao, 18 November 2013). Its creation attests to Xi’s strength as leader. Jiang Zemin had floated the idea of creating such a body and attempted to do so on at least two occasions. However, he was thwarted both by institutional resistance and the concerns that too much authority might be concentrated in one person’s hands, thus negating the drive towards collective leadership. However, the inadequacy of response to both domestic and international challenges, combined with the fact that Xi comes to the leadership with a much stronger background within the party elite, have smoothed the way. The fact that Xi also chairs the new Leading Group emphasizes his confidence as a leader and his determination to push ahead with difficult reforms. Certainly, his leadership style seems very different from

84 Governance and Politics of China Hu Jintao’s more low-key and consensual approach. Whether gathering so much formal power in one person’s hands will be successful or whether it leads to overconcentration of power and factional rivalries remains to be seen. As noted, many of the objectives of the new leadership are the same as those of Hu and Wen but have not been realized. This new leading group is seen as an engine to drive the reforms, something the previous leadership lacked, and to keep up pressure throughout the system to move ahead. The importance is seen in the fact that four of the seven Standing Committee members and 14 of the 25 Politburo members are in the group. It is the expectation that the leading group will be able to break through and coordinate more effectively the fragmented nature of the system that hampers effective implementation. The group has six work groups under it: economic and environmental, political and legal, cultural, social welfare, party-building, and discipline inspection reforms. It remains to be seen whether this structure can break through the resistance of ‘vested interests’. To date, there has been a slow uptake of establishing the groups at the lower levels of the hierarchy and in ministerial agencies. Looking forward, the leadership will also have to be flexible to deal with unexpected events. There will be major changes over the next ten years. One key question is whether these existing institutions can accommodate a more urbanized society, a growing middle class and a globally wired citizenship. Some of the policy challenges stem from the legacies of the Hu–Wen era and policies that have not been implemented fully or effectively. There remains the concern about the rising levels of inequality, the levels of corruption and a hardening attitude towards dissent leading to a fixation on maintaining social stability over other objectives. The new leadership will also need to develop policies to manage new social media. The advent of the information revolution and the need for information that is delivered reliably and at high speed provide a major challenge for governance and new channels for interest representation. Lastly, there is the major game changer of the trade-off between economic growth and environmental degradation. Decline in air quality, water pollution and food and drug safety have become major concerns for China’s citizens who are pushing the leadership to deal more aggressively with the consequences of the fast paced growth. Using a familiar reform, Li Keqiang announced in March 2014 that China would ‘wage a war on pollution’. Slowly, the leadership is shifting a key source of its legitimacy from the ability to grow the economy to one based on providing a decent environment and social justice. The institutions, policies and future challenges are dealt with in more detail in the following chapters.

Chapter 4

The Chinese Communist Party While the CCP has resisted all attempts to challenge its political power, the reforms have led intentionally and unintentionally to significant changes in its role in the political system, its relationship to state and society, its capacity to command obedience and its membership. It is clear that the CCP today, while still committed to a Leninist model of political control, is far from the party that set the reforms in motion in the late 1970s. Policy within the party and its relationship with other institutions is more contested than in the past. With 86.7 million members (2014) it is an extremely diverse organization with a wide range of political beliefs represented. This chapter first reviews the party’s organizational structure and membership and then looks at the political culture of the party and its changing role in the political system.

Party organization and membership Although there are eight other political parties in the PRC that accept the established system, the only one that matters is the CCP. The Party Statutes adopted in September 1982, with minor revisions, outline the current thinking about organizational affairs. They describe a traditional Leninist party structure, more akin to the old Communist Party of the Soviet Union (CPSU) than that outlined in the more ‘radical’ Statutes adopted in 1969, 1973 and 1977. However, reforms have also brought a number of changes to party organization and to membership composition. The basic organizing principle of the party is democratic centralism that demands that the ‘individual is subordinate to the organization, the minority is subordinate to the Central Committee’. This creates a hierarchical pattern of organization in the shape of a pyramid. At the bottom is the network of some 4.2 million ‘primary party organizations’ based in work-units, neighbourhoods or in villages and where there are three or more full party members. Above this is a hierarchy of organization running upwards through the county and provincial levels to the central bodies in Beijing (see Figure 4.1). The second important principle is that of collective leadership – this is designed to avoid the tendency towards one-person rule inherent in such a hierarchically organized structure. In fact, the Statutes expressly forbid ‘all forms of 85

86 Governance and Politics of China Figure 4.1 Organization of the CCP, 2014

Central Commission for Inspecting Discipline

National Party Congress

Central Committee

Standing Committee Politburo

General Secretariat

Provincial Commission for Inspecting Discipline

County-level Commission for Inspecting Discipline

Provincial Party Congress

County-level Party Congress

Basic-level Party Congress, General Meeting

Provincial Party Committee

Military Commission

Research offices special works depts

General Office

Provincial Secretariat

General Political Department

County-level Party Committee

County-level Secretariat

PLA Party Committees

Basic-level Party Committee

Basic-level Secretariat

personality cult’. This was a clear response to the earlier dominance of Mao Zedong. Party committees at all levels are called on to ‘combine collective leadership with individual responsibility under a division of labour’. The third principle concerns the protection of minority rights in the party and seeks to enable individual members to hold different views from those of the organization and bring them up for discussion at party meetings. If there is serious disagreement, the individuals can present their views up to and including the CC. They must continue to carry out policy while awaiting a decision. However, neither party norms nor internal discipline function according to such rules and regulations, and personal networks and factions riddle the party with the continual tendency towards personal rule over institutionalized rule. The most striking feature of leadership in the PRC has been the dominance of the system by a paramount individual. From 1949 until his death in 1976, Mao dominated the party and leadership through a combination of political cunning and ruthlessness when necessary (for an unreliable account by his doctor that gives a sense of Mao’s power and personality, see Li, 1994). After a brief interregnum, Deng Xiaoping dominated the leadership from 1978 until his death in 1997. Neither Mao nor Deng were general secretary of the party but everyone knew that they dominated the political scene. The First Plenum

The Chinese Communist Party 87 of the Thirteenth Party Congress (1987) enshrined Deng’s paramount position, although this was only made public by Zhao Ziyang in talks with Soviet leader Gorbachev in 1989. From Zhao’s accounts of the events of 1989, it is clear that the real politics was about influencing Deng to bring him onside in much the same way as politics had operated under Mao (Zhao, 2009). Policies in all spheres up until the mid1990s bore the hallmark of Mao or Deng. Despite the CCP’s formal emphasis on the norms of democratic centralism and Deng’s stress on the need for institutionalization, it is clear that the party had not devised an enduring mechanism for regulating leadership debate or for dealing with leadership succession. An important part of leadership legitimacy is the development of a concept or theory that becomes accepted as a part of the party canon. This is reflected by adoption in the Party Statutes. However, it seems the unwritten rule is that the contribution to China’s progress and Marxism should not surpass and precede those of the previous ‘paramount leader’. Thus, in the preamble to the Party Statutes adopted at the Eighteenth Party Congress (2012) we have described as the guide to action ‘Marxism–Leninism, Mao Zedong Thought, Deng Xiaoping Theory’, but neither Jiang Zemin nor Hu Jintao qualify for mention by name though their contributions are included as ‘the important thought of the Three Represents’ and the ‘Scientific Outlook on Development’ respectively. The addition of Hu’s theory was an upgrade from the Seventeenth Congress when it was only noted in the preamble. Should the CCP be in power for another 60 years, there will be a very long preamble to the Statutes! While the post of general secretary carries clear authority, the capability to transfer this into significant influence after retirement was not apparent for Jiang Zemin or Hu Jintao. However, despite their more limited charisma and the changed nature of the political system, the organizational structure pushes any leader along the same course. This has been clear since Xi Jinping took over as general secretary. He has emerged as the strongest leader since Deng Xiaoping, having been appointed the chairman of key committees and appearing to dominate the policy agenda in a way that Jiang only achieved late in his rule and that Hu did not seem to aspire to. This push to concentrate power is heightened by the personalized factional nature of the party structure. So many individuals are dependent on the patronage of a particular individual for their career benefits and influence that they tend to build up a cult around the leader to concentrate power in his hands and to prevent power and spoils being redistributed at a later unspecified moment in time. In particular, certain top leaders have carved out spheres of influence that have affected appointments in that sector. For example, former Premier Li Peng has had a major influence

88 Governance and Politics of China in the power sector where his children have been active. His successor as premier, Zhu Rongji, held major sway in the finance sector and thus it is no surprise that his son enjoyed the leadership role in China’s main investment bank. It is also not surprising that various blogs and other means of dissemination have complained about the spoils of the reforms going disproportionately to the families of senior leaders. Neither Jiang nor Hu were able to appoint their successor, again pointing to the reduced influence of the general secretary (rather than the ‘paramount leader’). This is probably a good thing as historically the norm of appointment by the paramount leader has not been very successful. It has not proven easy to transfer legitimacy across political generations. Mao designated two successors (Liu Shaoqi and Lin Biao), both of whom were subsequently jettisoned before in his dotage he picked Hua Guofeng who could never escape the legacy. Similarly, Deng Xiaoping lost two successors (Hu Yaobang and Zhao Ziyang) before acquiescing in Jiang Zemin. Depending on the patronage of one individual is clearly problematic and places constraints on the capacity to develop an independent power base. The ‘successor’ cannot stray too far away from the policies and networks of the patron for fear of being denounced as a traitor who has betrayed the patron’s trust. While Hu Yaobang appealed privately to Deng on a number of occasions to retire, thus opening up the way for Hu to consolidate power, Zhao pursued his claims by taking Deng’s retirement for granted. Yet the attempts to develop their own policy positions and networks of support that would survive Deng’s death brought them into conflict with their patron. Jiang Zemin was fortunate that Deng remained alive long enough for him to consolidate his power sufficiently to survive the death of his patron. He also learned from the removal of his two predecessors, Hu Yaobang and Zhao Ziyang, that it was not wise to push one’s own policies independent of the paramount leader. Jiang played an extremely shrewd game, revealing that he was an enormously skilful insider politician, by not offending Deng or other factions in the party and appearing to be all things to all people. It was only as Deng’s health deteriorated dramatically that he began to stake out his own terrain more specifically. Yet Jiang was not able to pick his successor and, ironically, it seems that Hu Jintao was singled out by Deng a good decade before he actually took over. This allowed him the time to cultivate the necessary connections to consolidate his position. The need to be cautious for fear of losing the status of ‘chosen successor’ meant that the outside world knew very little about him before he assumed the position of general secretary. That Xi Jinping would take over as general secretary was somewhat surprisingly signalled at the Seventeenth Party Congress

The Chinese Communist Party 89 and subsequently he was appointed vice president of China at the Eleventh NPC. He was not Hu’s choice and he kept a low profile until his formal appointment at the Eighteenth Congress. The CCP has tried to promote the notion of collective leadership and it is important to note that while Jiang Zemin was often referred to as the ‘core leader’ Hu Jintao was not awarded this appellation. It has not been used for Xi thus far, though since his appointment, as outlined in Chapter 3, he has emerged as a leader with strong opinions about the way forward. Personal power and relations with powerful individuals are decisive throughout the Chinese political system and society. While this may decline as the reforms become more institutionalized (Guthrie, 1999), most Chinese recognize very early on that the best way to survive and flourish is to develop personal relationships (guanxi) with a powerful political patron. Thus, the Chinese political leadership is riddled with networks of personal relationships and is dominated by patron–client ties (see Nathan, 1973; Pye, 1981, 1995; Nathan and Tsai, 1995). This system of patron–client ties lends itself easily to the formation of factions within the leadership. The basis of such factions is shared trusts and loyalties dating back decades rather than policy preferences. This process of faction formation also relates to institutional and regional interests but the nature of personal ties makes it difficult to identify such interests clearly. The venom with which an individual is denounced is often difficult to understand unless one knows that person’s history and relationships. Similarly, on occasion an individual is attacked as a surrogate for a top leader who is the head of one of the patronage systems. This means that we must understand the informal nature of the Chinese body politic to comprehend the nature of policy-making. Dittmer, like a number of other writers, gives primacy to the role of culture in defining the importance of informal relationships in the political process. Informal politics, in his view, prevails at the highest levels (Dittmer, 1995, pp. 1–34; Dittmer et al., 2000). The overdependence on personal relationships makes the Chinese political leadership extremely unstable. Despite the impressive appearance of the CCP as an enduring organization, it is in fact vulnerable to very rapid breakdown. When disputes break out among the leaders of the factions and patron–client networks, this has ramifications throughout the system, often leading to large-scale purges of personnel who are deemed to have supported the ‘wrong line’. These purges are accompanied by campaigns against particular individuals or groups of individuals who have ‘deceived’ party members and the masses and led the party away from its correct line. Rather than reasoned debate of policy faults, the most common form of attack is to dole out personal abuse. The response of the leadership to the student demonstrations of mid-1989 showed how this system of individual power relationships

90 Governance and Politics of China built up over decades remained far more important than the rule of law and the formal functions people held. The events also highlighted how, in the absence of institutional mechanisms for accommodating serious divisions, the system still desperately needed a Mao-like figure to perform the role of final arbiter in policy disputes. Increasingly, Deng Xiaoping slipped into the same pattern of personalized rule as Mao. This tendency was noticed not only by the Democracy Wall activists of the late 1970s and the student demonstrators of the late 1980s, but also by Deng’s opponents at the top of the party. The more orthodox economist, Chen Yun, rebuked Deng for abandoning the notion of collective leadership that had been agreed on in the late 1970s; Chen warned Deng not to set himself up as an emperor by avoiding listening to the views of others. Such criticism notwithstanding, a secret party decision was taken in 1987 that all important matters had to be referred to Deng for his approval.

The Party Congress and the Central Committee In theory, the top of the party pyramid is the National Party Congress (NPC), or its CC, which takes over the Congress’s functions when it is not in session. In reality, power lies within the Political Bureau (Politburo), its Standing Committee, and to a lesser extent within the Secretariat. The Congress should convene once every five years, and as a part of the post-Mao institutionalization this has indeed been the case (see Figure 4.2). The number of delegates attending the Eighteenth Party Congress (8–14 November 2012) totaled 2,270. The delegates were selected from 40 constituencies, including 31 provincial-level organizations, Taiwan, the PLA, and a number of Central agencies. Only 68 per cent of the delegates were to be from leadership positions, with the remainder described as ‘grassroots’ party members. In the selection process for each constituency, there were to be 15 per cent more candidates than places available. Such a large number of delegates meeting over such a short amount of time means that it is rarely, if at all, that anything of consequence is seriously debated. However, the symbolic function of the Congress is extremely important in terms of providing a display of power and unity, and more important ‘milestones’ in the party’s history. Importantly, the Congress formally elects, although in reality it approves, candidates to the CC who are proposed by the outgoing Politburo and senior leadership. When the Party Congress is not in session the CC is, in theory, the leading body of the party. Although it meets more frequently, usually once a year in plenary session, its size (205 full members and 171 alternates at the Eighteenth Congress) again indicates that it cannot be the main focus of decision-making in the party. Debates seem to have become livelier but again plenums are convened primarily to approve

The Chinese Communist Party 91 Figure 4.2 Central Organization of the CCP (simplified), 2014 Standing Committee of the Politburo Members: Xi Jinping, Li Keqiang, Zhang Dejiang, Yu Zhengsheng, Liu Yunshan, Wang Qishan, Zhang Gaoli

National Party Congress Meets every five years Eighteenth Congress November 2012 2,270 delegates representing 82 million party members

Central Committee Fourth Plenum of Eighteenth CC October 2013 199 full members and 164 alternate members

Central Commission for Discipline Inspection Secretary: Wang Qishan Deputies: Zhao Hongzhu, Huang Shuxian, Li Yifu, Du Jincai, Wu Yuliang, Zhang Jun, Chen Wenqing, Wang Wei

Politburo of the Central Committee 25 members Standing Committee members and Ma Kai, Wang Huning, Liu Yandong, Liu Qibao, Xu Qiliang, Sun Chunlan, Sun Zhengcai, Li Jianguo, Li Yuanchao, Wang Yang, Zhang Chunxian, Fan Changlong, Meng Jianzhu, Zhao Leji, Hu Chunhua, Li Zhanshu, Guo Jinlong, Han Zheng Secretariat of the Central Committee Liu Yunshan, Liu Qibao, Zhao Leji, Li Zhanshu, Du Qinglin, Zhao Hongtzhu, Yang Jing

Notes: = elects; = nominates; the Secretariat is nominated by the Standing Committee of the Politburo, ‘subject to endorsement’ by the CC.

a party draft document. These plenary sessions are not necessarily restricted to members and alternates, and may include other important personnel who are involved in the decision to be ratified. The draft decisions were usually worked out by the senior leadership during their summer retreat to the Beidaihe seaside. Plenums normally last a couple of days and decisions taken are published in the form of a communiqué. The fact that it is effectively a rubber stamp to decisions made elsewhere does not mean that the CC is entirely uninteresting for study. First, it is vested with a number of formal powers, such as electing the Politburo and its Standing Committee and the general secretary. When there is division on lists among the senior leaders, CC members can have a marginal impact on the elections. In addition, the CC is important as a transmission belt passing down policy proposals and receiving ideas concerning their feasibility and implementation. Finally, membership on the CC is a good indicator of trends in the political system, and a study of the composition indicates what the leadership considers important at any one time and how this changes over time. In turn, the study of any such change over time will reveal the changing requirements of the leadership.

92 Governance and Politics of China The position of alternate provides a training opportunity for future promotion to the full CC. The first on the alternate list will be promoted to the full CC should a member die or be removed from office. There have been a number of trends discernible during the reform period concerning the level of education, regional and gender representation, and the level of military involvement. The education level of delegates has risen and the average age has dropped since the Eleventh CC was elected in 1977. At the Twelfth Congress (1982) only 55 per cent had a college education of any form, the number reached a peak at the Sixteenth Congress (2002) at 98.6 per cent, but dropped slightly at the Eighteenth to 95.7 per cent. Of the members, 14 per cent have a doctoral degree, 65 per cent a master’s degree and 95 per cent a bachelor’s degree. By contrast, the average age has dropped. By the time of the Eleventh CC in 1977, age had steadily increased, indicating that power had not yet passed into the hands of a successor generation but merely from one section of the same generation to another. It stood at 65.9 in 1977 (Goodman, 1979, p. 47). The major turnover during the early 1980s when Deng forced most of the veterans into retirement meant that the average age at the Thirteenth CC dropped to a low of 55.2 and remained so in the mid-1990s thereafter. At the Eighteenth Congress, the average age was 56.1, with 165 members born in the 1950s and nine born in the 1960s. Importantly, two of the nine (Sun Zhengcai and Hu Chunhua) are Politburo members destined for the senior leadership at the next turnover. Regional and functional representation has also changed over time. At the Ninth CC (1969) the dominance of central officials was radically reversed, with 59 per cent of members drawn from the provinces as opposed to only 31 per cent at the time of the Eighth CC in 1956. This trend reached a high point during the 1970s when the percentage of those from the provinces in the CC was over 60 per cent. Throughout the 1980s and 1990s, the situation of the 1950s was restored, with a 26 per cent provincial representation in 1992, 32 per cent in 1997 and 23.9 per cent in 2012 (49 members). With Jiang Zemin’s emphasis on fusing party and state power, state councillors and ministers booked the largest increase in CC seats at the Fifteenth CC, raising representation from 18 per cent in 1992 to 26 per cent (Baum, 2000, p. 26); this was maintained at the Eighteenth CC with 24.4 per cent. The military has retained a significant voice on the CC even though its representation has been weakened at the highest levels of the party. Not surprisingly, given the destruction of the party after the Cultural Revolution was launched, military representatives on the Ninth CC accounted for 50 per cent, a figure that had declined to 31 per cent by 1977 as the civilian apparatus was restored. This bottomed out at 17 per cent in 1987 but the increased military influence after 1989 saw representation rise

The Chinese Communist Party 93 again to almost 25 per cent, though it has since dropped back again to around 15 per cent. The one group consistently under-represented is women. Under Mao, there had at least been rhetoric to support the inclusion of women within the leadership and this was reflected in a 1973 CC that had 10 per cent women. This declined to 5.3 per cent in 1992 and a low of only 2.5 per cent in 2002! Representation revived to 5.4 per cent at the Eighteenth Party Congress. So much for holding up half the sky! Ethnic minorities fair roughly the same, also with a 5 per cent representation.

The Politburo, Secretariat, General Secretary and Leading Small Groups The attempts to institutionalize life at the party centre led to changes in the relationship between the party’s leading organs. During the 1980s and 1990s, institutional power in the party shifted among the Politburo, its Standing Committee and the Secretariat under the general secretary, a post restored in 1982 when the position of party chairman was abolished. At the Thirteenth Party Congress, Zhao Ziyang announced an important adjustment in the relationship between the Politburo and the Secretariat. The Party Statutes adopted at the Twelfth Party Congress (1982) legislated that the Politburo, its Standing Committee and the general secretary and the Secretariat were all to be elected by the CC. This resulted in the Secretariat and the Politburo acting as competing sources of power. This is not surprising given that one of the reasons for the resurrection of the Secretariat was because at the time Deng Xiaoping and his supporters could not gain a natural majority in the Politburo. In fact, there was even talk of the Politburo being abolished. In theory, the Secretariat was to handle the day-today work of the party, becoming its administrative nerve centre. The Politburo and its Standing Committee would be freed to concentrate on taking important decisions on national and international issues. In practice, it placed the Secretariat in an extremely powerful position, as it supervised the regional party organs and the functional departments of the party that should, in theory, have been responsible directly to the CC and the Politburo. This access to information and its control functions meant that it could function as an alternative power base to the Politburo. Zhao Ziyang announced a clear change in this relationship, downgrading the Secretariat with respect to the Politburo: the Secretariat was reduced in size from ten to only four full-members and one alternate and was made the working office of the Politburo and its Standing Committee. Instead of being directly elected by the CC, its

94 Governance and Politics of China membership is now nominated by the Standing Committee of the Politburo and approved by the CC. It seems that one of the criticisms of Hu Yaobang during his tenure as general secretary (1982–87) is that he had used the Secretariat to work around the Standing Committee. Two practical indications of the decline of the power of the Secretariat were, first, the announcement that, in the future, agendas raised by the State Council for policy-making by the Politburo or its Standing Committee would no longer be ‘filtered’ by the Central Secretariat; and, second, the Secretariat would no longer be headed by the general secretary but rather by an executive secretary who would serve as a member of the Standing Committee (currently Liu Yunshan). Despite these changes, in practice it functioned as Zhao Ziyang’s support base at the party centre. Zhao and three of his supporters in the Secretariat were removed at the Fourth Plenum of the Thirteenth CC on 24 June 1989. Similarly, under Jiang Zemin it was helpful to use the Secretariat to work around the Politburo and its size started to rise again (seven members at the Fifteenth Party Congress). Under Jiang all members were on the Politburo or its Standing Committee, whereas under Zhao only two members were on the Standing Committee of the Politburo. Under Hu Jintao the Secretariat became more functional, but under Xi Jinping the membership indicates an expansion of its work beyond party matters. Xi has expanded the number of members back to seven and has included Du Qinglin – who is vice chairman of the Chinese People’s Political Consultative Conference (CPPCC) and the head of the united front work department – and Yang Jing – who is Secretary General of the State Council. This may indicate the new leadership’s desire to integrate work more effectively with the government and non-party organizations. With the exception of Yang Jing, all others are Politburo members. The Politburo and its Standing Committee are the most important organs of the party and lie at the centre of the decision-making process. The Statutes give no idea about the extent of the powers of the Politburo and its Standing Committee, and simply state that they are elected by the CC, that the Politburo convenes the plenary sessions of the CC and that when the CC is not in session the Politburo and its Standing Committee exercise its functions and powers. We know little about the actual workings of the Politburo, except for the fact that its meetings are frequent and that discussion is said to be unrestrained. The increasing size of the Politburo over time (11 members in 1949 and 25 in 2012) meant that in 1956 the Standing Committee was set up as a kind of ‘inner cabinet’. This committee has functioned continuously since 1956, and it is the highest collective authority in the party. Under the reforms there have been attempts to formalize membership of these two bodies on the basis of functional representation,

The Chinese Communist Party 95 and upper age limits have been introduced. However, membership is subject to fierce lobbying and the stress on institutionalization can give way to more pragmatic concerns. Standing Committee membership should comprise not only the general secretary but also the premier, the heads of the NPC and the CPPCC and the Central Discipline Inspection Commission (CDIC). This used to leave one or two places over which senior leaders would wrangle and try to manoeuvre their protégés into place. To accommodate this, membership was expanded to nine at the Sixteenth Congress but was reduced to seven at the Eighteenth Congress. Interestingly, from the Fifteenth Party Congress onwards no military leader has been appointed to the Standing Committee, a factor that suggests that the civilian leadership wants to assert its control more clearly. This continues a gradual decline in military representation at the highest party levels. When Deng and Mao were alive this was not such a great problem, but it proved more complicated for Jiang and Hu. Xi Jinping took over as chair of the Central Military Affairs Commission (CMAC) at the Eighteenth Congress and, unlike his two predecessors, has military experience, albeit as a political commissar and secretary. An important change at the Eighteenth Congress was that, with the reduction in the number of members of the Standing Committee of the Politburo, the portfolio for law and domestic security was relegated to the Politburo. Zhou Yongkang, who had this portfolio, was not replaced in the Standing Committee; instead oversight was given to Politburo member Meng Jianzhu. Apart from the fact that Zhou has been detained for ‘serious violations of party discipline’ and alleged support of the disgraced Bo Xilai, this move subjugates law-and-order issues to members of the Standing Committee. In addition, Xi has assumed the position of chair of the newly formed National Security Commission and this will consolidate his hold over domestic security issues. The other members of the Politburo are drawn from a combination of functional and factional backgrounds (for details on the current Politburo, see pp. 69–77). Provincial experience is very important for Politburo membership but, as with the two prior ones, there is an attempt to balance party and state apparatus representation as well as regional interests. Excluding the general secretary, the premier and heads of the NPC and CPPCC, six members are functionaries of the party and the state each, with another six drawn from the provinces. This latter six are comprised of the secretaries of the four major municipalities (Beijing, Chongqing, Shanghai and Tianjin), the economic powerhouse of Guangdong and the strategically significant autonomous region of Xinjiang. Military representation and law and order remains with three representatives. It is clear that regional leadership is now an important

96 Governance and Politics of China stepping-stone to the top. A process seems to be developing whereby officials who have been successful in the coastal areas, then serve a term in the inland provinces before returning to the centre to continue work. Of the 23 civilian members of the Politburo, 19 have served as top provincial leaders as well as six of the seven Standing Committee members, the exception being Liu Yunshan. The new Politburo maintains the norm of electing members in their sixties (average of 61.2 years compared with 62 years at the Seventeenth Congress) as opposed to an average of 72 years back at the Twelfth Congress in 1982 (Zheng and Lye, 2002, p. 2). The average age is brought down by the appointment of two key leaders of the ‘Sixth Generation’, Sun Zhengcai and Hu Chunhua (both 49 years old). Their promotions signal that they are intended to take over the positions of general secretary and premier at the Twentieth Party Congress. However, much can change before then. There are two females on the Politburo (Liu Yandong and Sun Chunlan), as opposed to only one previously. The Standing Committee and the Politburo are supported in their work by a number of Leading Small Groups. Information on these groups is scarce and their work and meetings are rarely reported. They are usually headed by a Standing Committee member and they serve both to help implement decisions by coordinating work across the system and to funnel information and research back to the Standing Committee and the Politburo. The groups are supervised by the Secretariat. The groups were first initiated around 1958 but the system collapsed during the Cultural Revolution with the attacks on party institutions (Miller, 2008, p. 1). The small groups cover a range of areas such as foreign affairs, Taiwan, Hong Kong–Macao, finance and economics, propaganda, security, politics and law and party building. To these small groups we can add the two new groups that were announced at the Third Plenum in November 2013: the National Security Commission and the Group on Comprehensively Deepening Reforms, both headed by Xi Jinping, as are a number of the other small groups, including that for finance and economics.

The Organization Department, Discipline Inspection Commissions and party schools The party has three main mechanisms to enforce loyalty and allegiance throughout the system and inculcate norms. The Central Organization Department plays a vital role in selecting senior leaders and overseeing training. While institutionalization is still not enshrined, the need to restore party discipline after the Cultural Revolution led to the revival of the commissions for inspecting discipline and the party schools.

The Chinese Communist Party 97 Both systems have been resurrected to overcome the problems of bureaucratism, bad work-styles, opposition to agreed party policy and the rampant corruption that pervades the party. The party school system runs nationwide covering some 2,500 schools. The schools, such as the Central Party School, are expected to educate party members in the way that they should behave and in the running of the party. The Central Party School runs short-term (three-month) and one-year training programmes for officials, both to create an esprit de corps and to prepare officials for promotion. The schools also run degree programmes but these are less important for career advancement than the shorter executive education-style programmes. The party has clearly decided that it, rather than the state, is the most important organization for pursuing reforms and has exerted much effort to train targeted personnel. Contrary to perception, the atmosphere at the school can be very open and critical. It was, for example, at the Central Party School that reformer and Politburo member Tian Jiyun made his famous speech in April 1992 ridiculing ‘leftism’ and signalling that China was going to break free from the policies of tight economic control after 1989. After reiterating his support for the thrust of Deng’s 1992 southern tour, Tian suggested that perhaps the ‘leftists’ in the party leadership might want to set up their own Special Economic Zone in which salaries and prices of goods would be low, and queuing and rationing would be commonplace. There would be no foreign investment, all foreigners would be kept out, and no one would be able to go abroad. Bootleg tapes of the speech were one of the hottest selling items in China through the spring of 1992. Similarly, but in less eloquent fashion, major pronouncements by party leaders are frequently aired first at the school. The Central Party School and its affiliates at the lower administrative levels can also play a significant role in generating new policy ideas, and its research divisions have acted as think tanks for the central leadership (Shambaugh, 2008). Parallel to the system of party schools, the government set up an administration school system that concentrates more on the practical aspects of governing. However, it is only at the national level where the Chinese Academy of Governance (formerly the National School of Administration) is separate from the Central Party School. At the local levels the two are merged under what the Chinese refer to as ‘one sign, two schools’. This saves money and resources. In 2005, the party set up three new training schools in Shanghai, Jinggangshan and Yan’an. The impressive school in Pudong, Shanghai, is meant to focus on China’s engagement with the global community, the Jinggangshan School is to teach China’s revolutionary principles, while the school in Yan’an is to focus on policies to develop the western regions of the country. An aspiring leader is now

98 Governance and Politics of China expected to undergo spells of training in all these schools in order to make him or her a well-rounded CCP official. The style of teaching is also changing as the case study method has become more popular than traditional lecturing. Schools have been instructed that by 2012–15 at least 50 per cent of classes should use the case method. For participants, attending the Party School has a number of advantages. First, it is a mark of honour within the party to be singled out. Second, it gives local officials a privileged inside view of current senior party thinking that will enable them better to second-guess the situation once they return to their locality. Third, it provides an ideal source for networking among up-and-coming leaders. Last, but not least, most participants find it very peaceful, providing them with a few months of tranquillity to read and catch up on the various chores that work had prevented them from completing. Discipline Inspection Commissions are important agencies in the attempt to re-establish a system for dealing with discipline and for monitoring abuses within the party. This system replaces what the party saw as the arbitrariness and unpredictability of the Cultural Revolution. It is also a clear expression that, although the party recognizes the breakdown of the Cultural Revolution, it is not willing to entrust monitoring of its membership and its behaviour to nonmembers and to submit them to any external democratic supervision. In explaining the tragedies and incompetence of the past, the party has always prided itself on the fact that it alone had righted the wrongs. During the reform period the party has always resisted any attempts or suggestions to be held accountable to society and the citizenry. This has frustrated its attempts to eradicate the corruption that senior leaders have identified as a threat to continued CCP rule. Indeed it is now common for senior leaders and the head of the CDIC to comment that work-style and relations between the party and the people are issues that have a close bearing on the party’s survival. Since Xi became general secretary and Wang Qishan took over as head of the CDIC, a greater urgency has been given to the fight against graft, and the current campaign seems to be moving beyond purely factional in-fighting so as to send out a clear warning to officials at all levels to curb the rampant corruption that has been a core element of the reform era. The Commission has concentrated on promoting the restoration of internal ‘party life’ and has drafted guidelines that should prevent the personalization of politics and restore Leninist norms of collective leadership. In addition, it has tackled such problems as the evaluation of accusations made against Liu Shaoqi during the Cultural Revolution (declaring him to have a clean bill of political health), preparing the materials against the ‘Gang of Four’ and for the investigation

The Chinese Communist Party 99 of Chongqing Party Secretary Bo Xilai before his expulsion from the party. The Central Organization Department and its affiliates play a crucial role in maintaining discipline and adherence to the party through their control over members’ personal files, their evaluations of performance and recommendations for promotion. Basically, the Department oversees the CCP’s nomenklatura appointments; these cover all senior ministry appointments, senior judicial appointees, heads of major state-owned enterprises, top university presidents such as Beijing and Tsinghua, the editors of key party publications and other media, provincial leaders and the directors of think tanks. Not surprisingly it becomes the turf for numerous battles between different factions and groupings in the party. Its influence is pervasive and party members bend over backwards to please and flatter its staff. One senior retired official told me that the CCP really only needs two agencies – the organization department and the propaganda department. He should know because he had headed each of them at different times. Currently, the Central Organization Department is headed by Politburo member Zhao Leji. Under its former head, Li Yuanchao, the Department expanded its efforts to improve the process of selection and the training programmes that officials are expected to undergo. It has a division for leadership and has cast a wide net for experience on methods of leadership assessment. A complicated set of performance indicators assess performance, including factors such as maintaining social stability and managing environmental concerns. The leadership and the Department have been trying to shift formal assessment priorities based on GDP growth and investment levels to ones that accord better with the desire to produce more sustainable growth. The Department has also adopted measures such as feedback from colleagues and 360-degree evaluations. Certainly the quality of officials has improved but the attempts at ‘scientific assessments’ are still trumped on occasion by political interference and the jockeying among various factions. The fact that the buying and selling of official posts is a quite common phenomenon at the local levels also suggests that the scientific assessment of one’s suitability can be easily undermined by money. I have been in a number of counties and townships where officials seemed to know exact pricing for the various posts in the local administration. Marketization has affected the system in ways other than corruption and the purchase of official positions. Party schools see training programmes as a money-making exercise and have run all manner of courses for fees. These have included overseas training, often in collaboration with foreign universities. This clearly ran out of control and, under the new leadership, many programmes have been cut.

100 Governance and Politics of China

The Central Military Affairs Commission The Central Military Affairs Commission (CMAC) is the main vehicle through which the party ensures control over the military system, although this might be affected by the 2013 creation of the National Security Commission. There is also a state commission but its composition is identical and is clearly irrelevant as an independent entity. The state commission was formed in 1982 to give the impression that the military came under the control of the state rather than the party. This was done in particular with respect to possible reunification with Taiwan; the military was thus portrayed as one arm of the Chinese state rather than an arm of the CCP. The CMAC is clearly more important than the Ministry of National Defence and is the highest policy-making body for military affairs and the highest command organ for military operations. In reality, the Ministry of National Defence is subordinate to the CMAC rather than to the State Council. The Minister of Defence serves as a vice chair of the Commission. The CMAC has existed under one name or another since 1931, when it was established on the instructions of the First All-China Soviet Congress. Personnel appointments to the CMAC give an indication both about the strength of the military in the system and about the paramount leader. Presently (2014), the chair of the CMAC is a key post for the general secretary to hold. Deng Xiaoping retained his position as its chair for two years once Jiang Zemin became general secretary; and the same pattern was followed during the transition from Jiang to Hu. This latter transition caused frustration among some who felt it was difficult to be the servant of two masters. By contrast, Xi took over the leadership immediately. This multiple office holding reflects a pull-back from the reform attempts of the 1980s when there was a serious attempt to separate the multiple functions. It is now viewed that the general secretary must also be the president of the PRC to command international respect and must be chair of the CMAC to oversee the military.

Membership While the total party membership is huge (86.7 million in July 2014), the CCP has always prided itself on its exclusivity, with membership representing less than 6 per cent of the total population. Its Statutes give no evidence of this exclusivity, and contain detailed rules governing the admission of members and the duties and behaviour required of them. The actual criteria for membership have changed over the years, reflecting shifts in ideology and recruitment policies. In contrast to a number of its forerunners, the 1982 Statutes acknowledge that

The Chinese Communist Party 101 class background is no longer a significant factor and they provide an extremely broad definition of eligibility. This was amended further in 2002 when the category ‘any other revolutionary’ was amended to ‘advanced element of other social strata’ to reflect the more inclusive nature of the ‘Three Represents’. Thus, membership may be sought by ‘any Chinese worker, farmer, member of the armed forces, intellectual or advanced element of other social strata who has reached the age of 18 and who accepts the party’s programme and Statutes and is willing to join and work actively in one of the party’s organizations, carry out the party’s decisions and pay membership dues regularly’. To become a probationary member an applicant must be supported by existing members, accepted by a party branch after ‘rigorous examination’, and approved by the next highest level of party organization. Probation normally lasts for one year during which time the candidate’s progress is assessed and education is provided. If all goes well, full membership will then be granted by the general membership meeting of the party branch and approved by the next higher level. Members who violate party discipline are subject to various sanctions, including warnings of varying degrees of severity, removal from party posts, probation and expulsion from the party. The party can also propose to the ‘organization concerned’ that an offender should be removed from non-party posts. A member subjected to discipline has the right to be heard in his or her own defence and has a right to appeal to higher levels. Although exclusive, party membership has risen steadily since 1949 when there were only 4.5 million members. Despite this steady growth, there has been considerable variation in the nature of recruitment. During the reform period the party has had to undergo a massive process of renewal to bring in the kind of recruits who had the requisite technical skills for development. During the Cultural Revolution, and even before, insufficient attention was paid to the recruitment of the educated and the young. The ‘Gang of Four’ were blamed for their emphasis on worker, peasant and soldier recruitment that left the party ill-equipped to manage the modernization drive. To build up their own support, they were accused of pursuing a reckless speed of recruitment and promoting new cadres at the double-quick (dubbed ‘helicopter cadres’). The new recruits joined at a time when rational rules and regulations were under attack, meaning that these members were unfamiliar with traditional Leninist norms. By the time of the ‘Gang of Four’s’ arrest (1976), 43 per cent of all party members in Shanghai had been admitted during the years 1966–76 and it is claimed that a ‘handful of them’ did not even know what ‘the Communist Party, communism or party spirit’ were (SWB: FE/6341). The flurry of books published during the 1980s as a component of party education campaigns contain

102 Governance and Politics of China the most basic questions that party members are expected to answer in tests to assess their capability. At the beginning of the reforms, low education levels were a general problem in the party. In 1982 only 3.61 per cent of members had received a higher education and over 43.15 per cent had only attended primary school and 10.42 per cent were illiterate. Moreover, in 1978 only 28.79 per cent of members had a senior middle-school education. By the end of 2013, 40 per cent of all members had a college education. At senior levels, the party is now highly educated and technically competent, but at the county level and below the problem of elite renewal remains serious. Whereas, in 1950, 26.60 per cent of members were under the age of 25, by 1983 this had fallen to 3.34 per cent and had only risen to 4.69 per cent by 2002. Recruitment has had an effect and by 2010 those under the age of 35 represented 24.31 per cent, which has risen to over 25 per cent by 2013. Not surprisingly, not only are women under-represented in the leadership but throughout the party as a whole. In 2013 only 23.8 per cent of members were female, though this was up from 17.8 per cent in 2002. By contrast, recruitment among non-Han peoples roughly reflects their percentage of the population as a whole (6.65 per cent in 2010 and 5.57 per cent in 1990). In terms of work affiliation farmers, herders and fishermen made up 30.43 per cent of the membership in 2010, the second largest group was managerial and professional staff (19.88 per cent), with those working in party and state agencies comprising 8.49 per cent. Students comprised 3.16 per cent in 2010. Given that it is a communist party traditionally associated with the proletariat, it is interesting to note that in 2010 only 6.61 per cent were drawn from state industrial workers. This reflects the challenge of being the only ‘real’ party in an authoritarian structure where the party has to keep relaxing membership requirements to remain inclusive of the most influential social forces. The party is now faced with the dual challenges of making membership relevant to today’s youth while not attracting those who only see it as a vehicle for personal gain. By introducing the ‘Three Represents’ campaign, Jiang Zemin and his supporters tried to make a case for continued relevance, claiming that the party represents the most advanced scientific and productive forces and a broader constituency than the traditional working class. In the rural areas, the party has used village elections to attract new members who have a degree of popular legitimacy. However, senior CCP members have questioned how accommodating they should be towards the new social forces that are products of reform. In particular, debate centred on the new private entrepreneurs whom orthodox party members saw as having no place in the CCP. In July 2001, celebrating the 80th anniversary of

The Chinese Communist Party 103 the CCP, Jiang broke the deadlock, announcing that under certain circumstances private entrepreneurs would be welcomed to join the party. It is reported that 100,000 of these applied to join immediately after Jiang’s speech and that ten provinces were set up as experimental sites (Dickson, 2003, p. 104). According to Dickson (2008, p. 70) the number of private entrepreneurs who are party members has jumped significantly from 13.1 per cent in 1993 to 19.8 per cent in 2000 and then to 40.0 per cent in 2011, making up 6 per cent of the total membership (Bruce Dickson, personal communication). However, much of this jump is attributable to the fact that many SOEs and collective enterprises had been converted to private enterprises whose original heads were party members. This has increased the number of what Dickson terms ‘red capitalists’. It is clear that there is a symbiotic relationship between party membership (or at least party connectivity) and wealth. See, for example, the articles in Bloomberg (29 June 2012) and the New York Times (25 October 2012) on the enormous economic wealth of the families of Xi Jinping and Wen Jiabao. Of China’s 1,000 wealthiest people, over 90 per cent are officials or CCP members (, September 2011) – the political consequences are liable to be significant, especially at the local levels. Even more noteworthy is the statistic that 90 per cent of China’s millionaires are the children of high-ranking officials (Dickson, 2008, pp. 22–3, 171). Although the high standards demanded by the Statutes are not always met in practice, membership can require a high degree of commitment and considerable sacrifice of personal time. On occasion, party members have had to implement policies that were widely disliked, for example, the enforcement of family-planning policy, which many local party officials have confided to me was their most hated task. Clearly, membership still confers great benefits for career advancement – and also now the acquisition of economic resources – and is much sought after. Of the 21.6 million applicants in 2011, less than 15 per cent were accepted. Politically, the party is still the only game in town and thus remains the locus of political power – few can achieve real political influence without membership and a record of political activism. I have met party members who are Maoists, Stalinists, more Friedmanite than Milton Friedman, Shamans (traditional religious leaders), underground Christians, Anarchists, and Social and Liberal Democrats. With no other political home to go to, virtually all those with political ambition will try to enter the CCP to pursue their political agenda. During the Maoist era, the vast majority of responsible jobs in state and mass organizations went to party members who often had

104 Governance and Politics of China few other qualifications. Deng Xiaoping’s insistence on the need for an elite corps of competent modernizers in all walks of life has meant that political reliability alone is no longer regarded as a sufficient qualification for a senior appointment. However, party credentials remain necessary for a wide range of sensitive positions and are a major advantage for many other jobs. Moreover, wage scales in China are highly differentiated and those in senior positions enjoy relatively high incomes, commensurate pensions, superior accommodation and access to innumerable perks. There is also a range of ‘informal’ advantages. Although the precise nature has differed over time, these have always included: access to information denied to the general public; an increased ability to obtain a ‘good’ education and to use ‘connections’ to advance the careers of one’s children; opportunities to travel at state expense; the right to use cars in a country where private car ownership until recently was limited; and the opportunity to enjoy a certain amount of wining and dining at public expense, something that the current leadership is trying to curtail. The privileged position of party membership and the access it brings has been a major cause of the corruption in China.

The political culture of the CCP As noted above, the formal character of the CCP is based on hierarchical principles, with the lower subordinate to the higher and the minority subordinate to the majority. At its worst, this has led to deference to the ‘paramount leader’, permitting Mao Zedong to rise roughshod over any party norms and allowing other leaders such as Deng Xiaoping to avoid norms in order to meet their own objectives. This was apparent with the arrests of the ‘Gang of Four’ to end the Cultural Revolution, Zhao Ziyang following inner-party fighting, and the decision to order the troops to clear Tiananmen Square of protesters in 1989. At a more benign level, this places tremendous authority in the hands of the general secretary who is clearly the first among equals. While this pre-eminence seemed to be in decline with Jiang Zemin and even more so with Hu Jintao, it has been restored under the strong personal leadership of Xi Jinping. This has created an ongoing struggle between the leadership and the need to maintain collective leadership. The CCP defines itself as the sole legitimate authority with an absolute and uncontested right to rule in the name of the people. A number of consequences flow from this, leading to the desire to control as much activity that occurs within the PRC as is possible at any given time. As one retired senior party official said to me, ‘you have to remember that the party abhors a vacuum or open space; if it sees

The Chinese Communist Party 105 or senses this, it cannot help itself from moving to fill it’. Further, the party moves to absorb significant social forces into the party and will eliminate any group that it sees as a challenge. Who this might be has changed over time: in the early 1950s it was the landlords and capitalists, followed by small business entrepreneurs; in the 1960s and 1970s it was leaders of the party who were thought to have followed the ‘capitalist road’. Subsequently, as the party welcomed entrepreneurs back, it has progressively sought to eliminate those who have organized opposition or who have challenged the party’s ideological hegemony. This has meant that only the party has the right to provide the correct interpretation of events both in history (although its interpretation might change over time) and in the present and to map out the future trajectory for state and society. This derives from the revolutionary history of the victory in 1949 and the CCP’s perceived ability to interpret Marxism correctly in the form of ‘socialism with Chinese characteristics’. It is important that the party has remained flexible in its interpretation of current reality and that this has prevented the kind of ossification that occurred in the former Soviet Union. Each leader needs to add his own mark to the ideological canon that justifies his rule. Currently, it is the ‘China Dream’ proposed by Xi Jinping (see Chapter 3). This also means that the study of history is closely controlled and that there is a web of party research institutes that exist to propagate the correct interpretation of the past. It is very difficult, but not completely impossible, to conduct independent research on difficult periods of history such as the Great Leap Forward, the Cultural Revolution or the student-led demonstrations of 1989. Since coming to power, Xi has been very critical of those researchers who have cast doubt on the party’s ‘glorious’ tradition. Among the ‘Seven Nos’ that should not be discussed are difficult periods in party history. This view of the infallibility of the party as an institution means that if things go wrong, it must be the fault of bad elements within the party who lead followers astray or foreigners who seek to undermine party rule or engage in ‘peaceful evolution’. The notion of ‘political line’ is important, and, if policy fails, an individual or group of leaders is blamed for taking the party rank-and-file down the wrong line. When I studied contemporary history at Nanjing University in 1977, our course was entitled the ‘Ten Line Struggles of the CCP’. Thus, we have the first leader of the CCP, Chen Duxiu, denounced as a ‘right opportunist’, and later leaders Qu Qiubai and Li Lisan denounced for ‘left deviationism’ and ‘left opportunism’ respectively. After 1949, Liu Shaoqi (one of Mao’s supposed successors) was denounced as ‘the Number One Person in Authority Taking the Capitalist Road’, and the ‘Gang of Four’ (Liu Shaoqi’s accusers together with Mao Zedong) were

106 Governance and Politics of China later denounced for forming an ‘anti-party clique’ and a ‘counter-revolutionary force’. Zhao Ziyang was blamed in part for allowing the student demonstrations to expand in 1989 and was accused of ‘splitting the party’. This means that going against prevailing policy can be difficult and, on occasion, dangerous. Even comments made in the past in a different context can come back to haunt. Thus, historically, innerparty debate has been difficult and is liable to become factionalized and conflictual. One of the most remarkable documents that criticizes this phenomenon was written by Liu Shaoqi in March 1937 and deals with the difficulty of working underground in the Guomindang-controlled areas of China. The document was taken out of context during the Cultural Revolution and used to portray Liu as being anti-Mao. Liu had complained that it was better to be ‘leftist’ rather than ‘rightist’ and that the methods of ideological struggle in the party had always been excessive, so much so that ‘absolutely no freedom of calm discussion’ existed within the party. In his view, new or unorthodox ideas created panic and resulted in the convening of meetings to struggle against them (translated in Saich, 1996, pp. 773–87). This criticism has remained relevant down to the present day. It has always been safer to attack policy from the left rather than the right. One further important legacy from the past that has influenced CCP culture is the clandestine nature of its origins. For much of the time before 1949, the party operated in secret with a system of small cells and groups, often engaged in protracted warfare. There was always a constant fear of betrayal. This has led to a culture of secrecy and suspicion of any organization that is outside of CCP direct control or oversight. While the language of Marxism is that of ‘class’ and ‘class struggle’, that of the CCP is marked by its legacy of armed struggle and war. Thus, at the March 2013 NPC meeting, Premier Li Keqiang declared a ‘war on pollution’. This tendency to think in aggressive terms often leads to violent language when denouncing opponents. Those who fall foul of the CCP leadership are criticized excessively and usually it is not sufficient just to criticize their current ‘errors’ but to show that they had been ‘evil’ from the outset and that even their families were culpable. The ‘errors’ may be linked to the individual having the wrong ‘class background’ with parents from the landlord class or the bourgeoisie. When combined with suspicion of independent intellectual activity, this can lead to heightened rhetoric against individuals and even physical abuse. This reached a high point during the Cultural Revolution as the system broke down amidst numerous attacks on groups and individuals; the prototype for this kind of politics was set in Yan’an

The Chinese Communist Party 107 with criticism of the intellectual Wang Shiwei during the Rectification Campaign (1941–44) (see Box 4.1). The Rectification Campaign launched and consolidated the notion that it was not enough just to attack the ideas but that it was necessary to show that the person was evil through and through. The fact that this denunciation and related articles appeared in the party’s flagship newspaper indicated that the leadership considered this style of politics worthy of emulation. While the viciousness of the attacks may have moderated in recent years, there have been a number of such incidents during the reform period and this style still influences party criticism of opponents domestically and internationally.

Box 4.1 Criticism CCP-Style: Chen Boda’s Denunciation of Wang Shiwei The denunciation of the critical intellectual Wang Shiwei occurred in the Shaan-Gan-Ning base area during a major campaign to enhance party unity. The style of criticism is the prototype for subsequent CCP attacks on critical intellectuals and party members who have run afoul of the ‘correct party line’. Wang attacked the inequalities that were being perpetuated in the Shaan-Gan-Ning area and chided the authorities for saying that life there was better than outside and that the problems were nothing to worry about. The persecution of Wang and his colleagues put an end to a more cosmopolitan strain of thinking in the CCP as Mao drove to exert a new orthodoxy. Wang’s accuser, Chen Boda, was a secretary to Mao and was a main source of the Mao cult. He rose to national power in the Cultural Revolution before being purged as a ‘sham Marxist’ in 1971. In his criticism Chen wrote: Wang Shiwei’s thinking contains a strain of Trotskyism that is antimasses, antination, counterrevolutionary, and anti-Marxist, and which serves the ruling class, the Japanese imperialists, and the international fascists ... In my view, it is too bad that while his [Wang’s] clothes are quite clean, his soul is very dirty, base, and ugly. We can find in him various manifestations of all the dirtiest elements that can be found in humanity. His filthy soul rides in tandem with his real life ... I think that he could be as great as a ‘leech’. This kind of leech hides in water; when people walk in water, it crawls onto people’s feet or legs, using its suction to get into their skin and suck their blood. It can only be removed when people beat it. We think that Wang’s ‘greatness’ is like [the greatness of] this kind of worm; it is truly ‘great ’. Source: Chen Boda, 1942, in Saich, 1996, pp. 1110, 1111, 1113.

108 Governance and Politics of China It is important that the Chinese revolution was indigenous, despite crucial financial and logistical support from the Comintern in the 1920s and 1930s. The narrative of the CCP stresses the independent nature of its revolution and that one of the keys to success was that under Mao Zedong the party ‘sinicized’ Marxism. This meant that the post-1949 regime was quite distinct from the ‘baggage train’ governments of Eastern Europe. This gave the CCP greater legitimacy and capacity to act according to what it deemed to be in its own best interests and to reject advice that it deemed counter to the national interest. Thus, the CCP abandoned the Soviet-style plan in the mid-1950s and subsequently broke with the Soviets entirely. This has allowed the party to be extremely pragmatic in organizational structure and also in policy choice. In economic policy, it has enabled foreign investment to play a major role in development and subsequently a strong role for the non-state sector of the economy. This has resulted, as noted above, in the recruitment of private entrepreneurs into the party. This pragmatism combined with the stress on Chinese exceptionalism helps explain the resilience of the CCP that has allowed it to avoid the fate of the CPSU. The CCP has shown itself to be remarkably adaptive, something unusual as communist parties are usually thought of as being rigid and inflexible (see Heilmann and Perry, 2011). Pragmatism is also evident in the ideological sphere. A core part of the CCP’s narrative covers the humiliation at the hands of foreigners and the devastation wrought by the Japanese invasion. The party portrays itself as providing the salvation from these twin ‘evils’. This means that there is a continual suspicion of foreign actions in China that, on occasion, can tip over into xenophobia, such as during the Cultural Revolution. It has also meant that ‘nationalism’ can be used as a source of legitimacy. This has been increasingly the case since 1989 when a ‘patriotic education campaign’ was launched for all students to try to instil a new sense of loyalty in them. Textbooks and other materials that have been used are especially critical of Japan and also of the US. This has provided the stimulus for much of the harsh anti-foreign rhetoric, expressed especially online, in recent years. The CCP has gone further to identify the party with the fate of the nation. This has shrunk the space for ‘patriotic’ criticism of regime policy. Criticism of CCP policy is thus often taken as being synonymous with being against the Chinese nation. Foreign involvement can be made an easy scapegoat for domestic problems. The unrest in Tibet and Xinjiang is often linked to the engagement of unspecified ‘foreign elements’. Similarly, in the various maritime disputes that China has with its neighbours in the East and South China Seas, it sees the ‘invisible hand’ of the US urging on the countries in those disputes. The ‘colour revolutions’ have reawakened

The Chinese Communist Party 109 concerns about the West’s intention to promote ‘peaceful evolution’ in China. Most recently, in June 2014, a visit by the Discipline Inspection Committee to the Chinese Academy of Social Sciences (CASS) accused it of being ‘infiltrated by foreign forces’ and that it had been ‘conducting illegal collusion during sensitive times.’ Further, CASS was criticized for use of the Internet to promote theories that ‘played into the hands of foreign powers’ (SCMP, 15 June 2014). This forms part of the new leadership’s drive to curtail foreign influence in China and to strengthen support for its own development strategy. Particular attention has focused on the role of foreign NGOs that operate in China. The new National Security Commission has launched an investigation into their role and has been looking at the kinds of grants that they have been making; some grantees have been warned not to accept such funding.

The role of the CCP in the political system This cultural legacy underpins the role that the CCP defines for itself in the political system and its relationship to other organizations. This is the most important question for reform. CCP dominance has been felt in all walks of life as the party sought not only to control the legislature and executive but also to dictate the nation’s moral and ethical values. This has led to the creation of a vast apparatus to oversee appointments to key positions at various levels and for the development of new control mechanisms as new sectors evolve, such as private business and NGOs. Not surprisingly, suggestions for reform have focused on the need to decrease the party’s influence over the day-to-day affairs of other organizations. Since fundamental reform in this respect would lead to a decrease in the party’s power, it has been strongly resisted. This resistance led to the dismissal of two general secretaries, Hu Yaobang (1987) and Zhao Ziyang (1989). However, by both design and by unintentional effect the reforms have curtailed the party’s power in certain respects. In addition, the party has been aware of the changing environment in which it is operating and has sought to adapt its practices. The collapse of the CPSU sent shock waves through the party (see Shambaugh, 2008 for how the CCP responded) and it has had persistent reminders with the fall of authoritarian leaders, such as Suharto in Indonesia, the ‘coloured revolutions’ that have occurred in Central Europe, and Mubarak in Egypt. The initial years of reform entailed rebuilding the formal institutional structures of the party that had been destroyed by Mao and his supporters during the Cultural Revolution. Deng Xiaoping recognized the need to address this legacy and return, as he phrased it, to a

110 Governance and Politics of China ‘conventional way of doing things’. By this he meant having the CCP return to a more traditional Leninist role with collective leadership, predictable rules governing the power of the higher levels over the lower levels and a tight grip on state and society. The reforms have changed the role of the CCP in significant ways even as it retains its all-powerful position in the system and is willing to destroy any potential opposition. This was shown most clearly in the crushing of the student-led demonstrations of 1989, again in December 1998, when leaders of the China Democracy Party were given heavy sentences in late 2008 when it moved against the initiators of Charter 08, and again in 2013 and 2014 when it broke up the New Citizens’ Movement. The need for change also came from the recognition that a revolutionary mobilizing party would not suit the needs of the new plans for economic modernization and that the CCP was now a ruling party and not a revolutionary party. During the early 1980s, a number of initiatives were undertaken to reform the political system, including the adoption of new Party Statutes and a new state constitution, measures to trim the bureaucracy, attempts to improve the quality of the cadre force and steps to promote more effective citizen participation. The party even changed its selfdefinition. The 1982 Party Statutes refer to the party as the ‘vanguard of the Chinese working class’ rather than as the ‘political party of the proletariat and its vanguard’. The term ‘working class’ is more neutral than that of ‘proletariat’, the latter term conjuring up visions of class struggle. This suits the emphasis that was placed on the tasks of economic modernization and the downgrading of the role of class struggle, as outlined at the Third Plenum of the Eleventh Central Committee (December 1978). Also, importantly, the CCP now defines intellectuals as an integral part of the working class. This attempt to reach out to broader groups in society is shown by the fact that the 1982 Statutes claim that the party is the ‘faithful representative of the interests of all the Chinese people’. This claim did not appear in any of the previous Party Statutes, not even in those of 1956 that were also adopted at a time when the main emphasis was economic development. However, a variety of factors place constraints on the extent of change. For example, the traditional Leninist rejection of organizational pluralism, the fear of internal unrest, the collapse of the CPSU, the fall of Suharto, the ‘colour revolutions’ and the ‘Arab Spring’ all caused Deng and his successors to favour limited change, a development model under which increased market influences in the economy are accompanied by authoritarian political rule. This has led to a fusion of political and economic power, especially at the local levels, and even the incorporation of criminal elements into the party. Minxin Pei (2006) sees this fusion of power at the local level leading to a trapped transition within

The Chinese Communist Party 111 which local officials have no incentive to push ahead with measures to enhance transparency and accountability, let alone more democratic initiatives. Pei sees this spreading form of collusive corruption as a direct product of a more gradualist approach to reform. The notion of continued party leadership is enshrined in the promotion of the slogan of adherence to the ‘Four Basic Principles’. These principles were first put forward by Deng Xiaoping in March 1979 at a Central Theoretical Work Conference in response to the Democracy Wall Movement of the late 1970s as well as the heterodox views put forward at the Conference itself by the party’s own senior intellectuals. After initially using the Democracy Movement in his political struggle against his opponents in the party leadership, Deng had no further use for it and wished to set limits to non-party-sanctioned activities. Adherence to the Four Basic Principles indicates that there are limits to the reforms and suggests a range of obligations for those engaged in discussions about political reform. At the Thirteenth Party Congress (1987) Zhao Ziyang provided the most detailed proposals for reform of formal institutions, in what might be termed a pragmatic view with reforms designed primarily to improve economic efficiency. According to Zhao ‘it was high time to put political reform on the agenda for the whole party’ (Zhao, 1987, p. iii). The proposals called for a redistribution of power, both horizontally to state organs at the same level, and vertically to party and state organs lower down the administrative ladder. The intention was for the party to exercise political leadership but not to become directly involved in the routine work of government. In particular, Zhao proposed that the dual holding of both government and party posts would be stopped, and that party administrative departments that carried out the same functions as those in the state sector were to be abolished, along with the system of party committees ruling over academic and economic organizations. Most importantly, the system of party core groups in government and other non-party organizations was to be abolished. After the Party Congress, these reforms began to be implemented throughout the system. However, the harsh atmosphere that followed the crackdown in the summer of 1989 led to a reversal of these reforms. Zhao even acknowledged that there existed a limited political pluralism under the leadership of the CCP. Breaking with the monistic view common to CCP thinking and the idea of uniform policy implementation, Zhao acknowledged both that ‘specific views and the interests of the masses may differ from each other’ and that ‘as conditions vary in different localities, we should not require unanimity in everything’ (ibid., pp. iii–iv). Yet this acknowledgement of a limited pluralism was not intended to lead to the accommodation of factions within the party, something that had been suggested by some

112 Governance and Politics of China reform-minded intellectuals. Such reforms were seen as the only way to maintain party leadership in a time of change. Under Jiang Zemin and his successors a more orthodox view of the party’s relationship to state and society has dominated. This view opposes wide-ranging political reform and too much loosening of party controls because of the consequences of liberalization for the social fabric of China. Proponents seek to run the party and its relationship to society on orthodox Leninist lines. Efforts to relax the party’s grip over state and society are resisted and they seek continually to institutionalize party dominance. In particular, they focus on attempts to loosen the control of the party in the workplace. With the decentralization of limited decision-making powers to the work-units, it is argued that it is important that the party retains a strong role in enterprises to stop work-units from deviating too much from central party policy. Thus, there is a stress upon the need for party strengthening at the grassroots levels and concern that political and ideological work should continue to be taken seriously. This approach has been enhanced further by Xi Jinping. One hallmark of post-Deng leadership has been the attempt to reassert party control over state and society. This has continued even as the party has struggled to find ways to make the party more responsive to its changed environment. As Hu Jintao commented in his speech to the Eighteenth Party Congress, ‘the more complexities the party faces and the more arduous tasks it undertakes, the more imperative it is for the party to strengthen its discipline and uphold centralized leadership’ (Hu, 2012). The strategy has been to try to bind new organizations into traditional forms of party patronage that are inclusive and to prevent the development of an autonomous realm outside of party control. This can be seen clearly with respect to the growth of the NGO sector (Saich, 2000a) and the private sector (Dickson, 2003, 2008). The party built new institutions to tie these to the existing system while at the same time mobilizing existing united front organizations to oversee them. For the NGO sector, not only did the CCP promote new regulations in 1998 to try to bind social organizations into a Leninist hierarchy, but it also reactivated the use of party cells within non-party organizations to try to ensure control and monitoring. In early 1998, an internal circular called for the establishment of party cells in all social organizations and the strengthening of party work in those where a cell already existed. As part of the CCP’s drive to ‘comprehensively cover’ grassroots society, Thornton writes about the emergence of party-organized NGOs, sponsored and supported by local party committees. As the state has withdrawn from society, she claims there has been an ‘unprecedented advance of the party’ to fill the gaps. She views

The Chinese Communist Party 113 this as a new model of social governance where a ‘more independent party mediates between the smaller reform-era state and an increasingly mobile and diverse Chinese society’ (Thornton, 2013, p. 3). This approach, also entailing the revival of holding multiple posts, is best exemplified by Xi Jinping being general secretary, president and chair of the CMAC. This ‘holy trinity’ ensures that one person oversees party, state and army in a concentration of power that the reforms of the late 1980s were intended to moderate. Like Jiang and Hu, Xi clearly sees the party as crucial to carrying out a difficult phase of reforms and does not trust government or society to carry out his policy programme without oversight. His stepped-up campaign against corruption would indicate that he also has concerns about the reliability of the party. Party leaders have been consistent in their rejection of the Western ‘separation of powers’. The Decision adopted at the Fourth Plenum of the Sixteenth CC (2004) reflects this hostility to the West, stating that ‘there has been no change in the strategic conspiracy of hostile forces to Westernize and cause China to disintegrate’. In his report to the Eighteenth Party Congress, Hu Jintao stated clearly that ‘we will never copy a Western political model’ (Hu, 2012). The current attitude seems to be that if the party can get it right, provide better feedback, clamp down on corruption and promote better-qualified leaders, then there will be no need to open up the party to greater responsiveness from society. The following quote from Hu’s speech (2012) to the Eighteenth Party Congress shows the conundrum of claiming that while power should lie with the people it should be led by the party in everything: ‘we should place greater emphasis on improving the way the party exercises leadership and governance to ensure that it leads the people in effectively governing the country’. It is difficult to say whether the limited measures proposed by the CCP to improve inner-party democracy, such as having more candidates than places to be filled for elections, can significantly restore party prestige, and whether the party-strengthening campaigns can have an enduring effect. Certainly party membership has continued to rise rapidly and many young, well-educated people want to join the party, but often for very instrumental reasons – connections and information that can be turned into a successful career or money. The primary reasons for the diminished effects of such party efforts are threefold. First, the increased social space that the party allowed has been filled by a range of heterodox ideas and beliefs. The reforms launched beginning in the early 1980s were not only accompanied by sharp debates among the party leadership but also by the public expression of quite unorthodox ideas. The party found it difficult to maintain its system of patronage for certain intellectual groups and social organizations while it was slowly losing control over the

114 Governance and Politics of China discourse that was filling the public spaces. Increasingly, public discourse was breaking free of the codes and linguistic phrases established by the party. Such discourse revealed a weaker party and one whose authority was gradually being undermined. In the villages, for example, party control was challenged by the revival of traditional religious practices, as temples became places not only for worship but also for the kind of reciprocity that was previously solely controlled by the party. The party has had to struggle against the revival of local religious leaders, clans and triads as well as face challenges in some areas by private wealth. For some, this has meant taking on multiple roles, that is, being both the party secretary and the local religious leader. One thing that is certain is that the party has become more contested and embroiled in daily life. Second, the party lost much legitimacy in the eyes of many because of the extremely high levels of corruption that accompanied the reforms and the close identity of interests between business and official party positions. As the historian Meisner (1996) has pointed out, with no commercial middle class when markets were introduced, it was local party officials who acted as the entrepreneurs and who became rich as a result. The pursuit of economic riches without genuine marketization and democratization, and with power remaining hierarchically structured and information dependent on position, resulted in the institutionalization of corruption. A system of state, society, party and bureaucratic reciprocities based on networks of favour, kinship, friendship and association has become the operational norm. In practice, public enterprises controlled by the state became fiefdoms plundered by those who ran them, with a market system in which goods and services were less important than power and prestige. The combination of party appointment to controlling positions and a dual economy created a hybrid economic formation that one might refer to as ‘nomenklatura capitalism’. The real good of value in this form of market is information that can be traded for money – or, more often, for further power (Apter and Saich, 1994). Party membership is crucial in this process. Third, with the emphasis on economic development and the shift in the party’s fundamental legitimacy to its capacity to deliver the economic goods, the objectives of party and state were not always synonymous, nor is the obedience of party members at lower levels guaranteed. The party needed to effect its policy intent through mobilization of both party members and organizations at all levels and through the implementation and enforcement by state organs. Local governments in pursuit of local developmental goals may take policy options that at best conflict with party policy and at worst run counter to it. The party cannot count on state organs for automatic policy support. A good example was the privatization of SOEs that was rife

The Chinese Communist Party 115 at the local levels but deeply contested at the centre. This caused a fundamental tension between the party’s traditional Leninist vanguard role and its other roles as an integrating mechanism and development agency. The drive to maintain institutionalized party dominance provides stability and assurances as well as status for party cadres. However, at the same time this drive does much to explain the stifling of initiative in the political realm that, in combination with the former dualpricing system, provided the structural basis for corruption that was heavily criticized not only by student demonstrators but also in the official Chinese press. The concentrated nature of power and the lack of a genuine system of accountability meant that party officials at all levels were in a unique position to turn professional relationships into personal connections for financial gain. Given this structure, the idea that the problem can be resolved by punishing a few middle-ranking officials and an ideological campaign instilling correct behaviour in cadres is a non-starter. These are challenges that Xi Jinping is trying to address through the extensive campaign against corruption to restore the prestige of the party in the eyes of China’s citizens. These fundamental challenges that will affect CCP rule over the long term will be returned to in Chapter 12.

Chapter 5

The Central Governing Apparatus Post-Mao policy has led to a revitalization of the state sector, with a renewed stress not only on the state’s economic functions but also its legislative and representative functions. Four sets of pressures have pushed this process along. First, there is the performance deficit inherited from the Mao years when government efficiency was low, the state intrusive, law arbitrary if it existed, and citizens’ rights subject to the whim of local officials. Second, the emphasis on economic reform required the state to withdraw from its previous overbearing role and reduce administrative interference, which led to a major redistribution of power both horizontally and vertically, with significant de facto powers being decentralized to lower-level administrative units (see Chapter 6). This was compounded by global economic competition and China’s integration into the world economy. Third, the information revolution has built on these two factors and revealed the gap between performance in the public and private sectors. Also, it has allowed citizens greater access to information through which they can evaluate the performance of their government. Fourth, there has been pressure to increase levels of accountability, either through village elections that were introduced to fill the institutional vacuum left in the country’s villages (see pp. 213–17) or through the expansion of nonstate organizations. In this chapter I first discuss some of the aspects of governance that do not appear on the organizational charts; I then look at how to evaluate government performance before describing the structure of the central state apparatus, the legal and coercive system and the military in the political system. Institutional integrity and jurisdictional authority in China have been less important than in many countries. Indeed it is the role of the state, including its judicial organs, to implement party policy. Yet state organs and individuals have a great capacity to distort party policy during the process of implementation. Not only Mao Zedong but also local leaders have intervened in the governing process to amend outcomes to suit their own preferences. As the saying goes: ‘The centre has its policies but we have our counter measures’. It is no surprise given China’s immense size, the large population and attempts to retain a unitary state structure that the organization of government is very complex. While it is an authoritarian system, authority is, as Lieberthal (1992) has suggested, ‘fragmented’ both 116

The Central Governing Apparatus 117 horizontally and vertically through the system. As a result, it is also a ‘negotiated state’ (Saich, 2000a), where local governments and even individual institutions vary in nature depending on the relationship they have negotiated with other parts of the apparat (see Chapter 7 for further discussion). Mertha (2009) uses the phrase ‘fragmented authoritarianism 2.0’ to try to account for the fact that, while the system remains authoritarian with a closed political system in many respects, it has become increasingly pluralized with new actors, state and non-state, and new arenas for policy debate and interest representation. The problem is compounded by the fact that formal organization charts often hide as much as they reveal about where real power lies in the system. The question of party dominance was dealt with in Chapter 4 and the relationship between the centre and the localities is covered in Chapter 6. Here a number of other important issues are briefly considered. First, as noted in Chapter 4, despite the stress in the post-Mao period on the need to move to a rule of law and away from personal dictate, it is still a system where individuals hold immense capacity to circumvent formal regulations. This is true not only at the centre but also at the local levels, and it is difficult to tell the real extent of a person’s power from his or her position on an organizational chart. One example of this is the system of personal secretaries that senior leaders maintain (Li and Pye, 1992). The party elite can choose their own secretaries, and thus that person’s loyalty will be primarily to the senior leader rather than to any organization as a whole. They often come to form a trusted inner cabinet acting as the ‘eyes and the ears’ of the senior leaders. Many of them may later go on to develop important political careers of their own. There has been criticism that some personal secretaries have used their positions to enrich themselves. Indeed, secretaries to senior officials have become one target of Xi Jinping’s anti-corruption campaign. In May 2014 the People’s Daily reprinted his 1990 speech in which he warned that ‘secretaries to high-level officials are not allowed to abuse power under the name of either their superiors or facilities they work in to seek personal gain’. As a result, some provinces have started to eliminate the post of full-time secretary for officials at the city and county levels. Second, there are a number of organizations and relationships that do not appear on any chart but that are important for understanding power and control. These are the Leadership Groups at the centre, described in Chapter 4, which coordinate work and policy in broad functional fields and the relationships between line command and horizontal command (for a fuller description of these, see Lieberthal, 2004, pp. 192–207, 169–70). These more permanent groups are often referred to in China as being ‘gateways’ (kou) that link the elite to a

118 Governance and Politics of China functional area within the party and state system. In the past, control of crucial gateways was a source of conflict. In the late 1980s when Zhao Ziyang was moved to CCP general secretary, for example, he fought with Li Peng, the new premier, for control over the economics gateway. Through his control, Li was able to keep Zhao out of the loop on a number of key policy issues (interview with official concerned). By the end of the 1990s, interviews with relevant officials suggested that these gateways, with the exception of party affairs and propaganda, had declined in importance. Control over finance and economics had shifted effectively to the groups working under the State Council system, reflecting greater professionalization of the system, and others such as agriculture met only once a year before the main party-work conference. Below these senior leadership groupings functional bureaucracies are grouped together in what the Chinese call a ‘system’ (xitong); individuals commonly refer to themselves as working in a particular xitong. The xitong should coordinate policy and attempt to monitor its implementation: no easy task in such a dispersed bureaucratic system. Xitong has a narrow and a broader meaning; some use it to refer to all the units within the jurisdiction of a particular ministry or commission, while others might refer to the broader group of functionally related bureaucracies that cross individual ministry or industry lines. While there are many xitong in this second sense, Lieberthal (2004) identifies six major ones: party affairs, organization and personnel, propaganda and education, political and legal affairs, finance and economics, and the military. These xitong link to the Leadership Groups at the centre and, while they may provide some coordination, they are not entirely effective for either implementation or feedback. The problems of bureaucratic coordination have resulted in tensions between what Schurmann (1968, pp. 188–94) refers to as a ‘vertical’ and ‘dual’ rule that approximates to what the Chinese call tiao (branches) and kuai (areas). The dominance of one over the other will affect how central policy is implemented and how authority is exerted. Tiao indicates that a ministry at the central level has control over all the units at the lower levels that come under the scope of its jurisdiction. As a result, the flow of information and command runs vertically up and down the system. Kuai indicates that the party committee at each level would be the primary point of authority coordinating the activities of the organizations within its geographical jurisdiction. It amounts to a form of dual rule as the unit at the lower level is responsible to the corresponding departments of the line ministry and the higher levels as well as to the party committee at the same level. In the first pattern, it is the line ministry or equivalent that exerts a ‘leadership relationship’ (lingdao guanxi) over those below, whereas in the second it is the party at the same level that enjoys this authority.

The Central Governing Apparatus 119 Which of these relationships dominates varies over time and one Western author has interpreted post-1949 history as a struggle over the dominance of tiao or kuai (Unger, 1987). The system of vertical control was adopted under the First Five-Year Plan, but it caused the growth of specialized bureaus at the lower levels that were responsible to the corresponding departments at the higher level but that were resistant to party supervision at the same level. This did not lend itself to the kind of political mobilization preferred by Mao, which was to be led through the party system at the various levels. As a result, in 1956 the Eighth Party Congress adopted the system of branches. In practice this enabled the party to keep control over the state system as the party committee at each level was the only body capable of coordinating the activities of all other units. During the Great Leap Forward, following the 1957 decentralization measures, the party took almost complete control over the state administration at lower levels, and ministries of the State Council were effectively cut off from their functional departments at the lower levels. On the whole the dominance of tiao leads to the development of large industrial systems, while the dominance of kuai supports a policy of local self-sufficiency with the development of autarkic economic systems. The reforms have tried to move China away from this tug of administrative war but the main result has been greater de facto independence for the localities to pursue their own development strategies within broadly defined guidelines. Given this background, one might wonder whether it is worth spending much time on the formal organization structure at the centre. However, as Blecher (1997, p. 117) has pointed out, at the very least the formal institutions shape the overall nature of the state and politics and it is thus important to understand them, how they function and how they interrelate. Second, slowly but surely China has been moving towards a greater institutionalization of the policy process and the central institutions have become a focal point for lobbying by diverse groups and interests as they formulate rules and regulations. Third, the central state has presided over a massive body of legislation to support the economic and social reforms since the 1980s. If China is to complete its transition to a market economy, it will require a competent national government to adjudicate disputes, to interpret the rules, to give concrete form to the emerging norms and to devise new institutional forms.

Evaluation and perception of government performance Most of the problems that China confronts are related to questions of governance, whether it is the poor implementation at the local level of

120 Governance and Politics of China good national regulations, illegal transfers of land by local administrations, or lack of transparency in the government or corporate sector. However, in comparative terms, China’s government does not perform too badly for its economic level and most citizens are relatively satisfied with the performance of the national government, if not their local government. According to the World Bank’s governance indicators, China’s governing performance has not varied significantly since 1996 when the project began. The country’s best indicator is government effectiveness where it ranked in the 56th percentile; other indicators range from the 28th percentile (political stability) to the 43rd percentile (regulatory quality). Not surprisingly, voice and accountability ranks extremely low (4.7), while control of corruption has declined from the 44th percentile in 1996 to the 39th percentile in 2012 (Figure 5.1). When compared with other large developing countries and those with similar incomes, China’s evaluation is favourable. Not surprisingly, it ranks extremely low on voice and accountability, even lower than Vietnam, but its government effectiveness ranks higher than the other two large populations in the region, India and Indonesia. Its performance is lower than India on rule of law but ranks better on control of corruption and is seen as more politically stable. However, comparison with the ‘tiger economies’ of East Asia shows that China still has

Figure 5.1 Governance Indicators for China, 1996–2012




70 60 50 40 30 20 10 0 Voice and accountability

Political stability

Government Regulatory Effectiveness Quality

Rule of Law

Control of Corruption

Source: Compiled from data at

The Central Governing Apparatus 121 Figure 5.2 Governance Indicators for Selected Countries in Asia, 2012 Voice and Accountability Political Stability Government Effectiveness

Regulatory Quality Rule of Law Control of Corruption

90 80 70 60 50 40 30 20 10 0 China



South Korea


Source: Compiled from data at

a long way to go in terms of government effectiveness. For example, it lags far behind South Korea on all indicators (Figure 5.2). From 2003, I conducted a survey of some 4,000 Chinese respondents on their attitude towards the government. With respect to citizen satisfaction with government, two trends are noticeable. The first is that respondents ‘disaggregate’ the state and, while they express high levels of satisfaction with the central government, satisfaction declines with each lower level of government. Thus, while 91.8 per cent in 2011 were either relatively or extremely satisfied with the central government (37.3 per cent were extremely satisfied), this figure dropped to 63.8 per cent at the local level (10.9 per cent were extremely satisfied) (Figure 5.3). In China, local governments provide almost all public services and the fact that satisfaction levels decline as one gets closer to the people is a worrying sign. While the central government proclaims many policies to improve public service provision and rattles the nationalist sabre against Japan and Taiwan, it is the county and the township that has to fund and provide most of the services. The second major finding is that satisfaction rose steadily during the Hu Jintao–Wen Jiabao years. While that for the central government has not changed significantly, satisfaction with the lowest levels

122 Governance and Politics of China Figure 5.3 Percentage of Citizens Relatively Satisfied or Extremely Satisfied with Government Central










0 2003




Source: Author’s surveys, 2003–11.

of government has increased from 43.6 per cent in 2003 to 63.8 per cent in 2011. The highest and the lowest income earners are the groups that are most satisfied. This would suggest that those with the highest incomes feel that they have done well under the current system and thus are relatively satisfied with the way government functions. That there are higher satisfaction levels with the central government by the lowest income earners suggests that they clearly see the policy intent of the centre as being supportive of their interests, as seen, for example, in the attempts to stamp out illegal fees and levies, to cut agricultural taxes, to regulate land seizures better and to provide improved access to health and education. These are, of course, benefits that should apply to all rural dwellers, accounting perhaps for the higher satisfaction rates generally. This notwithstanding, the trend is distinct from that in many developed economies, where satisfaction levels tend to rise as government gets closer to the people, indicating that people feel that they have greater control over the decisions of local government and may be able to influence local policy and resource allocation. While the consequences of these findings may raise concerns about the quality of local governance, they are not necessarily bad news for the central government. The low levels of satisfaction might be a potential

The Central Governing Apparatus 123 indicator of social instability but the survey suggests that, for our sample at least, citizens do not see the problems as lying with the central government. This accords with the findings of others that, while demonstrations, strikes and unrest may be daily occurrences in rural and urban China, the central government retains a strong source of legitimacy. Many would appear to see the problem as one of local policy implementation rather than as a lack of the centre’s will or systemic bias. In fact, the incentives for local governments to follow central directives in areas such as environmental and social policy are weak, while there is intense pressure on them to generate revenue often through non-sanctioned fees and levies. However, this set of perceptions holds out the possibility that residents will continue to remonstrate against local officials, seeing their actions as justified by central policy intent.

Central government The constitution The question of whether it is worth studying the formal aspects of China’s political system is even more apparent when one talks about the relevance of the constitution to actual political practice. While much of the important politics in China is informal and thus parts of the constitution cannot be taken at face value – for example, rights extended in one part may be contradicted in another – as a whole it does provide a useful guide to the leadership’s thinking about the present situation and gives an indication of the way in which they would like to see it evolve. In this sense, like the three previous state constitutions, the 1982 version and its amendments provide the reader with a good barometer for China’s political, economic and social climate (Saich, 1983, p. 113). This is clearly demonstrated with the leadership’s evolving acceptance of the non-state sector of the economy. At the NPC meeting in March 1999, the role of the non-state sector was elevated from being ‘a complement to the socialist public economy’ to ‘an important component of the socialist market economy’. Similarly, the change of the phrase ‘counter-revolutionary activities’ to ‘crimes jeopardizing state security’ reflected China’s attempts to move towards international norms on legal issues. The March 2004 session made two important amendments to guarantee citizens’ ‘legally obtained’ private property and inserted the statement that the ‘state respects and protects human rights’. The PRC has been governed by four constitutions. The years immediately following the establishment of the regime were a time of radical political, social and economic restructuring and it was not until

124 Governance and Politics of China September 1954 that the first constitution was adopted, detailing the new state structure. Inevitably, it owed much to the Soviet system of government and paralleled that of the party, with three levels of government below the centre – the province, the county or municipality and the town or commune. With minor changes, this structure has since remained the same. The first constitution effectively ceased to operate in 1966–67, when the Cultural Revolution (1966–76) resulted in the disruption of established institutional arrangements and produced new structures and processes that had little, if any, constitutional validity. The second constitution was adopted in January 1975 and reflected the more radical atmosphere of the Cultural Revolution. This was replaced by the third constitution, adopted in March 1978, which marked initial attempts to restore the pre-Cultural Revolution system. The current constitution was adopted in December 1982. In general, the 1982 constitution reflects the leadership’s concern to create a more predictable system based on a clearer separation of roles and functions and a system of clearly defined rules and regulations applicable to everyone. The constitution defines the nature of the state as ‘a socialist state under the people’s democratic dictatorship’, a concept similar to the 1954 definition of China as a ‘people’s democratic state’. These two constitutions were adopted during periods when the emphasis in policy-making was on economic development. Clearly, the intention was to use a definition that incorporated as many people as possible, thus limiting the number of people who could be considered enemies of the state. This accords with the utilization of united front tactics by the pro-reform leadership in the 1980s. Vital to this approach was the downgrading of the importance of class struggle in Chinese society – a decision announced at the Third Plenum of the Eleventh CC (December 1978). Thus, the fiercer definition used in the 1975 and 1978 constitutions of China as ‘a socialist state of the dictatorship of the proletariat’ was no longer deemed applicable. All communist regimes suffer from the problem of party penetration into state affairs. In China this problem has been particularly acute, and during the Cultural Revolution any pretence at distinction between the two was effectively abolished. Thus, at the start of the Revolution the organs of party and state at the non-central levels were identical. The revolutionary committee, which replaced the pre-1966 party and state organs, initially combined the functions of both party and state in one committee. Even after 1969, when the party structure was gradually rebuilt, confusion persisted concerning the correct division of responsibilities between the party and the revolutionary committee. To resolve this problem the post-Mao leadership abolished the revolutionary committee and restored the pre-Cultural Revolution system of local government.

The Central Governing Apparatus 125 The 1982 state constitution reflected the attempt to free the state sector from the grip of the party. Unlike the more ‘radical’ constitutions of 1975 and 1978, the power of the party was played down in the 1982 constitution. Reference to the party as the ‘core of leadership’ was dropped, as was the claim that it was the citizens’ duty to support the party. Mention of party control now appears only in the preamble, where its leading role is acknowledged in the ‘Four Basic Principles’. Yet, in practice, it is clear that the state’s freedom for political manoeuvre remains circumscribed and limited.

The National People’s Congress and the Chinese People’s Political Consultative Conference Since its creation in 1954, the NPC has been the highest organ of state power, but prior to this, during the period of the Common Programme (1949–54), the highest body was the Chinese People’s Political Consultative Conference (CPPCC). In September 1949 the CPPCC met in Beijing to proclaim the establishment of the PRC. The CPPCC was a manifestation of the united front policy, which meant that many of its members were non-communists, but its ultimate purpose was to bring about its own replacement as the most important administrative body. The meeting elected the Central People’s Government Council and the Government Administration Council, the forerunner of the State Council, and approved the Common Programme and the Organic Law that provided the principles of organization for the new state structure. The CPPCC still functions, headed by a member of the Standing Committee of the Politburo – currently Yu Zhengsheng – and has become a more lively forum for discussion and policy suggestions on prominent social, economic and foreign policy affairs. It now meets annually. With the stress on harmony rather than class conflict it provides liaison with other political parties and promotes united front work, providing a discussion forum for some non-party intellectuals and figures prominently in other walks of life with no party affiliation. The CPPCC provides the party and the NPC with expertise that is helpful for policy-making. Currently, its meetings are held concurrently with those of the NPC. Of the 2,237 delegates that attended the first session of the Twelfth CPPCC (March 2013), some 60 per cent were non-CCP members. This is also a forum that encourages the participation of Hong Kong residents who have significant ties to the mainland’s development: at the second session in 2014, 6.11 per cent of the deputies came from Hong Kong. It is not unusual for them to pay a ‘fee’ to enjoy membership. For CPPCC delegates, membership provides a say in policy-making over a range of economic and social questions. Evidence suggests that

126 Governance and Politics of China proposals from the CPPCC do have some impact, although it should be pointed out that they do not deal with fundamental questions of policy but rather with technical matters, environmental questions or social issues. At the Eleventh CPPCC, some delegates raised critical voices about the government’s property law and the 2007 decision to raise the stamp duty in the stock market. At the second annual meeting of the Twelfth CPPCC delegates did complain that the conference needed more teeth and one called for more independent powers, including strengthening its supervisory role. He claimed that the ‘CPPCC has been neglected for years’. The director of its research office admitted that it ‘had veered off track from the original intention for it to function as a supervisor of political affairs’ (SCMP, 11 March 2014). In discussions with CPPCC members over the years, they have identified two other values of membership. First, members are allowed to see an array of internal party and state documents to which the general public does not have access. Second, membership allows them to pick up subtle and not so subtle changes in the political winds before they are more generally apparent. This can afford them the time to adjust their public views and practices accordingly to head off any potential criticism. At all levels, state power is vested in the people’s congresses. The highest organ of state is the NPC, which is composed of deputies elected by the provinces – autonomous regions and municipalities directly under the central government – and by the armed forces. The NPC is elected for a term of five years and holds one session in each year. To date, there have been 12 national congresses. The Twelfth Congress (March 2013) was attended by 2,987 delegates with 110 candidates for each of the 100 positions available. Of those selected, 23.4 per cent were female, a percentage that has remained roughly constant since 1975 and an advance on the First NPC (1954) when only 12 per cent were female. Representation from ‘national minorities’ has also remained constant between 13 and 14 per cent (13.7 per cent at the Twelfth), with each ethnic group guaranteed a minimum of one delegate. The PLA is the largest delegation with around 9 per cent. The return of Hong Kong and Macao to Chinese sovereignty as Special Administrative Regions led to a change in representation. From 1975, they had been represented in the Guangdong provincial congress delegation. For Hong Kong, from the Ninth NPC (1998) it had its own delegation elected via an electoral college, and for Macao this was introduced at the Tenth NPC (2003). The constitution vests in the NPC a wide range of powers and functions. It has the power to amend the constitution, to make laws and to supervise the enforcement of constitutional and legal enactments.

The Central Governing Apparatus 127 Formally it has a significant role in the appointment of senior state officials. It elects the president and vice president and shall ‘decide on the choice of the Premier of the State Council upon the nomination of the President’. The 1978 constitution stated that this be done ‘upon the recommendation of the CC’. Similarly, the NPC shall ‘decide on the choice of vice-premiers, state councillors and ministers upon nomination by the Premier’. Some offices, however, are at the NPC’s disposal without such constraints. Thus, it is empowered ‘to elect’ the chair of the Central Military Commission, the president of the Supreme People’s Court and the Procurator General (see Figure 5.4). Furthermore, it has the power to remove from office all those listed above, from the president downwards. The NPC is also entitled to examine and approve the national economic plan, the state budget and report on its implementation, to ‘decide on questions of war and peace’, and ‘to exercise such other functions and powers as the highest organ of state power should exercise’. To give fiction to the importance of the NPC, its head officially ranks as the number-three person in the CCP hierarchy, currently Zhang Dejiang. Previously the chair had been ranked number two. At first glance, these powers seem extensive, as indeed they are, but in practice it is not the NPC that controls them. Major decisions and appointments are made by the party, usually ratified by the CC before the NPC and passed on to the NPC for its ‘consideration’. Within the party, generally the legal and political group of the CC or a special drafting committee will assess the proposed legislation and present its views to the CC. As O’Brien has noted, from its inception the NPC has lacked the organizational muscle to tell the State Council, ministries or courts what to do (O’Brien, 1990, p. 79). Further, the NPC has too many delegates (2,987 at the 2013 Twelfth Congress) and meets too infrequently to really exercise its powers. Thus, the NPC elects a Standing Committee to act on its behalf when not in session. Because of its smaller size (currently 161 members), it can hold regular meetings with comparative ease. In addition to retired senior officials, the heads of the eight ‘democratic parties’ are members. Since 1987, the Standing Committee has met every two months. This body conducts the election of deputies to the NPC and convenes it. The 1982 constitution granted important increases in the powers of the Standing Committee; it has been given legislative power and the power to supervise enforcement of the constitution. When the NPC is not in session, the Standing Committee can examine and approve partial adjustments to the state plan and budget, and it is hoped that this will provide the state with flexibility and speed when reacting to problems in the economy. The Standing Committee’s power of supervision over state organs has also been increased.

128 Governance and Politics of China Figure 5.4 Central Organization of the Chinese Government, March 2014

Standing Committee of the NPC Chair; Vice chair; Secretary General and other members

President of the PRC Xi Jinping Vice president of the PRC Li Yuanchao

Central Military Affair Commission Chair: Xi Jinping Vice chairs: two Members: eight

National People’s Congress

State Council

Elected every five years Twelfth Congress, March 2013 2,987 delegates, annual meetings

Premier: Li Keqiang Vice premiers: four Councillors: five Ministers: twenty-five

President of the Supreme People’s Procuratorate


= elects;

President of the Supreme People’s Court

= ‘decides on recommendation’.

That said, it is clear that the NPC has been strengthened as an organization; it has institutionalized and strengthened its input into decision-making in ways that are not an overall threat to party dominance, and its outcomes have become less easy to predict, as seen in its greater number of dissenting votes on legislation and personnel appointments. As with other parts of the political system, the party cannot guarantee absolute support and has accepted a looser form of control than during the Maoist days when the NPC was simply stocked with model workers and peasants, pliant intellectuals and

The Central Governing Apparatus 129 senior party leaders. However, around 70 per cent of delegates are CCP members, 72 per cent of the Twelfth NPC. In February 1991, a CC document outlined that party leadership was, henceforth, to be limited to establishing overall policy direction, with the Politburo reviewing and confirming draft laws before they were sent to the NPC for final discussion and approval. It was also acknowledged that most articles would not need detailed review and that certain ‘less important’ laws might not even need to be reviewed by the Politburo. The document also made subtle changes in the relationship between the NPC and the ministries and agencies under the State Council. Through much of the 1980s the NPC had been reactive, responding to legislation as it was submitted from the State Council system. Now it was required that ministries should report significant political laws they were drafting to the NPC leadership in advance. In addition, NPC leaders were placed in charge of working out any problems with such legislation with the Politburo or the Secretariat. In a further sign of regularization, the March 2000 session of the NPC passed the ‘Legislation Law’ that sought to bring some clarity to the question of who could make laws on what and when. Most importantly, the new law made it clear that only the NPC could draft law in areas regarding basic human rights, litigation and taxation. In other areas the State Council, local governments and congresses could still legislate. Second, it endorsed the rights of local legislatures to pass laws when national legislation did not exist. However, once national law is passed, then the legislation must be brought into line. The centre had been embarrassed in 1993 when Shenzhen passed its own Company Law after launching China’s first stock exchange. The reforms have also breathed a little life into the debates at the NPC meetings, but while challenging its image of being a ‘rubber stamp’ it is far from functioning as a Western legislature. As O’Brien (1990, p. 178) has concluded, reform of the NPC system has led to limited inclusion as a substitute for liberalization, not a sign of it. There have been reports in the Chinese press about policy debates conducted during the sessions and voting has become much less unanimous. The particular individual who chairs the NPC still makes a difference but there is an increasing sense in which the chair also comes to represent the institutional and policy interests of the NPC. Thus under the leadership of the orthodox Peng Zhen in the mid-1980s, the NPC acted to hold up reform legislation on the question of bankruptcy and a new enterprise law that was designed to increase the power of managers at the expense of party committees. It was only when Peng was replaced by the reformer Wan Li that the delaying tactics ceased. By contrast, given his previous experiences in the pre-1949 base area

130 Governance and Politics of China of Jin-Cha-Ji, Peng promoted experimentation with village elections and presided over a draft law regularizing them nationwide. There has been a constant pull and tension between maintaining party control and allowing the NPC to play a more critical role. Normally, the former has dominated. Following the events of 1989, the more liberal head Wan Li held the view that ‘further policy mistakes and catastrophes could be avoided if the party used the NPC as an institutionalized device for listening to the complaints of the people’ (Tanner, 1999, p. 107). The NPC system became a strong platform for Qiao Shi’s promotion of the rule of law and the right to engage in elite party politics, significantly a battle in which he ultimately lost to the party general secretary, Jiang Zemin. Jiang himself inevitably stressed the need for NPC delegates to hold to the party line. Under the leadership of Li Peng this received more attention, and at the NPC session held in March 2000, he called for deputies to ‘support the party’s leadership over the work of the people’s congress’ (SCMP, 10 March 2000, Internet edition). This ‘party-first’ concept seemed to roll back some of the increased powers that Li’s predecessor Qiao Shi had carved out for the NPC. While Qiao strove to increase NPC capacity to supervise the party as well as the government, Li seemed more content to boost its powers over government and judicial units. In line with Jiang’s and Li’s wishes, the power of the party cell over CCP NPC legislators was strengthened. This tightening of control was even more apparent at the non-central levels where 23 party secretaries from the 31 provinces or equivalents also headed the legislature, something that Zhao Ziyang’s reforms had tried to stop. However, some discontent still comes to public view, and the NPC Rules of Procedure passed by the March–April 1989 session contains a clause that delegates should enjoy immunity during debates. The record for dissent was over Li Peng’s Work Report at the March 1992 NPC session. The report supported the policy of rapidly developing the coastal regions and a special motion was passed that gave Shenzhen, the city and SEZ over the border from Hong Kong, special privileges in terms of drafting its own legislation. Opposition was shown by the fact that 274 delegates voted against the motion and a further 805 abstained – a record at that time in NPC voting. While this may have been an initial high tide of NPC assertiveness, events several months later showed that on any vital issue the NPC was a mere sideshow to the decisions made by the senior party leadership. In May 1989, after the State Council had promulgated the imposition of martial law, about one-third of the NPC’s senior leaders signed a petition calling for the convening of its Standing Committee to consider this step (Hu, 1993, pp. 3–34). There was also hope among many demonstrators that the then NPC Chair Wan Li might return from his

The Central Governing Apparatus 131 overseas trip, call the NPC to order and provide a constitutional resolution to the friction that was dividing the party, state and society. On both counts people were disappointed and the NPC was shut out of any meaningful role. In the 1990s, the NPC picked up its role of occasional assertiveness and continued its especially robust monitoring of the annual work report of then Premier Li Peng, demanding numerous revisions. In general, the NPC tried to exert greater scrutiny over the different apparats within its jurisdiction. For example, the NPC Finance and Economic Subcommittee heard reports from relevant ministers on economic development. Negative votes have become more commonplace and the NPC has also been willing to express its disapproval of candidates for vicepremier positions whom it feels lack competence and are clearly being appointed for factional reasons. Even Jiang Zemin’s election as president in March 1998 was not unanimous, with 2,882 votes in favour, 36 against and 29 abstentions: not a large number but interesting all the same given the enormous build-up of Jiang’s pre-eminent status that had followed the Fifteenth Party Congress (1997). In fact, as most positions only have one candidate, negative votes can tell much about a candidate’s popularity. Thus, while Li Peng received 2,290 (85 per cent) of the votes at the Ninth NPC, Zhu Rongji received 2,890, with only 60 abstaining or voting against (Cabestan, 2000, p. 10). Wen Jiabao in 2003 had only 19 abstentions or votes against, while Li Keqiang in 2013 had 2,940 positive votes, with only three against and six abstentions. Not surprisingly, Xi Jinping received only one negative vote and three abstentions in the vote for president. By contrast, Li Yuanchao received 80 negative votes and 37 abstentions (96 per cent support). This was better than Zeng Qinghong at the Tenth NPC (87.5 per cent) in the vote for vice president. Interestingly, those considered close to Jiang Zemin, such as Zeng, tended to receive fewer votes at the Tenth and Eleventh NPCs than those who were closer to Hu Jintao. It seems that this may have been reversed at the Twelfth NPC, with those close to Hu Jintao receiving less support. The debate on the Property Law in 2006 was the most recent case of proposed legislation not making it through the NPC as initially expected (the Highway Law in 1999 is another example). The passage or rejection of such laws can become part of the broader political struggles. The postponement of discussion of a new law on property rights that was expected to be passed by the NPC raised concerns that reforms to solidify the market economy further were losing momentum. Leftist groups criticized the law, claiming that the legitimation of private property would provide protection to officials who had been engaged in the theft of state-owned assets. The political mainstream

132 Governance and Politics of China was blindsided when an attack on the draft was launched by a Peking University professor who suggested that the legislature was behaving like ‘slaves’ by copying a capitalist law that did not guarantee the inalienable nature of socialist property. In retrospect, the real reason for the postponement may have been simple vested interests combined with the fact that it is very difficult to define what can be called ‘property’. In part, this relates to a major concern among the leadership over the illegal transfer of land. In the countryside, land is owned collectively, which in practice means that local political authorities can decide on its use and distribution, a fact that lies behind much of the corruption and unrest in the countryside. How property rights are defined in the countryside is a major dilemma, as giving rights to the farmers will not only rob corrupt officials of their spoils but will also undermine the rationale that socialism still operates in rural China as land is collectively, not privately, owned. The draft had been in the works for 13 years, but in 2007, with the political leadership better prepared, it was passed into law by the NPC. In addition, the NPC has found a popular cause with respect to law, order and corruption. It has been highly critical of various reports by the heads of the judiciary and the procuracy, reflecting popular disenchantment with the legal system. At the Ninth NPC, the candidate for chief prosecutor received only 65 per cent of the votes. Many voted against him both because of his age (66) and because they felt that a career as minister of railways was perhaps not the best legal training. In addition, nearly half of the delegates voted against the annual work report of the procurator-general, the largest negative vote in NPC history. This resulted in greater consideration being given in the following year both to the report and the views of the delegates. Support has improved but it is still not unanimous. At the Eleventh NPC, 83 per cent approved the court report and that of the procurator-general. The election of Zhou Qiang as president of the Supreme People’s Court at the first session of the Twelfth NPC seemed to indicate confidence as he received 2,908 votes (98.3 per cent). How the NPC will develop in the future is, like all things, difficult to predict, but it is the hope of many reformers that the institutional strengthening that has taken place and the professionalization of NPC staff will lead to an even more assertive role in policy-making and implementation, and that it will even begin to hold the party to greater accountability. Suggestions from party reformers have been submitted periodically since the early 1990s, suggesting that direct elections be introduced for provincial-level congresses, leading eventually to national elections. Certainly a rolling back of the NPC’s role is unlikely in the immediate future. It has carved out an institutional space for itself that is

The Central Governing Apparatus 133 supported by significant individuals and interests within the system. In addition, as legislation becomes more complex and specialized, more power will move to those with the necessary skills to research and draft more elaborate regulations. The NPC is well placed in this process, with a number of specialized committees, including committees on legal affairs, finance and economics, education, foreign affairs, the environment and agriculture. Its staff expanded significantly during the 1980s and many of those newly recruited were well qualified and committed to build the rule of law and to help the NPC assert more strongly its role in the political system.

The State Council The highest organ of state administration remains the State Council, which is the executive organ of the NPC. In theory, it is responsible and accountable to the NPC and its Standing Committee and is, in effect, the government of China. It is able: to submit proposals on laws to the NPC or its Standing Committee as well as to formulate administrative measures in accordance with the laws; to exert leadership over the noncentral levels of administration and the ministries and commissions; to draw up and put into effect the national economic plan and the state budget; and to oversee public order and safeguard the rights of citizens. The work of the State Council is presided over by an executive board composed of the premier, vice premiers, state councillors and the secretary general. Under the State Council there are the various ministries, commissions, committees, bureaus and ad hoc organizations, the total number of which has varied over time. There has been a general tendency for the number of such organizations to expand, followed by attempts at retrenchment. As the reforms began the numbers began to increase to accommodate the new economic agencies and those that covered the re-emerging legal system. In part, the ebb and flow of personnel numbers associated with these agencies derived from the lack of an effective retirement system in the 1970s and 1980s. As a result, the rise in the number of cadres and in the number of administrative organs under the State Council became too expensive for the state to cover. From 1982, there have been seven major attempts to reduce the size of the bureaucracy, leaving only 25 ministries in 2013. In addition, there are 16 other organizations under the State Council (such as Customs, Taxation, Tourism Work Safety, and Corruption Prevention) and 14 institutions (such as the academies of social sciences, the sciences and engineering, and the regulatory commissions for banking, insurance and securities). The Ninth and Tenth NPC sessions carried out a major restructuring and, despite expectations, the Twelfth NPC carried out a more

134 Governance and Politics of China modest reform. The reforms of the Ninth NPC (March 1998) were announced as an institutional ‘revolution’ to produce a more efficient, well-integrated and standardized administrative system that would meet China’s needs. The criticism was that the state was managing too many areas that could be handled better by commercial enterprises or new social intermediary organizations. This overload not only had led to a massive wage and administrative bill but it also detracted from the government’s capacity to carry out its work effectively. The fact that the administrative system had evolved to oversee the planned economy was identified as the primary cause, with the government having set up a large number of special economic management departments. The overall objective of the restructuring was to strengthen macroeconomic regulation and control departments while reducing the specialized economic departments; social services departments were to be reduced and individuals and social organizations were to take on greater responsibilities; and legal and supervisory departments were to be strengthened. In practice, this meant cutting the existing 44 departments under the State Council to 29 ministries, commissions, administrations and banks, with a further reduction to 28 at the Tenth NPC (March 2003). Twelve actual ministries were dissolved as well as three commissions, and four new major ministries were created to absorb some of the defunct departments. In addition, the old State Planning Commission was renamed the State Development Planning Commission and then the National Development and Reform Commission (NDRC) was put in charge of guiding the overall reform programme. In the domestic trade area, changes were dramatic. First, the State Economic and Trade Commission (SETC) that was set up in 1993 absorbed the ministries of coal, the metallurgical industry, the machine-building industry and internal trade, which became bureaus under SETC jurisdiction. Having completed this task, in 2003 the Commission itself was abolished, with its duties farmed out to various other ministries. Also in 2003 the formerly powerful Ministry of Foreign Trade and Economic Cooperation was dissolved and a new Ministry of Commerce was to oversee both international and domestic trade. Control over the SOEs that had been under the SETC was placed under a new state-owned Asset Supervision and Administration Commission that functioned as a holding company for government stakes in the SOEs. However, the Commission has gradually reduced the number of SOEs under its purview (see pp. 257–65). The creation of this Commission marked part of an attempt to move to a regulatory state and was also accompanied by the creation of the China Banking Regulatory Commission and the State Food and Drug Administration. The former took over certain powers from the Central Bank to oversee the restructuring of the banking sector and a reduction in

The Central Governing Apparatus 135 non-performing loans. The latter is modelled on the US administration that oversees the food and pharmaceutical industries. At the Seventeenth Party Congress (2007), Hu Jintao put forward the notion of creating a number of ‘super-ministries’ to improve bureaucratic coordination. Despite resistance by some of the agencies concerned, this was acted on by the Eleventh NPC and five ‘superministries’ were established. These are the Ministry of Industry and Information, Environmental Protection, Transport, Human Resources and Social Security, and Housing and Urban–Rural Construction. It was clear, however, that this was only a beginning and those agencies that had managed to resist this first round of restructuring might well be affected at a later date. The creation of the Environmental Protection Ministry was recognition that its former status as an ‘administration’ did not give it the necessary profile or political voice to deal with the enormous challenges that China faces as a result of its development trajectory. The power of vested interests was revealed by the fact that the Ministry of Railways retained its independent position and was not included as part of the new Ministry of Transport, something that was resolved at the Twelfth NPC. In addition, much discussion took place about the creation of the National Energy Commission, but the powerful Ministry of Energy retained its independence, again something that was dealt with at the Twelfth NPC. At the Twelfth Congress, major administrative reforms were expected but the measures only amounted to a tidying up of the structures. Importantly, the NDRC did not have its wings clipped but rather increased its reach by taking over the policy component of family planning and regulating the use of electric power. NDRC powers remain significant in determining the direction of policy in key areas of the economy and social development and, despite regular calls for its reform, it remains a powerful entity. Similarly, the Ministry of Science and Technology was kept intact and no new super-ministries that had been rumoured were set up. Less fortunate this time around was the fate of the Ministry of Railways that was finally merged into the Ministry of Transport. The levels of corruption within the Ministry and the fallout from the 2011 Wenzhou high-speed rail crash, which the authorities tried initially to cover up, speeded its demise. Its regulatory functions were placed under the Ministry of Transport and its commercial activities under the newly created China Railway Corporation. Another reform that addressed popular dissatisfaction was the elevation of food safety to ministerial level with the creation of the General Administration of Food and Drugs. This replaced the vice-ministeriallevel administration that had been downgraded in 2008 following scandals and the execution of its former head on corruption charges. Over the previous decade there had been a number of alarming food

136 Governance and Politics of China scares, such as tainted baby milk that had caused consternation among China’s citizens. The new administration, in seeking to centralize management of food and drug safety, took over food safety concerns from the Ministry of Agriculture, the General Administration of Quality Supervision, Inspection and Quarantine, and the State Administration for Industry and Commerce. Reformers in the field of reproductive health for a number of years had been pushing for a shift in emphasis in the family planning programme and to integrate it better with the work of public health more generally. When the family planning system was created it drew considerable resources from maternal child and healthcare programmes at the local levels and distorted incentives in the healthcare system. The merger of the Family Planning Commission with the Ministry of Health to form the new National Health and Family Planning Commission marked a first step in the direction of reform of family planning policy and upgraded the status of health from a Ministry to a Commission. Given the volatility in the East and South China Seas with China’s expansive territorial clams, the leadership was clearly concerned about the number of institutional actors that were involved in oversight and, as a result, the State Oceanic Administration had its powers enhanced to include law enforcement on the seas. Before this reform, supervision was spread over the Ministry of Agriculture, the Ministry of Public Security and the General Administration of Customs. Finally, the various media regulators were merged into the new General Administration of Press, Publishing, Radio, Film and Television. It remains to be seen whether these latest rounds of bureaucratic retrenchment will be more successful than other attempts. Previously, after impressive starts, the numbers quickly climbed again. However, there are grounds for optimism that, while the numbers may creep up again, they will not rise to the levels of the 1980s. In addition to the lack of an effective retirement system, the reform attempts of the 1980s were hampered by a number of factors. Most important was that attempts to streamline the bureaucracy were launched at the same time that other demands, such as revamping the legal system, regularizing economic activities and dealing with international trade, were causing a bureaucratic expansion. In the 1980s positions in government were still thought of as the best jobs and there was very little in the way of a private sector to absorb those who were laid off. Now the situation is quite different. Government is not the only job, although still an extremely popular one, that people aspire to, and there are many good alternative opportunities for those sufficiently qualified who want to leave government. Second, a functioning retirement system has been put in place that reduces the incentive for many to stay on the active

The Central Governing Apparatus 137 payroll. Third, after 35 years of reform the role of government in the economy and society has changed and many are cognizant of this fact and feel that a less extensive government apparatus is needed. At the Eighteenth Party Congress, Hu Jintao (November 2012) called for the separation of government from social organizations (zheng-she fenkai), with the latter exercising ‘autonomy in accordance with the law’. Last but not least, China can no longer afford to pay for such a large government infrastructure either at the central levels or in the localities. It should be remembered that all these entities at the centre have their own agencies at each level of government.

The legal system, coercive control and rights When the reforms began in the late 1970s, the legal system was effectively at ground zero. What had not been undermined by the campaigns of the late 1950s was destroyed in the Cultural Revolution. The first task in rebuilding the legal system was to devise a system of rules and known procedures for governing people’s daily lives so as to provide reassurance and comfort after what has been described as the anarchy and lawlessness of the previous decade. In large part this entailed a resurrection of the Soviet-inspired system that was set up after 1949. However, as economic reform took off, this was equalled in importance and even surpassed by the need to legislate for the new economy. With China opening up more to the outside world there was the pressing need to introduce legislation that would reassure foreign investors and slowly move this area of law towards international practices. This took on greater importance after China entered the WTO. As then Premier Zhu announced (Zhu, 2003) in March 2003, the State Council reviewed 2,300 foreign-related regulations and policies, abolished 830 of them and revised a further 325. This combination of factors means that the Chinese legal system operates under a complex set of influences which often contradict one another. The more recent influences come from European law, especially with regard to the state, from US law, mainly felt through international investment and trading practices, and sit aside the longer-term legacy from Soviet practice and Marxist theory that subjugates the law to the needs of the state. All these influences overlie Chinese traditional practice that has not emphasized a regular legal process in a Western sense and that has not been over-concerned about formal institutions. Not surprisingly, the end result is that ‘China does have a set of institutions for the preservation of social order and governmental authority, but these institutions operate on very different principles from institutions usually called “legal”’ (Clarke, 1995, p. 92).

138 Governance and Politics of China The legal system is simply one specific cog in a bureaucratic machine that is built to achieve state objectives. The tension between institutionalizing a legal system and maintaining party control has been evident since 1949. Most recently, concern has been to maintain social stability when dealing with ‘disturbances’. Thus, interference by local party leaders in legal cases has been common and the system of politics and law committees throughout the system institutionalizes party interference when deemed necessary. Of course, the party retains control over the appointment of judges and procurators. In 2007, the head of the Supreme People’s Court, Xiao Yang, put it clearly when he said ‘the power of the courts to adjudicate independently certainly does not mean independence from the party. It is the opposite, the embodiment of a high degree of responsibility vis-à-vis party undertakings’ (China Court Daily, 18 October 2007). The legal system only enjoys parity with other bureaucratic entities and thus there is no immediate notion that the decision of a court is binding on another administrative agency or across different geographical locations. This means that once a court decision is made, the judiciary may have to negotiate with other agencies to realize the desired outcome or the court decision may simply be ignored or be unenforceable (see Box 5.1). This kind of system means that enforcement is variable, depending on the power of the administrative agencies concerned. Thus, while enforcement of environmental regulation has remained weak, public security agencies have a greater capacity.

Box 5.1 The Problem of Implementing Court Decisions The Centre for Women’s Law Studies and Legal Services of Peking University has taken on the litigation of selected cases that the centre’s staff believed to be of significant importance for women or that were in some ways representative. One woman came to them who had been abused by her husband and wished to file for divorce. This sounds simple; the Centre took on the case and won. The settlement included the decision that she and her child should keep the housing, and the husband should move out. However, the housing had been allocated through the husband’s place of work and, despite the court order, the workplace did not act. Its reason was that housing was tight, it could not move the husband, and the woman was not entitled in her own right to housing at the work-unit. Therefore, the woman had to remain living with her abusive husband. The court had no mechanism to enforce its ruling. The Centre did not leave things there. During President Clinton’s visit (1998), Hillary Rodham Clinton and Secretary of State Madeleine Albright visited the Centre to highlight China’s progress in establishing the rule of law. The case was

The Central Governing Apparatus 139

presented by Centre staff members to the visitors and the problem was very quickly solved in the woman’s favour after it was widely reported by the foreign correspondents accompanying the presidential visit.

In addition to the bureaucratic fragmentation that often prevents the enforcement of a court decision, there is the fact that all law is seen to be in the service of ‘socialism’, meaning that the party can override any legal decision and intervene where it deems appropriate. The binary nature of politics and law, like propaganda and education, in the CCP’s view is shown by the coupling of the two characters zheng and fa in Chinese. Thus, the relevant party committees are political-legal affairs committees and the major specialized legal training university in Beijing is called the University of Political Science and Law. The structure of the politics and law committees throughout the system institutionalizes the role of the party in the legal process. The party’s role is strengthened by the process of shuanggui (that is, double regulation: to be in a designated place at a designated time) for party members. This takes investigation of members suspected of corruption or ‘violations of discipline’ out of the court system and places it in the hands of the Discipline Inspection Commissions. The interrogations are conducted in secret, with the suspect held in isolation, with no access to legal counsel and, usually, no contact with family, friends or colleagues. Once the investigation is completed, if necessary, the person is turned over to the judicial authorities, usually after they have been stripped of their party membership. In 2013, 173,000 cases were completed using shuanggui (The Associated Press, 10 March 2014) and between 2003 and 2008 there were 880,000 such cases (New York Times, 14 June 2012). This method has been used for investigations of major cases such as those of Chen Liangyu (former Shanghai Party Secretary) and Bo Xilai (former Chongqing Party Secretary). From 1954 to 1966 a legal system of sorts developed and over 1,100 statutes and decrees were promulgated to add to the handful of very wide-ranging, vague and highly politicized directives from the early years. Attempts to enjoy ‘socialist legality’ were overridden by party interference in the form of political campaigns, and the legal system as such was dominated by the public security organs. The police agencies were responsible for: the maintenance of public order; the investigation, arrest and detention of suspects; and the administration of the prisons and ‘Reform Through Labour’ camps. Although prosecution was supposedly the function of separate prosecutorial organs, these tended to be subordinate to the police. The police also enjoyed legal powers in some instances to imprison offenders without the formality of a trial.

140 Governance and Politics of China It may not have been law in the Western sense but there were some understood norms that people could grasp. For example, those with a ‘bad’ class background (landlords) would receive harsher punishment for the same transgression than would a worker or peasant. Similarly, party cadres could receive a lighter punishment if they confessed their guilt, turned in others and displayed repentance for their ‘crimes’. There is evidence that many police took their jobs seriously, went to considerable pains to collect and sift evidence, and usually arrested someone only after they had built up a solid case. The exception was during the political campaigns that soon undermined any attempt to establish norms. The Cultural Revolution finally destroyed even these small semblances of predictability. The legal organs themselves were early points of attack and were labelled ‘bourgeois’ by those who sought to abolish them. One of the important bodies abolished was the People’s Procuratorate that had operated between the public security forces and the people’s courts, rather like the District Attorney’s office in the United States. In many places, these powers and those of the police were replaced by the summary justice of the Red Guards who set up their own ‘people’s courts’ and prisons. Given this legacy, it is impressive the extent to which the legal system has been rebuilt and that the feeling of security is guaranteed for most citizens. However, problems remain, especially with respect to the dominance of the police in the legal system and the interference of the party at all levels of the political system. Not surprisingly, the leadership has exhibited a massive display of revulsion against the anarchism and brutality of the Cultural Revolution period. The first step was to try to heal political wounds. From 1977 the leadership began a lengthy process of investigation that resulted in the reversal of verdicts on hundreds of thousands of people who had suffered unjust punishments ranging from demotion to death. However, the leadership was careful not to allow criticism of the system as a whole and blame was placed squarely on the shoulders of the ‘Gang of Four’ for leading many astray. In addition, the leadership was very cautious about allowing investigation of the pre-Cultural Revolution system as a source of troubles. The process of regularization is covered by the phrase ‘socialist legality’ and the stress on the need to build a ‘rule of law’. Thus a system of rules and regulations was to be created to replace the more arbitrary and uncertain situation of the Cultural Revolution. The fact that it was socialist legality set certain constraints and retained for the party the major role in deciding what was and what was not a crime. Further, it is clear that when Xi Jinping and his advisers use the phrase ‘rule of law’ they do not mean a system that gives primacy to law above political considerations and party policy. Instead it is a way to manage power,

The Central Governing Apparatus 141 regulate the economy and discipline society in light of the rapidly changing circumstances. In this sense, while it might provide greater predictability, it is just another weapon in the arsenal of party control. The process comprises two main elements. The first has been to resurrect the legal system, enact significant numbers of regulations and slowly allow professionalization and differentiation of function within the legal system (for an excellent account of this rebuilding, see Lubman, 1999). The second has been to protect citizens’ rights and use law to show that it is indeed of significance. This second aspect has witnessed slower progress. In terms of legal rebuilding, the state constitution adopted by the Fifth NPC (1978) resurrected the procuratorate system and after the NPC session there were concrete manifestations of the drive to restore law and order. This included the establishment of a Commission for Legal Affairs, the resurrection of the Ministry of Justice, the regularization of the people’s courts system, the introduction of a series of laws and the re-establishment of law programmes at various key universities. Drafts of seven laws were presented to the Second Session of the Fifth NPC (July 1979), including the Organic Law of the People’s Courts and the People’s Procuratorate and, most importantly, the first Criminal Code and the Criminal Procedure Law. These laws came into effect on 1 January 1980 to serve as the basis for the new socialist legality. A revised Criminal Procedure Law was passed in March 1996 and further amendments were passed in March 2012 that took effect on 1 January 2013. These provide a good window on how far the legal system has changed, and how far there is still to go in building a more impartial legal system. The Criminal Code and the Criminal Procedure Law were designed to promote the idea of equality of all before the law. The Criminal Code brought together in one relatively short document the major categories of criminal offence and the range of penalties they were likely to attract but, as Lubman has noted, the law ‘remained faithful to a politicized view of the criminal law’ (ibid., p. 160). This is reflected in the great attention paid to ‘counter-revolutionary’ crimes; 24 articles dealt with this problem – included were not only predictable activities such as plotting to overthrow the government or leading armed rebellions, but also using ‘counter-revolutionary slogans ... to spread propaganda inciting the overthrow of the political power of the dictatorship of the proletariat and the socialist system’. These were the first official definitions of ‘counter-revolutionary’ behaviour, thus making it formally a crime to work against communism. In the revised law, the need to move towards internationally accepted norms has meant that the crime of counter-revolution has been scrapped and replaced by the phrase ‘crimes of endangering national security’. This definition

142 Governance and Politics of China can, in practice, still subsume all that was previously determined to be counter-revolutionary. The Criminal Procedure Law made meticulous arrangements for the handling of criminal cases and carefully defined the rights and responsibilities of the legal organs and those accused. The role of the procuratorate is to exercise authority to ensure the observance of the constitution and the laws of the state and to protect the rights of citizens. It decides whether to approve a request for arrest by a public security department, and also whether the person, if arrested, should be held criminally responsible. This was a marked change from Cultural Revolution practice. The public security organs are responsible for the investigation of crimes, detention and the arrest of suspects; the courts are to convene the public trials. In the 1980s, a number of amendments expanded police powers of detention and this, once again, combined with the annual ‘strike hard’ campaigns launched in 1983, sanctioned a much more quota-driven, politicized form of policing. The continued role of the party is shown by the fact that all key appointments in both the procuratorate and the court system fall under the nomenklatura system. The law also outlined an array of punishments, ranging from surveillance to the death penalty, including the particular Chinese decision of a two-year suspension of a death sentence during which time the accused has the opportunity to show if she or he had ‘reformed’. It also emphasized such basic procedures as the accused being entitled to a defence, where the court would appoint someone to defend the accused if they did not do so themselves, the accused or the advocate could see the material pertaining to the case, and that no one could be convicted on the basis of a statement unsupported by other evidence. In theory, police were, with certain exceptions, expected to arrest people only upon producing a warrant from the procuratorate. After arrest, a detainee’s family was normally to be informed within 24 hours and the procuratorate was to examine and approve the arrest within three days. Trials were to be public unless state secrets were involved and there were to be proper appeals procedures. Both the 1996 and 2012 revisions generated significant debate, with the public security organs unwilling to give up their powers to greater scrutiny and control by the procuracy and the courts (for a fascinating account of the 1996 amendments and the political background, see Lawyers’ Committee, 1996). The 1996 revisions eliminated a major method of police detention, called ‘shelter and investigation’, which allowed the policy to hold people indefinitely (initially accounting for 80–90 per cent of arrests). However, the concerns of the police were addressed by relaxing the standards for arrest and increasing the scope and length of pre-arrest detention.

The Central Governing Apparatus 143 Importantly, the 1996 revisions suggested movement towards the norm that there is a presumption of innocence. The amendment stated: ‘in the absence of a lawful verdict of the people’s court, no person should be determined guilty’. This would suggest that, unlike previously, the procuratorate cannot make a decision on guilt. However, the Lawyers’ Committee report (1996, p. 63) concludes that the revisions result in ‘little movement toward genuine acceptance of the presumption of innocence’. As the report states, many other aspects of the legislation that would facilitate this are severely restricted or simply absent. For example, suspected criminals may still be subject to lengthy pre-trial detention, there is no recognition of the right to remain silent, no exclusion of illegally gathered evidence and no right not to testify against oneself. The right to remain silent has been a major point of contention between the public security forces and reformers, who see its absence as a practice open to abuse and forced confessions. The 2012 amendments pushed the process along further. In the general principles, the phrase ‘respect and protect human rights’ has been inserted and police are forbidden from the use of ‘forced confessions’ through torture. One victory for the reformers was the dropping from the draft the provision that police could hold suspects incommunicado in secret locations. However, important in light of the rise in terrorist attacks, those held for national security or terrorism can be held in an assigned location for up to six months. During this detention, the suspect can be denied access to a lawyer. Of course, shuanggui allows the CCP to avoid any of these for accused party members and the term ‘national security’ is sufficiently vague to allow flexibility. Under the current president of the Supreme People’s Court, Zhou Qiang, other positive developments have been promoted, many of which were pulled together at the Fourth Plenum of the Eighteenth CC. In November 2013, detailed recommendations were issued for preventing wrongful arrest. Judges were instructed to presume the innocence of suspects until proven guilty, colluding with police was discouraged, as was rejecting evidence obtained from torture, starvation or sleep deprivation. Earlier, at the March 2013 NPC, Zhou had spoken out about how corrupt judges damaged the credibility of the court system and stated that it was necessary to stop local officials from interfering in court decisions. This latter point was dealt with further in the Fourth Five-Year Plan for the courts issued on 9 July 2014 (see Supreme Court Observer, 10 July 2014). The traditional manner of treating judges as just another government official was to be reformed. The management of personnel was to be transferred to the provincial level where selection committees would be set up for evaluation, although the actual appointment would still be through the people’s congresses. To enable a fairer

144 Governance and Politics of China hearing, some environmental and commercial cases would be taken out of the immediate jurisdiction for hearing. Also, provincial-level tribunals would be set up to hear problematic cases, with a particular focus on those relating to the environment. In a significant move, the Third Plenum of the Eighteenth CC announced the abolition of the system of ‘re-education through labour’ (laojiao). This system originated in the 1950s to deal with ‘class enemies’ and ‘counter-revolutionaries’ and allowed the authorities to imprison people for up to four years without any judicial hearing. In recent years, the system had come in for much criticism and it was clear that it was being abused to detain petty criminals, commercial sex workers and drug users. It is unclear how many people have been detained under this system but the United Nations Human Rights Council estimated that, in 2009, 190,000 people were being held in 320 re-education centres (, 18 October 2012). The Plenum also indicated that measures would be explored to prevent local interference in court proceedings, including strengthening the vertical controls over courts below the provincial level. As the above suggests, there has been progress towards greater regularization in law and the protection of individual rights, and it is true that most Chinese enjoy more individual freedom of choice than at any time since 1949. The party has taken itself out of much of daily life, and as long as one is law-abiding, things are more predictable than they used to be. Party influence in the legal system remains considerable and is not restricted only to political offences. Political movements such as the China Democracy Party, Charter 08 or the New Citizens’ Movement, or spiritual movements such as the Falungong, once targeted feel the full force of the coercive state apparatus. The public security apparatus, under increasing domestic and international scrutiny, has begun to resort to charging those seen as political dissidents under criminal law, accusing them of tax evasion, consorting with prostitutes or creating a disturbance. Thus, the critical artist Ai Weiwei was held in April 2011 and charged with vague economic crimes, including the more specific charge of tax evasion. This backfired when, within ten days, some 9 million yuan was collected online to pay his fine while others threw money over the fence to his compound. The blind, civil rights activist Chen Guangcheng was sentenced to four years and three months in prison for ‘damaging property and organizing a mob to disturb traffic’ following his actions to expose forced abortions in Linyi, Shandong Province. In May 2014, Pu Zhiqiang, a ‘rights defender’, following a meeting to discuss the demonstrations of 1989, was arrested for ‘picking quarrels and provoking troubles’. With the rise of domestic terrorism and the campaign against ‘evil cults’, it remains to be seen how the security forces will respond in terms of the ‘rule of law’.

The Central Governing Apparatus 145 The rise in political activity outside the party’s direct control has eroded somewhat the initial post-Mao concern with individual rights that was so mercilessly flaunted in the Cultural Revolution. Like other communist states and a number of authoritarian Asian leaders, China has conceived human rights in collective rather than individual terms. In so far as the four state constitutions promulgated since 1949 have enshrined the rights enjoyed in ‘bourgeois’ democracies, these have regularly been negated by other constitutional provisions, by actual practice or, in some instances, by subsequent constitutional amendments. The PRC has, in fact, gone to great lengths to restrict personal choice and it was only after Mao’s death that attempts were made to bring about liberalization and to establish a predictable system. The post-Mao leadership stress on the equality of all before the law was reflected in the 1982 constitution with the restoration of the 1954 stipulation to this effect. Indeed, the renewed emphasis on citizens’ rights (and duties) and on the need to treat people in accordance with known rules and regulations is reinforced by the fact that the chapter on Fundamental Rights and Duties of Citizens is now placed second in the constitution whereas in all previous constitutions it stood third after the chapter on the State Structure (Saich, 1983, p. 119). Interestingly, the 1982 constitution did drop two citizens’ rights from the 1978 constitution. These are the freedom to strike and the freedom of the ‘Four Bigs’ – the right to speak out freely, air views fully, hold great debates and write big-character posters. The latter freedoms were considered too closely associated with the style of expression associated with the radicalism of the Cultural Revolution. The deletion of the right to strike was clearly influenced by events in Poland and the rise of Solidarity. The question of rights has become a key point of contention not only domestically but also internationally, all the more so since the events of 1989. China has clearly resented external pressure on its rights record but has still felt compelled to defend it and to imply that it does indeed conform to internationally accepted norms. However, the country has a poor understanding of these norms, as witnessed by its decision to sign the two UN covenants on rights (October 1997 and October 1998). It does not seem to have appreciated that by signing the covenants it is accepting that there are international norms concerning the freedom of organization and the right to work, demonstrate and form political groups that transcend national boundaries. China’s leaders appear to have thought that they could sign on and then hold off implementation by retreating behind sovereign borders and talking about different histories and national conditions. The international human rights regime has been one forum in which China has been active in trying to shape the guidelines. It has fought

146 Governance and Politics of China to resist scrutiny of domestic abuses while trying to focus attention on the actions of ‘hegemonists and imperialists’. The country has been a strong advocate of the right to development and has stressed that providing food and livelihood for its people takes precedence over rights of political expression and demonstration; hence, the abovenoted adoption of the UN Covenant on Economic, Social and Cultural Rights, but the Covenant on Civil and Political Rights still awaiting ratification. China has been particularly adamant in preventing the monitoring of human rights by international agencies that could lead to criticism of its domestic practices. It has sought to keep discussions out of the multilateral forums and declared its desire to conduct discussions with countries on a one-to-one basis. This has been an effective strategy to marginalize concerted international censure of its human rights abuses. Like the former Soviet Union, China has tried to manipulate the ‘international human rights game’ and gain international concessions by timing the release of a few political prisoners (see Nathan, 1994, pp. 622–43; 1999, pp. 136–60). Discussion of human rights issues are seen in Beijing as a reward to be granted for good behaviour and for not criticizing China publicly or receiving ‘guests’ that are deemed unsuitable by China. As the Soviet Union found, this is a difficult game to play. China’s leaders have now acknowledged to the international community and their own people that they accept that certain UN-defined rights are universal, and that like it or not these can be held up to international scrutiny. Not only does this open up China to evaluation in terms of international norms, something it finds difficult to accept, but it also legitimizes debates on human rights domestically, something it finds problematic.

The military and the political system The PLA, as an important element of state power in China, has stepped in to save the CCP at crucial moments and its support is vital for any aspiring leader. That the role of the PLA has changed under the reforms is clear, but how it will continue to evolve and what the consequences are for the political system are less clear (for an excellent overview, see Shambaugh, 2002). The tendency has been towards a more professionalized standing army that still undertakes domestic chores, such as the disaster relief when ice storms struck in early 2008 or the massive Sichuan earthquake in May 2008. In many ways it is the PLA that has the national organizational capacity to mobilize in times of natural disaster (see also its response to the terrible flooding in 2005). Representation has been institutionalized with the PLA

The Central Governing Apparatus 147 holding two positions in the Politburo but with no representation on its Standing Committee. It retains a strong presence on the Central Committee, holding about 15 per cent of seats. While the maxim is that the ‘party controls the gun’, the commander-in-chief is a crucial position for any civilian leader who wants to become the dominant political leader. This was easy for Mao and Deng because of their prior military experience and connections but it was more difficult for Jiang Zemin and Hu Jintao. Xi Jinping exerts greater authority given his background and, crucially, he took over as chairman of the Military Affairs Commission immediately on becoming CCP general secretary. While PLA influence may have waned in some policy areas, it retains a strong policy voice on strategic issues such as US–China relations, sovereignty in the East and South China Seas, and Taiwan. Despite this interlocking party–military relationship, communication has not always been effective. The outbreak of SARS in 2002–03 provided a good example of poor coordination, with the military hospitals clearly not feeling the compulsion to report the number of infections to the civilian authorities. This led to the wider spread of the disease. The lack of an effective emergency response system led to an unpardonably long delay in reacting to the downing of the EP-3 US reconnaissance plane in southern China (April 2001). Even in 2009, Admiral Keating, the top military commander for the Pacific, was complaining that he did not have direct phone contacts with his counterparts in the PLA, increasing the potential for misunderstanding and even conflict (Financial Times, 1 October 2009). He should not have been surprised that he could not get their phone numbers: the offices of most senior Chinese officials are not allowed to have direct access to overseas numbers! The National Security Commission might enable better communications and coordination. However, when Xi Jinping visited Prime Minister Modi of India in September 2014, Chinese soldiers began to build a road in a territory that India claims, causing a temporary stand-off. It is unclear whether Xi knew of these actions in advance or whether the military had acted without his knowledge. At the same time, the domination of the military by civilian figures has also dragged the PLA into domestic politics against its own interests and perhaps better judgement. This included Mao ordering the PLA to enter the fray of the Cultural Revolution and Deng ordering the military to clear Tiananmen Square of student demonstrators on the night of 3–4 June 1989. Both actions tarnished the reputation of the PLA, but in different ways. Despite this, the trend is towards greater institutionalization with the membership of the CMAC comprising the general secretary as chair, two officers as vice chairs, who also sit on the Politburo, the Minister of Defence, the directors of the

148 Governance and Politics of China four general departments (staff, political, logistics and armaments) and the commanders of the air force, navy and strategic missiles. Traditionally the PLA, unlike armies in the West, has been more than a professional standing army and has enjoyed a much wider field of operation than that of a bureaucratic pressure group competing for scarce resources. The role of the PLA – which includes the navy, the air force and those divisions concerned with nuclear weaponry – in the Chinese political system owes its origins to the pre-liberation struggle. No consideration of the post-1949 communist regime can afford to ignore the importance of the military. Shambaugh (1997, p. 127) has even described the nature of the regime at its outset as one of military conquest. As he writes: ‘it is essential to view the CCP’s victory as an armed seizure of power following protracted military campaigns’. Not only did many of China’s citizens first witness the military conquest of the PLA before they met their new CCP leaders, but it was also the PLA that seized control of many of the factories, enforced land reform and played a leading role in reconstituting regional and local governments. Certainly the influence of the military was important before and after 1949, but this should not be taken to mean that the CCP was or is a military regime. However, the militaristic heritage has influenced CCP politics in significant ways, and, as noted in Chapter 4, it has also deeply affected the CCP’s language. The positive view of the military in the PRC has been widely held. Individual soldiers or units have frequently been promoted as models for emulation because of their embodiment of the communist spirit. The best-known example of this is Lei Feng, the soldier who was put forward in the early 1960s during the PLA campaign to study the thought of Mao, again after the fall of the ‘Gang of Four’ in 1976–77, and for young people to learn from after the party had called in the PLA to crush the student-led demonstrations in 1989. Essentially, the messages to be drawn from the study of Lei Feng are: to be loyal, obedient, serve the party faithfully and unquestioningly and know and accept your place in the hierarchy. Since 1949 there have been various attempts by some leaders to downgrade this ‘traditional’ role of the PLA and to ‘professionalize’ it by concentrating on its purely military functions. The most concerted and successful of these attempts have been since 1978. The fundamental question remains whether the military in politics acts as a homogeneous group pursuing military interests against those of other apparats, or whether the most important leadership differences cut across the different apparats. Related to this question are the often-quoted dichotomies of ‘red’ versus ‘expert’, and of ‘politicization’ versus ‘professionalization’. In fact, the military, especially at the non-central level, has always been involved in politics. But it is important to understand the nature

The Central Governing Apparatus 149 of that involvement and how it has varied over time. Also, the use of the singular term ‘military’ can be misleading because different factions have existed within the military itself. When Mao became disillusioned with the party and state apparatus, he turned to the PLA under the leadership of Lin Biao to promote the values he wished the whole of society to adhere to. The military was seen by Mao to embody the plain-living, selfless values that he felt the party elite had abandoned. Groups in society were asked to compare themselves to those in the military; the training of militias was increased; and a large number of military personnel were transferred to civilian units. Under Lin’s leadership the main strategy for the PLA was enshrined in the notion of the ‘People’s War’. The revolutionary credentials of the PLA were boosted further in 1965 when it abolished ranks and insignia and introduced the ‘Down to the Ranks Movement’ for officers. Mao was using the PLA to bypass an administration that was reluctant to implement his radical policies and it is not surprising that he turned to the military to impose his will in the Cultural Revolution. The collapse of the civilian administration meant that the military was thrust into a prominent leadership role, something that some military leaders clearly felt uncomfortable with. Lin Biao was even designated Mao’s successor, and leaders from centrally directed units enjoyed power that they had not experienced before, while 20 of the provincial revolutionary committees were chaired by people with a military affiliation. It was clear that after 1969 the rebuilding of the party and state apparatus would have to entail a diminished role for the military. Lin Biao’s fall in 1971 provided the starting point for a long process of modernization in the military and a change in its political role, first back to one resembling that of the pre-Cultural Revolution years but subsequently to one of substantive change. While withdrawal from direct involvement in politics and modernization and professionalization were to become key themes under Deng, it is important to remember that the new era was launched by what in effect was an illegal coup in which the PLA played the key role. On 6 October 1976 Politburo member Wang Dongxing, with the support of Ye Jianying and other veteran revolutionaries, led the elite 8341 Unit of the PLA to arrest the ‘Gang of Four’. Deng shared Mao’s favourable views of the PLA but also recognized the need for its modernization, without adding extra financial resources, and for the PLA’s withdrawal from the broader political arena to be confirmed. However, Deng also made it clear that military modernization would figure last in the ‘Four Modernizations’ and that it would have to occur without an increased allocation of financial resources. In 1985, Deng outlined that PLA units would have

150 Governance and Politics of China to diversify their revenue sources as a result of its declining budgets (Shambaugh, 1996, pp. 276–7). This coincided with the moves to reduce the PLA by around 1 million troops, other organizational reforms and a significant change in military strategy. The notion of the ‘People’s War’ was dumped and in 1985 Deng put forward the view that China no longer faced imminent attack from the Soviet Union and that there was a need to focus on peacetime production and economic construction. Initially, PLA economic diversification started with a CMAC directive to engage in self-reliant agriculture and sideline production to try to cover some of the decline in the central government’s food subsidies (Yeung, 1995, pp. 159–60). However, this soon led to massive involvement by the PLA in production for civilian consumption, imports and exports (both legal and illegal), the construction of hotels and entertainment centres and even retailing. This involvement expanded yet further after Deng Xiaoping’s 1992 trip to the south. PLA enterprises were able to take advantage of military benefits, including a tax rate of only 9.9 per cent compared to 33 per cent for other firms. This engagement in business led to serious problems of corruption and a decline in morale with which Jiang Zemin and subsequent leaders have had to deal. On the whole, the policy to modernize and professionalize the PLA has been successful but the blight of corruption remains. The new strategy for the PLA is to be prepared to fight a ‘limited war under high technology conditions’. In addition, as Mulvenon (1997) has noted, the education level of PLA officials has increased, combined with an increasing functional specialization. In his view, the PLA has undergone a shift from the revolutionary generation to a new post-1949 cohort that is more experienced in modern warfare and consequently more inclined to modernization and doctrinal evolution. Jiang Zemin and senior military leaders were concerned that the huge commercial ventures of the PLA and the continued corruption would undermine the military’s combat capability. The seeds of the business empire were sown in the 1980s but the fruits ripened in the 1990s. Many of those who profited were the children of senior cadres and they were involved in a number of scandals. As a result, Jiang, with the support of key figures such as then Defence Minister Chi Haotian, decided to remove the PLA from business, or at least to reduce its role significantly. In November 1994, a CMAC directive banned units beneath the group army level from engaging in business activities, and in July 1998 Jiang made the bold announcement that the PLA would withdraw from all its business activities within the year. The programme of divestiture was more successful than one might have imagined given the immense financial empire, and showed clearly how senior leaders saw the PLA’s dealings as counterproductive. The

The Central Governing Apparatus 151 disengagement was one of the most contentious decisions made by Jiang, and his fortitude surprised many. The revelation of questionable activities of PLA-run enterprises that came to light in the process (smuggling, gun-running, prostitution) sullied the PLA’s reputation. A dramatic decline in smuggling has resulted from this policy and it is no surprise that the customs department announced a 41 per cent increase in revenue in the year 2000 ($27 billion in total). To sweeten the pill of this programme, Jiang had to promise an increased budgetary allocation to offset the decline in external revenues and it is clear that different branches of the PLA used this as a means to extract inflated budgets from the state in compensation for supposed business losses. One problem in trying to assess the value of PLA enterprises stems from the fact that the PLA has tried to conceal the true extent of its business operations. In addition, progress was hampered not just by difficulties in deciding what exactly was a PLA business but also by problems of finding jobs for the laid-off workers, clearing up the bad debts left behind and accurately assessing the financial liabilities. It seems that some units had tried to palm off loss-making enterprises while finding a creative way to register to keep those that were profitable. The sizable budget increases have continued: the 12.2 per cent increase for 2014 totalled about US$132 billion. This was the third year in a row that military spending was higher than GDP growth. The corruption that plagued the PLA engagement in business has persisted but, as Mulvenon (2006) has pointed out, corruption has transitioned from a ‘major, debilitating problem in the go-go days of PLA, Inc. in the 1980s and 1990s to a more manageable issue of military discipline in the new century’. This was achieved due to the policies of Jiang and the emphasis on military modernization and the strengthening of the commissar system, party cells and the discipline inspection system within the military (Shambaugh, 1991, 1996). Yet, on 7 August 2006, the Liberation Army Daily noted that combating corruption within the PLA was on a par with winning wars! Exposures of corruption continued under both Hu Jintao and Xi Jinping. Xi has clearly decided to carry his anti-corruption campaign into the military, especially following comments by sympathetic PLA leaders on the problems it posed. While Xi has not unveiled a major new doctrine for the PLA, it is clear that he shares the view that military support is the key to leadership and that it should serve the party rather than the nation. He sees a strong military as key to building a strong nation that is a core component of his ‘China Dream’. He is reported to have said that it was important to build an ‘army that obeys the party’s orders’ (Qiushi, 1 August 2013). Further, he saw the changes in the military in the Soviet Union as being a key reason for

152 Governance and Politics of China the collapse of the Communist Party there. He noted that ‘in the Soviet Union, where the military was depoliticized, separated from the party, and nationalized, the party was disarmed’ (quoted in Garnaut, 2013b). Crucial to his objective is once again tackling the corruption that is rife in the PLA. In December 2012, the CMAC issued ten regulations to strengthen the PLA work style that were reported on Army Day in 2013 (Liberation Army Daily, 1 August 2013). These regulations called for less extravagance, simpler meetings and reducing participation in unnecessary activities. This was followed in July 2013 by a CMAC ‘democratic life meeting’ that employed mass line education techniques to create a better work style. Later, it was announced that the PLA would reform its system for vehicle licence plates. The sight of cars sporting PLA plates ignoring traffic regulations had caused much public criticism. Finally, in March 2014, it was announced that Xi would head a new leading group to oversee military reform. To show its seriousness, serious miscreants at the top of the PLA were investigated for corruption. First, Gu Junshan, the deputy head of the General Logistics Department, was arrested. Subsequently, investigations moved closer to the retired vice chairman of the CMAC, Xu Caihou. On 30 June 2014, Xu was expelled from the party and shortly thereafter all PLA units were called on to express their support (Xinhua, 3 July 2014). Xu was accused of taking bribes in return for promoting officers, apparently a common practice. In Jiangxi Province, it was reported that if one had good connections, the fee to pass the PLA entrance exam would be 50,000 to 60,000 yuan; without good connection it could be a minimum of 100,000 yuan. Despite the claims of progress, retired Major General Xu Guangyu stated that ‘it’s impossible to weed out corruption at the basic level, because it’s embedded in the culture’ (Bloomberg, 1 July 2014). In recent years, the PLA has played a more assertive role in policy areas that it considers important and has been one of the main proponents of nationalism and promotion of the national interest. With the collapse of the Soviet Union and the change in the geopolitical situation, it became clear that China would be freer to assert its own national interest without regard to ideology or existing power blocs. Combined with the decline of Marxism–Leninism to provide policy guidance, a more assertive expression of national interest emerged and this was particularly strong in the military. Senior military figures have taken a hard line on issues such as reunification with Taiwan, relations with the United States and sovereignty issues in the waters around China (see Chapter 11). This has led to an increased influence for the navy, a group that traditionally had been less favoured within the PLA network. An initial impetus for development had been provided when, in 1996 following

The Central Governing Apparatus 153 tensions in the Taiwan Straits, the US mobilized two aircraft carrier strike groups. The role of the navy will become increasingly important as China’s strategic interests move beyond the local territorial disputes into the seas beyond. O’Rourke (2014) identifies five objectives for naval development: dealing with Taiwan if necessary, asserting its territorial claims in the South China Seas, enforcing its self-declared 200-mile maritime exclusive zone, displacing US influence in the western Pacific, and underpinning China’s emergence as a leading regional power and major world power.

Chapter 6

Governance Beyond the Centre The relationship between the centre and the localities has undergone significant changes with the reforms. This chapter outlines the organization of government away from the centre and then examines the role of the province in the political system. The reforms have also led to significant regional inequality that is providing a major challenge to governance. Finally, the chapter reviews the changing centre–local relationship, especially as it has been affected by the fiscal reforms. While the centre tries to exert political control over the localities through the system of party-sanctioned appointments of leading personnel – the nomenklatura system – its fiscal capacity and its moral authority have declined. State revenues amounted to only 22.7 per cent of GDP in 2013, down from 36 per cent in 1978, and most localities increasingly have had to deal themselves with the serious problems that confront them. At one point the revenues had dropped as low as 11 per cent. The decline in state revenues created pressures at all levels and in all government agencies to meet recurrent costs from locally generated sources. Increasingly, political outcomes are determined by local power structures and resource allocations. Within the same province and even in adjacent counties one can see radically different socio-political outcomes deriving from the reforms. What are the consequences of this for the nature of the local state and what are the consequences for governance and policy?

The organization of local government Since the abolition of the six administrative regions in the mid-1950s, the most important administrative levels have been the province and the municipalities. Unlike the former Soviet Union, the PRC has always been a unitary multinational state. Constitutionally, all nationalities are equal and are theoretically free to use their own languages and there are constitutional arrangements for regional autonomy in areas inhabited by non-Han minorities. But there is no right to secede: ‘all the national autonomous areas are inalienable parts of the PRC’. The real level of autonomy is, in any case, extremely limited and, since the late 1980s, Beijing’s fears of resistance to its rule in Tibet and Xinjiang have


Governance Beyond the Centre 155 meant that the limited autonomy that was enjoyed in the early years of reform is now highly constricted. The unrest in Tibet in 2008 and in Xinjiang in 2009 and 2013–14 is indicative of the resentment with these policies. It also reflects the fact that economic growth has gone disproportionately to the Han Chinese in these two provinces. The non-central government is administered through 22 provinces (although official PRC sources count Taiwan to total 23), five autonomous regions, four municipalities directly under the central government, and two Special Administrative Regions (SARs). The notion of a SAR was included in the 1982 constitution with an eye to the return of Taiwan and also Hong Kong and Macao to Beijing’s sovereignty. In July 1997, Hong Kong was handed over by the departing British colonial administration and in December 1999 Macao was handed back by Portugal. Administration of these two SARs is covered by Beijing’s concept of ‘one country, two systems’, which guarantees that for a period of 50 years they will be able to keep their previous economic and political systems. Thus, Hong Kong will be able to retain its capitalist economic system under a chief representative (effectively nominated by Beijing) and a partially elected legislature (see Box 6.1).

Box 6.1 Governing Hong Kong and the Limits to Democratic Rule On 30 June 1997, the Prince of Wales read a farewell speech on behalf of the British Queen and in a symbol-laden ceremony handed over sovereignty of Hong Kong to President Jiang Zemin on behalf of the PRC. This followed the Sino-British Declaration of 19 December 1984 that, from 1 July 1997, sovereignty would revert to China. The principle on which this was based was that of ‘one country, two systems’ that allowed Hong Kong’s economic and social system to be continued for a period of 50 years. The details were enunciated in the Basic Law that was drafted by a group from Hong Kong and Beijing and that was formally adopted by the NPC on 4 April 1990. The main point of contention revolved around who oversaw the Basic Law and who had the right to interpret and amend it. These powers were vested in the Standing Committee of the NPC and the NPC itself, leaving the role of those in Hong Kong ambiguous. In principle, Hong Kong, as with Macao, is responsible for all affairs, with the exception of national defence and diplomatic relations: indeed the PLA moved in immediately to take over the old British military barracks. There have been frictions, but decisions are presented as being made by the Hong Kong government. This began to change in June 2014 when the State Council Information Office of the Chinese government released a

156 Governance and Politics of China

White Paper to correct ‘misunderstandings’ about the ‘one country, two systems’ principle, noting that ‘the high degree of autonomy … is not full autonomy, nor a decentralized power, it is the power to run local affairs as authorized by the central leadership’. This attitude was made clear in September when the NPC announced its decision on universal suffrage for the election of the chief executive in 2017, which was stated as a goal of the Basic law and decided upon by the Chinese government in 2007. The NPC announced that candidates for the position of chief executive would not be selected by the people of Hong Kong but rather through the small group whose members are close to and sympathetic to the mainland. Although this marked considerable progress from the current practice of selection by the 1,200-strong Election Committee, let alone the situation under British colonial rule, it set off major protests in Hong Kong. Many, especially students, interpreted the decision as a step back from progress towards full democracy. The decision seemed to awaken deeper concerns about where Hong Kong was headed 17 years after the handover. In an alarming survey conducted for Beijing, 90 per cent of respondents told the SCMP that they would welcome back the British. Other surveys have shown an increasing number of residents identifying themselves as ‘Hong Kongers’ and not as Chinese. The initial heavy-handed tactics of the police swelled the ranks of demonstrators, and violence by pro-Beijing groups against the demonstrators resulted in the latter calling off proposed talks with the Hong Kong authorities, although these were soon revived. The talks were inconclusive and the protestors cancelled a referendum on how to proceed. The government had offered to submit a report to Beijing outlining the protestors’ concerns about the electoral process for 2017. One of the protest leaders had suggested direct talks with Beijing’s premier, not something that Beijing was likely to agree to. Beijing will not back down from its decision, making a mutually acceptable resolution difficult. The last of the protests sites was cleared by the Hong Kong authorities in December 2014. Importantly, the original decision and subsequent intransigence reveal Beijing’s suspicion of any democratic opening that it cannot control. An open election, under the best circumstance, may produce an unpredictable outcome and, in the worst case, it could lead to chaos if the result were disputed or the ‘wrong person’ elected. Thus, the mainland decided to ‘cage’ anything that could be discerned as ‘Western-style’ democracy in Hong Kong. While the events are unlikely to lead to calls for change on the mainland, Hong Kong could be changed significantly. Beijing runs the risk of losing the trust of a younger generation. It will be very difficult to woo them back.

Under the provinces and its equivalents, there is a three-level administrative network of prefectures, counties and cities, and townships and districts (see Figure 6.1). The prefecture does not constitute a formal level of political power, and therefore does not set up people’s

Governance Beyond the Centre 157 congresses and people’s governments but instead has administrative agencies set up by the province. The leading members of these agencies (administrative commissioners and their deputies) are not elected but are appointed by the higher levels. The role of the prefecture remains one of the least researched topics and its functions and influence seem to vary widely. Increasingly, the name is given only to prefectural-level cities. The three levels of government below the centre – province, county and township – are organized in basically the same way as the centre, with government and party organizations paralleling one another. The people’s congresses are the local organs of state power and are able to elect and recall members of the people’s governments. In June 1979, the people’s governments replaced the revolutionary committees that had been set up during the Cultural Revolution. The

Figure 6.1 Levels of Government under the State Council, 2014 State Council

Autonomous regions


Municipalities under central government

Autonomous prefectures



Autonomous counties



Counties xian




Notes: In addition, there are the two SARs of Hong Kong and Macao that will retain their existing political and economic systems for up to 50 years. There are 22 provinces, with China claiming Taiwan as the 23rd, five autonomous regions and four municipalities. There are 333 prefectures, of which 284 are prefectural cities. There are 2,856 counties, of which 853 are districts and 370 are county-level cities. There are 40,906 townships, of which 19,410 are towns (zhen) and 14,571 are townships (xiang), with a further 1,085 ethnic townships and 7,194 sub-districts (jiedao banshichu).

158 Governance and Politics of China people’s governments at the provincial level are elected for five-year periods while those at the county and township levels are elected for three years. The people’s government is the administrative (executive) organ of the people’s congress and is responsible to both it and its standing committee at the same level as well as to the organs of state administration at the next higher level, and is ultimately subordinate to the State Council. The powers of the local people’s congresses have been increased to allow them to adopt local regulations; at and above the county level standing committees have been created to carry out the work of the congresses on a more permanent basis. Shenzhen, for example, was the first SEZ to be granted legislative power by the NPC, quickly followed by Xiamen. In 1996, this power was also granted to Zhuhai and Shantou. Guangdong took the lead and granted to its three SEZs (Shenzhen, Zhuhai and Shantou) powers to make local laws that would be adopted after a four-month period of review by the legislature. This built on the NPC legislation, and the powers were also extended to the provincial capital, Guangzhou (SCMP, 19 September 2000, Internet edition). Before 1978 the legislative and administrative organs (the standing committees of the people’s congresses and people’s governments) were not separate. Previously, when the people’s congress was not in session, these powers were exercised by one body, the revolutionary committee. Furthermore, neighbourhood and villagers’ committees were written into the 1982 state constitution as ‘the mass organizations of selfmanagement at the basic level’. There are over 580,000 villagers’ committees and 80,000 neighbourhood committees. The election of the committees is covered in Chapter 7. The most important change in local government under the reforms is that the people’s communes, set up during the Great Leap Forward (1958–60), no longer function as a unit of either economic or government administration. Now the township operates as a level of government and, with the decollectivization of economic life throughout the countryside, the commune has disappeared altogether as an organ of substance. The changes were designed not only to strengthen the state at the lowest level but also to improve economic performance. Under the old system it was claimed that the party committees interfered too much in the economic life of the countryside.

The province as a unit of analysis The provinces and the four major municipalities form the most important level of sub-national administration in the Chinese system. This

Governance Beyond the Centre 159 has been the situation since the establishment of provinces (sheng) during the Yuan Dynasty in the thirteenth century. In today’s China, administratively, the province carries the equivalent rank of a ministry in Beijing and its party secretaries and governors are important politicians in the political system, brokering the desires of the centre with the needs and wishes of the localities. These leaders have great power and potential but they also face great risks and require careful management skills to carry out their positions effectively. While formally all provinces carry the same rank, it is clear that some are more important and carry more political weight. Variation across the provinces and even within provinces is enormous. Many would be substantial countries in their own right in terms of population, geographic size and endowment of natural resources. Five provinces have populations in the range of 70 to 100 million people – Henan, Shandong, Sichuan, Jiangsu and Guangdong. The population of Sichuan was over 100 million before Chongqing was established as an independent municipality in March 1997. By contrast, the population of Tibet numbers only 3.08 million at year-end 2012, though it is geographically big at 1.2 million sq. km. Although not as large as Xinjiang (1.6 million sq. km), it dwarfs a province such as Ningxia that is a mere 66,000 sq. km, let alone the municipality of Shanghai that is only 6,431 sq. km. Yet, Shanghai has economic muscle with an urban per capita disposable income in 2012 of 40,188.34 yuan, compared to Tibet’s 18,028.32 yuan or Guizhou’s 18,700.51 yuan. The national average was 24,564.72 yuan. The per capita net income for rural households in the three provinces was 17,803.68, 5,719.38 yuan and 4,753.00 yuan respectively, with a national average of 7916.58 yuan. The GDP of China’s largest provincial economy, Guangdong, was over 81 times that of Tibet in 2012. In 2007 its per capita income in purchasing power parity terms was equal to that of Brazil and its GDP was equivalent to that of Indonesia. Meanwhile, Guizhou’s income was lower than that of Nigeria and its GDP was equivalent to that of Libya. The economic might of Shanghai and Guangdong makes them important to the centre. Shanghai has traditionally been a major cash-cow, while the centre has spent much of the reform period trying to figure out how to get hold of more of Guangdong’s recent wealth. They clearly pull more weight in discussions in Beijing than does a poor northwestern province such as Ningxia or Gansu. However, poor Tibet and other sparsely populated border provinces are important to the centre for strategic reasons. They cover 60 per cent of the land mass, house only 6 per cent of the population and are home to many of China’s national minorities. Beijing has had cause to wonder about their loyalty in the past and garrisons them heavily for fear of external threat, and in the cases of Tibet and Xinjiang for fear of internal opposition.

160 Governance and Politics of China Given the sheer size of China and this diversity, despite the formal administrative conformity, it is difficult to make too many coherent generalizations about policy implementation across provinces. Virtually all writers on the subject agree that not only has the relationship between centre and province become more complex since the reforms began but also that with increased control of financial resources there is more capacity for creative local leadership than in the past. The increasing provincial control over vast resources, the decline in the moral authority of the centre, and China’s previous history of fragmentation and warlordism led some writers in the early 1990s to speculate about a possible break-up of China (see Jenner, 1992; Segal, 1994). Despite the economic growth of provinces such as Guangdong and the reorientation of a province such as Yunnan towards Thailand and South East Asia for foreign direct investment (FDI) and trade, this has been no more than wishful thinking (see Huang, 1995b, pp. 54–68). The concern has declined with the fiscal reforms and other measures described below. To date, when the centre has really wanted to impose its will on a significant issue it has, and the provinces have been willing to go along with this. The only provinces where a breakaway might be a reality are Tibet and Xinjiang. Here, the relationship with the centre is qualitatively different, and the latter has had to resort to violence on a number of occasions to exert control. Despite the process of moving in Han Chinese to dominate the political and economic apparatus of these two provinces, considerable opposition to Beijing’s dominance has remained. In both cases this is aided by a history, language and culture that provide an alternative point of reference to Beijing’s official story of unity. It is also helped by Tibetan loyalty to the exiled Dalai Lama and in Xinjiang by the various Muslim groups in the newly formed independent states that emerged after the break-up of the former Soviet Union. The relationship between the centre and the localities is not necessarily one of a zero-sum game, and most may feel that they have more to gain by remaining within a collaborative framework with Beijing than suffering the cost of trying to wriggle free, something that would be impossible in any case unless CCP rule were to collapse. Further, as Goodman (1997, p. 2) has pointed out, it was Beijing’s intent that each province should develop its comparative advantage as a fundamental component of the economic reform programme. Indeed, research in the 1990s showed the natural endowments and political skills of provincial leaderships have become key determinants of the development of particular provinces (see especially Goodman, 1997; Cheung et al., 1998; Hendrischke and Feng, 1999). With the provinces playing such a critical role in the political system and with their leaders forming an important group, it is not surprising

Governance Beyond the Centre 161 that there should be attempts to integrate those with possible conflicting ideas into the national decision-making framework. This has taken a number of forms. The NPC’s annual meetings have become a major venue for meshing central priorities with the needs of individual provinces. Until the new revenue-sharing system was passed in 1994, NPC sessions had become focal points for sharp arguments between provincial delegations and central financial leaders over the division of revenues. Representation at the NPC is organized along the lines of provincial jurisdiction and all sub-provincial delegates operate as a part of a provincial delegation, especially during the small group discussions (Cheung et al., 1998, p. 10). Even many senior central leaders are appended to provincial delegations, preferably where they may have worked or been born, or sometimes even where they have no connection and may not even ever have been. It is clear that experience in provincial leadership is now a key stepping stone to a national position. As noted in Chapter 4, with the exception of Liu Yunshan all members of the Standing Committee of the Politburo have significant provincial-level work experience. Even Liu has the experience of working earlier in Inner Mongolia. At the level of the CC, provincial representation has always been strong, but placement on the Politburo was only revived from 1987 onwards. When the reforms began in 1978, provincial representation on the CC was a little over 40 per cent, but it has dropped since to range between 25 and 35 per cent. However, provincial leaders remain the most influential group and provincial experience is now necessary for further promotion. This should not be taken to mean, however, that they dominate elite politics and the different provinces encompass a multitude of interests that would preclude them from acting as a single interest group. Provincial representation, which on the Eighteenth CC is 24 per cent, has become increasingly institutionalized. With the exception of Tibet and Xinjiang, each province normally enjoys two positions on the CC (party secretary and governor). In the current Politburo, while one-quarter of the members are serving in the provinces (6 out of 25), 76 per cent of the members have significant provincial management experience. At the start of the reforms, provincial representation was around 20 per cent, but this dropped to zero in 1981 (Sheng, 2009, p. 349). It is also clear that there has been a strong bias in promotion for those who have worked in the coastal areas of China rather than those who have been stationed in the poorer inland provinces. Of the Politburo members who have had provincial experience, 63 per cent have worked in the coastal areas. Following an emerging norm for promotion, 84 per cent of those with provincial-level experience have worked in two provinces, sometimes a combination of work in a more affluent province and an inland one.

162 Governance and Politics of China Three of the major municipalities that enjoy Politburo representation are in the coastal areas (the exception being Chongqing); the economic powerhouse, Guangdong, also enjoys representation. Certainly under Jiang Zemin, Shanghai (with Zhu Rongji as premier, Zeng Qinghong as vice president and Wu Bangguo as head of the NPC) provided a reservoir of talent for the centre, but with Jiang’s retirement and the disgrace of former Shanghai party secretary Chen Liangyu this situation changed. Jiang also relied on junior colleagues from the First Ministry of Machine Building (with Li Lanqing on the Standing Committee of the Politburo and Jia Qinglin as head of the CPPCC). Hu Jintao did not appear to have a regional power base but instead he relied on colleagues from the Communist Youth League (with Li Keqiang as premier and Li Yuanchao as vice president). Xi Jinping has had less time to bring in his supporters into senior positions but Cheng Li (2014) identifies an emerging group of national leaders with ties to Shaanxi Province. Three of the seven Politburo Standing Committee members (43 per cent) (Xi Jinping, Yu Zhengsheng and Wang Qishan) and eight of the Politburo members (32 per cent) (both Li Jianguo and Zhao Leji served as party secretary) have significant ties. Beijing has the power of control over appointments and this makes it difficult for any provincial leader to defy the centre for too long. In fact, Yasheng Huang (1996, pp. 655–72) has argued that economic decentralization has been accompanied by a strengthening of China’s unitary political system. In particular, he highlights the continued role of the Organization Department in the appointment, management and promotion of officials. Thus, the party retains a very powerful institutional mechanism for rewarding and punishing non-central officials. The system is now one of ‘one-level downward’ management that replaced the ‘two-level downward’ system in 1983. This means that the centre directly appoints and removes only 7,000 cadres, a reduction of some 6,000 from previously. Certainly this is a good mechanism for controlling provincial-level officials, given that many see their career prospects in terms of transfer to a national ministry or equivalent. One only needs to see the fawning over any visit by the general secretary or the latest pronouncements by provincial party secretaries and even governors to see how powerful this can be in keeping local officials in line publicly. Yet there has been a pull between local provincial leaders and those sent in from outside. One party secretary spoke to me about how difficult it was to get ‘the locals’ to fall in line. It is especially difficult in Guangdong for ‘outsiders’ to dominate for long over the ‘native sons’. In Guangdong the presence of the CCP historically has been weak and after 1949 was first felt as an invading force from the north. As Goodman has noted, the party apparatus in the province is seen as

Governance Beyond the Centre 163 being less important than the government administration (Goodman, 1997, p. 6). In fact, some of the senior officials sent down from Beijing to bring Guangdong back under central control claimed they felt uncomfortable working there, were shut out from the informal politics and longed to return to Beijing. One complained to me that in many meetings the locals resorted to discussions in Cantonese, thus shutting him out from what was going on (interview with officials concerned, 1999, 2005 and 2008). The centre has also set up more indirect means to control the provinces, including developing rules and regulations for local administrations and improving administrative monitoring through better auditing, collection of information and disciplinary inspections (Huang, 1995a, pp. 828–43). These new mechanisms complement traditional control mechanisms such as ideological campaigns or party-school system training programmes. In 1987 to try to control corrupt and other unwarranted behaviour, the Ministry of Supervision (abolished in 1959) was revived, and the General Audit Administration was set up to monitor the fiscal affairs of both firms and government agencies (Huang, 1996, p. 662). The Administration has become famous in China for its exposure of misuse of funds, even including in its own agency. Huang also notes that central administrative control over the provinces has increased through the regularity of personnel changes and is demonstrated by the administrative uniformity across provinces and tenure characteristics. This does not prevent policy resistance and noncompliance, however. Despite continual requests from the centre, there is frequent non-compliance with environmental and mine safety regulations. One retired minister was moved to comment, ‘policies made by Zhongnanhai (the political centre) sometimes cannot reach outside of Zhongnanhai’ (Zhongguo qingnianbao, 15 November 2005). In contrast, the centre also worries that the provinces pass on the blame when unable to resolve problems themselves. On a local visit in February 2006, Hu Jintao asked the localities to resolve the problems themselves and not just turn them over to the central authorities (Apple Daily, 4 February 2006). That said, the situation has changed significantly from the Mao years. In Chung’s view (1998, p. 430), the pre-reform role of the provinces was relatively simple, ‘disseminating Beijing’s policy directives and monitoring subprovincial compliance with state plans’. They were largely left to rely on their own efforts under the policy of ‘self-reliance’ that produced a cellular structure. The power of the centre led most to see provincial leadership more as a vital cog in the transmission of the centre’s ideas to the provinces – ensuring that political power rested exclusively with the centre (Falkenheim, 1972, pp. 75–83). In an early comprehensive study of the first provincial

164 Governance and Politics of China party secretaries, Goodman (1980, p. 72) concludes that ‘there is little to suggest that the first secretary has been a local leader rather than an agent of central control’. While there may still be an element of truth in this for the first party secretaries, the picture is more nuanced for the provincial leadership as a whole. Some have seen them as policy entrepreneurs or as agents with multiple principals in the capital and in the province (Cheung, 1998, pp. 14–15). Lieberthal and Oksenberg (1988, p. 344) have defined the provincial level as ‘a gatekeeper guarding and providing access to the local levels’. It is these latter roles and how the leadership mediates between the centre and its local constituencies that have received most attention in recent literature. Through the 1990s and under Hu Jintao, the centre has moved to institutionalize the relationship with the localities. The first step was the fiscal reforms of 1993–94 (see below) that sought to regularize the division of revenues and expenditures. On 22 March 2004, the State Council issued guidelines to ‘comprehensively promote administration based on law’. The intent was to institutionalize centre–local relations by 2014. A number of important measures have been introduced. First, the power to appoint the provincial head of the Discipline Inspection Commission was reallocated to the centre, in the hopes of making provincial leaders more accountable. Second, the number of party secretaries was reduced to three. Third, provinces were encouraged to take direct administrative control over the counties. This eliminated prefecture or city control and enabled the streamlining of administrative procedures. Fourth, a policy was promoted to reduce the number of townships through elimination or merger (see below). Chongqing was given the authority to abolish the township altogether as a level of government. The provinces have been important to the centre and also to particular leaders in terms of providing incubators for reforms. Susan Shirk (1990, pp. 227–58) illustrates how Deng Xiaoping’s reform strategy as a whole was dependent on the support of provincial governments that were willing to push ahead with reform in the face of recalcitrance from more cautious bureaucrats in Beijing. A remarkable example was in January–February 1992 when Deng went to south China to kickstart the economic reforms once again after the pace of reform had been slowed in response to the demonstrations of 1989 and the ousting of Zhao Ziyang. Consistently, reforms at the local level have provided the basis for national implementation. This counters the view of a dominant top-down policy-making process. Thus, Goodman (1986, p. 181) has observed that ‘national decision-making was frequently an incremental process involving provincial experimentation before a final decision was reached’. Heilmann (2008) links local experimentation with the interests of political

Governance Beyond the Centre 165 elites with his phrase ‘experimentation under hierarchy’. For him, it is the ‘combination of decentralized experimentation with an ad hoc central interference that results in selective integration of local experiences into national-policy-making’ that is the ‘key to understanding how a distinctive policy process has contributed to China’s economic rise’. The central government then has the crucial role of scaling-up the experiment and turning the specific into a more generalizable policy through national laws and regulations. It is well known that what became the household responsibility system was first experimented with by Wan Li when he was in charge of agricultural policy in Anhui and by Zhao Ziyang when he was in Sichuan. Zhao was so successful in turning around grain production that the Sichuanese thought up the little ditty ‘yao chifan, zhao ziyang’ (if you want to eat food, then look for Ziyang – the sound zhao meaning both ‘to look for’ and being his family name). Both Wan and Zhao were promoted to the central level because of their success. The attitude of the local leadership can influence how swiftly a new policy or reform measure is taken up. Shortly after the attempts to introduce the household responsibility system nationwide, collectives in Heilongjiang announced a change to a rural wage system, the complete antithesis of the new policy. In fact, a wage system was probably in the interests of the farmers in the north-east who worked on highly mechanized communes; the return to small family farming did not appear to be in their immediate economic interests. Similarly, leaders in Shaanxi opposed the policy until 1982, several years later than other provinces, and also rejected the idea of promoting rural collective enterprises as a major growth engine. Lane (1998, pp. 212–50) claims that this reluctance to be inventive in terms of reform was due to the legacy of the revolutionary struggle in the province, the lack of central incentives and a general conservatism that meant that local leaders were more attached to the centrally planned economy than were their southern counterparts. The experiment with SEZs provides another good example of both the desire of reformers at the centre to have a local base for experimentation and the importance of local leadership to pursue an opportunity. The zones were set up in the 1980s as reform laboratories to receive foreign technology. While Guangdong grasped the opportunity once offered and became a pioneer of reform, recording consistently high growth rates, Fujian’s leaders were more cautious even though they were offered the same package. Similarly, they were slow off the mark with Deng’s 1992 speech that launched another massive expansion of provincial-led growth (Lin, 1998, p. 420). Apparently, officials in Hunan were kicking themselves for missing the implications of Deng’s 1992 speech. He had first made the comments while on an inspection tour there but they were

166 Governance and Politics of China too slow to pick up on the policy shift and to promote it. As a result, they lost favour with Deng and subsequently made them slow off the mark (interview with officials concerned, May 2000). As noted, the main tug-of-war between the centre and the provinces has been over the division of finances. Under Hu Jintao and Xi Jinping, there have been measures to improve the fiscal autonomy of the provinces. In September 2006, the central government issued some new rules governing land supply and revenue from mining. The State Council no longer required each project that intended to use farmland for construction purposes to be submitted for approval; instead such projects could be approved by the provincial governments and reported on an annual basis. Importantly, the provincial governments were allowed to keep the money from the sales but it had to be included in the local budget and not kept as ‘off-budget’ revenue. The rental of land from farmers for construction purposes was explicitly banned. This method was often used to evade taxes and eliminate the need to seek government approval. All underground resources are deemed to belong to the state, with Beijing taking 40 per cent of the revenue from coal mining. With the new regulations, this was dropped to 20 per cent. A major debate has concerned whether local governments should be allowed to issue government bonds. Those who opposed this were worried that there would be insufficient oversight and a greater possibility for the misuse of funds. The practice was halted in 1994. This led, however, to a boom in financing vehicles being created to allow local governments to borrow so as to pay for infrastructure and public works; perhaps as many as 10,000 such vehicles. An audit review revealed that at the end of June 2013, local government debt (including the investment vehicles they sponsored) amounted to 10.9 trillion yuan (US$1.8 trillion). Of this debt, 16.3 per cent was held at the provincial level, 36.4 per cent at the county level and 44.5 per cent at the city level. In addition, there are explicit and implicit debt guarantees that bring the total to 17.9 trillion yuan, approximately one-third of GDP. The National Audit Office does not count these as they are not contingent liabilities and only a fraction of them might be liable. Thus, the Office calculates the debt at 12 trillion yuan, or 22 per cent of GDP. This level of debt has created concerns in Beijing and, at the 2014 NPC meeting, Premier Li Keqiang promised to ‘defuse debt risks’ by tightening debt reporting. However, the most important new measure allowed local governments access to the bond markets. This had been experimented with in late 2011 when Zhejiang and Guangdong were allowed to issue their own bonds, later followed by Shanghai and Shenzhen. This was to be for specific projects and not for general expenditures. The ‘Resolution’ of the Third Plenum (November 2013) states that local governments can issue debt to ‘broaden urban financing

Governance Beyond the Centre 167 channels’. Now the central government will increase the amount of bonds it issues on behalf of local governments, but only to 50 billion yuan, which is not enough to cover liabilities. Local governments will also be able to use property taxes (see pp. 238–40), while some of their expenditures will be shifted to the central government. Finally, the National Development and Reform Commission (NDRC) noted that in 2014 around 100 billion yuan of local government financing vehicle debt would fall due. The NDRC will allow vehicles to be set up to sell bonds at a lower cost to refinance higher-cost borrowings and it can approve new debt to finish projects short of funding. It is worth noting that the debt varies across the provinces. In absolute terms, Guangdong and Jiangsu owe the most, 14 per cent of the total, but they also generate 19 per cent of the nation’s GDP. The problem is most acute in the poorer western provinces such as Guizhou and Yunnan where debt is high relative to the size of the economy. Also problematic is Chongqing where its ‘successful’ economic development model was built up on the back of heavy lending. In 2013, Guizhou had liabilities amounting to over 80 per cent of its GDP. In 2012, Yunnan’s direct debts amounted to 260 per cent of its budgetary revenue (The Economist, 22 February 2014, p. 37).

Regional inequality One major problem for the centre to deal with in this new relationship has been the rapid increase in regional inequalities. The provinces do not have an incentive to redistribute wealth and the centre’s disposable funds for redistribution have declined. The new economic development strategy has led to geographic losers and winners. While the coastal areas have been able to develop their economies very rapidly, the western inland provinces have not fared as well by comparison. The reforms have reversed the fortunes of a number of provinces that enjoyed relative wealth under the centrally planned economy. Guangdong was one of the poorest provinces during the Mao years but has benefitted enormously from the policies of international trade and economic liberalization. Similarly, formerly disfavoured Zhejiang has benefitted from the greater freedom given to the private sector. By contrast, the most prosperous provinces of the Mao years that benefitted from the emphasis on heavy industry (Liaoning, Jilin and Heilongjiang) have suffered a significant relative decline under the reforms. Such provinces have struggled with very high levels of unemployment, ageing industry and infrastructure and social welfare bills that are increasingly difficult to meet. A number of regional strategies emerged during the reform period. The first was the preference given to coastal China as the strategy

168 Governance and Politics of China of the SEZs spread along such provinces, eventually even including Shanghai. The policy was based on a mixture of export processing, as China became the workshop of the world, and active courting of foreign investment. Guangdong receives about one-quarter of all foreign investment, while the nine provinces and the one municipality in the north-west and the south-west receive barely 5 per cent. A similar pattern is seen with respect to foreign-invested enterprises. Thus it is not surprising that the inland provinces have lobbied the NPC to increase their resources and to accord them the same kind of privileges that have been given to the coastal areas. This, the centre consistently refused to allow until the mid-1990s when the leadership became more worried about regional inequality as a source of instability. Even with the 1994 reforms that were designed to guarantee Beijing’s revenues, it is clearly the case that richer provinces turn over far less of their surplus to the centre than they previously did. This led to the launch of a series of regional development initiatives. While the central government continually stressed that more attention should be paid to the poorer interior, this did not translate immediately into a coherent policy approach, and the powers that the coastal provinces have won will not be given up easily. China is pursuing an extremely inegalitarian development strategy, especially in comparison with its East Asian neighbours that it seeks to emulate. China’s central leaders have been concerned about the growing disparities and have launched classic central-planning policies to try to stimulate growth in the western parts of the country. For example, from 1980 developed provinces or municipalities were ‘teamed’ with poorer provinces; the objective was to get the richer ones to invest in the poorer ones or to undertake major infrastructure projects there. Provincial leaders have had little choice but to go along with this, but it is clearly not a main priority for them and many of the investments are of dubious value. For example, in Xishuangbanna in Yunnan Province, Shanghai municipality built a hotel for tourists, many of whom frequented the hotel to watch transsexual shows. Most of the profits were repatriated to Shanghai (discussions in Xishuangbanna, November 1998). There are also formal ‘twinning’ arrangements between coastal provinces and the interior. Thus, for example, Shanghai is teamed with Yunnan, Beijing with Inner Mongolia, Shandong with Xinjiang, and Guangdong with Guangxi. Interestingly, the poor province of Guizhou is teamed with the four cities of Dalian, Qingdao, Shenzhen and Ningbo. Subsequently, Beijing launched a series of regional programmes. The first was Jiang Zemin’s ‘Develop the West’ policy that was launched in late 1999 and confirmed at the Tenth NPC (March 2003). It comprises 12 provinces but excludes very poor ones such as Jiangxi. The policy was to rely on state-led funding for infrastructure, combined with

Governance Beyond the Centre 169 political persuasion and arm-twisting of the more developed provinces to shift investment to the interior provinces. A Leading Group on Developing the West was set up, headed by the premier and with an office under the State Council. Initially $6 billion was set aside for use in 2000. The importance was again stressed in the Eleventh Five-Year Plan (2006–10). The intention was to boost infrastructure to attract external investment and to reduce the income gap. In fact, despite the fanfare, state commitment has been quite limited. Most of the projects announced were already scheduled and many provinces have sought to shift the costs of current projects to the Central Exchequer. Increased funding is to be provided through state bank loans and from international financial organizations and preferential loans. If the funding is not diverted from more productive investment it should help. Many analysts feel that the initiative to ‘Develop the West’ serves more political purposes than genuine development needs and that there is resentment among those provinces that are excluded. Second, Hu Jintao and Wen Jiabao supplemented this programme with one of their own to ‘Revive the North-east’ (see Chung et al., 2009). This programme was launched in 2004 to deal with what had become a problem area under the reforms, especially with the decline in the capacity of the many SOEs in the region. The two programmes reflect the leadership’s desire to stimulate development in areas other than the coastal provinces that benefitted most during the late 1980s and 1990s. As Chung and his colleagues have noted, there are major differences between the two programmes. First, while the ‘Develop the West’ programme is seen as a 50-year project, the ‘Revive the North-east’ programme has a shorter duration of some 15 to 20 years. Second, their foci are different, with the former addressing the problems of poverty through significant investments in infrastructure, and the latter emphasizing reorganization of the industrial structure to put it on a more sustainable growth path. This means that state investment is most significant for the west whereas the north-east hopes to attract FDI. Last, the central government has taken the lead in the ‘Develop the West’ programme while both the central and local governments are partners in the programme to ‘Revive the North-east’. Both these programmes exclude a number of struggling provinces in central China. Thus, in September 2009, a third programme was added with the ‘Proposal for Economic Rejuvenation of the Central Region’, ensuring that all provinces now have a programme! The objective of the ‘Proposal’ is to develop ‘new growth poles through the development of several large city clusters based mainly on industrial agglomeration’ (Yu and Tong, 2012). One such cluster is that around Wuhan. It is expected that the central region will become a hub for modern equipment manufacturing and high-tech industries.

170 Governance and Politics of China It is still too early to assess the success of these programmes and certainly the ‘Proposal’ does not have any clear plans or specific policies. However, an OECD report states that better integration of China’s regions is important not only for equity reasons but also as it is becoming an impediment to meeting other development goals. It points out that key features of the initiative, such as using ‘growth poles’ and launching major infrastructure projects without taking into account regional demand and supporting declining sectors of the local economy, have not worked elsewhere, and there is no reason to suspect that they will work in China (OECD, 2002, p. 41). Many of the current problems in the western region stem from previous bad central policy, in major part from Mao’s policy of the 1960s to build a ‘Third Front’ to help China survive a potential Soviet invasion. About 20 million people and many factories were moved from the coast to the hinterland and a large number of industrial and military projects were carried out. They nearly bankrupted the economy in the 1960s and now they sit as millstones around the necks of local leaders who have to deal with falling revenues and large numbers of laid-off state workers. The problems in the northeast stem from the industrial restructuring that has intensified with the reforms, making it difficult for much of the outdated industry to compete. Not surprisingly, given the economic structure, many local leaders have remained more wedded to the old central-planning techniques than their colleagues in the coastal areas. For example, in Guizhou, Sichuan and Yunnan, the state-owned sector of the economy remains dominant. It is interesting to note that the country’s first national agricultural census published in 1998 reported that there were five times as many farmers engaged in private ventures in the east than there were in the west, and four times as many individual household enterprises; 33 per cent were engaged in non-agricultural production in the coastal areas, compared with 15 per cent in the east (SCMP, 9 March 2000, Internet edition). This suggests that a radical overhaul of the economic structure might be more beneficial, together with major investments in education, rather than pumping money into state-run infrastructure projects. Given the poor construction of many of the major state investment projects to date, and the corruption that has siphoned off money earmarked for development or poverty relief in the past, there is little cause for optimism that this policy will be successful in helping to bridge the gap. In fact, it was reported that Beijing was awash with requests from the interior provinces for large infrastructure development projects that specialists saw as lacking credibility (interview with officials concerned, May 2000). This problem has also haunted the 2008 stimulus package that China

Governance Beyond the Centre 171 announced to counteract the global downturn. A far more judicious use of investment would have been in basic education and healthcare facilities, something to which the Hu–Wen leadership had turned its attention before the financial crisis struck (see Chapters 9 and 10). Perhaps the trend of economic development will help as wages rise in the coastal areas and companies seek lower costs and new markets. It is noteworthy that GDP growth rates have been higher in the inland provinces in recent years. Given this background, it is not surprising that living standards and consumption vary greatly. If we look at consumption across the region, one interesting feature emerges: the north-east and the central provinces of China are almost as disadvantaged as the west (see Table 6.1). We can see that in urban China, levels of possession of basic goods such as a washing machine have almost levelled out but there remain major disparities for more luxury items such as computers and phones. In rural China, the differences are more noticeable. We also see the outcomes reflected in varying Human Development Index (HDI) rankings between the coastal areas and the inland provinces. Thus, while the HDI for Beijing is 0.944 and Shanghai 0.931, that for Tibet is 0.658 and for Guizhou it is 0.716 (China Development Reform Foundation, 2014, p. 194).

Table 6.1 Regional Disparities in China, 2012 Eastern








Ownership per 100 urban households Automobiles 30.62 14.33 Computers 102.74 77.14 Mobile phones 222.98 200.49 Washing machines 98.41 97.95

16.52 75.06 213.38 98.14

12.15 71.38 198.41 94.71

Ownership per 100 rural households (2010) Motorcycles 70.39 55.75 Computers 20.21 6.78 Mobile phones 166.72 137.41 Washing machines 75.04 55.75

51.18 3.94 127.38 53.49

57.21 9.91 137.71 79.16

2012 Per capita urban annual income (yuan)

Source: Table compiled from China Data Online (

172 Governance and Politics of China

Relations between the centre and the localities: the fiscal picture While the central state apparatus has the capacity to react to problems when acute or perceived to be regime-threatening, its relationship with its local branches has changed significantly and it does not command automatic allegiance. Xi Jinping’s establishment of the network for ‘Comprehensively Deepening Reform’ under the leading small group is the latest attempt to find a mechanism to ensure local compliance with central policy direction. Just how much it has changed has been the topic of considerable debate; however, the topic is not as new as some of the recent literature suggests. Ever since 1949 the CCP has fretted about the appropriate relationship between the centre and the localities. Debates have focused not only on how much power could be ceded downwards, but also to which administrative level it should be devolved. In the debates of the mid-1950s, once it was decided that the overcentralized Soviet model was not suitable for China’s needs, Mao Zedong and Chen Yun differed regarding whether decentralization should be to geographic regions that would keep the party in control and allow for mobilizational politics or whether more authority should be devolved to production enterprises which would allow a more incentive-based economic strategy. The most important element in the reform period has been the decentralization of powers away from central government agencies to those at lower levels, especially the effective decentralization of the fiscal system. This more than any other factor accounts for the local variations. Getting the financial picture right is vital to any discussion of the relationship between the centre and the localities. Before the 1993–94 fiscal reforms, only about one-quarter of all state expenditures occurred at the central level and major responsibility for financing infrastructure and providing social welfare occurred at the local levels. However, government revenue as a percentage of GDP declined to only around 11 per cent in 1995 before beginning a slow revival to reach 22.7 per cent in 2013. Changes in the fiscal picture are important as most public goods and services are provided by sub-national levels of government and consequently the expenditure responsibilities are quite out of line with international practices. The Maoist notion of ‘self-reliance’ reinforces the idea that each locality should minimize ‘dependence’ on support from higher levels and this has significantly influenced the impact of the reforms. Sub-national expenditures as a share of public spending have been very high, at about 70 per cent, and they hit 82.8 per cent in 2013. This is higher than that of other countries within the region; for example, in Vietnam it is 48 per cent, in

Governance Beyond the Centre 173 Indonesia 32 per cent, and in Thailand 10 per cent (Mountfield and Wong, 2005, p. 86). During the first phase of the reforms from 1980 to 1993, the Chinese government operated a contracting financial system. This was institutionalized in 1988. Under the system, local governments made a lumpsum remittance to the centre and the provinces were responsible for meeting expenditure requirements from the revenues that they retained. The objective was to empower local governments to finance their own priorities, subject to certain budget constraints. This system gave local governments a powerful incentive to encourage economic expansion but limited the centre’s capacity to benefit sufficiently from this expansion (Yang, 1994, p. 74). Before the major overhaul of 1993–94 (see below), the reforms had transformed a province-collecting, centrespending fiscal regime to an essentially self-financing regime for both the centre and the provinces (Zhang, 1999, p. 121). Provinces collected and spent up to 70 per cent of budgetary revenues and, while the provincial role for collection had declined in comparison with the Mao years, its role for expenditures increased. Revenue-sharing was delinked from revenue needs, thus placing local governments on a self-financing basis for the first time, something that was subsequently codified in the 1994 Budget Law (Wong and Bird, 2008, p. 432). The drop in central government revenue restricted its redistributive capacity. The resultant system was highly inequitable as provinces retained increasing amounts of funds, enabling the wealthier provinces to finance more programmes. By 1993, the sub-national share of total fiscal revenue reached 78 per cent of the total. By contrast, expenditures by the central government had dropped from 47.4 to 28.3 per cent in 1993. Thus, rather than a decline in state capacity under reforms as some have suggested, there was a realignment between the centre and the localities, with the localities controlling far greater amounts of revenue than they had previously (Yang, 1994). Government revenue as presented in Chinese statistics comprises two major components: the unitary budget and the extra-budgetary fund (EBF) for both the central and local governments. The unitary budget comprises the taxes, fees and revenues collected by state financial offices and is subject to formal budgeting by the centre. The Ministry of Finance provides the central supervisory role together with the local authorities (Wedeman, 2000, p. 498). The EBF cover officially sanctioned charges such as surcharges from taxes and public utilities, road maintenance fees and income from enterprises run by various administrative agencies. Originally, the largest part of these funds came from the retained profits, depreciation and major repair funds from the SOEs. The EBF became increasingly important during the reforms; in 1992, they amounted to 110 per cent of budgetary revenue. However,

174 Governance and Politics of China in 1993, the definition of this fund was changed to exclude the portion from the SOEs that had comprised 79.9 per cent of the 1990 total (Zhang, 1999, p. 123). The EBF, while reported to higher administrative levels, are, for all intents and purposes, subject to control and oversight only by the local authorities (county or township). The local financial bureaus manage to fund the plans of the local administrations accordingly. Not surprisingly, it is difficult to calculate the real value of the EBF. Official statistics show that in 2009 the centre controlled only 5.5 per cent of the revenues and 7.4 per cent of the expenditures. One can see the impact of the 1993–94 fiscal reforms when the central government share of EBF revenue dropped from 43.6 per cent and expenditures to 17.2 per cent. These officially sanctioned EBFs do not include the various revenues collected locally without central authorization. If one adds these extra-establishment funds that by their very nature do not turn up in the statistics, the total sum of revenues available was the same in the early 1990s as it was at the start of the reforms; 39.5 per cent as compared with 40 per cent (ibid.). Those observers who have suggested a major decline in the state’s extractive capacity have relied on the official budgetary revenue, and this has indeed declined by almost 60 per cent. The alarmism that some sounded about the decline of state capacity was in this sense unwarranted. What is important is the changing nature of the centre–local fiscal relationship and the changing role and importance of the different funds controlled by the centre and the localities. In 1994, a major reform of the financial system was implemented to stabilize the fiscal relationship between the centre and the localities. The old system that had operated, with minor modifications, from 1979 had the following features (based on Wong, 2000, p. 54). First, all revenues accrued to the central government, with expenditures budgeted by the centre. This meant that the EBFs were crucial to local authorities. Second, the revenue system was industry-centred, with agriculture irrelevant for the generation of budgetary revenues. Third, the tax system was simple, with only a few types of taxes. Fourth, not surprisingly, tax administration was straightforward. This system was very redistributive; Shanghai gave up 80–90 per cent of collected revenues whereas Guizhou financed fully two-thirds of its expenditures from central subsidies. The 1993–94 reforms were intended to provide the centre with greater fiscal capacity by raising the budget to GDP ratio and the ratio of centrally collected revenue to total budget revenue (Zhang, 1999, p. 131). In addition, the intention was to eliminate elements that distorted the tax structure and to increase transparency (Wong, 2000, p. 55). The objective was to raise the centre’s share of state revenue to at least 60 per cent, with 40 per cent as central expenditures and

Governance Beyond the Centre 175 20 per cent as transfer grants to local governments. The reforms introduced a tax-sharing system, and this was formalized in the Budget Law that entered into effect on 1 January 1995. This had been on the policy agenda since 1985 but experimentation in nine provinces did not begin until 1992 (the following account draws from Zhang, 1999, pp. 131–8, and interviews with officials concerned). The intention was to delineate clearly the division of responsibilities between the centre and the localities with respect to spending responsibilities, while allowing the centre a significant role in the redistribution of revenues. This required clarifying the division of spending responsibilities, how taxes would be divided between the centre and the localities and how to divide the administration for the collection of central and local taxes. There are now three sets of taxes. Central taxes include items such as customs duties, income (personal and institutional) and consumption taxes, and profit remittances from central enterprises. Second are the central–local shared taxes, the most important revenue stream including the value-added tax (VAT) (75 per cent for the centre and 25 per cent for the localities), the resource tax (100 per cent of offshore oil to the centre, other resource taxes to the localities) and the securities’ trading stamp tax (evenly divided for the participating provinces). Third are the local taxes which include business taxes and income taxes from local enterprises that do not fall into the first category, individual income taxes, urban land-use taxes, property and vehicle taxes, stamp duties, and agriculture and husbandry taxes. The centre hoped that this would regularize the system to replace the unseemly squabbling that took place with the localities and usually reached a peak of threats and counter-threats just before the annual NPC session. To achieve its objective the centre had to concede that the provinces would be guaranteed revenues in line with the base year of 1993 and with a special transfer payment mechanism for the provinces. Not surprisingly, provincial leaders boosted revenues to gain maximum benefit. The provinces were compensated for any shortfalls against the 1993 baseline and received a payment of 30 per cent of any increases in the central government’s revenue from the VAT and the consumption tax in that province over the previous year. This new system has raised central revenues as a percentage of the total but also has had adverse effects on local governments. These will be discussed below. The ratio of the budget to GDP has been raised as well as the ratio of centrally collected revenue to total budget revenue. Centrally collected revenue in 2013 was below that of locally collected revenue (46.6 per cent as opposed to 53.4 per cent). This is a reversal from the previous several years. Following the 1993–94 reforms, the centre’s percentage was a little higher than that of the localities. Although the centre’s take still falls short of 60 per cent, the ratio has

176 Governance and Politics of China improved and, together with the general rise in revenues, this has provided the centre with an enhanced capacity to support those policies it deems important. Thus Premier Wen Jiabao was able to announce more support for free elementary schooling and collective healthcare schemes in the countryside, and greater rural infrastructure investment. However, it is important to note that, although the balance of revenues has shifted in favour of the centre, the expenditures by local governments have hardly changed since the 1993–94 fiscal reforms. In 1978, 47.4 per cent of government expenditure was by the central government and 52.6 per cent was at the sub-national level, but by 1993 this had shifted to 28.3 and 71.7 per cent respectively. Subsequently, local government expenditures continued to account for over 70 per cent of total spending (82.8 per cent in 2013). The consequences of this are dealt with in the following section.

The consequences for local governance There are a number of consequences for local governance. First, some have raised the spectre of unruly provinces and the possibility of disintegration. While unlikely, as noted above, trends do suggest a more nuanced relationship and more local variation in development in accord with revenue generation. Combined with the decline in the party’s moral authority and legitimacy, some have argued that by the mid-1990s there was a potentially unhealthy rise in the power of the regions (see, for example, Wang, 1995, pp. 87–113; Yang, 1996, p. 364). There is some truth in this, and Wang’s work together with Hu Angang (1997) raised legitimate concerns about the consequences of the significant regional inequality that has been an integral part of the reform strategy. Montinola et al. (1995, pp. 50–81) have interpreted the trend in a positive light, arguing that what is developing is ‘federalism, Chinese Style’. Local governments have primary control over behaviour, policy and economic outcomes, with each autonomous in its own sphere of authority. They credit this with placing limits on central control and providing richer localities with substantial independent sources of revenue, authority and political support. At the same time, it induces competition among local governments, serving not only to constrain their behaviour but also to provide them with a range of positive incentives to foster local economic prosperity. This view is contested by Cai and Treisman (2006) who do not view decentralization as a primary driver of growth under reforms. Their argument is that the key reforms that shaped economic growth occurred in the late 1970s and early 1980s before significant decentralization had been introduced. They see the driver as central leaders being willing to promote local

Governance Beyond the Centre 177 experimentation across regions and then, if successful, implementing it nationwide. The fiscal inequalities have also led to enormous variation in the provision of public goods and services. The main systemic incentive is for local governments to stress revenue mobilization at the expense of other distributional and growth objectives (Park et al., 1996, p. 752). At the same time, popular expectation of the kinds of services that local authorities should provide has not declined. This has meant that local governments are more reliant on central government transfers and raising their own revenues to meet their obligations. In 2010, subnational levels of government provided over 90 per cent of the funding on education, healthcare, the social safety net and employment relief, and environmental protection (Table 6.2). Local government finance has become even more difficult since the government converted all fees into the single agricultural tax in 2002 (and subsequently abolished it), followed by the special products tax and the slaughter tax. The financial pressure has meant that one general imperative shared by economically developed and more resource-constrained localities is the increasingly acute need to derive one’s own sources of revenue to cover centrally mandated obligations. The resultant fiscal inequalities that arise from this system are a major cause of the significant variations in the provision of public goods and services. Financial pressures lead to preference for a development plan that maximizes short-term Table 6.2 Central and Local Expenditures on Key Categories, 2010

Spending category Education Medical healthcare Housing Security Social safety net and employment Environmental protection Transportation

Total (100 m. yuan)

Central (100 m. yuan)

% of total

Local (100 m. yuan)

% of total

12550.02 4804.18

720.96 73.56

5.7 1.5

11829.06 4730.62

94.3 98.5





















Source: Table compiled from China Data Online (

178 Governance and Politics of China revenue extraction over longer-term needs and is disinclined to distributional and welfare priorities. The main concern of government at all levels is to increase revenues rather than to think about the correct role of government. The concern over revenue generation is exacerbated by the fact that, despite fiscal decentralization, the central government has retained control over the policy agenda. The centre sets many tasks that must be implemented by local governments, and most of these are unfunded mandates. Cities at the prefecture and county levels should cover all expenditures for unemployment insurance, social security and welfare, whereas in most other countries the central government will cover social security and welfare, with education and health shared between the localities and the centre (the following discussion is based on Saich, 2008a). The county in China is being developed into the fiscal centre in the rural areas and it is beginning to eclipse the township. This expansion of responsibility has been conducted under the slogan of ‘taking the county as the lead’ (yixian weizhu); spending at the county level now accounts for about one-quarter of all public expenditures. Most important was the decision in 2001 to shift the fiscal responsibility for teachers’ salaries to the county from the township (Renmin ribao, 14 June 2001). The expenditure responsibilities for the townships are similar to those of the counties, although they often have a weaker financial base and they carry the heaviest load for social spending. The county and township together account for 70 per cent of budgetary expenditures for education and 55–60 per cent for health (World Bank, 2002, pp. 34, 94, 111). Prior to the 2001 reform, education had been the largest expenditure for townships: approximately two-thirds of township expenditures nationwide. A study in 2002, just as the new reform was to be implemented, discovered that 78 per cent of compulsory education costs were covered by the town/township and village, with a further 9 per cent covered by the county, and 11 and 2 per cent by the provincial and central governments respectively (Kennedy, 2007, p. 49). Despite the lightening of the burden, the township remains responsible for subsidies for teachers and also for the maintenance and upkeep of school premises. Villages, which are not a formal level of government, have significant expenditure responsibilities even though they have no independent fiscal powers. They have inherited many of the obligations of the old collective economy, such as salaries, care for the elderly, and even support for health and education (Wong, 1997, p. 174). These responsibilities drive the village and township leaderships to seek various off-budget revenues from user fees and other unsanctioned levies to support their activities. For example, in three counties surveyed by

Governance Beyond the Centre 179 the Development Research Center (DRC) of the State Council (Han, 2003), expenditures exceeded revenue, thus increasing the need to raise larger off-budget revenue. Nationwide, extra-budgetary funds may total 20 per cent of GDP, whereas in the three counties surveyed by the DRC they ranged from 30 per cent of total income (in Xianyang, Hebei Province) to 69 per cent (in Taihe, Jiangxi Province). The use of these extra-budgetary funds and self-raised funds (zichou zijin) clearly increased as a result of the 1994 tax reforms. For example, the VAT is split 75–25 between the centre and the localities. Prior to the reform, Guizhou Province had derived fully 45 per cent of its revenue from alcohol and tobacco. The centre now takes much of this revenue. Despite the rapidly rising social welfare demands, the two major causes of growth in government expenditures are capital spending and administrative outlays. The result is that many local administrations have great difficulty in meeting their salary bills. The budgets of local governments are often referred to as ‘eating budgets’ (chifan caizhang) as they only cover basic essentials and salaries for bloated staff numbers (Shih et al., n.d.). Even in major cities local governments have difficulties in meeting their administrative expenses. Again we see enormous variation across China. Large municipalities such as Beijing and Shanghai are almost self-sufficient in terms of their capacity to fund their activities: Beijing covers 88.6 per cent of its needs and Shanghai 89 per cent. By contrast, poorer provinces such as Qinghai and Guizhou can cover only half or less of their obligations, at 39.3 and 53.7 per cent respectively, and Tibet only covers 12.9 per cent (Su and Zhao, 2006, p. 15). In Guizhou many counties were unable to meet payroll obligations (Wong and Bird, 2008, p. 455). The tax reforms of 1993–94 allowed the richer provinces to retain more revenue, thus exacerbating the inequalities. Not surprisingly, per capita fiscal capacity shows great variation. Shanghai’s revenue per capita is 14 times that of Guizhou, and Shanghai’s per capita expenditure is 5.5 times that of Guizhou. These figures reveal Guizhou’s reliance on transfers. By contrast, in the United States the poorest state has about 65 per cent of the revenue per capita of the average state, and in Brazil the richest state has 2.3 times the revenue per capita of the poorest state. The problems are exacerbated at the sub-provincial levels by the provincial retention of a high level of the revenues generated within the provinces. For example, the per capita fiscal revenue of the Yunnan provincial government is 14 times that of the county-level governments, and in Guangdong it is seven times. Dollar (2007, p. 14) estimates that the richest county’s per capita spending is 48 times that of the poorest. Together, the provinces and municipalities account for 70 per cent of all sub-national-level fiscal revenue, whereas the

180 Governance and Politics of China counties and townships, where the need is great, account for only 30 per cent (Su and Zhao, 2006, p. 22). This means that the fiscal system is highly regressive and local governments in poorer areas often have no alternative other than to eliminate services or to extract high fees from the residents. But even high taxes may not enable local governments to meet their obligations, a situation that has been described as ‘predatory fiscal federalism’ (Shih et al., n.d.). This situation has led to a search by local governments for stable revenue sources. In the 1980s and 1990s, the financial pressures and the removal of agriculture as a viable financing source for local government contributed to the expansion of locally owned enterprises, especially township and village enterprises (TVEs), as these were seen as the most stable source of local income. This was the case irrespective of whether the locality concerned was relatively wealthy or poor. The need for funding led most local governments to collect a wide range of sanctioned and unsanctioned fees and levies. They are often referred to as the three arbitraries (sanluan): arbitrary taxation (luan shoufei), arbitrary fines (luan fakuan) and arbitrary expropriation (luan tanpai) (Wedeman, 2000, p. 490). The various demands of the different line agencies come together at the individual household level. Villagers in a poor rural village in Pingchang County, Sichuan, tell of how the household has to weigh up the competing demands to plant enough trees to satisfy the forestry bureau, enough grain for the grain bureau, to raise enough pigs to sell to the local state, while being mindful of staying within the familyplanning quota and having to provide a certain number of days of corvée (forced) labour to the local government. It is clear that for most villagers, especially those in poor areas, despite the development of market exchanges, the role of the local state is still the defining factor in their lives. Dealing with exorbitant fees also leads to invention on the part of farmers. Chatting with a farmer in one poor county in Sichuan, we totalled up 120 such illegal levies that were imposed on his household (interview, November 1995). As a result, farmers adopt a number of strategies for evasion or to feign compliance. For example, in this county the farmer had to deliver eight pigs to the local authorities at a fixed price. Obviously he had to deliver some, but he could pay a fine for those not delivered. He calculated that he could deliver four and pay a fine for the others, which he sold for a higher price on the free market. This price exceeded that of the fine and so he figured that both he and the local government were happy. The advantage of these off-budget revenues is that they do not fall under the 1993–94 tax-sharing agreement with higher levels of government. By their very nature, these funds are hard to calculate, but Wong

Governance Beyond the Centre 181 and Bird (2008, p. 447) calculate that the EBF and extra-budgetary activities of government amount to between 19 and 29 per cent of total public sector spending. This must mean that there is considerable off-book spending. According to official statistics for 2012, EBFs amount to just 4.6 per cent of government expenditures. Of the EBF spending, 93.3 per cent was at the sub-national level. This confirms the view that public-sector spending has not actually declined under the reforms. Rather, what has declined is the amount controlled by the Ministry of Finance. Beginning in the late 1990s, the central government tried to rein in these fees and levies, some of which were illegal and many of which caused farmer discontent. The first step was to convert the various fees and levies into taxes and to reduce the level to a maximum of 5 per cent of the farmers’ income. Thus, in Beijing municipality, the percentage of ‘other revenue’ in the budget declined from 42.4 per cent in 1998 to 32.3 per cent in 2000, whereas ‘on-budget revenue’ rose from 39.4 to 47.4 per cent during the same period. The formal ‘off-budget’ revenues remained relatively constant at 18.2 and 20.3 per cent respectively (Su and Zhao, 2006, p. 25). Once the practice of illegal fees and levies came under increased scrutiny, local governments had to use the land under their jurisdiction to raise more revenue, often converting agricultural land to higher-priced commercial or residential land use. However, it is possible that the reduction and then the abolition of the consolidated agricultural tax may have had a negative impact on the provision of welfare services. Local governments increasingly relied on such revenues to provide services. In poor and remote communities, where marketization has barely begun and where the scope of economic activity will always remain limited, local treasuries have little recourse other than to eliminate services. In many poorer parts, rural medical health schemes were abolished and access to schooling was drastically reduced. Whereas villagers’ committees in poorer areas might be more concerned with how to raise revenues to cover basic welfare requirements, richer villages preside over an extensive income from local enterprises and make decisions regarding village investment in road building, hospital development, and so forth. Preliminary evidence suggests that the abolition of the agricultural tax, unless compensated for by adequate transfers, may indeed have a negative impact on service provision if there are not major cost savings. Research by Kennedy (2007) in Shaanxi reveals that there was a sharp decline in the provision of educational and medical services, with poorer townships heavily dependent on the county government for revenue and able to act as no more than an ‘administrative shell’ and unable to offer basic services. He shows that counties and townships have only suffered a small drop in the number of hospitals and

182 Governance and Politics of China medical personnel, whereas villages have suffered a precipitous decline. Between 2001 and 2003 doctors in Shaanxi villages declined by 23 per cent and healthcare workers declined by 82 per cent. The number of village clinics dropped by 25 per cent. Christine Wong has also pointed out that the abolition of the miscellaneous education fees and their replacement by transfers to cover elementary education costs may actually end up causing a shortfall in income for local governments. The subsidy from the central government covers only a portion of the revenue that local governments used to derive from various education-related fees and levies. The subsidy was 140 yuan for elementary school students and 180 yuan for junior middle-school students. However, before the new programme began, the costs were much higher; in one school visited, the cost was 1,000 yuan per student (Wong, 2007, pp. 14, 17). The other major impact of fiscal reform is the continued decline of the township. Although some reformers have called for the abolition of the township as a formal level of government, the preferred policy seems to be to promote a withering away of it through mergers and conversion into towns (zhen). In 2013, the number of township jurisdictions was 40,497, down from 72,153 in 1985 and 47,136 in 1995. Of the jurisdictions in 2013, almost half were towns (20,117). Smith (2010) writes of the ‘hollowing out’ of township governments as they are squeezed from above and below. From above, their leaders are prey to demands arising from inspections, annual assessments and the need to attract industrial investment and the ‘soft authoritarianism’ noted by Mertha (2005). From below, staff are often allocated to villages to ensure policy implementation and social stability. This undermines one of the key objectives of township reform that was to make their government agencies more service-oriented. One option for reform was to concentrate all agencies into three to five service centres. Other measures are to marketize those services that are not for social welfare, with services outsourced. Management of the agencies would be brought under the county-level government (Tan, 2011). However, the merger of townships has led to the elimination of accessible services for many since the schools and clinics are closed in those townships that lose their appellation. In areas where distances are large, such as Tibet, this means that the former township community may entirely lose its previous access to education and healthcare (discussion with Arthur Holcombe, President of the Tibet Poverty Alleviation Fund, April 2007 and March 2012). One intention of reducing the number of administrative agencies is that any savings made from downsizing government will go to increase the salaries for those who remain. Given the parlous financial situation, there might not be much extra cash to distribute. Some have

Governance Beyond the Centre 183 complained that if the staff cuts are not sufficiently deep, the levies on farmers at the local levels will increase yet further to cover the salary hikes. Compounding the problem is the fact that local government is such an important employer in the countryside, especially in poorer areas, that some see township reform as destabilizing. At the same time as they are struggling to raise funds, local governments are still under pressure from higher-level agencies to fulfil certain tasks of economic production and social development without receiving funding. Researchers in the Translation Bureau of the Central Committee (Rong et al., 1998) have named the current structure of local government a ‘pressurized system’ that needs to be reformed to accommodate a more open democratic system of cooperation. In their view, the de facto decentralization has meant that higher-level agencies put administrative pressure on lower levels of government, as manifested in the political contract system. This system divides up and sets the tasks for organizations and individuals at the lower levels and they are expected to fulfil them within a prescribed period of time. This political contracting and responsibility system for fulfilling the tasks by local leaders provide an important incentive framework guiding their behaviour. While certain objectives can be missed, some performance targets must be met or promotion will be denied. For example, all local officials are charged with meeting family-planning targets and maintaining social stability, while many counties require townships to meet fixed revenue-generation requirements (interviews with local officials). Thus, Smith (2010) concludes that without significant change in the practice of ‘administrative coercion’ the ‘local state will continue to view farmers as problems rather than as clients or citizens’. With most problems having to be resolved in situ, local resources and their distribution affect the majority of people’s lives. Many local officials may well be party members but they are also members of the local community, and where there has been a moderate increase in local accountability through village elections and transparency regulations, they have to take this seriously (see Chapter 7). While most observers agree that the economic powers of local governments have been enhanced through control over local industry and EBFs, there has been considerable disagreement about the emerging nature of the relationship between the local state and society. The tendency in the literature has been to dwell on the fusion of political and economic power at local government levels and to suggest that the state is either predatory or displays some variant of local state corporatism or a clientelist structure (Oi, 1992, pp. 99–126; 1999). What this has meant to local cadres has also been open to different interpretations. Not surprisingly, those who see local corporatism or clientelism as the dominant paradigm feel that the power of local officials has been enhanced by

184 Governance and Politics of China increased control over resources for distribution to those within their jurisdiction. Chinese researchers under Xu Yong have argued that, despite the village elections, the head of the villagers’ committee acts as much as an agent of the state as a representative of the villagers (Xu, 1997). The increasingly widespread practice of buying and selling official posts suggests that much can be earned from being such an agent. Sayings such as the following have become commonplace in the countryside: If you bribe your superior 10,000–20,000 yuan, you have just checked in. If you offer him 30,000–40,000 yuan, you have registered for promotion. If you give him 80,000–100,000, you will get promoted. Victor Nee (1989, pp. 663–81) proposes that, on the contrary, the new opportunities in the local economy provided individuals with control over financial and other resources independent of local cadre power. Together with Opper (Nee and Opper, 2012) their study of private entrepreneurs in the Yangzi region explains how they overcame the barriers to growth by devising institutional innovation that created space for them outside of the state-dominated economic order. What these developments mean is that it is at the local level that one should look for substantive change and it is there that questions of rights, accountability and transparency mean something for the vast majority of people. It is also at this level that the general impression of a system in stasis is challenged by the vibrancy and inventiveness of solutions to problems. Society has become very dynamic, and not only institutional needs but also the institutional fabric of state–society interactions have become more complex. Much experimentation is taking place with basic-level organizations and institutions, which all makes for a very messy kind of China and one that defies simple categorization. The one thing that is certain is that the rapidity of change has been staggering and there is every reason to expect that it will continue.

Perceptions of local government performance We saw in Chapter 5 how satisfaction with government fell as it got closer to the people, and above we have explained just how much of citizens’ needs are meant to be met by local governments that are often struggling to raise the necessary funds. From the surveys I conducted between 2003 and 2011, two sets of findings are interesting. The first concerns citizens’ attitudes towards local officials and who they think

Governance Beyond the Centre 185 they represent and the second concerns which kinds of services they would like the government to concentrate on in their work. The survey asked about residents’ attitudes towards the ability and style of government in implementing policy and in whose interests they thought local government acted. It is interesting to note a general improvement, with a high point in 2009 after the response to the Sichuan earthquake, the global financial crisis and the convening of the Summer Olympics, before dropping again in 2011. Thus, in 2003, while 50.8 per cent of respondents deemed local government ability very competent (21.5 per cent deemed it incompetent), again we see satisfaction dropping the closer government gets to the people. The view that government is very competent in executing policy dropped from 64 per cent for those living in major cities to 43.9 per cent living in townships, while rising slightly to 47.3 per cent for village officials. These figures improve overall for 2011, with 69.4 per cent of respondents stating that government is competent and with only 15.4 per cent saying that it is incompetent. By 2011, 65.6 per cent found village officials competent. As for government attitude, when implementing policies, we see a significant improvement from 2003 to 2011, with 61.1 per cent (39.1 percent in 2003) feeling that local officials are friendly, while 26.4 per cent (38.9 per cent in 2003) finding them cool and indifferent (see Table 6.3). The new policies of the government and attempts to encourage local governments to be more responsive and take care of those in need may be having an effect. Although dissatisfaction is still relatively high and satisfaction relatively low, all the indicators have improved between 2003 and 2011, again with a high point in 2009. However, respondents’ attitudes about the way policy is implemented by local governments should raise cause for concern. Irrespective of place of Table 6.3 Citizens’ Impressions of the Attitude of Local Government in Executing Policy, 2003 and 2011 City

Cool and indifferent Warm and friendly Competent Incompetent





















64.0 14.9

82.1 11.2

43.9 22.3

60.4 25.9

23.7 47.3

65.6 14.2

186 Governance and Politics of China residence, large percentages feel that the behaviour of local officials is bureaucratic rather than helpful to the concerns of ordinary people (see Table 6.4). By 2011, only two categories had a majority for bureaucratic behaviour prevailing: officials trying to get closer to their superiors and those with money. One clear message is that the quality of governance is perceived to be better in the major cities than in the smaller towns or villages. It is not surprising then that the results of a survey by Chen Wensheng (2010) on the way township officials allocate their time show that 22 per cent of it is spent on receiving higher-level officials and only 2 per cent on ‘serving the people’. Nine per cent is spent on economic development, 17 per cent on family planning, 15 per cent on work evaluation and 32 per cent at meetings. Citizen satisfaction with the provision of specific public services reveals some interesting insights that are helpful for thinking about the changing role of government and what local government should concentrate on to improve levels of satisfaction. Across the years of the survey there was not much variation about the five aspects of local government work that received the highest ratings. Thus, in 2011 these were regulating religious belief, family planning, attracting business and investment, tax management, and management of cultural and

Table 6.4 Comparison of Citizens’ Attitudes towards Government Behaviour, 2003–11 Bureaucratic behaviour

Concern for ordinary people

2003 2009 2011

2003 2009 2011

Stands high 48.2 39.4 42.2 Method of helping above the people ordinary people Close to those 50.1 43.9 44.6 Cares about with money ordinary people with hardships Moves close to 54.0 49.4 45.8 Have the idea superior leaders of taking care of ordinary people Acts in line with 51.2 37.4 42.5 Resolves real slogans problems Primarily takes 49.8 40.3 41.6 Brings benefits to care of their own ordinary people interests

30.9 46.8 47.3 28.1 44.2 44.0

24.5 39.4 43.0

26.3 45.6 47.1 23.7 45.6 42.5

Governance Beyond the Centre 187 educational facilities. By contrast, the five areas of government work that caused the greatest dissatisfaction were combating corruption, medical insurance, maintaining social order, unemployment insurance, and job creation. The services that respondents identified where government work is poor and that urgently need improvement were job creation, unemployment insurance, hardship family relief, medical insurance and environmental health. We also find that religious belief and family-planning policy, which enjoy the highest level of satisfaction, have the lowest level of importance. This would suggest that the areas of work citizens really wish government to concentrate on are job creation and providing basic guarantees to protect against the shocks of the transition to a market economy. Labour and medical insurance are high priorities for all residents. Given that it is unlikely that governments will be able to raise significantly more revenue to finance the provision of public services, it is necessary to meet these objectives by reducing costs and focusing more clearly on the kinds of services local government can and should provide.

Analysing the local state: corporatism, predation and negotiation It is not surprising that these tumultuous changes have prompted both Chinese and Western scholars to reconceptualize the relationship between the local state and society. The problem of definition is compounded by the fact that we are trying to deal with a moving target, a state and society in transition. We are dealing with not only the dynamics of the interaction and how this has changed over time, but also with the changes within the state sector and society. What appears as a predatory local state may evolve later into one of social partnership. We are also dealing with a country where multiple models of state–society relations may be operating at the same time. It is clear that the local state apparatus in Wenzhou, Zhejiang Province, with its privatized economy, operates in quite a different way from a neo-Maoist showcase on the north China plain. The tendency for both Chinese and Western scholars has been to dwell on the fusion of political and economic power at local government levels. This has been accompanied in Western writings with an emphasis on property rights relationships. In this approach the local state is catalogued in terms of the property rights relationships that evolve from the financial decentralization and the strategies that are taken to deal with this. The resultant structures are ‘path dependent’ on the economic structure that existed on the eve of the reform. Out

188 Governance and Politics of China of this approach comes a categorization of local government forms: entrepreneurial, developmental, predatory, and varieties of corporatism. As Baum and Shevchenko (1999, pp. 333–4) have pointed out, there is considerable ideological confusion concerning analysis of the state in China. The distinction of public and private in China and the interpenetration of state and society have caused a number of authors to seek to apply notions of corporatism to the political system. As Baum and Shevchenko (1999) note, the principal attraction of corporatist models is their ability simultaneously to acknowledge the pluralizing socioeconomic changes induced by the market reforms and the continued dominance of the Leninist party-state. This allows writers to explore the opening up of social space while explaining continued control through more indirect mechanisms of coordination and co-optation. Oi (1999) has used the notion of local state corporatism to explain the process of explosive rural economic growth that took off in the 1980s and continued into the 1990s. This model seemed appropriate for those areas such as southern Jiangsu that have a legacy of collectiverun industries that formed the basis for TVE development. Oi shows how the change in incentives allowed local communist officials to play a key role in fostering this growth through local government entrepreneurship. The loss of agricultural revenue from decollectivization, combined with hardened budget constraints, while granting local governments greater rights over any surplus, were crucial. This meant that for those leaders willing to take up the challenge there was a major opportunity to develop the rural industrial economy. In Oi’s view (1999, p. 11) ‘collectively-owned industrial enterprises served better both the political and the economic interests of local cadres during the initial stages of reform’. In this process, local officials acted like a board of directors in their management of village affairs. Walder has explored this idea in his analysis of local governments as industrial firms (Walder, 1995, pp. 263–301; 1998, pp. 62–85). In Walder’s view, the key question for a transitional economy is not whether the government should play a role, but what that role should be. A number of other writers have taken up similar themes in looking at the local state as developmental (Blecher and Shue, 1996) or entrepreneurial (Duckett, 1998). However, as we have seen, the resources available to the local state vary enormously and this affects the nature of entrepreneurialism. Local leaders with no industrial base have either had to build one, often with disastrous results, or have become predatory. The situation is particularly dire in resource-deficient localities or those that are dependent on one product. The work of Guo (1999, pp. 71–99) in Jinguan township of north-west Yunnan reveals this. It is a poor

Governance Beyond the Centre 189 township where the local administration forced the farmers to plant tobacco, taking away their capacity to grow rice for which they could obtain a higher income. The township government pushed this as it had a good revenue-sharing agreement with the county-level government. This cosy agreement ran into problems at the end of 1993 when a bad harvest combined with the government’s harsh extraction policy to cause public protests. Compulsory tobacco production was abandoned in 1994 but Guo surmises that this was because of the general 1994 fiscal reform that adjusted the sharing of tobacco revenues between higher and lower levels of government. When the county reintroduced the tobacco quota in 1996, there was no coercion, with the result that only 10 per cent of the quota was met (ibid., p. 77, n. 16). The picture is different again in areas with a high degree of privatization. Unger and Chan (1999, pp. 45–74), in their work on Xiqiao township in Guangdong, show how the criteria for success in private enterprise and public office are beginning to converge. The local township government does not need to levy any general taxes on village households and has been strongly in favour of local private business. As they conclude (p. 73), this experience counters the general writing on local government in two significant ways. First, local officials do not give priority to publicly owned industry over the private sector; second, they do not insist on relationships in which private enterprises are subordinate to and dependent on them. Saich and Hu (2012) confirm these findings with their research on Yantian, in Dongguan of Guangdong Province, where private business is highly developed. They found that the enterprises were guided by the market and that the local administrations did not interfere with their production of business activities. The village government had reinvested substantial funds in developing social services. The local state in China shows enormous variation in its nature, with each ‘negotiating’ a relationship with the local society and the higher levels of the administration. This comes close to allowing for the complexity of the current system; the institutional fluidity and ambiguity that operates at all levels is even more pronounced at the local levels. A focus on vertical integration and lines of administrative control, while ignoring the way in which the relationship is negotiated, ignores important horizontal relationships in society. As government downsizes further, citizens have greater responsibility for their own welfare and more functions are devoted to national organizations and especially local social organizations; people will look more to the local provider of public goods than to the central party and state directives and regulations. This will become more important as the wealthy business class is given more freedom over how it chooses to dispose of its money.

190 Governance and Politics of China Social scientists tend to dislike open-ended theories and seek to close down the range of options available for interpretation through a process of imposing order and logic. The idea of each organization and the nature of each local state being the result of a process of negotiation attempts to do justice to the complexities of social reality in China. In the field of state–society relations, we need to develop explanations that allow for the shifting complexities of the current system and the institutional fluidity, ambiguity and messiness that operate at all levels in China, and that are most pronounced at the local level.

Chapter 7

The Chinese State and Society The reforms have wrought significant changes in the relationship between state and society, including the nature of participation and protest. This chapter first reviews the Mao years and the legacies it inherited from traditional China. Second, it looks at how the reforms have impacted on state–society relations. We then look at the changing nature of sanctioned and unsanctioned participation and protest.

The Maoist period: an autonomous state and a state-dominated society As noted in Chapter 4, the CCP took over from the traditional political culture the notion of an omnipresent, penetrative view of the state. Unchallenged by other organizations (there was no organized church as there was in the West), the state assumed an all-embracing role that included defining correct ethical values on the basis of the prevailing interpretation of Confucianism. The local official was to embody and proselytize these values and the ‘masses’ were expected simply to follow the examples provided for them. The state thus assumed the role of educator. In the same way that couplets hung in public places in imperial times exhorting Confucian values, so huge billboards in the PRC beam out messages for the people to love the party, the army and the nation and live the ‘China Dream’. Communist China has promoted role models in the same way that the village lecturers of the Qing dynasty were required to use examples of virtuous behaviour for purposes of emulation. Equally, those deemed guilty of antisocial behaviour were criticized; their names were posted in public places and remained there until they showed contrition for their acts. Thus the communist glorification of moral exemplars and vilification of ‘negative examples’ has an imperial tradition. A stroll through a village during a major vilification campaign will reveal not just posters denouncing the villains, but also sets of creative cartoons lampooning them. This tradition lent itself to the use of mass mobilization and campaign movements combined with a distrust of independent intellectual criticism, which was thereafter associated with a lack of loyalty. The concept of ‘loyal opposition’ was unknown. Historically, the state did not acknowledge the legitimacy of an opposition as a necessary part 191

192 Governance and Politics of China of the political system. This sharply defined the role of intellectuals within traditional society, with political control of literature and other such pursuits being widely perceived as legitimate. The scholar-officials who were the product of this system often possessed great political power and social stature. In turn, because most scholars were officials, it worked against the striving for intellectual autonomy. Intellectual autonomy was dangerous and would most probably end up in loss of position or even moral and social exile. In the same way as the dynasties built up their armies of scholars to write up their official histories and provide arguments for their legitimacy, so too has the CCP built up its coterie of ‘establishment intellectuals’ (Hamrin and Cheek, 1986). Most writers agree that the leaders of the post-1949 state not only inherited China’s traditional statist disposition but also sought far greater control over and penetration of society than their imperial and nationalist predecessors (Wittfogel, 1957; Tsou, 1986). This desire for control derived in part from pre-1949 experiences but also from the process of power consolidation in the 1950s. The result was what Tang Tsou (1983) has termed ‘feudal totalitarian’. While for Tsou the CCP was the ‘monistic’ centre of power, it was not a monolith. Importantly, Tsou highlights the distinction between personal leadership combined with mass mobilization and the totalitarian tendency of the party. The former is a more extreme form, as the system has even less restraint in terms of formal rules or norms. Not surprisingly, Western scholarship in the 1950s and 1960s focused on the structures of the new state and how they were used to penetrate society, an approach heavily influenced by studies of the Soviet Union (see Schurmann, 1968). However, it is worth cautioning that state penetration was never as consistent or extensive as may have appeared from the outside. The swift revival of social networks and traditional practices once reforms began and the public expression of heterodox ideas suggest that popular culture and local networks of resistance were more pervasive than initially thought. The first and foremost feature of the new state was its relative autonomy from the forces and classes in Chinese society which allowed its authoritarian nature to come to the fore post-1949. In fact, authoritarianism was always present in the CCP’s drive to establish power. Not surprisingly, this became more apparent once the party assumed national power and lost its privileged role as agent of the progressive forces of history. As Friedman et al. (1991) discover in their study of Raoyang in the north China plain, features of socialist dynamics and structures could produce brutal outcomes as the system became stronger. Seeds planted well before 1949 in such systemic factors as a security force set up to crush arbitrarily and mercilessly those dubbed ‘counter-revolutionary’, and a notion of socialism that treated

The Chinese State and Society 193 all accumulated wealth as resulting from exploitation, could be used against society in extreme and arbitrary fashion after 1949. While official CCP history and some Western accounts portray peasant support as crucial to CCP success, the peasantry was only a shortterm beneficiary, through land reform, of the revolution. The need to build up capital quickly led the CCP to collectivize the peasantry’s recently awarded lands because the CCP leadership viewed the peasantry as the main source for extraction to fuel urbanization and the rapidly expanding state apparatus. Their economic gains of the early years of the revolution were soon lost and collectivization culminated in the disasters of the GLF (see Chapter 2). By the mid-1950s, CCP policy clearly saw no significant role for the market in allocating goods and services. This not only had a detrimental effect on the quality of rural life but also led to the eradication of intermediary organizations that operated within the market economy and in the spaces between the local state and family. The CCP vigorously sought to suppress lineages, clans and other organizations that might have presented a moral alternative or different organizing principle to the state in the countryside. While industry was favoured over agriculture and industrial workers over farmers, the CCP retained a contradictory attitude towards the urban areas. Cities represented the home of the proletariat and the advanced production forces, but they were also the home of sin and temptation that could lead to the sapping of the moral vigour of the revolutionary forces. In part, this ambivalent attitude derived from the fact that CCP rank-and-file, if not the party leadership, was overwhelmingly rural and not only had qualms about entering the urban arena but also brought along a strong anti-intellectual bias. This antiintellectual bias enjoyed support from the senior party leadership, as witnessed through the extreme personal attacks in the Shaan-GanNing base area on critical intellectuals such as Wang Shiwei and the attempts to manufacture ideological conformity through the various campaigns (see Chapter 4). This, in part, accounts for the ferocity of many of the post-1949 urban campaigns, especially those directed against intellectuals. Research by Perry (1997) reveals that even if the working class was relatively privileged, it did not universally approve of the socialization of industry. By early 1957 reforms had led to a decline in real income for workers and a loss of input into decision-making. Thus, the socialization drive of the new state began to run against the material interests of both the peasantry and the proletariat. Yet, as discussed in detail in Chapter 8, it was urban China that was privileged with the household registration system (hukou), ensuring that state resources were channelled primarily into the cities at the same time as substantial portions

194 Governance and Politics of China of the rural surplus were transferred to urban industry, the military and other state priority projects. In urban China, the workplace (danwei) became a system to ensure social control (Walder, 1986; Lü and Perry, 1997). Housing was allocated through the workplace as would be welfare benefits, holidays and even, later, permission for when to have children and how many. Lü and Perry (1997) define five basic features of the danwei: it controls personnel, provides communal facilities, operates independent accounts and budgets, has an urban or industrial role, and is in the public sector. The system eschewed horizontal contact between workers, students and farmers, thus contributing to a system of vertically defined control and the cellularization of society for many functions (Shue, 1988). While the cellular structure of Chinese rural society was long apparent (Skinner, 1964–65), CCP organizational structure and pre-1949 operations dramatically influenced the notion of using this as the organizing principle for society as a whole post-1949. The cellularization of life as reflected in the danwei system was inherent in the cell system of the CCP developed before 1949 when horizontal contact was eradicated for fears of discovery and betrayal leading to the destruction of the organization as a whole. The workplace system became the defining system for urban organization and remained as such well into the reform period. The system also entailed a hierarchy of benefits and quality of life. First, the elite were those workers who had a job in the state-owned sector or the government bureaucracy. Second, within the state sector itself there was a very uneven provision of goods and services, depending on the wealth and status of the enterprise. Employment in a large Shanghai state enterprise would provide one with better housing, schools for children and retirement prospects than work in even a large factory in a small city in the hinterland. Labour mobility was not encouraged and one was likely to work one’s whole life in the work-unit to which one was assigned upon graduation from school or college. In fact, an employee had to receive permission from the workplace to change jobs, giving great power to the personnel department of the work-unit. This power of control was strengthened by the fact that each employee had a dossier (dang’an) kept by the personnel department that contained not just biographical details but also information about political attitudes and performance during campaigns. For women, gynaecological information about their menstrual cycle was also kept so that family-planning quotas could be better implemented. The notion of the danwei and one’s own identity was so pervasive that on answering the phone or on meeting someone for the first time, almost always the first question would be ‘Which danwei do you belong to?’ The reply would help one gauge whether the interlocutor

The Chinese State and Society 195 was superior, equal or of inferior status. In fact, when the reforms began, a number of young urban Chinese who desired to shock put the affiliation on the ubiquitous name-card as ‘No danwei’. This was seen as a sign of rebelliousness and non-conformity to existing norms and structures. The lack of a need to be responsive to social forces and the eradication of all potential opposition outside of the party meant that policy-making became increasingly monolithic and less grounded in socio-economic reality. Once ideology began to dominate policy-making, disastrous policy choices were made, which brought the authoritarian trends within the CCP to the fore. The coincidence of state and village interests during the war years hid the tensions between statestrengthening and popular sovereignty, and the overall statist thrust of the CCP left some room for local independence. Not surprisingly, this became more apparent once the party assumed national power. The tendency towards coercion was heightened by the traditional statist culture, the dominance of the party over all other institutions and the tendency towards individual domination by Mao Zedong over the decision-making process. China’s traditional culture viewed state and society as constituting a moral and ethical unity inseparable from one another. Cadres were expected to define those official values that would ‘regulate all social relationships, with rule conceived of as much in terms of preaching and setting moral examples as of administration’ (Whyte, 1991, p. 255). This fitted well with the form of Marxism– Leninism developed by Stalin and Mao that claims the unique capacity to interpret the linear progress of historical development and to be able to develop correct policy prescriptions on that basis (Saich, 1995). By the time the Cultural Revolution broke out, this ‘unique capacity’ effectively belonged to Mao Zedong alone. These factors further strengthened the paternalistic nature of the authoritarian party and its state apparat. While Mao Zedong was referred to as the ‘great teacher’ and the party took on the role of political socialization, a policy of ‘infantalization’ of society was pursued. That is to say, individuals were treated as children who did not know what was in their own best interests. This has persisted down to the present. In the run-up to the March 2007 NPC meeting, the party secretary of Tibet stated that the party was ‘like the parent to the Tibetan people, and it is always considerate about what the children want’ (Reuters, 2 March 2007). Senior and local officials felt it was their role not only to represent the population, but also to think on their behalf and take all important decisions in their interests. Since the party and its leaders were ‘infallible’ because of their capacity to analyse the unilinear flow of history, policy failure was traced either to deliberate sabotage by class enemies or the inability of the ‘masses’ to respond

196 Governance and Politics of China properly or because of their low educational quality (suzhi tai di). Ultimately, this system also removed individual responsibility from the officials, as they were merely acting on behalf of the masses. Far from resisting participation, Mao Zedong actively promoted it, and mass participation was a distinctive feature of his style of rule. For Mao, it was not sufficient to accept a policy passively – one was to be seen to support it actively. In theory, this participation was not to be restricted solely to expressions of policy support but also was intended to apply to the process of policy formulation. This notion was embodied in the principle of the ‘mass line’. Through the mass line it was hoped the benefits derived from consultation with those at the lower levels would be combined with those of a tight centralized control over policy formulation. However, this does not mean that Mao was willing to accept the existence of different, competing groups in Chinese society. Despite this, throughout the 1950s and 1960s Mao appeared ready to open up the system to more meaningful participation, albeit unstructured, than his colleagues in the top party leadership. The system of intense bureaucratic control over distribution, the increasing arbitrary control over personal life and the concentration of power in individual hands undermined social cohesion and trust in officials and laid the basis for the corrupt behaviour by officials that dogs the system to this day. So much control over so many resources made it inevitable that officials would use their positions to extract benefits from their local communities. Walder (1994) and Oi (1989a, 1989b) among others have noted that party authority was based on citizen dependence upon officials for satisfaction of material needs and for access to career opportunities. One of the most abusive forms of dependence was for the commune or brigade party secretary to demand sexual favours from ‘sent-down’ educated young women who wished to return to the urban areas for study. Often the communes had a shortage of qualified people or there was lack of interest among local farmers, meaning that it was difficult for local officials to meet quotas. Not surprisingly, such activities increased cynicism towards officialdom and a disrespect for those in authority, who were seen as self-serving rather than ‘servants of the people’. Paradoxically, perhaps, the structure led to an expansion in the use of connections to obtain goods, often those to which one was entitled, and an increased reliance on the immediate and extended family. These tendencies that became more pronounced during the Cultural Revolution persist into the reform era and provide the underlying basis for the more spectacular corruption witnessed in recent years. As the description above suggests, the new institutions of the state were not institutionalized and they operated primarily to implement party policy. Indeed, one can even speculate to what extent, especially from the mid-1950s, they functioned as institutions to implement the

The Chinese State and Society 197 political will of one person, Mao Zedong. A completely Mao-centred approach to Chinese politics leaves many gaps in our knowledge of the workings of the political process, but Mao’s role cannot be ignored. It is ironic that, although Mao played a crucial role in devising the ‘rules of the game’ and associated institutions, it was he who was instrumental in causing their breakdown when he resorted to alternative channels of communication and a more personalized form of politics. One of the most crucial tensions in post-1949 politics was the position of Mao Zedong among the ‘collective leadership’. His dominance prevented the institutionalization of political structures that could have regularized policy-making. While the emergent system appeared to be a strong state, it undermined the capacity of the CCP to rule effectively and to inspire strong bonds of loyalty from its citizens. Not only did the attacks of the Cultural Revolution lead to economic stagnation, but they also actually weakened the capacity of the state to maintain effective control for any extended period of time. During the most radical phase of the Revolution (1966–69), the party effectively substituted for the state and, with the party taking over many state functions, there was only the party to blame if, and when, things went wrong. The system, while high on coercion, was low on information flows. This meant that feedback on policy was inefficient and inaccurate, with those lower in the hierarchy passing up only information that those in higher positions wanted to hear. Yet, paradoxically, even though this was not Mao’s intention, the Cultural Revolution enabled the young people of China to read and learn more about the inner workings of the system than had been the case before. In addition, the travels that many young people undertook as Red Guards and the periods they spent forcibly in the countryside revealed to them the harshness of rural life, a harshness that clashed dramatically with the Maoist images of the rural idyll with which they had grown up. Further, Mao’s inspiration to attack the party-state authorities, and indeed all authority, bred disrespect for authority among the people. Subsequently, the savagery with which the radical movement was squashed, the manner in which Mao seemed to turn his back on the ‘revolutionary youth’ once they destroyed his party colleagues, and his attempts to rebuild the party-state apparatus, caused many a young rebel to become disillusioned with the ‘Great Helmsman’. These factors, combined with the stagnating economy, meant that there was a population receptive to a radical shake-up of the system once Mao died, the ‘Gang of Four’ were arrested and Deng Xiaoping returned to power. It also explains the energy of the reform ideas that poured out in the late 1970s and early 1980s, both in the official press and in unofficial journals. While Deng’s decision to squash the Democracy Wall Movement of 1978–79 and the

198 Governance and Politics of China recurrent campaigns against ‘bourgeois liberalism’ showed that there would be limits to the extent of significant political change, the economic reforms radically reduced the capacity of the state to intervene in society. Slowly but surely the key features outlined in this section have come under pressure. Chapter 12 looks at whether these challenges fuelled by economic growth will lead to significant political change and eventual democratization of the state and society.

State–society relations under reforms: a negotiated state The renewed stress on the primacy of economic modernization since December 1978 has produced parallels with other periods when the demands of development have required that the party relax its grip over the economy and society and ultimately over public discourse. The economic changes have redefined the social structure and are changing the distribution of power between state and society, and have altered the principles on which society is organized and the ways in which it interacts with the state apparatus. As a result, Chinese society has become more complex in terms of both structure and attitudes and at the same time it has become more fluid and dynamic than at any time since the early 1950s. There is greater social and geographical mobility and horizontal interaction, and integration has developed as the vertical and cellular boundaries of the traditional Leninist system have become more porous. Finally, there has been a significant redistribution of economic power away from the state and its ancillary agencies and towards groups, new or reformed institutions, households and perhaps even individuals. This has led to attempts to devise mechanisms to incorporate the views of various groups. However, in many respects, and various setbacks notwithstanding, the party has gone further than at any time since 1949 in its attempts to take account of the increasing heterogeneity that its modernization programme has produced. The experience of the excesses of the Cultural Revolution showed China’s leaders the kind of problems that could arise if the flow of ideas and information from society were cut off or unduly distorted. Thus, the post-Mao leadership realized that a higher degree of participation by sanctioned groups was both desirable to promote modernization and was inevitable given the proposed rapid changes that they hoped to bring about. However, the experience of the ‘Hundred Flowers’, the Cultural Revolution, the Democracy Wall Movement and the student movements of the 1980s caused the leadership to be suspicious of participation that took place outside of its own direct control.

The Chinese State and Society 199 From the party’s perspective, what is lurking in the shadows waiting to pounce on any opening that permits freedom of expression is revivalism, religion, linguistic division and non-Han ethnic loyalties. Just a scan of the various bulletin boards and Web sites may reveal that many in the Chinese virtual realm harbour strong nationalist not to say xenophobic views. Thus, party leaders have launched a number of movements to restore the effective leadership of the party and to control social space while not negating the contributions that ‘articulate social audiences’ could make to the economic programmes. This is now challenged by the fruits of the reforms themselves. The reforms have produced a differentiated population that has a wider range of information at its disposal, and many are less likely to take ‘party truths’ at face value. The party has had to develop new skills to compete with the spread of the new technologies and to form or revive old institutions to integrate new segments of the population. There is no intention to make the party or the state apparatus genuinely accountable to the citizens of China. This is a tricky policy to follow and it has been impossible for party members to remain immune from the influence of different social groups and for the party organs to channel fully the activities of the new organizations that have sprung up in recent years. The tacit recognition by the party of the existence of other groups in society should not be interpreted as the emergence of a ‘pluralist’ political system. It is an attempt to finesse self-regulated and autonomously defined political organizations by incorporating those groups the party leadership sees as important into the existing modified power structures and spaces. The party moves to accommodate the increasingly wide range of articulate audiences to thwart or limit the possibility of alternative political-ideological definitions. This is best seen in the 2001 decision to allow private entrepreneurs to join the party. There are clear limits to the permissible: the party has to remain in control and activities have to take place within a framework laid down in the relevant state decrees. This was first signified by promotion of adherence to the ‘Four Basic Principles’ that were put forward by Deng Xiaoping. Further, democracy in so far as it is promoted is prefaced by ‘socialist’ and is not interpreted as an end but rather as a means of achieving the party’s central task of economic modernization, a position that has not changed substantially. As the party recovered from the trauma of the Cultural Revolution and began to book some economic success, its confidence rose and once again it began to reassert its role as the guardian of ideology. Yet, within society, what we have seen is a progressive undermining of the party’s own heroic narrative of its central role in the revolution and the re-emergence of popular religion, class and even secret

200 Governance and Politics of China societies in providing not only alternative sources for belief but also as sites for reciprocity and welfare distribution. In southern China particularly, clans and lineages have reappropriated the role of local self-organization that was partly taken away from them after the communist conquest swept down from the north in the late 1940s (Saich and Hu, 2012). Secret societies are once again flourishing in China and contacts have been established with their counterparts based in Hong Kong and further afield. There has been a rising concern about alliances being formed between these triads and local officials, and there are worries that in some localities the ‘gangs’ have taken over. In the urban areas, there is also the emergence of a focus on individual desires and wants, something that has been enhanced further by the family-planning policy. This is reflected in material culture, music and much more hedonistic literature, all of which conflict with the party’s traditional collectivist ethos. Thus, while party propaganda tells us that ‘women hold up half the sky’, Shanghai writer, Wen Hui, tells us women ‘have much more freedom than women fifty years ago, better looks than those of thirty years ago, and a greater variety of orgasms than women ten years ago’ (Hui, 2002, p. 90). Individuals are rejecting the collectivist ethos and believe that they have more to gain through the pursuit of their own self-interest than through support of the collective. This is problematic for the CCP as it still professes belief in socialism and all socialist systems are based on some variant of collective individualism (Apter and Saich, 1994). While the party’s official discourse has ceased to be hegemonic and the voice of alternative discourses is readily heard, no new dominant discourse has emerged. What is emerging is a focus on the individual. With their stress on a discourse of the ‘collective’, this is impossible for party veterans to contemplate. The new emphasis might all too easily lead to the realization of oneself as an individual citizen of China rather than as a subjugated element of the masses of the PRC. At present, for many the most important binding factor is the desire to make as much money as quickly as possible and to live a relatively untroubled life. Xi Jinping is aware of this challenge and has sought to restore the prestige of the party with his vigorous campaign against corruption, attempts to restore a less extravagant lifestyle by party officials, and the revival of Maoist techniques such as the ‘mass line’ and ‘selfcriticism’ sessions to revive morale. At the core is his notion of the ‘China Dream’ that he hopes will form a focal point for the heterogeneous society. Xi describes the core components of his dream as ‘national rejuvenation, improvement of people’s livelihoods, prosperity, construction of a better society and military strengthening’. He called on young people to ‘dare to dream’ and ‘contribute to revitalizing the nation (Xinhuanet, 4 May 2013). The problem is whether all

The Chinese State and Society 201 will share the same dream and what will the party do if within society there are a number of different dreams that pull in opposite directions. Xi’s answer seems clear – it is the CCP’s dream that you must follow; and he has pursued vigorously a stronger attempt to gain control over public discourse and to tame the new social media. One result of the reforms and the uncertainty of where the boundaries lie is the dynamism in certain art forms and intellectual discussions about where China is heading or should be heading. It is true that much of the best literature has been produced by those in exile or outside of China, and that challenging films are frequently banned, yet there has been a blossoming of the arts, some of which pokes fun at the authoritarian strands of the state. There are artist enclaves in a number of major cities and in Beijing at 798 Dashanzi a range of contemporary artists host exhibitions. Among the more famous activist artists is Ai Weiwei who after a lengthy stint in the US returned to Beijing. He was an artistic consultant to the construction of the National Stadium for the 2008 Olympics, even though he was highly critical of the opening ceremony. In 2000, together with Feng Boyi, to parallel the Shanghai Third Biennale, he ran an exhibition for 46 avant-garde artists entitled ‘Fuck Off’. The son of Ai Qing, a writer persecuted in Yan’an and again during the Cultural Revolution, his fame seems to have afforded him some protection for his outspoken views. Music has also been flourishing, both classical and modern. One well-known jazz musician claimed his preference for the style was because it enjoyed a certain protection from the authorities. It was considered to have revolutionary roots and, more importantly, as much of the music had no vocals, jazz musicians did not have to run the words by the censors before performing. Bloggers such as Shanghai’s Han Han have attracted a large following and, although they are cautious about delving too deeply into politics, many of the blogs are critical. In addition to being a racing car driver, Han keeps up a steady stream of commentary. After a major fire destroyed the new building for China Central Television, he criticized those who had responded online with glee by reminding them that it was the people’s money that had gone up in smoke and that as citizens they should feel concerned. The broader public sphere that reform has created has led to inquiry about China’s future and a changing role for intellectuals. However, those who combine theorizing with activism are still liable to find arrest and/or abuse awaiting them. New ideological trends run the gamut from liberalism through neo-conservatism to populist nationalism. There has also been a change in the traditional role of the intellectual as providing wise moral counsel to the regime. Commercialization, consumerism and the increased professionalization have combined to offer intellectuals a range of opportunities through which to promote

202 Governance and Politics of China their ideas. Liberalism, which has dominated in the economic sphere, has been losing ground in the political. Thinkers such as Liu Junning have been dismissed from their official positions, and being absent from such a stage they have found it difficult to project their views effectively. The decline of political liberalism that reached its heyday in the late 1980s has been analysed by post-modernist, Wang Hui. Wang argues that its appeal faded in the 1990s because the reforms did not deliver what had been promised. Market influences increased in the economy and China became increasingly integrated in the world. However, the outcome was not an increase in equity and social justice (and certainly not political democracy) but rather polarization, an increase in corruption and the fusion of economic and political power (Wang, 2003). With the CCP also searching for a deeper source of legitimacy than economic growth alone, space has been filled by many alternative perspectives. Neo-conservatives such as Wang Huning (now a Politburo member) and Xiao Gongqin argue that China is not ripe for a democratic transition and lacks the middle class that would be necessary to promote this and ensure stability. They argue that, in fact, it is the state that must take the place of the middle class in development. However, there are still proponents for a gradual transition to democracy such as Yu Keping. Yu’s book and an earlier article argue that, while there are many flaws in democracy, it still represents the best path to move forward (Yu, 2008, 2006). The economic rise of China has given rise to popular nationalism. Western criticism of China has fuelled this trend, especially in online forums, and it has been promoted by official policy. Following the student-led demonstrations of 1989, the party strengthened patriotic education in schools and colleges. By its very nature this reinforced the narrative of China’s humiliation at the hands of foreigners, especially the Japanese and the US. In the mid-1990s, a group of poets and writers latched onto this tendency to launch their book The China That Can Say No (Song et al., 1996). While written in a strongly polemical style, it caught a rising trend in society. It criticized the pro-Western values of the 1980s and the neglect of China’s traditional culture. The sentiments were heightened by Western criticism of China after1989, the rejection of China’s 1993 bid to host the Olympics, opposition to WTO entry and what was seen as a policy of containment pursued by the US. More articulate arguments have been promoted by Wang Shan and Wang Xiaodong. The latter joined one of the original authors to publish a further book, China is Unhappy (Song et al., 2009). This put forward the claim that China should become a superpower and stand up to the US, an implicit criticism

The Chinese State and Society 203 of the Chinese leadership. Although it sold well, it did not have the impact of the original. The inequality that has been part and parcel of the reforms has drawn criticism from a group loosely termed the ‘new left’ (Cui Zhiyuan, Hu Angang, Wang Shaoguang). In fact, it is unfair to call them a group because their interests range widely, as do their points of criticism, but they all share the common view that the government has not done enough to curb the inequalities and corruption that have arisen as a part of the reform process. Their voices began to strengthen in the mid1990s as the reform of the SOE sector began to bite and the rural–urban inequalities were more noticeable. Criticism has centred on three main areas. First, the corruption that was associated with the large-scale privatization of the SOEs that started from the mid-1990s. Second, financial liberalization and allowing foreign purchase into China’s financial institutions that are seen as compromising the country’s sovereignty. Third, the failings of rural healthcare provision as a way of highlighting the pro-urban bias of China’s policy. In each of these areas the criticisms have had an impact on moderating subsequent policy, although it is difficult to know whether this came from their writings or because Hu Jintao and Wen Jiabao already had a different approach to policy. Last but not least, there have been those who are seeking salvation in China’s traditions, best represented by the neo-Confucians. Many have presumed that the current leadership is sympathetic to neoConfucianism and certainly Xi Jinping has shown sympathy. The most famous promoter has been Yu Dan who is a frequent panelist on television and whose self-help book (2006) has sold millions of copies. More acceptable academically has been the work by Jiang Qing (for a fascinating analysis of work by Yu and Jiang, see Bell, 2008, pp. 163–91). Jiang (2003) argues that future political transition must have roots in China’s historical cultural repertoire to gain legitimacy. The social trends of diversity are best seen away from the political centre where concerns about political conformity are less stringent. In some ways, China at the non-central level begins to resemble descriptions of traditional China. Official vertical reporting is in Marxist terminology (rather than Confucian) and economic statistics will be cooked to conform to centrally set targets. Traditionally, officials passed up Confucian accounts of their locality while many were themselves practising Buddhists, Daoists or whatever. In many areas of China, party organs have atrophied or become economic service organs. Central officials often mention that half or more of party organizations at the local levels do not function well. With the party’s withdrawal, as we have seen, traditional belief systems and organizations – popular religion, clans and even secret societies – are beginning to make a comeback.

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Impact on the sanctioned organizational structure of representation Political representation in China follows the Leninist norm with the CCP practising an extreme form of trustee relationship, declaring itself to be the sole political organization entitled to represent the legitimate interests of the Chinese people (Saich, 2013). The CCP’s desire to control tightly representation is shown through its attempts to thwart independent candidates from standing in elections, to incorporate important interests in society either into the party or into traditional institutional structures, and to create new regulatory frameworks to oversee those organizations that have emerged to represent interests that might undermine party hegemony. That said, under the policies of the ‘united front’ a more collaborative approach to cooperation with non-CCP individuals has been pursued. As Chapter 5 has shown, there has been a revitalization of the state sector with the people’s congress system and the consultative congresses playing more lively roles than during the Mao years. Official policy has tried to integrate experts into the decisionmaking process, to influence key groups in society more indirectly by binding them into organizations that are dependent on regime patronage, to improve democracy at the grassroots and to sanction a limited number of social organizations. The attention paid to economic growth in place of class struggle has led to a more empirically based approach to the solution of problems in place of an over-reliance on ideological criteria. In turn, this has led to greater value being placed on consultation and discussion. It has also resulted in the upgrading of the position of intellectuals in ideological and material terms. Gone are the Cultural Revolution references to intellectuals as the ‘stinking ninth category’; instead they are defined as an integral part of the working class. This ‘ideological upgrading’ has been accompanied by attempts to improve their work, housing and salary conditions, and they have been given greater freedom within their fields of professional competence. There has been an explosion of professional journals and convening of meetings to facilitate the exchange of views. Professional societies have mushroomed as further forums for the exchange of ideas and as organizations on which the party and state leading bodies can draw for expertise.

Participation and the eight ‘patriotic’ political parties This revival of the ‘united front’ approach and the increased reliance on experts has led to a revitalization of the eight other political parties in the PRC. Contrary to the view that these parties would pass away

The Chinese State and Society 205 with the generation that spawned them, they have survived and have begun to recruit a growing number of members. However, they only total 875,000 members (2012) compared to the CCP’s 86.7 million. The CCP sees these other parties as providing a useful link to the intellectuals whom it cannot draw directly under its own influence and as playing a pivotal role in mediating with influential Chinese abroad. For example, the Jiusan Society is composed mainly of intellectuals from scientific and technical circles and the CCP has sought to take advantage of those connections. These parties provide important legitimacy for the CCP’s view that it is not a one-party state but rather one that entertains eight other political parties. This was confirmed in China’s White Paper on China’s Political System that states what suits China best is the ‘existing system’ of ‘multiparty cooperation’ under which the other eight parties advise and ‘supervise’ the CCP but do not oppose it (State Council Information Office, 2007). Their main avenue for expression is through membership of the CPPCC and, in recent years, members of these parties have even been appointed ministers under the State Council.

The mass organizations The Leninist culture of the CCP, and the desire to head off potential opposition, means that the party seeks to incorporate significant groups through the establishment of ‘mass organizations’, such as the trade unions and the All-China Women’s Federation. Such structures allow the party to extend its organization, coordination and supervision of large segments of the population, especially those such as workers who might be tempted to form their own independent representative organizations. Interestingly, the one social group that has not been allowed to organize in this way is farmers. The sanctioning of trade unions, the Women’s Federation and the Youth League can be regarded as a two-edged sword that provides a mechanism for participation to officially sanctioned groups but also makes the formation of autonomous representative organizations impossible. If a sanctioned labour union exists, why should a new, autonomous one be created? By subjugating sectoral representation to general policy, the party allows such organizations the autonomy to organize their own activities within a broadly defined framework and to pursue the legitimate rights of their members in so far as they do not override the common good, as defined by the party. In return, the party expects unconditional support for its broader political, economic and social programmes. In 2013, there were 2.663 million grassroots union organizations operating in China, with 1,079 million full-time personnel and a total membership of over 280 million. Of the membership, 36.9 per cent are

206 Governance and Politics of China female. For the most part, these unions have been engaged in conflict avoidance, or conflict management, in addition to mobilizing support for party policy. Many working within the official union movement recognize the problems inherent in this construct and many workers see it as a stooge for the party rather than as their representative. The party has always moved swiftly to crush any challenge to this system of controlled representation; those who were involved in the 1989 attempts to set up an autonomous labour union received much more brutal treatment than did the students. Thus activists within the union are reduced to exploiting whatever space the party cedes or to try to ensure that official policy is implemented at the local levels. For example, in the early 1990s the official union successfully promoted workers’ demands for a five-day week to replace the six-day system and tabled motions to this effect at the annual NPC sessions. It also tried to work for the protection of workers’ rights in the Korean, Hong Kong and Taiwan-run sweatshops, but it has usually been thwarted by local political leaders who are afraid of scaring off investors. The adoption of the 1992 Union Law represented a high point for the official union when it was able to convince the party leadership that it needed to present a semblance of autonomy to retain credibility among its members. Still, few trust the union and prefer to turn to informal networks of friends or local groups for help. Similar tensions are seen with the Women’s Federation. The Federation has over 78,000 working in the organization, of whom 65 per cent are members of the CCP. During the reform period, its leaders have undertaken a more strident role in protecting and promoting women’s interests. Especially at the local levels, the federation has been instrumental in setting up non-government organizations (NGOs) that work under the umbrella of the federation. This has the advantage of not only helping women within the locality but also feeding problems and solutions back up the system relatively easily. Some groups have set up rural micro-credit schemes for poor women and legal counselling centres. For example, the group of women gathered around the magazine Rural Women Knowing All has undertaken work ranging from the sexual health of rural women to hotlines for migrant women to raising concerns about the high levels of suicide among young rural women. The effectiveness of the group stems not only from the social commitment of its members but also because a number of the key figures are senior members of the All-China Women’s Federation. This has meant that the group can use the infrastructure and staff of the federation to publish their own journal, specifically targeted at rural women, and to ensure that important policy issues are taken up in the official media; such issues are immediately in the domain of key policy-makers with respect to issues concerning women.

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New social organizations One of the most notable developments of the reform era has been the re-emergence of the third sector and, in recent years, interesting experimentation has taken place with respect to NGOs, which the Chinese literature refers to as social organizations, and their evolving relationship with government. At the end of 2013, there were 547,000 officially registered social organizations (shehui zuzhi), employing 6.4 million people. This category includes confusingly social organizations (shehui tuanti, 289,000), foundations (jijinhui, 3,549, including 1,378 private foundations and eight foreign foundations) and civilian non-commercial enterprises (minban fei qiye, 255,000). These organizations range from clubs such as philately associations, to the China Family Planning Association set up by the then Family Planning Commission to receive foreign donor funding, to groups such as Friends of Nature that operate as freely as one can in the field of environmental education. The vast majority, if not all, are single issue-based representing, for example, people living with HIV/AIDS or promoting environmental protection. Broadly speaking, those groups working in the fields of education, the environment and health have been permitted or have negotiated a relatively free space, and the idea of NGOs working in public service delivery is gaining acceptance, especially in large cities such as Shanghai. In fact, the Civil Affairs Department in Shanghai has set aside a fund to which local NGOs can apply to carry out a range of social welfare delivery services. Some organizations may be sponsored by the party or state, such as the China Charity Federation, while others might operate with a degree of official tolerance and independence. Clearly the further the group is along the spectrum of party-state sponsorship towards autonomy, the more vulnerable it is to administrative interference (Saich, 2000a, pp. 125–41). This does not mark the birth of a civil society even though the realms of the permissible have expanded and the number of officially registered organizations has grown significantly. In addition, there are large numbers of organizations that do not bother to register or are registered as businesses, as well as many community-based organizations. There has been growing recognition of the positive role that can be made by social organizations and three factors have spurred the development of the sector. First, there is the increased complexity of social challenges and the need to reach populations that do not trust government, which has caused the government to acquiesce in the existence of some groups working with commercial sex workers or those suffering from HIV/AIDS. In some cases, local governments have even purchased their services. Second, there has been the reform of public service units (shiye danwei) that are now being forced to cut their umbilical cords to the government. When reform of this sector began, there were about

208 Governance and Politics of China 1 million such organizations with around 30 million workers. They operate mainly as public service providers, primarily in the fields of education, health and agricultural extension services. This has meant that there is pressure to delegate certain government functions to them in order to maintain their funding and keep unemployment down. Third, there has been a recognition that local government cannot supply all the facilities required by society and that the contracting out of services to NGOs will not only save money but also might deliver better services. This became noticeable at the Sixteenth Party Congress (2002) with the recognition that more formalized participation by society would be necessary, marked by phrases such as ‘social management’ and ‘innovation in social management’. Hu Jintao (2012) at the Eighteenth Party Congress spoke of the separation of government and society that appeared to sanction the reduction of government engagement in direct service provision and the outsourcing of many social service functions to NGOs. Before this, the Twelfth Five-Year Plan (2011–15) devoted an entire section to social management innovation, covering ‘social organizations’, community governance and more public participation. The intention was to improve public service provision under the slogan ‘the party leads, government takes responsibility, society coordinates, and the public participates’. Finally, the Third Plenum of the Eighteenth Central Committee (November 2013) mentioned ‘social management innovation’, calling for more cooperation with social actors taking on a role in governance. Local experimentation was sanctioned. However, this is not a free for all. To prevent the emergence of a genuine representative civil society, the party and the state have devised structures and regulations to bind the organizations to state patronage and to try to control their activities. Regulations adopted in 1998 include the need to register with a sponsoring state agency that will oversee and be responsible for the organization’s activities, while banning ‘similar organizations’ coexisting at various administrative levels. There cannot be two national trade unions, for example. This helps to control representation to a smaller number of manageable units and has been used to deny registration to some groups. It ensures that the ‘mass organizations’ continue to enjoy monopoly representation and cannot be challenged by independent groups seeking to represent the interests of women or workers. The state’s intent is clear: it is to mimic the compartmentalization of government departments and to limit horizontal linkages. This favours those groups with close government ties and discourages bottom-up initiatives. It also keeps people with different opinions on the same subject from setting up ‘opposing’ interest groups. However, many organizations have found ways to evade such controls or to turn the relationship of state sponsorship to their own advantage. Some social organizations

The Chinese State and Society 209 have been effective in negotiating with the state to influence the policymaking process, or at least to bring key issues into the public domain. The need for broader organizational representation than the state is able to provide is recognized by some, and there have been experiments to allow social organizations to register directly with the Ministry of Civil Affairs rather than having first to find a sponsoring agency (colloquially referred to as a ‘mother-in-law’). The experiments started first in Shenzhen, then spread to the whole of Guangdong Province and are now operating in at least 19 provinces. Four categories are allowed to register directly: public benefit and charitable organizations, social service provision agencies, science and educational organizations, and economic and trade associations. Those operating in the fields of religious, political or legal work are not permitted to register directly. Groups such as the New Citizens’ Movement are still treated harshly, revealing the ambivalence still harboured by the authorities. This ambivalence has been heightened by the leadership’s understanding of events such as the ‘colour revolutions’ and the ‘Arab Spring’, where they see the hand of foreign NGOs playing a role in destabilizing the authoritarian regimes. China’s leaders are convinced that the West, and the US in particular, will promote ‘peaceful evolution’ in China and that foreign NGOs and US and Western funding of domestic entities form a critical part of that objective. Thus, the National Security Commission has highlighted the dangers that foreign NGOs working in China might cause. As with the mass organizations, some of the most successful groups to have provided effective representation are those with close government links or those that can use their official position to promote representation. The campaign to protect the Nu River provides a good example of the new activism but also shows how powerful state interests can still overcome such mobilization, even with the apparent support of the premier. Plans to build 13 dams with hydroelectric plants along the course of the Nu River, which runs through southwest China, drew domestic and international criticism. Active opposition to government plans came from the Green Earth Volunteers, founded by a Beijing environmental journalist, Wang Yongchen. Her journalistic connections were important in bringing the plans to public attention while also reporting on the developments internally. In April 2004, Premier Wen Jiabao called a temporary halt to the plan because of the poor quality of the environmental impact, which was mandated through the 2003 Environmental Impact Assessment Law. However, at the March 2008 NPC meeting, it was made clear that the work would proceed. Resistance was complicated by the strong political connections that the power company enjoyed in Beijing, including with the son of a former premier who works in the power sector. In February

210 Governance and Politics of China 2011, it was noted that the dams would form a part of the new Twelfth Five-Year Plan and in 2013 the government revived the plans to build hydropower dams on the upper reaches. The environmental assessment study was never released (interviews with participants and New York Times, 4 May 2013). However, sometimes good political connections at the local level can make it easier to challenge local abuses and build more effective representation. In particular, a number of influential local organizations are run by retired officials who can use their connections to promote their cause. One good example is the attempt to clean up the Han River in Hubei by the Green Han River organization (see Box 7.1).

Box 7.1 Cleaning up the Green Han River In the spring of 2002, Yun Jianli, who had just retired from government service, launched a small volunteer organization dedicated to protecting the Han River, which runs through her hometown of Xiangfan (now Xiangyang), Hubei Province. The NGO was the first of its kind in Hubei. The river had been polluted by local factories and was further threatened by a massive public works project that would divert significant amounts of its water to thirsty northern China. Yun hoped that the new organization would educate the public about the plight of the Han River and work to find ways to mitigate the pollution and the worst effects of the water diversion project. The organization’s legitimacy was aided by her previous government service and this made it easier for her to build the necessary networks to represent its interests. From 1985 to 2004, Yun had served as a member of the Xiangfan Municipal People’s Political Consultative Conference and for the last four years she had been a member of its Standing Committee. She was also a member of the provincial-level CPPCC and the provincial women’s federation. Membership on these organizations allowed her to forge a network of influential contacts and connections and reciprocal obligations that would prove invaluable when she began her work as an environmental crusader. She was able to register her association with the local Civil Affairs Bureau within just three months – unusually quick for an NGO – and to find a government sponsor – the Xiangfan Environmental Protection Bureau. It was important that the local government saw the new organization as an ally and an aid to its own objectives. By October 2010, the Green Han River organization had 157 individual members and 66 institutional or corporate members and 30,000 volunteers. Ms Yun felt that the gap between central policy intent and local practice had allowed the organization to find a niche for its activities. However, the continued health of the organization was dependent on Ms Yun and the political and social capital that she enjoyed. Source: Interviews 2009, 2010.

The Chinese State and Society 211 Thus progress has been made in three areas: lowering the barriers for registration, reorganizing the delivery of public services to provide a role for NGOs, and increasing the professionalization of the sector. As we look to the future, however, those organizations with close government relations will be privileged and service providers will be tolerated, but advocacy for ‘marginalized groups’ will be monitored closely, ruralbased community organizations (clans, lineages and temples) will continue to flourish, but stricter controls and monitoring will be in place for foreign NGOs. It is possible that China will have a third sector that will expand but a civil society that might shrink.

Participation at the grassroots and the role of elections Perhaps the most meaningful form of participation for the vast majority of individuals is that which affects their immediate work or living environment. In China the workplace, which for many is also a social unit, has been a focus of political attention for the leadership. The working class, with its allies the farmers, is supposed to be the ‘masters of society’, but the truth of this assertion is debatable. In the urban sector, indications suggest that more meaningful participation has been taking place at the workplace and experiments have been expanding to create a role for elections within local communities. In the countryside, there has been an extensive programme to introduce direct elections in the villages, the effectiveness of which is contested (on grassroots elections, see O’Brien and Zhao, 2010).

Urban China In the early years of reform most workers were still employed through the state enterprises and were dependent on them for their welfare benefits, housing and many other services. As the reforms have progressed, much housing has been privatized, SOEs have shed workers, the private and service sectors have expanded significantly, and migrants have moved into the cities on a permanent basis. As a result, the urban workplace is no longer as dominant in people’s lives and this, in turn, has had consequences for the ways in which citizens participate. The main forum for workers’ participation is the workers’ representative congress that operates mainly in the SOEs, although it is also present in other urban work units. According to regulations promulgated in July 1981, the congresses were not to be viewed as advisory or supervisory, but as ‘organs of power’ through which the workers and staff were to ‘run the factories and supervise the cadres’. In reality,

212 Governance and Politics of China control is relative, not absolute, and the functions and powers of the congresses are limited to factors such as the objectives of the state’s overall plan, the level of direct interference by the party committee, and the accountability of the factory director. Given the number of disputes in 1987, the State Council resurrected the labour dispute arbitration system, which had been abolished in 1955 (Lee, 2000, p. 47). This law was revised and passed in May 2008. Lacking the right to strike, arbitration is one of the few sanctioned channels for workers to address their grievances. The issues covered have expanded through the 1990s and now include wages, fringe benefits, occupational safety and health, contract disputes and termination of contracts of permanent workers in SOEs. The re-establishment of this system reflects leadership awareness that there was a lack of formally sanctioned channels through which workers’ grievances could be expressed and that workers were increasingly tending towards unsanctioned actions such as strikes and slow-downs. The increase in the numbers of cases led to revisions in the original law, with an attempt to speed up the process of reaching decisions. In addition, the revised law made it clear that labour arbitration was a free service. However, the revised law did not deal with one of the main problems: arbitration is still based on the individual, whereas most problems involve group action. In 2012, there were 641,202 formal labour disputes, down from almost 693,465 in 2008. Of these, 882,487 individuals were involved, of which 7,252 (0.82 per cent) were labourers involved in collective cases, and 225,981 (25.61 per cent) were individuals involved in wage disputes. The key question is, of course, the degree of success that workers enjoyed in these arbitrated cases. Of the cases, 643,292 (this includes cases left over from the previous year) were settled within the year and 268,530 (41.74 per cent) were resolved through a lawsuit. Of all the cases settled, 213,453 (33.18 per cent) were settled in favour of the worker and a further 350,652 (54.51 per cent) were settled in ‘joint favour’. In terms of residence, the urban residents’ committees (jumin weiyuanhui) have played an important role, although more in terms of monitoring behaviour and ensuring compliance with policies such as family planning than in providing a mechanism for participation. From the mid-1990s this has been supported by a programme that is referred to as ‘community construction’ (shequ jianshe). In the past, the role of these residents’ committees was less important than the role of the work-based committees in terms of the everyday life and needs of most urban residents. This has been changing with the expansion of the nonstate sector of the economy, with the work-unit providing less in terms of housing and social welfare benefits, and with the rise in the number of migrant workers in the urban areas. As individuals are taking

The Chinese State and Society 213 increasing responsibility for services, urban residents’ committees and communities (shequ) have taken on greater importance. The number of residents’ committees declined in the 1990s but rose again to around 84,000. Each committee has between three and seven members headed by a director. They cover an area encompassing between 100 and 700 households, but some cover 1,000 (Read, 2000, pp. 807–8). The sense that the street committees and residents’ committees would not be able to cope with the burdens placed on them by the reforms led to experiments to create a new organization as a part of community construction that the Ministry of Civil Affairs began to promote from the mid-1990s (Derleth and Koldyk, 2004; Bray, 2005). The community districts are based on the residents’ committees but they are larger in area and have a wider scope of obligations. They are explicitly required to take over the social welfare tasks that previously had been the domain of the workplace or the residents’ committee and the street office. Experiments began in Shanghai in 1996 and in 2000 the Ministry gave them a broader remit to include cultural work and to strengthen policing. They were to have ‘three self-functions’: selfmanagement, self-education and self-service. The residents’ committees were seen as being too small to operate effectively, while the street offices were seen as too large to function as an effective grassroots organization. This process was not intended to weaken party and state capacity but rather to adapt to the changing environment under the notion of ‘social management’ (shehui guanli). As Bray notes (2005, p. 185), the party moved to replace one form of collectivity with another. Rather than allowing people to interact individually with government agencies and the market, these new organizations were to take over collective aspects of work and service provision that formerly had been provided by the workplace. They fall under the authority of the street offices and, while they can raise some funds from the services they provide, for most activities they are dependent on budget appropriations from the street offices. However, the spread of these new organizations has not taken off as planned, in part because the agenda is too ambitious for the available staff and they are underfunded. Also, there is a general bureaucratic inertia as China already has a complex set of organizations in the urban administration and it is difficult to restructure them to integrate effectively with these new communities.

Village elections and villagers’ committees The use of direct elections conducted in a fair and free manner would represent a major change in the relationship between the state and society by forcing the former to be more responsive and providing a

214 Governance and Politics of China degree of accountability to the latter. To date, the most noteworthy step in this direction has been the attempt to introduce elections for villagers’ committees (cunmin weiyuanhui) since 1987. However, the process of the elections has been complex and contested and the impulse to set up villagers’ committees has been guided primarily by the need to restore some kind of governing structure in China’s villages. This formed part of a set of measures to restore governance to the countryside and it included the use of village representative assemblies and financial transparency committees and the open publishing of the village accounts. By the end of 2012, there were 588,475 villagers’ committees with 2.3 million members, of whom about 56 per cent were CCP members and about 21 per cent were female. But the numbers have declined progressively from more than 650,000 in 2003. After the dismantling of the commune system, there was an administrative power vacuum at the village level. While the township took over the government functions of the commune, a new organization called the villagers’ committee was to take over those of the brigade. Following experiments in 1980 in Yishan County, Guangxi, where villagers began to organize committees to oversee village administration to address the needs of infrastructure and to deal with public services and order, they gained provincial and national approval. Although this new entity was mentioned in the revised state constitution of 1982, it was fleshed out in the Draft Organic Law on Village Self-Governance passed by the NPC in 1987, a definitive version of which was promulgated in late 1998 and amended in 2010. It was generally recognized that the political vacuum and crisis in the countryside could only be solved by letting the villages govern themselves (Kelliher, 1997). As with arguments for political reform more generally, the reason given for promoting elections for villagers’ committees was instrumental: they would provide better leadership and self-governing villages would enforce unpopular state policies more effectively than previously was the case. In fact, it has clearly been a tactic of the reformers to show that villages with functioning committees actually result in more people doing what the state wants. Rarely does one hear arguments based on the fact that they enhance the power of the people rather than those of the state (ibid., pp. 70, 75). When visiting a village, after the geographical and statistical details, the briefing turns to the terrible problems that used to exist in the village: corruption, conflicts over resource allocations, marital disputes and last but not least the failure to carry out effectively the family-planning policy. The establishment of the villagers’ committees is then credited with clearing up these problems and with enforcing state policy in the villages. Inspiration for the elections derived from the system that had been implemented in Taiwan in the 1950s and, more importantly, from the

The Chinese State and Society 215 CCP’s own experiences during the 1930s and 1940s with village elections in the Jin-Cha-Ji Revolutionary Base Area (Saich, 1996, pp. 975, 1017–38). Peng Zhen, who had championed this earlier programme, was head of the NPC in the 1980s and was the main driving force behind the Draft Organic Law. Naturally, the specific environment of the 1980s was different but the logic was the same for the establishment of the villagers’ committees, with state power needing to be reconstructed in many villages after the introduction of the household responsibility system. This process was heavily contested and it took almost four years before the Draft Law was passed and, despite numerous proposals, a final version of the law was not complete until 1998. Once this final version was ratified, it became a necessary part of the work to ensure that the elections take place. The committees are entrusted to deal with all administrative matters of the village, including tax collection, budgets, public goods and services, public order, social welfare and dispute resolution. The committees are overseen by a village representative assembly that comprises all village residents over 18 years of age (Lawrence, 1994, pp. 61–8). The assemblies were promoted by a 1990 Ministry of Civil Affairs circular and their role and the requirement that all villages establish them was written into the revised 1998 law. To some extent, this move represents a step away from direct accountability in the village. In some villages these assemblies comprise only the heads of households. They not only monitor the work of the committee but also in some cases they oversee the work of the party committee, monitor all accounts and expenditures and make policy proposals. Despite statistics that show that not all those elected are party members, interference by the party and higher administrative levels is commonplace. The distinction of whether one was a party member before the election or only joined afterwards is important. The elections have provided a source of trusted new leadership for the party and a popular, elected member might be asked to take on the job of party secretary. In all villages where there is a functioning party branch or cell a meeting is convened to consider the implications of the election. It is important to point out that while the village committees only fall under the guidance (zhidao) of the township level of government, they operate under the leadership (lingdao) of the party. It is clear that some township cadres have not been satisfied with the expansion of the elections as it has undermined their capacity to intervene directly in village affairs to obtain the outcomes they desire. This tendency is reflected in attempts to limit direct, secret ballots as the main electoral form and proposals for indirect elections or the use of public meetings to approve those elected by acclamation. These latter forms give the party and higher-level administrative agencies a greater

216 Governance and Politics of China capacity to control electoral outcomes. Even among reform-minded leaders, there is a tendency to influence outcomes and not to trust villagers to make their own choices. The widespread view among local officials is that the ‘quality’ of the farmers is too low and that they are a breeding ground for feudal and superstitious ideas and backward practices. The expansion of elections in the villages has also led to concern about the role of lineages and clans in village politics (see Box 7.2). There is little systematic research on this and the level of influence seems to vary according to place. He (2003) suggests that in a onesurname dominant village, one tends to vote for a candidate from one’s own village, but in multi-surname villages, voters tend to concentrate on the qualities of the candidate. Where the economy is poor, most likely villagers will vote for their own lineage to maintain their own dominance. One survey of village heads reveals that 42.3 per cent were from a minor lineage and 51.4 per cent from a major lineage (ibid.).

Box 7.2 Yantian Village: Home of the Deng Lineage Yantian administrative village is situated just north of Shenzhen in Guangdong Province. Since the reforms began, it has become a key component in the global production chain. At its peak, the village was home to over 400 foreign-invested enterprises and 150,000 migrants, in a village of only 3,000 registered inhabitants. Politics is dominated by the Deng lineage – 71 per cent of the villagers have the family name Deng. The April 2011 villagers’ election was noteworthy as the party secretary, Deng Yaohui, who had overseen much of the village’s growth, had retired just before the election. He was to be replaced by Deng Zerong, the former head of the villagers’ committee and party branch deputy secretary. Thus, in a clear departure from previous elections, the party committee of Fenggang Town that oversees Yantian, issued a list of recommended candidates for the villagers’ committee. The town party committee claimed its suggestions were based on a review of the work of the current members and from targeted opinion polling. The town authorities were clearly satisfied with the current situation and did not want to risk any potential upset by submitting fully to the democratic process. Such attempts to control and ‘guide’ democracy so that the outcome is known are prevalent throughout the system. Deng Manchang was proposed as the new village head, having served as deputy since 1999 and as deputy party branch secretary. The slate of candidates proposed by the Fenggang Town party authorities could not be displayed inside the voting venue but was displayed prominently outside. In addition, on the back of the sign indicating where people should vote (xiepiaochu) there was a list of the proposed candidates and their positions. However, only two middle-aged women

The Chinese State and Society 217

actually consulted it. Voters waited until the name of their household was called and then they came forward to cast their votes. There were two ballots for each voter: one for the head, deputy head and two members; and one for the female member of the villagers’ committee. In line with the proposals of the town party authorities, Deng Manchang was elected as village head with 83 per cent of the vote. Source: Saich and Hu, 2012.

In June 1998, the CC and the State Council issued a joint circular to accompany the revised law that placed less emphasis on the ‘statist’ aspects of the elections. It stated that ‘open and democratic management of village affairs is conducive to developing grass roots democracy in rural areas, and will guarantee the direct exercise of democratic rights by farmers’. Particular stress was placed on promoting villagers’ capacity not only to participate in management, but also to monitor closely the ‘performance of the leadership they have elected’. Further, the circular noted that all major matters must not be decided or resolved secretly but must be made public to the villagers and suggested that each village have a public board showing the details of all village affairs. On the party, the circular called on village branches and committees to hold regular democratic elections and never to attempt to delay them. One major problem that has arisen is the question of who has the right to vote. Especially in richer villages, much of the wealth is built on the migrant labour. This problem was addressed in the 2010 amendments with the intent to shift the basis for the right to vote from the place of household registration to the actual place of residence. The right to vote was extended to those who had lived in the village for more than one year. However, this stipulation was accompanied by the proviso that approval must come from the villagers’ assembly or the villagers’ representative assembly. Not surprisingly, there is a reluctance to undermine the existing power. Thus, in wealthy Yantian Village in Guangdong, home to 80,000 migrants, not one voted in the April 2011 election.

Non-sanctioned participation Despite the development of formally sanctioned channels of participation as well as other mechanisms, such as petitioning and letter writing, it is clear that the reforms have given rise to unprecedented

218 Governance and Politics of China political activities outside these channels, some of which has been antisystemic. As Cai (2008) has noted, the institutionalization of conflict resolution is ‘rather limited’. There is no doubt that open protest has increased since the 1980s and has persisted even after the massive student-led protests of 1989, yet it has not led to the kind of large-scale protest that brought about the fall of Mubarak in Egypt. The Chinese Academy of Governance has reported that the number of ‘mass incidents’ had doubled between 2006 and 2010 to 180,000. This dwarfs the figure of 8,700 in 1993 when the latest round of reforms really took off and amounts to almost 6,000 protests per province, some 16 per day. Similarly, the China Labor Bulletin notes that between June and August 2013, there had been 183 industrial ‘incidents’, 40 per cent in manufacturing, double the amount during the same period in the previous year. However, there has been a lack of a systemic challenge and this is related to the nature of protest in China. While it is widely reported and details are disseminated, most protest is focused on particular abuses and is local in nature, and very few protests have led to political unrest. As Chung et al. (2006) conclude in a very detailed study of three types of potential anti-regime activities (collective, religious and criminal), these protests do not present an immediate challenge to the state, though they are unlikely to go away and the threat of instability will always remain. In the countryside, most protests have focused on land seizures by local authorities and inadequate compensation. With local authorities suffering from insufficient revenue, land seizures and subsequent transfers of usage from agricultural land to development can raise significant funds, with relatively little income set aside to compensate the farmers. In the urban areas, in addition to the confiscation of property and resettlement, most protests concern unpaid wages or unfair dismissals. More recently, we have witnessed the rise of middle-class protests that concern lifestyle issues such as resistance to the building of polluting factories, construction of nuclear-processing plants or other environmentally damaging projects. It has been rare for protests to address overtly political concerns or to be threatening to the regime. While the causes may be contemporary, the alliances formed in protest and the symbols used may often resemble the traditional. As Perry and Selden (2000, p. 8) remark, ‘traditional forms of contention are being revitalized in a new sociopolitical context, sometimes creating new public spaces with new economic bases’. They and others have also noted how some protestors have invoked Maoist notions of egalitarianism and fairness, combined with traditional mores, to critique the inegalitarianism currently promoted.

The Chinese State and Society 219 Cai (2008) analyses why the rise in protests has not undermined credibility in the regime. He notes that protest creates problems for authoritarian regimes because both making concessions and conducting repression can lead to unpredictable outcomes. He suggests that the CCP has avoided this problem by granting considerable autonomy to local governments to deal with the protests. This means that the centre can avoid the blame if the local authority resorts to repression. He notes that this phenomenon of divided state power has allowed the CCP to maintain social stability despite the rise in social unrest. He credits this with creating ‘state resilience’, allowing the coexistence of social unrest and political stability. Rarely do central-level authorities intervene. Lee (2014) notes that leaving resolution to local governments results in pervasive bargaining between the state and the protesters that insinuates a market logic into governance. For the protests to threaten governing capacity, participants would have to see the problem as systemic and develop a form of rights awareness that could be mobilized in times of regime stress. While some, such as Li (2010), have argued that a ‘rights consciousness’ is emerging from these protests, Perry (2008) questions such a view, suggesting that protest has assumed more traditional forms and does not imply a nascent demand for systemic change. In fact, she implies that, far from undermining state legitimacy, the current forms of protest might bolster it. She uses various examples to show that the language of protest is actually framed in that of Mencius and Mao and that many Western observers are mistaken in seeing the protests as reflecting the emergence of an individual rights consciousness such that we are used to in the West. She sees the protests fitting into a more traditional pattern of resistance where citizens have a legitimate right to rebel against corrupt officials, with the objective being redress of grievances or replacement of particular errant officials rather than systemic change. Where there have been more organized forms of political protests or attempts to undertake political actions, the CCP has always moved swiftly to repress them. It will not allow what Howell (2004) refers to as organizing around ‘marginalized interests’. The most recent example of successful regime repression of a rising political movement took place with the dismantling of the New Citizens’ Movement and the sentencing in January 2014 to a four-year prison term for its leader, Xu Zhiyong. The loosely organized movement brought together rights activists and lawyers who wanted to promote ‘constitutionalism’ and demanded a public accounting for officials’ wealth and equal access to education for the children of migrant families. In 2012 and 2013, large numbers of people took to the streets to demand that officials declare their wealth. The shift from campaigning to street action led the CCP to take action and break up the movement and sentence its

220 Governance and Politics of China leaders. The concern that the reforms will be tough to carry out and that an increasingly educated and informed urban middle class might lead to more politically inspired protests has led the leadership under Xi Jinping to authorize a hasher climate for intellectual debate. The clearest indication of this was the circulation in April 2013 of a document by the CC that outlined, among other things, seven subjects that should not be discussed, including constitutionalism and civil society (see pp. 79–86). Under Hu Jintao, preserving stability (weiwen) was made a priority for local government officials, ranking equal with economic growth in their performance evaluations. Further, in recent years the budget for domestic security has exceeded that of the military and there has been a large expansion of both the formal people’s armed police and bullies (chengguan) hired by local governments to resolve disputes. Thus, government response to protest has increased the likelihood of collective action, with local authorities seeking to nip the protests in the bud or to repress them once they start, but also to try to buy off trouble where possible. One of the hard targets for evaluation of local officials is their performance in maintaining social stability, and an incident that gains the attention of higher-level authorities will result in a demerit or financial penalty. This is well understood by protestors who are thus incentivized to bring their protests out into the public arena. This dynamic was evident with respect to the Falun Gong, the religious sect that was eventually banned and crushed after mobilizing members to surround the party and government headquarters at Zhongnanhai in 1999. When local members of the group had demonstrated prior to this, a number of local authorities had sought to strike a deal with them, such as printing a retraction of claims against them or allowing them to demonstrate in a discreet location. This encouraged the Falun Gong members to believe that the state tolerated them and, perhaps, they even enjoyed higher-level support within the party. If the repression of alternatives remains the main response this may, over the long term, prove to be the CCP’s Achilles’ heel. The CCP has consistently promoted the view that without it there would be chaos. This becomes a self-fulfilling prophecy as the party has consistently destroyed any political alternative and has severely limited the trellis on which a civil society might grow. Consequently, there are few formal mechanisms for resolving conflict and, despite the assessment of Cai noted above, this could mean that, if social conflict were to break out or if support for the regime to fall because of an economic downturn, there is no effective mechanism for dispute resolution beyond repression. As interests multiply, the CCP will be confronted with the problem of ‘Leninist inclusionism’ (Jowitt, 1992). It has to import the diverse societal interests into the party or risk alienating them and

The Chinese State and Society 221 causing them to organize covertly with the possibility of their taking on an anti-systemic view. The party itself becomes the battleground for the different views within society and for resolving the contradictions. As interests multiply, it will become more difficult for the CCP to fulfil this role effectively. More problematic is the rise in ethnic conflict in Tibet and Xinjiang (March 2008 and July 2009, and 2014 respectively), both of which have been subject to significant internal unrest. These are sparsely populated areas but are seen as strategically important for Beijing. Xinjiang in particular is seen as a key gateway to the resource-rich nations of central Asia and as a buffer against the radicalism that might originate there. Both provinces have been subject to violent disturbances in recent years and there is no sign that such unrest will abate. For example, there have been sporadic demonstrations not only in Tibet but also in other areas where Tibetans are dominant and that form part of what the Tibetan government-in-exile sees as part of the Tibetan region. Protests have also included self-immolations that have caused well over 100 deaths. Similarly, in Xinjiang indications are that the protests will continue and may even spread to activities beyond the province itself. In May 2014, bombs set off in Urumqi, the capital Xinjiang, killed 31 and injured another 94. According to the Chinese authorities, the five knife-wielding attackers who killed 29 people and wounded over 140 others in Kunming in March 2014 were Uighurs from Xinjiang, seeking to flee the country. The Chinese government response has ranged from repression and ordering periodic information blackouts in both provinces and stepping up security procedures to pointing to the investment that the central government has allocated and encouraging more Han ethnic Chinese to move into the provinces in order to dilute the dominant ethnic communities. This problem is distinct from protests in other parts of China, and simply relying on these tactics is unlikely to work. The idea that economic advances will remove other grievances over identity and self-determination is dubious. Both provinces have a different historical narrative from the dominant one told by Beijing and both have external points of reference to which they can refer and seek allegiance. Indeed, the narrative is developed as a counter to the national narrative of Beijing. For Tibet, there is both the spiritual leadership of the Dalai Lama and the physical presence of the government-in-exile in Dharamsala as well as international support and pressure. For Xinjiang, there is the historical reference point of East Turkestan and the presence of similar ethnic groups in neighbouring countries that might lend support. For example, it was reported in March 2014 that Abdullah Mansour, the head of the Turkestan Islamic Party, stated that it was ‘his holy duty’ to fight the Chinese. He noted

222 Governance and Politics of China that ‘China is not only our enemy, but it is the enemy of all Muslims … We have plans for many attacks in China’ (Reuters, 14 March 2014). The tensions and the security measures undertaken seem to be having an impact within these provinces. In 2012, the population of Xinjiang was made up of 47.15 per cent Muslim Uighur, 37.95 per cent Han and 6.98 per cent Kazakh, with greater percentages of Uighurs living in the south. According to the Chinese newspaper the Global Times (13 March 2013), there has been rising sentiment among Han Chinese that it might be time to leave the province. The problems in these two provinces do not seem to have generated much concern among the population in the rest of China, and Beijing seems to be winning the propaganda battle, painting the Dalai Lama as a person who wants to split the country and the radical Uighurs as seeking to destabilize the province and working together with ‘foreign forces’. Most protest in China is not regime-threatening as long as the CCP itself stays unified, continues to eliminate any focal points of opposition and retains a monopoly over representation and coercion. The main systemic threats have arisen when the senior party leaders have fallen out among themselves. Most of the time, party discipline and codes of conduct make it very difficult for an individual or group to oppose the general policy line at a particular time. While local leaders can ignore or deflect central directives, strategies for central leaders are more complex. They must work incrementally to change policy, either by building a new coalition and consensus or through licensing experiments, together with local leaders, to provide proof of the viability of an alternative policy approach. Opposition to the party line as a whole is much harder, as is public opposition. If one is opposed to the party line, there is little recourse other than to seize power and denounce the previous power-holders for deviating from the ‘true line’. This is what happened when the ‘Gang of Four’ was arrested in a coup in October 1976 by troops under the command of veteran Marshal Ye Jianying. Spontaneous movements, such as the student-led demonstrations of 1989 that shook the establishment to its core and revealed deep divisions within the party leadership, are seen as undermining the ruling party’s hegemonic position. Indeed, the ruling party has no mechanism to explain such a direct challenge to its ‘leading position’ within state and society. The existence of an autonomous workers’ organization, for example, directly challenges the ruling party’s claim to represent the highest form of working-class consciousness. Such a clear challenge is unacceptable and the party will seek to crush any such autonomous organization and denounce it as a ‘counter-revolutionary’ organization. Similarly, once a movement gains momentum it is difficult to pursue any course other than one that will result in conflict. Strong emotions, once released, are notoriously difficult to bring back under

The Chinese State and Society 223 control. A movement tends to develop a life of its own and often tends towards a fundamental critique of the state itself. If the state cannot see the necessity to redress the ‘just grievances’, then there must be something wrong with the state itself. The critique tends towards the moral and often assumes an iconoclastic form. The strength of the opinions held often closes off any solution of compromise through negotiation. This highlights the key problem of non-sanctioned political and social movements in a state-socialist context. The political space in which such movements must act is extremely limited and any noticeable increase in activity is liable to lead to confrontation. Their capacity to develop is restrained by the fact that to expand they must confront highly centralized political institutions whose incumbents will repress or otherwise try to control any collective action as it arises. Whether original in intent or not, the outcome is to seek the overthrow of the system itself.

Chapter 8

Urbanization and Rural–Urban Relations In 2011, for the first time, over 50 per cent of China’s population lived in urban areas. This was a significant milestone in the country’s modernization and the new leadership has clearly identified successful urbanization as intrinsic to the nation’s future. In March 2014, it issued an ambitious, comprehensive plan to govern the process that estimated 60 per cent of the population would live in cities by 2020 (National New-type Urbanization Plan, 2014). Continued urbanization is seen as meeting two key objectives. First, it is expected to keep up the level of economic growth but, more importantly, urbanization will aid the shift to domestic consumption as a key driver of growth as export demand slows or stagnates. Second, moving more people to the cities is seen as the best way to reduce the level of inequality in China that is driven mainly by the rural–urban divide. Concentrating more of the population in the cities will also facilitate the more effective provision of public services, such as education and healthcare, and allow more people access to insurance schemes. However, the leadership is very wary about concentrating the population in mega-cities because of concerns about potential social instability and governability. Thus, the preference is for the development of small and medium towns (chengzhenhua) rather than the expansion of major cities (chengshihua or dushihua). Three interlocking problems have blighted urbanization to date: the mode of urban financing, the lack of clarity around land ownership and land-use rights, and the system of household registration (hukou). The plans pull together reform suggestions and experiments to date to try to address these problems. This chapter looks first, in general terms, at the rural–urban relationship and the process of migration. Then we turn to look at the new proposals and how effective they might be in producing a smooth process of urbanization.

Rural–urban relations Although the CCP spent most of the years before 1949 in rural bases, having been comprehensively routed from the cities, it continued to see 224

Urbanization and Rural–Urban Relations 225 itself as representing the advanced elements of the proletariat. This was expressed clearly in its documents before 1949 and through its preparations to move back to the cities when the CCP began to realize that its armies would win the civil war against the Guomindang. Although it had very little experience of urban administration, it was clear that the CCP’s vision for the future was modernization based on heavy industry built up in old and new urban areas. The influence of Soviet planning and ideology came to the fore and, after initial gains were granted to the peasantry under Land Reform, collectivization was seen as the path forward and the countryside was to be squeezed to support industrial and urban development. The creation of a dual rural–urban society was solidified by the household registration system that ensured state resources were channelled primarily to the cities at the same time as substantial portions of the rural surplus were transferred to urban industry, the military and other state priority projects. The post-1949 origins of the system derived from the desire to relocate many of the refugees in the urban areas back to the countryside. The programme proved successful both because it was voluntary and because the state was able to offer land and/or money as incentives for many to leave the cities and return to the countryside. In addition, the state did not announce that it would effectively close the cities to its rural population (Cheng and Selden, 1997, pp. 28–9). As the country moved from restoration to reconstruction of the economy, the CCP began to adopt more specific regulations about the need to control migration flows. Urban residents, following the 1953 census, were issued with registration books and directives were issued to control rural–urban movement. Finally, in June 1955 regulations were promulgated for a permanent system of household registration that covered both the urban and the rural areas. Importantly, the new regulations made movement from the rural to the urban areas extremely difficult and even strengthened monitoring of movement within the countryside and from city to city. While the Great Leap Forward (1958–60) saw one last major exodus to the urban areas, in 1960 the household registration system was invoked to return people to the countryside. As Cheng and Selden (1997, p. 45) remark, the system as it evolved from 1960 onwards was quite distinct for both China and the socialist systems more generally. People were now registered permanently to a particular place on the basis of their birth, or for women the place of the birth of the person whom they married. It ‘established and reified a permanent spatial hierarchy of positions that were transmitted across generations’. Migration up the spatial ladder from rural to urban or from a small city to a major metropolis was rarely granted. This locked the

226 Governance and Politics of China population into vastly different socio-economic structures in terms of remuneration and the provision of public goods and services. With the exception of the Cultural Revolution when many urban dwellers were ‘sent down’, a significant phrase that reveals much about how the state viewed the countryside, most Chinese rarely travelled and knew little about the world outside their own neighbourhoods. The system was reinforced not only by the registration controls but also by the elaborate system of ration coupons for grain and other basic goods that were place-specific. Unless one had national grain coupons, which were reserved for only a very few special Chinese and foreigners, one could buy food only in one’s own administrative jurisdiction. The lack of an open urban food market meant that it was difficult to migrate spontaneously. As the 1950s progressed, the Chinese state concentrated ever more welfare resources on urban inhabitants while enforcing self-reliance in the countryside. The associated structures formed a system that exerted control over China’s population and locked them into a dependency relationship based on the workplace (see Chapter 7). In the countryside, this was the lowest level of the collective, normally the production team within the commune. This structure had the advantage of fragmenting society and dividing it into a honeycomb of local communities that would make organization to oppose the CCP all but impossible. The CCP, with its network of local members and vertically integrated command system, could sit astride and control the local communities. While wage labour was the norm in urban China, a system of work points governed what farmers received. A certain number of points were given for each day of work and at the end of the year communal resources were divided up according to the earned work points. Not only did this ensure significant differences in living standards from those living in the cities, it also institutionalized inequalities between different rural collectives. The collectives did provide certain guarantees and basic welfare provisions, although these were very dependent on geographic location; when given the choice many farmers preferred to abandon the collective structures. Dali Yang (1997) has shown that after the famine of the Great Leap when local leaders sought any strategy for survival, they chose non-sanctioned strategies, especially household contracting for agricultural production. This system took the household as the key economic unit that underwrote certain production guarantees with the local administrative authorities. While Mao Zedong was willing to decentralize certain powers to the production team, re-empowering the household was unacceptable. By contrast, many farmers opted for the household when they had the choice. Rejection of the collective continued even after the crackdown on

Urbanization and Rural–Urban Relations 227 household contracting began in November 1961; the practice was criticized as representing ‘spontaneous capitalist tendencies of the peasantry’. As late as May 1962, 20 per cent of all rural households had adopted a household-based system of responsibility; by the summer this figure had risen to 30 per cent. Mao and his supporters at the policy-making centre consistently rejected this preference for household farming and associated market factors as a retrograde step that could lead China astray ideologically. To accept this would have marked a major defeat for Mao and his views regarding the transition to socialism. This battle over households, markets and socialism re-entered the reform debates and policies of the 1980s, and has led Selden (1995, p. 250) to conclude provocatively that: We must now read the entire history of the PRC at one important level as the persistent – ultimately successful – effort from below to restore the role of markets that socialist party leaders had accepted during resistance but sought to suppress once they were in power. This system naturally led to even higher levels of rural–urban inequality than is the case in most societies. In part, the programmes for urbanization are designed to limit this inequality. Once again, when given the chance as the reforms developed, farmers voted with their feet and, where they could, they found off-farm employment first in township and village enterprises and then increasingly in China’s urban boom. In addition to the hukou system, institutional reasons, subsidies and in-kind supplies disproportionately favoured the urban areas and those in the formal sector, and initially the social welfare system was rebuilt based on these inequalities (see Chapter 10). Former World Bank economist, Yifu Lin, and his colleague Mingxing Liu (2003) blame the regional differences and consequently the rural inequality on a misguided industrial development strategy in the central and western regions. They refer to it as ‘comparative advantage defying’, with the suppression of raw materials and natural resource prices in the poorer regions to favour the state-owned enterprises in the eastern portions of the country. The rural–urban inequality is much larger than either the intrarural or the intra-urban gap and, from 1990 to 2010, the difference in absolute income between rural and urban residents rose more than six times. In 2013, urban per capita disposable income was 26,955 yuan, while rural per capita net income was 8,898 yuan (China Daily, 24 February 2014), a ratio of 3.03 (see Table 8.1). In 1984, this ratio was only 1.83. This was the period when the household responsibility system was being restored and the state had increased the purchasing price for key farm products. Throughout the rest of the 1980s we

228 Governance and Politics of China Table 8.1 Urban–Rural Household Income Ratios 1978 1980 1982 1984 1986 1988

2.57 2.50 1.95 1.83 2.12 2.17

1990 1992 1994 1996 1998 2000

2.20 2.59 2.86 2.51 2.51 2.79

2003 2005 2009 2010 2013

3.23 3.20 3.33 3.23 3.01

Sources: Calculated from figures in China Statistical Yearbook, various years; China Daily, 24 February 2014.

see this trend reversing as the leadership turned the focus of its policy attention to urban reforms, with the ratio rising again to 2.20 by 1990. The gap grew during the boom years of the 1990s before stabilizing and then taking off again as China began to feel the effects of postWTO entry (2001), rising to a peak of 3.33 in 2009. The pro-rural policies of the Hu Jintao–Wen Jiabao era moderated the gap slightly. But this gap is very high, probably the highest in the world according to official statistics, with few countries exceeding 1.6, according to the International Labour Organization. Brazil and the Philippines, often thought of as very unequal societies, have a ratio of 2.3 and 2.1 respectively. The gap is even more pronounced in the poorer areas of China. Thus, it is 2.26 in Shanghai and 4.34 in Guizhou. However, a reading of the official statistics might exaggerate the gap as the statistics do not account for regional price differences and do not capture the migrant remittances. Thus, Sicular et al. (2005) recalculated the figures for 2002 and found that it reduced the ratio from a very high 3.18 to 2.12. Similarly, Xue and Gao (2012) calculate the ratio for 2010 at 2.29 or 2.84. These are still high, but they show China not to be such an outlier. The inequality is not only a question of income and it is not surprising that health indicators are worse in rural China (see Table 8.2). The costs of healthcare for rural residents take a higher percentage of rural disposable income than they do for urban residents, while, despite the promotion of the new rural cooperative medical scheme, coverage is limited. Per capita health expenditures for urban residents in 2011 were 2,695 yuan and for rural residents they were 875.6 yuan. Infant and child mortality indicators, in particular, are about three times lower for rural inhabitants. Maternal mortality is slightly higher. The differential this time is affected by two factors. One is the collapse of the medical system, with the effective disbanding of the collectives in the countryside. The introduction of rural medical insurance is

Urbanization and Rural–Urban Relations 229 Table 8.2 Rural–Urban Health Indicators, 2012 Category




Neo-natal mortality per 1,000 live births Infant mortality per 1,000 live births Under-five mortality per 1,000 live births Maternal mortality per 100,000 live births Registered nurses per 1,000 citizens Doctors per 1,000 citizens

6.9 10.3 13.2 24.5 1.85 1.94

3.9 5.2 5.9 22.2 3.65 3.19

8.1 12.4 16.2 25.6 1.09 1.40

Source: Table compiled from statistics at Ministry of Health Website (

designed to deal with this problem. The second factor is the creation of the family-planning network that drew resources away from the health system and did not cover post-partum problems. The merger of these two systems might help with this problem, as it will put money and personnel back into the system at the grassroots levels.

Migration Thus, it is not surprising that, as opportunities presented themselves, millions left the countryside to work as migrant labourers. China Daily (16 May 2014) reported that in 2012 there were 236 million migrants, with an average age of 28. Interestingly, second generation migrants accounted for 118 million. Reflecting their increasing permanence in the cities, over 60 per cent had not changed their jobs for three years. Quoting a survey from May 2013, China Daily noted that the average monthly income in April 2013 was 3,287.8 yuan (up almost 5 per cent from the previous year). In 2013 employment was also shifting, with work in manufacturing down 4.1 per cent to 33.3 per cent of the total. By contrast, work in the tertiary sector was up, with 20.1 per cent employed in wholesale and retail and 11.3 per cent working in hotel and dining (up 2.0 and 1.4 per cent respectively). By June 2013 there were 174.2 million rural folk working outside of their home towns and earning an average of 2,733 yuan per month. Initially, the development of township and village enterprises was an important contributor to this situation, as has, subsequently, migration to China’s booming cities. The rural and the urban are more closely linked than they were in Maoist days, despite the lingering obstacles to the integration of labour markets. This is seen most visibly by the huge number of migrants in

230 Governance and Politics of China the cities (for an excellent early study, see Solinger, 1999). Restricted by the household registration and grain-rationing systems, migration began slowly in the early 1980s but, with the emergence of a grain market for migrants (legalized in 1986) and the provision of other goods and services outside of the plan, it began to take off in the mid-1980s. This pull factor was complemented by the push factor once the initial rise in agricultural incomes began to decline in 1984. Migrant labour has been crucial to the urban economic boom, whether in supplying labour to the foreign-invested factories in coastal China, providing the construction crews for the massive building expansion, or feeding the burgeoning service sector, ranging from hotel and restaurant workers to the more unseemly services of commercial sex workers. It has also been crucial to rural development in terms of remittances and also because migrants have returned to their villages, bringing back capital, new skills and social networks that extend beyond the narrow village confines (see Murphy, 2002). The 2010 census notes that 261.4 million people lived away from their homes for over six months per year (around 20 per cent of the population, up from 12 per cent in the 2000 census). Forty million were said to be in the same city, with the remainder being longer distance migrants (an increase of 81 per cent since the 2000 census). In a province such as Guangdong, migrants make up 25 per cent of the population (70 to 80 per cent in areas such as Dongguan and Shenzhen). Rural migrant workers now account for 26 per cent of the total urban population. Uprooted from the land, these migrants have not been effectively integrated into new or pre-existing systems for health and education. While their economic contributions to the urban areas have been significant, their social status is extremely low, and only in the late 1990s did urban authorities begin to consider integrating the migrants into social service provisions. This shift in thinking was primarily stimulated by central leadership concerns that they might be a source of instability and that, because they fell outside the urban administrative jurisdiction, they could be evading the familyplanning regulations. Migrants have been subject to the same abuse and caricature as they are in other parts of the world and have been blamed, not only by the permanent urban residents but also in the official press, for the breakdown in law and order, the increased messiness of the urban areas and the difficulties laid-off SOE employees have in finding new work. However, in terms of the labour market, most evidence suggests that they are not in direct competition with the laid-off SOE workers as they take jobs that the latter would not consider. Debates over their role also had an institutional and political dimension. Basically, the old Ministry of Labour (now Labour and Social Security) favoured keeping tight controls on migration and wanted to

Urbanization and Rural–Urban Relations 231 keep as many as possible down on the farms, whereas the Ministry of Agriculture has been more positive about the role of migration and the benefits it brings to rural development. Migrant communities have been easy targets for the national and local authorities concerning the problems of urban China and there have been occasional movements to reduce their numbers or to eliminate their communities. Xinjiang village in Beijing has been a source of concern for security reasons as it was suspected to house terrorists who favoured independence for the autonomous region. As a result, it has been heavily policed and the authorities have tried on a number of occasions to break it up. In contrast with these negative views, there are cases where the large influx of migrants has turned around stagnant urban district economies such as Fengtai in Beijing, home to Zhejiang village, or has created new cities, such as Dongguan in Guangdong. Policy has increasingly shifted from trying to control and manage the flow of migration to improving the situation of migrants and integrating them into urban services. As Zhao (2006) has perceptively remarked, policy in the 1980s and the 1990s was dedicated to delinking employment from one’s hukou status, whereas under Hu Jintao and Wen Jiabao policy was to delink social services and welfare benefits from hukou status. The notion that migrants did not need welfare support because they had land as insurance in their home villages has become untenable. Many migrants are now permanent fixtures in the urban areas, together with their families, and may no longer have any land back in their place of registration. While the hukou reforms before 2002–03 benefited mainly investors and those who were well educated, the Hu–Wen leadership shifted the policy focus to providing training and social welfare coverage to migrant workers. The ability of the authorities to control labour flows is restricted by the ‘push’ factor from the villages where surplus labour is massive. The main resource for finding jobs is through village and local networks rather than through state agencies. Most of those working as nannies (baomu) in Beijing find work either through personal introductions from someone already employed or by making their way to the informal labour market that grew up beside Beijing’s main railway station. A high percentage come from Anhui province. Zhejiang village is a good example of the process and also of the complexity of many migrant communities. It comprises about 100,000 residents and has set up its own education system, clinics and a hospital, staffed by those from Zhejiang with medical licences, has its own security forces and essentially pays a large annual fee to the local authorities to leave it alone. Recruitment for workers to come to the village, which has cornered much of the clothing and leather business in Beijing, takes place in Zhejiang and those selected are sent on to Beijing. This includes

232 Governance and Politics of China many from outside of Zhejiang itself (about 50 per cent). For example, many of those engaged in the most menial tasks are recruited in Anhui and sent to Zhejiang for initial training before being sent to Beijing to work. The village originated when outsiders rented space from locals, who saw this as an easy way to make some quick money. Subsequently, the migrants began to buy run-down buildings to use for workshops and dormitory sleeping quarters. By 1992, the district leaders allowed groups in the ‘village’ to construct some 40 new buildings (interviews in Zhejiang village, 1997 and 1998; Xiang, 1996). Although the wages of migrant workers are lower than those of urban residents, their main problem is the lack of access to social services and welfare facilities. This only started to receive policy attention in the late 1990s (see Fan, 2007; Cai, 2003). If accommodation is provided, they tend to be very rudimentary, in the form of segregated dormitories, tents or temporary shacks. The sanitary conditions are poor, creating significant problems as migrants generally do not have health coverage. In 2012, only 14.3 per cent of rural migrant workers were in the basic pension scheme and only 16.9 per cent had health insurance, despite policy moves to improve the situation (Qian, 2014, p. 6). This places the burden on the already weak rural social infrastructure because, when one becomes sick, the only way to avoid expensive urban treatment is to return to the home village to be looked after by the family. Until the end of the 1990s, migrant children were not allowed to enrol in state schools, thus they missed out on education and were returned to the village on reaching school age, or their parents had to pay for their education in private schools. While state regulations require local authorities to provide education for all school-age children, urban local authorities have interpreted this to mean only those with a residence permit, thus excluding migrant children. From 1998 to 1999, some Beijing districts began to recognize migrant-run schools and to issue them with licences. However, the children attending these schools were still not allowed to take the high school entrance examinations and had to return to their rural villages to participate in the exams (Ming, 2009). In 2012, some provinces and major cities started to allow the children of ‘new’ urban residents to attend local schools and even take the local college entrance exams. Many of these children have grown up in urban environments and do not have an affinity with the places from which their parents migrated; about 60 per cent of migrant workers are estimated to fall into this category (xin shengdai nongmingong). Legal Daily (3 February 2010) reported that only 8.7 per cent of this group thought of themselves as peasants and about 75 per cent thought that they were part of the working class. Thus, it is not surprising that a survey conducted by Shanghai’s Fudan University found that overall only 7.6 per cent of

Urbanization and Rural–Urban Relations 233 migrants were satisfied with their social status in the city (China Daily, 7 January 2008). The leadership under Hu and Wen pulled together experimental reforms in the first State Council document of 2003 that acknowledged the problems of migration but confirmed that it was an inevitable part of China’s progress. Based on earlier experiments, in March 2001, the central government decided to promote reforms in small towns. The reform of the household registration system began in 1997 for 450 small towns (Yu, 2002, p. 379). This allowed residency in small towns and townships for all those from rural areas who could demonstrate legal employment and a place to live. Although the restrictions were subsequently eased in some larger cities, major municipalities still seek to control the flow. Importantly, in November 2002 migrants were given the political status of being part of the working class. In January 2003, the State Council confirmed that unfair restrictions on migrants were to be lifted and that they were to be accorded equal treatment with urban residents when applying for work. Their wages were to be paid in full and on time, while living and working conditions were to be improved. Perhaps most significantly, urban education departments were to recognize schools for migrant children and provide them with equal access to education. Many of these demands are honoured more in the breach than the observance, but the official recognition is nevertheless important. This push is reaffirmed in Document No. 1 of 2010 that claims that rural–urban integration is a top priority of the central government. This has been further advanced by the new leadership under Xi Jinping and Li Keqiang as part of their urbanization programme. The need to reform the household registration system was noted at the Third Plenum of the Eighteenth Central Committee (November 2013) and again at the NPC meeting in March 2014. However, the new urbanization plan (March 2014) was more specific and stated that urban hukou should be granted to qualified migrant workers while all urban residents should be provided with equal access to basic public services, irrespective of their status. However, there is no clear timeline for this and in the past local administrations have been adept at putting up barriers to integration. Cities with populations of over 5 million are to operate a point-based system to assess eligibility. Shanghai has operated such a system for a number of years but it clearly favours ‘educated’ migrants over those engaged in manual labour. It is necessary for individuals to hold a residence permit for seven years, to have paid social insurance fees for seven years and to have reached a certain educational attainment. Ultimately, a national population network is to be established that links basic service provision to residential status with a citizen ID number. According to the new March 2014

234 Governance and Politics of China urbanization plan, this should be completed by 2020. It will require a mind shift from regarding migrant workers as problems to be dealt with to viewing them as opportunities for development. Not only can they boost urban consumption but they can also contribute to city coffers. In Shanghai, the pension fund was in serious debt until there were contributions to it from migrant workers (interview in Shanghai, November 2013). A major disincentive for migrant workers in terms of participating in the various insurance and pension schemes is the lack of portability. If migrant workers move back to the rural areas or to a different administrative jurisdiction in search of work, it is highly unlikely that they will be able to take their savings (which, in any case, are often nominal) in their individual accounts or to make claims against their local pension funds. This problem, affecting the flexibility of the labour market, means that in old age the migrants will be dependent on their own savings and/or family support. As a result of these concerns, in June 2007, a vice minister of the Ministry of Labour and Social Security announced that a new pension plan had been drafted that attempted to incorporate the huge migrant population. Those with stable jobs are expected to join the pension plan where they work; for others, an individual account is established, the contents of which will be transferred to their home towns each year. Employers and employees both make contributions, with the employee contribution capped at 5 per cent of the monthly salary. These individual accounts follow the migrant worker from job to job. Self-employed migrants are also allowed to join the scheme if they pay the premium (SCMP, 12 June 2007, Internet edition). This is an important step but, as in so many other areas, a main concern is implementation. Profit margins are low in jobs in which migrants are employed and it is unlikely that employers will want to increase their business costs. There is also the question of trust. There are many stories of migrants being cheated out of their due wages and benefits, thus it may be difficult for them to trust the new system to deliver on its promises. One major problem has been the cost of integrating migrants into the welfare structures and the related question of who will cover the costs. Chen Xiwen, former director of the Central Leading Group for Rural Work, said that plans for integration had been considered by the State Council as early as 2000, but they were not pursued because of costs, estimated to be 35 trillion yuan. In fact, calculations vary greatly but integration does seem to be financially viable. Also, since the cost is what one might call a ‘transition cost’ as the system evolves from the old planned economy to one that is more market-driven, the central government should absorb most of the costs. It remains to be seen whether this will be the case with the economy slowing or whether

Urbanization and Rural–Urban Relations 235 central government will divert the costs down to the local governments. There has been discussion of a realignment of expenditures between the centre and the localities that would be beneficial. The new urbanization plan calls for a division of responsibility between government, business and the migrants. Government would be responsible for the costs for compulsory education, the basic social insurance and health schemes and subsidized housing, and other municipal facilities, but the plan is unclear regarding which level of government will be responsible for which services. The baseline assumptions of the UNDP and the Institute for Urban and Environmental Studies (2013) are for the urban population to rise from 666 million in 2010 to 976 million in 2030 and to integrate about 210 million migrant workers. China must spend at least 41.6 trillion yuan (US$6.8 trillion), 3.9 per cent of China’s current nominal annual GDP, over two decades to integrate rural workers living in cities and towns so the country realizes the benefits of urbanization. Other calculations have been as low as 50,000 yuan per migrant, but it should be remembered that the cost will vary from city to city, with much lower expenditures for those in inland cities as opposed to the major metropolises on the coast. Wang Xiaolu (2014) calculates an even lower figure because of some double-counting related to infrastructure spending that would be carried out no matter what. He estimates an annual cost of 0.3 to 0.4 trillion yuan annually, just 3 to 4 per cent of government revenue in 2013. It would appear that the fiscal capacity exists but it remains to be seen whether there is a political will to match it. To try to moderate the costs, the March 2014 urbanization plan calls for a two-tier system for migrants. Of the approximately 225 million migrants, initially only 100 million will be granted full status.

Urbanization While China has been under-urbanized considering its level of development, future plans see 60 per cent of the population living in cities by 2020, 45 per cent in terms of those with urban hukou. This is a more moderate estimate than some of the former predictions. In 1978, only 21 per cent of the population was urban, but this has grown to over 53 per cent in 2013, with further projections of 70 per cent by 2030 (925 million people!). This means that China’s urban population has grown from 10 per cent of the global total to about 20 per cent today. Not surprisingly, the largest growth has been in the coastal areas, with almost 50 per cent of the new urbanites; in the west it is only 20 per cent; and in the north-east, an area that was heavily urbanized as a result of central planning for heavy industry, it is only 5 per cent. It should

236 Governance and Politics of China be noted that some administrative villages and rural counties are, in reality, urban environments, yet they are included in the official urban statistics. During the first decade of reform, the main expansion of urban areas was in small towns and townships, in major part because of the expansion of the township and village enterprises and also because the hukou system prevented large-scale migration to major cities. This began to change when the population in large cities increased from 25 per cent of the total in 1990 to 41 per cent in 2010, while the population in small cities dropped from 67 per cent of the total in 1990 to 45 per cent to 2010. The number of cities with a population of over 5 million grew from three to fifteen. This shift has been accompanied by the development of ten major urban clusters, such as along the Yangzi River Delta, the Pearl River Delta, Beijing–Tianjin, and Chengdu– Chongqing (UNDP and Institute for Urban and Environmental Studies, 2013, pp. 23–6). These are seen to be the major poles for growth. This push for urbanization will have major benefits. Urban areas are the major drivers of economic growth and innovation. About 30 per cent of the total population lives in the municipal districts of China’s cities at the prefectural level and above but they have generated over 55 per cent of total GDP. Woetzel et al. (2009) estimate that this will rise to around 75 per cent by 2030 and will provide 450–500 million jobs. In 2012, the large metropolitan areas of the Yangzi, the Pearl River Delta and the Bohai Rim accounted for 36 per cent of GDP, using 2.8 per cent of the land area and with 18 per cent of the population (Zhou, 2014, p. 7). Higher urbanization rates coincide with higher levels of human development. Of the 78 countries with an HDI of 0.8 or higher, 72 have an urbanization rate higher than 50 per cent (Yusuf and Nabeshima, 2006). Increased urbanization could also make the delivery of social services more effective and allow for more rational use of energy. However, of course, there are also major new challenges to be dealt with due to the loss of agricultural land, pressure on housing and employment, a rise in pollution, and possible social alienation. The success of the urbanization programme revolves around resolving effectively three interrelated challenges: developing effective financing vehicles, reforming the household registration system, and dealing with the question of land ownership and land-use rights in the countryside. To date, urban jurisdictions have relied on land requisitions and conversions for development and this has resulted in rapid growth and a real estate boom. However, this has also produced major urban development distortions, leading to many demonstrations by rural inhabitants who have been under-compensated for their land, an increase in local government debt or what some fear is a real estate

Urbanization and Rural–Urban Relations 237 bubble, and urban sprawl. Despite the growing urbanization, China’s cities are now less dense than they were a decade ago. A report edited by Zhu et al. (2009) suggests that urban areas at the county level or above expanded by 70 per cent between 2001 and 2007, yet the population of these areas only increased by 30 per cent. Recognition of these challenges is reflected in the March 2014 urbanization plan, which proposes four strategic tasks: transitioning migrant workers into urban residents, optimizing the urban layout, promoting sustainable development, and effectively integrating the urban with the rural. Following the concerns of the previous leadership of Hu and Wen, the plan calls for a focus on the quality of urbanization and a ‘people centred’ strategy, neither of which have been achieved. Below we deal with three questions that are crucial to fulfilling these tasks: What is the optimal size for an urban environment? How can the urban push be financed? What can be done about land rights? The question of migration has already been dealt with above.

Optimal size for urban development Premier Li Keqiang in particular has promoted the development of smaller towns (chengzhenhua) rather than relying on large urban environments (chengshihua), which might be more difficult to manage. This has led to a lively debate in China. It is clear that there are advantages to agglomeration, especially during a period of globalization. Agglomeration will deepen labour markets and encourage industrial diversification and technological innovation while allowing for the kind of industrial flexibility that is needed to respond to global pressures and opportunities. Small towns are unlikely to have the employment opportunities, the education and social service infrastructure, and the financial capacity to enable long-term sustainable development. It would be better for China to pursue ‘natural’ urbanization where the flow is dictated by need rather than ‘administrative’ urbanization where institutions such as the household registration system are used to direct farmers to where the state wants them to go. There is still a preference to take the cities to the rural population rather than to bring the surplus labour to the major cities. This can work in certain instances but it is not clear that the conditions can be replicated throughout China. In many areas, the policy of ‘building a new socialist countryside’ has led to farmers moving into high-density town houses and sometimes to the merger of villages in order to provide more effective urban services. However, where this has been administratively driven, it has generated problems and in some instances has been accompanied by unrest when farmers have had their land taken away and repurposed by local governments for

238 Governance and Politics of China development. Where urbanization in the countryside is natural, such as in the Pearl River Delta, the results have been more successful. Here, the villagers have retained control of their land in a number of villages and have been able to use the land to attract business development and to boost incomes significantly (see Saich and Hu, 2012; Chung and Unger, 2013). Further, the development of small towns will have a major impact on the amount of agricultural land that remains available. The China Development and Reform Foundation (2010) has estimated land usage for three different models of urbanization based on four different types of city: mega or extra-large; large; medium-sized and small cities; and small towns. First, with the population distributed evenly across the four different types, an additional 39,000 sq. km of land would be necessary for urban use. Second, if mega-cities were dominant with 50 per cent of the extra population, 20 per cent in large cities and medium and small cities, and only 10 per cent in small towns, only 34,000 sq. km would be necessary, thus conserving 5,000 sq. km. Third, a focus on ‘small town’ development, with them absorbing 50 per cent of the extra population, large and medium and small cities absorbing 20 per cent each, and mega-cities 10 per cent, would require 45,400 sq. km, thus requiring 11,000 more than the second option and 6,400 more than the first. Actual practice seems to be evolving towards a mixed model of development that is distinct from either that in the US or Japan but that still supports ‘denser cities’. Thus, the Twelfth Five-Year Plan (2011–15) proposed the growth of metropolitan regions and urban clusters of large cities orbited by smaller satellite developments. Five ‘national central cities’ are to be developed (Beijing, Shanghai, Tianjin, Guangzhou and Chongqing), with six ‘regional central cities’ (Shenzhen, Wuhan, Nanjing, Shenyang, Chengdu and Xi’an). As Miller (2012, p. 100) notes, ‘China seems set to follow a dual model of concentrated and distributed urbanization’.

Financing urbanization Urbanization is not cheap and in the initial phase requires a ‘big push’ investment strategy to construct the transportation, housing, energy and sewage needs. A prime example is Shanghai that invested between 5 and 8 per cent of its GDP in urban infrastructure in the 1980s and between 11 and 14 per cent in the 1990s. The latter included the massive development of the Pudong area (Yusuf et al., 2008, p. 21). The first time I visited in the 1980s, together with one of the advisors, we searched the fields for the planning office but could not find it; now you cannot find any fields! Most cities do not have Shanghai’s

Urbanization and Rural–Urban Relations 239 advantages and, as we have seen in Chapter 6, local debt has grown enormously with this ‘big push’ strategy. Cities have relied on three main financing mechanisms for hard and soft infrastructure: funds from land sales, loans from local financing investment vehicles (difang zhengfu rongzi pingtai) and taxes on industrial production. These three mechanisms will not be viable moving forward and the Third Plenum of the Eighteenth Central Committee (November 2013) licensed experimentation with new funding forms and this was incorporated in the March 2014 new urbanization plan. This problem of shortfall in revenues is a major factor that drives urban officials to expand their boundaries so that they can incorporate more land for sale. In 2004, land revenues accounted for 49.6 per cent of local government income, falling to a low of 33.5 per cent in 2008, rising again to a peak of 72.4 per cent in 2010 (following stimulus investment to counteract the impact of the global financial crisis), before settling back to 47.3 per cent in 2012 (Zhou, 2014, p. 6). This exacerbates the tendency towards urban sprawl. Taxes from industrial production also distort urban development and have led to the growth of large numbers of inefficient and often empty industrial parks or high-tech zones. Profitability is not important as the tax is on production value not profits. These are not sustainable mechanisms for financing. Reliance on the local financing vehicles is equally problematic. Over the last decade, local governments have used them to take on nearly 50 per cent of bank loans that have been paid out. It is estimated that each local authority in China is currently linked to about ten of these, as opposed to four in 2008. Of these, three-quarters are at the lowest levels of government, which makes control very difficult. In 2011, the National Audit Office, reviewing 18 provinces, 16 cities and 36 townships, calculated that there was a debt ratio exceeding 400 per cent of their income. China’s Banking Regulatory Commission noted that only 27 per cent of loans paid out to these local government-financing vehicles were covered by the revenues earned from the investments. Thus, there should be experimentation with new financing mechanisms. The new urbanization plan suggests three: reforming the fiscal transfer system with the centre taking on more obligations, modifying the tax system to allow localities to use property taxes, and allowing local governments to issue municipal bonds. The use of property taxes and municipal bonds was approved by the Third Plenum of the Eighteenth Central Committee and are included in the new urbanization plan. However, initial experiments reveal how difficult it is to push these new measures forward because of resistance from vested interests. Despite much fanfare, experiments were introduced in just two

240 Governance and Politics of China cities in 2011: Chongqing and Shanghai. Rates in Chongqing are 0.5 to 1.2 per cent of value and they apply only to villas. In Shanghai rates are 0.4 to 0.6 per cent and only apply to the second homes of residents and the homes of non-residents, and only those with over 60 sq. m per person living in the home. Shanghai raised 6.27 billion yuan in the first half of 2013, or 0.5 per cent of total tax revenues (2.4 per cent of tax revenues in 2012), while property taxes in Chongqing in 2011 accounted for 0.3 per cent of revenues (Wall Street Journal, 18 July 2013). Opposition has come from the new middle class, government officials (who might own multiple homes), property developers and even local governments themselves. For the programme to be expanded nationwide, there would have to be a proper registry of homes and titles, and values would need to be cleared to allow credible assessment. The second major reform measure is to expand the use of municipal bonds, an experiment that began in 2011. A real municipal bond market would be key to addressing the local debt issue, with disclosure requirements helping to impose hard budget discipline on local officials. It is understandable why some in Beijing have been wary of this, including those in the Ministry of Finance, as they are worried about the local corruption and also the lack of transparency at the local levels. The use of longer-term bonds might also relieve the problem of the mismatch between infrastructure investments that may take decades to produce financial returns and the short-term loans that are often used to finance such projects. In May 2014, the Ministry of Finance announced plans to allow ten jurisdictions to issue bonds directly, 20 years after the practice was halted (The Economist, 24 May 2014). The limited experimentation is to appease fiscal conservatives who are concerned about the problems that might undermine an expansive programme. During the trial, in addition to wealthy areas such as Beijing, Shanghai and Guangdong, the poorer provinces of Ningxia and Jiangxi are to be included. The bonds will have maturities of five, seven and ten years, and will be priced in accordance with central government bonds. Use will be made of ratings agencies. The total amount of bonds that could be issued in 2014 was 400 billion yuan, significant but not enough to deal with the debt problem.

Land rights The third major problem, in addition to integrating the migrant population effectively and developing sound local financing mechanisms, is to deal with the thorny problem of land ownership and land usage. Policy in this area has been limited by the refusal to allow the privatization of land. While land in the urban areas is owned by the state

Urbanization and Rural–Urban Relations 241 (but can be leased for up to 70 years), land in rural China is owned by the collective (and is leased to farmers for 30-year periods). The problem is that there is no clear definition of who is the collective. In some areas it is interpreted as the administrative village, in others it is the township. This has allowed local governments to take over land from individual households in the name of the collective and to use it to raise funds. This has been the source of considerable unrest. The Land Management Law (August 1998) and the Rural Land Contract Law (March 2003) both sought to prevent illegal seizures of land by local officials. Farmers were empowered to transfer land use and to derive income from its use, while local authorities were banned from revising contracts or confiscating land during the contract period. This was a massive step forward in recognizing farmers’ rights but it was weak on implementation and the problems persisted. Thus, at the Third Plenum of the Seventeenth Central Committee in October 2008 somewhat unclear guidelines were issued that allowed farmers to lease their contracted farmland or to transfer their land-use rights. This was intended to make farming more efficient by increasing the scale and allowing more agribusiness, and it was seen as a crucial part of policy attempts to double farmers’ incomes by 2020. Markets for land leases and land transfers were set up to allow for exchanges and sub-contracting. However, the guidelines were careful not to imply that land could be bought and sold. The notion of collective ownership of land was maintained and farmers were only allowed to ‘sublet, ease, swap and transfer’ land rights. The guidelines also sought to control the amount of land that could be converted to urban use each year. The intent was good but again implementation was poor. Resistance to reform that would move policy to land sales that would benefit farmers has come from two main sources. First, there are those who have argued that private land has no role in socialist China and that the collective must remain dominant. Second, there are those who are concerned that allowing farmers to trade their collectively owned land for collateral or money might leave them vulnerable to exploitation by corrupt local officials. Should they not be able to find sustainable livelihoods in urban China, they would have no land to return to. This has meant that land reform has been pursued cautiously, but any hint of land privatization has been resisted. Despite these constraints, progress has been made and momentum picked up again at the Third Plenum of the Eighteenth Central Committee (November 2013) and in the March 2014 National Newtype Urbanization Plan. The plan emphasizes the thrust of recent years that it is time for the urban to give back to the rural. It states that ‘we should continue a policy of industry nurturing agriculture, cities supporting rural areas and giving more, taking less’. The ‘Decision’ of the

242 Governance and Politics of China Third Plenum of the Eighteenth Central Committee reinforces the ideas proposed in 2008 but sought to accelerate the process. It has three main objectives with respect to the question of land rights. First, it states that urban and rural land should be treated equally, thus eliminating the dual-track system. Second, it is hoped that the reforms will generate more land for urban development. Third, and most importantly, it proposes that farmers will be allowed to benefit from the land that they use (Zhou, 2014). The Decision confirms that farmers will be able to use the land that they have contracted as collateral. Farmers will also be able to use their homesteads as collateral and even to withdraw from the homestead system and receive compensation. This will cut out the middleman. The Decision also tries to promote more efficient agricultural use by urging farmers to transfer their use rights to agricultural enterprises or cooperatives that might be able to produce more effectively. There are also significant changes in how land can be converted from rural construction uses to business uses. Previously, this land was appropriated by local governments, often causing unrest, but now, with government approval, villages will be able to trade use of the land directly on the market. However, the land will retain the appellation ‘collectively owned’, which means that land dedicated for urban construction will be both state-owned and collectively owned. Currently, all land in this category is state-owned. Of course, it is unclear what ‘government approval’ might entail, which could allow local authorities to frustrate the process. This is an ambitious set of reforms. The fact that the government has been talking about them for a number of years and some of the ‘new’ programme was first put forward in 2008 reveals just how difficult it is to break down local government resistance. As we have seen, local governments are heavily reliant on land revenues to fund their programmes and, unless effective alternatives are put in place, the incentives will remain misaligned. In addition, other measures will be required as well, such as a realistic land registry. Trials are taking place across China to implement the new system. Zhejiang has already begun experiments in one-third of its villages to convert farmers’ use rights of collectively owned land and other assets to shares in collectives. These will pay out a dividend at the end of each year. The shares can be sold or used as collateral. It is intended that this will be expanded throughout the province by the end of 2015. This is a variant of the practice in the Pearl River Delta (Chung and Unger, 2013). In Yantian Village, all the registered villagers have a share in the economic cooperative that pays out a dividend at the year’s end. In fact, farmers belong to two such cooperatives, one at the administrative village level and the other at the level of the natural

Urbanization and Rural–Urban Relations 243 village. In 2004, the shares became permanent and could be inherited, with no new shares issued. This has proven to be very profitable for the villagers, with households drawing at least 50,000 yuan from the administrative village shareholding cooperative. The problem is that this system does not cover the 80,000 migrant workers who currently live in the village. The village has locked up its assets to ensure that the wealth created in the village remains with the 3,000 or so registered inhabitants (Saich and Hu, 2012). In 2014, Hebei Province announced that it would develop a complete land-holding registry that records the contractual rights of farmers and that a county-level market would be established for farmers to sell their rights to the collectively owned land. The rights can also be used as collateral and the province will develop a share-holding system similar to that in Zhejiang. Such measures will help, but most important will be to change the incentives for the behaviour of local government officials. Many are inventive enough to find ways around new guidelines that are sent down from above. As noted in Chapter 6, the central government is trying to deal with this by playing down the emphasis on GDP growth and placing more emphasis on sustainable development and effective urbanization.

Chapter 9

Economic Policy The ‘Decision’ released by the Third Plenum of the Eighteenth CC (November 2013) is a remarkable document that critiques the reform approach to date and proposes a significant shift in the relationship between the role of government and that of the market. It is all the more remarkable given that the economy grew at over 10 per cent per annum under Hu Jintao and Wen Jiabao’s leadership (2002–2012). Yet even Wen had declared the current growth model to be ‘unbalanced, unstable, uncoordinated, and unsustainable’. Indeed, the priorities of Hu and Wen were remarkably similar to those of Xi Jinping and Li Keqiang: increase the role of the market in resource allocations, reform the state-owned enterprises, stimulate the non-state sector, cut the red tape and corruption, and reform the financial system so that investment will be allocated more efficiently. Yet on the economic front not much happened in terms of reform and the strength of ‘vested interests’ grew to frustrate further reform and many began to think of the Hu period as a lost decade. The need to kick-start reform is now more pressing as the model that has served China so well in the past is moving past its use date and is becoming dysfunctional. As Naughton (2014a) has noted, a ‘palpable skepticism about reform is thus part of a broader crisis of confidence’. He notes four elements that have undermined the sustainability of the growth model. First, there has been a failure to improve the quality of China’s economic institutions. Second, over-reliance on investment as a principal driver of growth has reached its limits. Third, ‘fiscal fragility’ has been created by past investment excesses. Fourth, the ageing of the population and the lack of skilled workers suggest lower growth rates no matter what. This chapter reviews the economic development strategy in general terms, including discussion of whether there is a China model that other nations might follow. This is followed by a more detailed look at industrial policy, especially SOE reform and rural policy (land rights and migration were covered in Chapter 8). However, first we introduce a few key issues related to the institutional environment for policy-making and implementation.


Economic Policy 245

Policy-making and implementation Most literature on policy-making in communist systems has highlighted the monolithic and top-down nature of the process. The prime concern has been with the monolith and its totality, and the actions of a cabal of key leaders who transmit policy direction through the party to be implemented by a subservient bureaucracy. As White et al. (1990, p. 216) commented, until the late 1980s it ‘was not generally believed that the communist states possessed anything that could properly be called a “policy process”’. The over-riding policy demand was to build up heavy industry and to achieve the highest possible rate of economic growth. That different parts of the bureaucracy might pursue different interests, or that there might be significant variation in input, or even that groups might have an input, was not taken very seriously. Despite this dominant view of a monolithic and closed decision-making process, even before the reforms began there had been significant policy variation and experimentation throughout China. While this was less visible under Mao’s rule, it became more apparent as China tried to introduce market influences into a centrally planned economy. The start of the reforms had the added advantage that sources became more readily available, data improved and fieldwork and interviews with those working in China became possible. This made it easier to locate the effects of the bureaucratic setting on Chinese politics and to investigate how these structures affected the policy process. The most important analysis of the institutional setting remains that by Lieberthal and Oksenberg (1988) with their study of policy-making during the initial development of large-scale energy projects. They conclude that the policy-making process is not entirely rational, they do not see a direct relationship between the problem and the solution, and the policy outcomes may not be an actual response to the problems that triggered the decision-making process. Rather, the connections are more likely to be ‘complex, loose and nearly random’ (ibid., p. 14). They argue persuasively that it is necessary to understand the bureaucratic structure as it creates or compounds the problems and that it is a necessary ingredient for understanding typical policy outcomes (ibid., p. 17). Their study leads them to conclude that the bureaucratic structure in China is highly fragmented, making consensus-building central and the policy process protracted, disjointed and incremental. This results in three operational consequences (ibid., pp. 22–3). First, problems tend to get pushed up the system to where supra-bureaucratic bodies can coordinate responses and have sufficient leverage to bring together different parties. We see this in the current era with the establishment of the Central Leading Group on Comprehensively Deepening Reforms, chaired by Xi Jinping. Clearly, this is designed to bring

246 Governance and Politics of China together key institutional players and push ahead difficult reforms. Second, the fragmentation of authority means that at each stage of the decision-making process strenuous efforts have to be made to maintain a basic consensus to move forward. Maintaining momentum across a system with so many ‘vested interests’ will be one of the major challenges for Xi’s reform programme. Third, for a policy to be successful, it needs the concerted support of one or more of the top leaders. The new proposed reforms certainly have support from Xi and Li. This fragmentation is accentuated because the party is no longer able to perform the vital role of integrating the bureaucracy to improve both the formulation and implementation of policy. This structure and the energy needed to keep a policy on track reveal why it is unwise to pursue too many strong policy objectives at the same time. On his appointment as premier, Zhu Rongji announced a dazzling array of policy priorities for reform, ranging from cutting the bureaucracy to revamping the grain system to restructuring social welfare. With energy dissipated across so many policy areas, it was impossible for him to keep on top of all of them and, with a recalcitrant bureaucracy and considerable vested interests digging in, his most ambitious schemes were diverted. Consequently, Zhu had to pull back, set his sights on one or two main priorities and try to keep the momentum moving forward while making grand statements about the remaining objectives. When Premier Wen Jiabao took over he did not announce a grand strategy but rather concentrated on trying to use the state to improve the lot of those who had not benefitted so well from the reforms. The rural sector was a particular area of concern and a number of initiatives were introduced to improve health, education and economic development opportunities. The broader agenda of shifting to sustainable development met with resistance from local administrations that were more focused on maintaining economic growth. There is the concern that the wide-ranging agenda introduced by Xi and his colleagues might meet the same fate. The ‘Decision’ contains 60 points and some 300 policies, clearly too many to keep on top of. The new leadership will need to identify a more focused set of core objectives to achieve success. Otherwise it may run the risk of becoming bogged down in too many institutional networks that will thwart reforms or bend them to their own interests. Lieberthal (1992) further develops the idea of bureaucratic fragmentation with his concept of ‘fragmented authoritarianism’. This highlights that, while the system may be pluralist in terms of interests and highly fragmented, with each level having to negotiate horizontally as well as vertically, it is certainly not a democratic process. For Lieberthal (ibid., p. 8), authority just below the apex of the political system is fragmented, disjointed and structural and this has increased as a result of

Economic Policy 247 the reforms pursued since 1978. This means that bargaining is a crucial element of the political process (see Lieberthal and Oksenberg, 1988; Lampton, 1992). We have seen in Chapter 6 the complex relationship between the centre and the localities, especially related to financial questions, and how lower levels have become adept at protecting their own interests against higher-level institutions as well as those at the same administrative levels. This process of bargaining and negotiation makes it difficult to accept one particular approach to policy-making or to be able to predict accurately policy outcomes, as each organization will attempt to bend policy to its own advantage. The resultant system is extremely complex and there is enormous institutional fluidity, ambiguity and messiness, as demonstrated in Chapter 7. Mertha (2009) has complemented this notion with his formulation of ‘fragmented authoritarianism 2.0’. He assesses how the authoritarian, fragmented system has responded to the increasingly diverse demands of society. While he holds to Lieberthal’s views as to the key explanatory factor, he suggests that the policy process has become increasingly pluralized. Indeed, the very fragmented nature of the system allows ‘space for policy entrepreneurs’ to influence policy formulation and implementation. He identifies three new types of such policy entrepreneurs: officials in agencies opposed to a given policy, journalists and editors, and NGOs. Such complexity is increased by the challenges of policy implementation. There is no doubt that the implementation phase of the policy process is critical, yet it is often ignored by researchers, bureaucrats and national and local policy-makers. However, it is precisely this phase that determines the nature and success of a policy reform initiative, and implementation may often lead to an outcome quite different from that intended and anticipated by analysts and policy-makers (Grindle and Thomas, 1991, esp. pp. 121–50). Grindle and Thomas note that many assume a linear model of implementation where a proposed reform is put on the agenda for government action, a decision is made and a new policy or institutional arrangement is implemented, either successfully or unsuccessfully. Failure usually results in a call for greater efforts to be made to strengthen the institutional capacity or to blame it on the lack of political will. However, a ‘policy reform initiative may be altered or reversed at any stage in its life cycle by the pressures and reactions of those who oppose it’ (ibid., p. 126). These responses can occur either through the reactions of society in a more public arena or in the more closed bureaucratic arena where opposition may be mounted from vested interests. Further, the government simply may not apply sufficient resources to ensure a successful policy outcome. Fukuyama (2004) points out that in policy implementation a basic conceptual failure to unpack different dimensions of the state can lead

248 Governance and Politics of China to different economic development outcomes. He stresses the need to distinguish between the scope of government activity and the strength or capacity of government institutions. On balance it would seem that the strength of state institutions is more important and this would mean that it is unwise to set out too many policy objectives at the same time, as Xi Jinping may well discover. China’s economic reform has revealed that the market is a superior way to organize transactions but this does not negate the role of government intervention and regulation (Naughton, 2007, p. 7). However, on the whole, in the economic sphere the Chinese economy has fared best when the government has limited its interventions, but this has not been the case in the social sector where, for example, the absence of government action led to a precipitous decline in medical provision in rural China. Despite the strength of the Chinese state and its ability to bring enormous resources to bear for limited periods of time in a narrow range of policies, China has suffered from all the problems of implementation and has been especially poor in monitoring and follow-up. As noted above, bargaining and negotiation are key features of the Chinese policy process (on negotiation, see Saich, 2000a). Lampton (1992, pp. 57–8) sees bargaining as a fundamental form of authority relationship, and outlines five consequences. First, decisions are generally arrived at slowly because the process of consensus-building and negotiation is protracted. Second, it is difficult to say precisely when a decision has been finalized: most decisions are made ‘in principle’ and then are still open to amendment. Third, even once a policy is adopted, negotiations among and between various levels of the hierarchy can result in significant adaptation. This is what Naughton (1987) refers to as the ‘implementation bias’, whereby all central policies will be bent in favour of the organization or locality responsible for implementation. Fourth, it is a mistake to set too many high-priority goals simultaneously. Fifth, because bargaining is so extensive, the legal framework is poorly developed. Most of the implementation problems that China faces are not unique to the country and plague all systems, but some are more acute. In particular, China’s size and diversity makes it especially important that policy remains flexible to account for variation and that policy-makers receive accurate information for policy design and on feedback once policy begins to be implemented. A number of problems have hampered this process in China, ranging from the logistical to the political. Politically, the party still does not welcome dissenting views. While the principle of democratic centralism may not be applied as rigorously as in the past, the party still has very weak mechanisms for providing feedback on policy implementation. There has been growth in Internet chatrooms associated with party and state organizations for citizens to

Economic Policy 249 express views to complement the traditional system of letter writing, but these remain constrained. The use of informal surveys on the performance of local officials is also increasing. The absence of a free academia and media seriously restricts the quality of feedback that the party can gather on how their policies are being received by the population. The party has loosened up somewhat, especially in the realms of reporting on environmental affairs and consumer rights, but it is still virtually impossible to address the systemic nature of the problems to encourage a genuine public debate. The leadership may have put a premium on improving the population’s education, but it still does not trust the population to use it creatively. While there is more pluralistic input to decision-making, with various think tanks or agencies preparing reports, the limit on the range of views they can put forward is still restricted. As one academic commented to me, ‘we have a lot of think tanks but not much thinking’ (interview, March 2014). Local experimentation has been an important mechanism for introducing policy reform (see Chapter 6). This experimentation can either occur spontaneously in a locality or may be initially licensed by the central government. Once a consensus has been achieved on the value of the local experimentation it may be adopted as national policy. In fact, raising a problem too soon, even if the analysis is correct, may have adverse consequences. It is more judicious to wait until a consensus emerges that a policy is not working before offering alternatives.

General outline of economic policy There can be no doubt that in economic terms the reforms launched by Deng Xiaoping and his allies have achieved considerable success. Since 1978, the economy has been growing at some 10 per cent per annum and currently the Chinese economy is the second largest in the world behind that of the US. Rising per capita incomes and massive increases in foreign investment all tell the same positive story. However, one should be careful not to be dazzled by these headline figures. In 2013, China’s GDP was only one-half that of the US, with a GDP per capita (purchasing power parity) of $9,800, which is comparable to that of the US in roughly 1950. Currently, GDP per capita is roughly equivalent to that of Thailand, is below South Africa ($11,500) and other fellow BRICs – Russia ($18,100) and Brazil ($12,100) – but outperforms Indonesia ($5,200). It does better than India ($4,000), which had a higher income per capita when China’s reforms began. Growth in China has been spurred by two main transitions that have provided a unique opportunity for development. The first is the

250 Governance and Politics of China benefits that came from shifting from a centrally planned economy to one that was more market influenced. The second is a general development story of shifting people from low productivity agricultural labour to higher productivity manufacturing jobs. This was composed of a demographic dividend as more people entered the workforce. It has also been accompanied by an unprecedented opening of the economy to foreign investment, initially driven by capital from Hong Kong and overseas Chinese looking for cheaper manufacturing outlets. These first two elements follow the successful development patterns elsewhere in East Asia. Reforms were also able to build on the physical and human investments that had taken place during the Mao years, especially in the rural areas. What has given China its particular development path is that this ‘normal’ development pattern was overlain by the struggle to become free of the grip of the old planning system. In Naughton’s view (2007, p. 5), much of this legacy has been dealt with and the challenges of transition are gradually being replaced by those of development. However, the statist predisposition remains strong and the desire to protect the SOE sector and to privilege funding for this sector and locally managed enterprises have worked to the detriment of the private sector, which creates jobs more efficiently. A recent study by Lardy (2014) shows that, despite this, the private sector has made considerable progress. He calculates that now SOEs only account for between one-third and one-quarter of GDP. In the manufacturing sector where most jobs are being created, SOEs account for only 20 per cent of output. As a result, he feels that the appellation ‘state capitalism’ is no longer appropriate as the return on assets is only 3.7 per cent, less than half the cost of the capital. As a result, Lardy suggests that we might even consider that the Chinese economy is a market economy! In December 1978, the CCP CC decided that the focus of future work would be economic modernization and that all other work must be subordinate to meeting this objective. The CCP’s legitimacy was effectively shifted to the capacity of the leadership to deliver the economic goods. Such an approach resulted in significant changes in the relationship between the plan and the market on the one hand and the party and the economic decision-making apparatus on the other, with previous regime practice significantly liberalized. This new focus had specific causes. First, living standards for much of the population in the late 1970s had barely increased from those in the late 1950s. The government’s over-concentration on accumulation at the expense of consumption meant that rationing, queuing and hours spent on laborious household chores were daily fare for most. Second, the failure of the initial ambitious post-Mao strategy to improve economic performance significantly caused the leadership to focus more intently

Economic Policy 251 on the need for fundamental economic reform. Third, the party was faced with a serious problem of legitimacy. The continual twists and turns in policy since the mid-1950s left the party’s claim to be the sole body in society capable of mapping out the correct path to socialism appearing a little thin, to say the least. Nor could Mao’s name any longer be invoked to legitimize policy. Thus, the party began to promise a bright economic future for all within a relatively short space of time. Legitimacy is now tied more than ever to the ability to deliver the economic goods. The new policies revolved around the promotion of market mechanisms to deal with the inefficiencies of allocation and distribution that occurred within the central state planning system. Awareness of the ‘new technological revolution’ increased the Chinese leaders’ desire to make their system more flexible and thus more amenable to change. To take advantage of market opportunities, more decision-making power was to be given to the localities and, in particular, to the units of production themselves. Production units now have more autonomy to decide what to produce, and how much and where to market the products. At the core of this system are the ubiquitous contracts that are expected to govern economic activity. Correspondingly, material incentives are seen as a major mechanism to stimulate people to work harder, and the socialist principle of ‘to each according to his work’ is to be firmly applied. Egalitarianism is attacked as a dangerous notion that stunts economic growth. This is best reflected in Deng’s muchquoted dictum ‘to get rich is glorious’. The reforms of the domestic economy have been accompanied by an unprecedented opening to the outside world in a search for export markets and the required foreign investments, technology and higher-quality consumer goods. Importantly, in terms of their initial success, the reforms did not have a blueprint, and the centre often appeared to be responding to policy innovation at the local levels. The Chinese themselves referred to this as a process of ‘crossing the river by feeling the stones’. However, as Rawski (1999) points out, this dignifies the approach somewhat as it implies that there is an objective of reaching a bank on the other side of the river. Even at the initial stage, however, the state played a key role. Once the central leadership had decided that a local experiment was suitable, it would try to enforce it throughout the country. As explained below, this was the case with the introduction of the rural household responsibility system. The main drivers of growth for the Chinese economy have been state investment and foreign trade. Even before the 2008 financial and economic crisis, the leadership had come to the conclusion that it would be necessary to reform the economic model that had proven so successful over the first three decades of reform. Policy shifted to boost domestic

252 Governance and Politics of China consumption as a major engine of growth while ensuring macroeconomic stability. This lies behind the drive for effective urbanization, the need to integrate migrants more effectively, and efforts to build a more expansive social welfare system to encourage citizens to spend more. This shift to consumption as a major driver means that growth will slow over time, but this is not necessarily a bad thing. If we look to the future, investment, especially in infrastructure and industry, will remain important, but there is no room for the ratio of investment to GDP to rise significantly over the long term. While China’s exports are likely to continue expanding given their current scale, the rate of increase is bound to diminish. China’s total trade as a ratio of GDP is usually only found in small, export-driven economies (those of the Association of Southeast Asian Nations and Taiwan) and not in the continental economies. This leaves consumption as the main driver of economic growth. Effective expansion of consumption has been held in check by the high rates of savings – people’s legitimate needs to save for retirement, medical care and education. If these were provided by government, consumption would greatly increase as savings would decline. Government sterilization of incoming funds from the export surplus has also stunted consumption. The savings rate in China climbed to over 50 per cent of income in 2013, from about 26 per cent in 1985, and this is not likely to increase further. In the major OECD economies, the household savings rate averages around 10 per cent (with the notable exception of the US where it is under 1 per cent). In fact in the five years before 2013, China’s household savings rate doubled to exceed 43 trillion yuan. China is on a par with Singapore, but much of the latter’s savings consists of mandatory contributions to a social security programme. To meet its consumption objective, China will have to integrate its domestic market with the outside world and develop more effective financial instruments and credit arrangements. According to the World Bank, consumption made up only 34 per cent of GDP in 2013, whereas in the US it was 69 per cent and in India it was 62 per cent. The CIA Fact Book estimates that, in 2013, household consumption was 36.3 per cent, with a further 13.7 per cent consumed by government. State investment (fixed capital) was 46 per cent with exports (minus imports) comprising 2.9 per cent. Despite this, in 2013 China became the world’s second-largest consumer economy (The Economist, 16 February 2014). The Hu–Wen leadership grappled ineffectively with the challenge of shifting to a new model of growth. As early as 2003, and again in 2008, it put forward a programme that sought to restructure the drivers of economic growth, reduce the role of SOEs and boost the private sector, render development more sustainable and equitable, and reduce

Economic Policy 253 the levels of corruption and administrative interference in the economy. Sound familiar? This pretty much resembles the programme put forward by Xi Jinping and Li Keqiang in 2013–14. Importantly, they reaffirmed the call for government to reduce its role in macroeconomic planning with the market, according to Li, playing a ‘decisive role’ in directly allocating resources. Given the lack of progress under Hu and Wen, will Xi and Li be more successful and have more impact, such as the policies under Jiang Zemin and Zhu Rongji in the 1990s when they undertook substantial reform of the SOEs and readied the economy for WTO entry? This paved the way for the economic boom in this century. Certain factors do, however, give cause for optimism. First, there is a general consensus emerging that, despite the tremendous growth in wealth, change is necessary if viable institutions are to be developed to enhance long-term sustainable growth. Second, Xi has emerged as a much stronger leader than Hu and has clearly used his political capital to push reforms forward. Third, as noted, he has established a supraministerial entity to oversee and promote the reforms. This is matched by similar groups at the provincial levels to be headed by the first party secretaries, thus tying her or his political success to progress with the reforms.

A Chinese model of development? The process of economic transformation and development has led to two sets of debate. Initially, scholars debated whether China’s ‘gradualist’ strategy for change was preferable to the ‘shock therapy’ attempted in Russia. Second, given the astounding growth, the question arose as to whether there is a particular Chinese model of development, best articulated in the discussion about Joshua Cooper Ramo’s notion of the ‘Beijing Consensus’ and whether the model might be appropriate for other nations to follow. China’s gradual approach to reform has been hailed by many observers as a sound transitional strategy, certainly when compared to the reforms in Russia. However, one should remember that the kickstart for the reforms was hardly gradual. The collective structures in the countryside were almost completely dismantled and the focus was on household-based farming. Rawski (1999) and others such as Naughton (1999, 2007) have demonstrated how transitional systems in which the market is not yet fully established can generate very high growth levels. In fact, a gradual transition will provide an opportunity for the development of new or reformed institutions that can help guide the process to a market economy. Both arguments contain

254 Governance and Politics of China elements of truth and, in certain respects, the Chinese government has moved towards a form of economic management that resembles models of state-led growth familiar to students of East Asia. With China now in the WTO, whether approximation of the kind of market-based institutions that have been successful elsewhere is the cause of growth in China has a particular relevance. If the ‘gradualists’ are correct, then WTO membership could create problems as it will constrain the leadership’s capacity for exceptionalism and experimentation (Woo, 2001). The economist Jeffrey Sachs and his main collaborator, Wing Thye Woo (Sachs and Woo, 1994; Woo, 1999, pp. 115–37), have suggested that China’s success has come in those areas where reform has been most radical and where institutions have begun to resemble those in a regular market economy. Thus, China’s approach may not necessarily be better than that in Russia and, no matter what else, they argue that it is not and cannot be a model for other transitional economies given its particularity. In their view, performance to date merely reflects their different starting points, with Eastern Europe and the former Soviet Union over-industrialized and China based on peasant agriculture. Thus, while in their view growth in China has occurred in spite of ‘gradualism’, ‘shock therapy’ in Russia and Eastern Europe was inevitable as other attempts at gradual reform and dual-track reforms repeatedly had already failed. Eastern Europe and Russia could not simply redeploy people from the rural to the industrial sector; they had to redeploy them within an already overloaded and inefficient industrial sector. In Russia, privatization was rapid and contributed to market collapse rather than market development. Last but not least, the changes at the end of the Cold War led to a massive collapse in production for the military sector. This altered the pattern of government spending and delivered a further blow to the heavy industrial sector. To some extent, the argument is not about whether these are alternative modes of transition but rather whether there is a third way between capitalist markets and state planning. In fact, it might be more correct to recast the debate in terms of questions about the speed of the transition and the sequencing of the reforms. Hungarian economist János Kornai has highlighted the fact that different reforms might need to be conducted at different speeds (Kornai, 2000). In his view, macroeconomic stabilization needs to be carried out quickly, whereas privatization might take a much longer time. The success of the transition in China to date should not be taken to mean that the economy is without problems as there are indeed some which stem from the delayed reform, giving some weight to the views of Sachs and Woo. Deng Xiaoping was very successful at ensuring that there were no significant losers during the first phase of reform and

Economic Policy 255 that those who did lose out were relatively few in number and politically marginalized. Thus, while it might have been easier economically to push through the reform of the state sector in the 1980s, the political will was lacking. CCP leaders did not wish to affect adversely the privileged working class that they had created after 1949. This made reform in the late 1990s more difficult. Gradualism allows for the development of opposition to further reform. A hybrid system that is neither fish nor fowl provides ample opportunities for the officials who run it to engage in corrupt practices and to exploit the disjunctures between the plan and the market. The SOE lobby in China still has considerable residual strength, not only from the workers affected and the ministries created to run it, but also from the fact that a considerable amount of state revenue still comes from the SOE sector and consumes perhaps as much as 60 per cent of household savings through bank loans. The debate over China’s exceptionalism was rejoined with the publication of ‘The Beijing Consensus’ by Ramo (2004). Although not very specific, Ramo offers this as a counterpoint to the ‘Washington Consensus’ for any state aspiring to achieve an economic take-off. Based on his observations of China’s development, Ramo proposes three main features. First, China had displayed a consistent commitment to ‘innovation and constant experimentation’. Second, he proposes that the sustainability of development and an equitable distribution of wealth were equally as important as measuring development in terms of GDP per capita alone. Third, developing countries should pursue a ‘policy of self-determination’ to check the influence of foreign powers and should be especially vigilant in maintaining financial sovereignty. The bottom line in Ramo’s view is that an authoritarian polity and economic liberalization can co-exist to produce effective development. This leads to two specific questions: Is the depiction accurate? Is China a model for others? Williamson, who is credited with giving substance to the notion of a ‘Washington Consensus’, gives more body to the ‘model’ that China has pursued, identifying five key characteristics. These are: incremental reform, innovation and experimentation, export-led growth, state capitalism, and authoritarianism. The global financial crisis (2008–09) put new life in these discussions as China’s massive stimulus package meant that it avoided the worst of the contagion. It also revived the discussions about the relevant role of the government and the market (for earlier debates on this question with respect to East Asia, see Johnson, 1982; Amsden, 1989; Wade, 1990; Wu, 2005). Of course, there are many authoritarian regimes that do not achieve an economic take-off and this factor alone is insufficient to explain China’s development. Yao Yang (2010) uses the concept of a ‘disinterested government’ to explain why the state in China has been more

256 Governance and Politics of China likely than other authoritarian regimes to support growth-oriented policies. In his view, the leadership was detached and unbiased, taking a neutral stance about conflicts of interest among different political and social groups that arose in the process of reform. One of the important factors identified for the successful development elsewhere in Asia has been the presence of a relatively apolitical and insulated bureaucracy. This suggests that the economic bureaucracy needs to be flexible and pragmatic. During the initial phase of reform, while the state and its agencies were major beneficiaries, there was no ‘state capture’ such that others could not share in the benefits of reform. Increasingly, however, ‘vested interests’ have consolidated their influence and will be a major stumbling block for Xi and his supporters to overcome. Although it was easy to know who would benefit from the reforms of the 1980s – farmers and many officials – and those of the 1990s – entrepreneurs, the state sector and many party officials and especially their children – it is more difficult to know which groups will form a winning coalition for Xi’s reforms. The argument that the current system is unsustainable will have to win over those who might see their interests adversely affected by more market-influenced reforms. However, the idea of the effectiveness of China’s state-led growth is criticized by Yasheng Huang (2008, 2011). In his analysis the economy has performed best, in terms of the living standards of the average citizen, when it has pursued liberalizing market-oriented reforms and conducted modest, political reforms. He argues (2011, p. 11) that China’s rapid GDP growth primarily benefitted the government and capital markets. Chen and Goodman (2012), in reviewing Ramo’s thesis and those of a number of other writers, suggest that China’s success is the result of unique circumstances that might be difficult to replicate elsewhere. They highlight two features of the country’s developmental trajectory that are important: the size and scale of its huge domestic market and the peculiarities of its own historical experiences. They highlight the use of marketization and competition rather than privatization as crucial elements in its success. In addition, they view three factors as important for China’s development: the rise of a substantial middle class, the level of state investment in infrastructure and the operation of a mixed economy. Similarly, Naughton (2010) acknowledges that certain aspects of the developmental model may be beneficial for other countries to consider, but that the totality of the Chinese experience owes too much to conditions that cannot be replicated by others. He highlights six lessons from the experience, all of which are important but may not be easy for others to copy in their entirety. These include, contrary to the ‘Washington Consensus’ orthodoxy, that: public ownership has not

Economic Policy 257 been abandoned and has proved to be ‘reasonably efficient’; competition is more important than ownership; state-led investment means that it can anticipate demand; the state sector can create growth outside of the sector; and managers in the sector can be incentivized. Thus, the conditions to replicate China’s success rarely exist. Very few countries have continental-size economies that operate at the same scale. Further, China’s current leaders have acknowledged faults in their model and are trying to move away from state-dominated investment and production to a system that relies more on market forces and a mixed ownership system. The ‘Decision’ of the Third Plenum of the Eighteenth CC (November 2013), as discussed below, suggests that the SOE sector should return more to the government to be used for social welfare expenditures. However, the CCP is insisting on retaining an ‘authoritarian’ top-down political process to enforce these changes. It remains to be seen how compatible these aspects will be over the long term.

Industrial policy Reforming the industrial sector has been the most difficult challenge for the central leadership as it goes to the core of the economic system that was set up under the central plan. Reform undercuts the interests of powerful bureaucracies that were established to run the system and the working class, of which the CCP was to represent the most advanced elements. As a result, reform has been stop–go. Throughout the 1980s and the early 1990s, leaders generally backed off from reforms whenever representatives of the heavy industrial sector squealed loudly enough or when fears of social instability arose. This changed by the latter half of the 1990s when it became clear that difficult reforms could no longer be delayed. The earlier strategy was in Naughton’s (1995) memorable term to ‘grow out of the plan’ by adding capacity in the collective and private sector and opening up the economy to significant foreign direct investment and international trade. Delay in fundamental reform also initially derived from the lengthy learning process that the leadership underwent in grappling with this sector. It took a long time for central leaders to realize that simply stressing technological upgrading, improved management, limited autonomy and expanded market forces did little to improve the health of the SOEs unless the external environment was significantly reformed and a proper sequencing of reforms was introduced. Indeed, as the work of Steinfeld (1998) has shown, tinkering with these aspects could actually make the situation worse. As he argues (1998, p. 4), China lacked the key institutional mechanisms needed to make corporate governance, and by extension property rights, function for producers

258 Governance and Politics of China in complex market settings. The problem was compounded by the fact that many SOEs had become net destroyers of assets, with what they consumed being of far greater value than what they produced. As the rural reforms began to run out of steam in 1984, policy attention turned to the urban sector and the promulgation of the CC ‘Decision on the Reform of the Economic Structure’ (October 1984) that sought to make enterprises more responsible economically, with incentives and contracts to make management and workers more efficient. However, in 1985–86, 1988 and again in 1990 when problems became apparent, orthodox leaders tried to bring the reforms to a halt by reasserting the levers of administrative controls at the expense of market forces. This is most apparent with the Bankruptcy Law (1988) that was seen as the ‘stick’ to the other ‘carrots’. Yet hardly any enterprise was declared bankrupt and, when it was, it made headline news. It was only in the mid-1990s that SOE reform became serious. The overheating of the economy in 1993–94 and the increasing pressures for SOEs to become more profitable caused the then Vice Premier Zhu Rongji and his supporters to push for a more dramatic set of reforms to break China out of its stop–go industrial reform cycle. The two major obstacles were whether the other sectors of the economy could absorb the absolute numbers of redundant workers and whether an adequate social welfare programme could be designed. Over the years, the overblown staff of many of these enterprises had proved to be a viable political and social solution to the problem of employment when there were few alternative employment opportunities and insufficient unemployment support, but this was no longer financially feasible. However, economic pressures made it impossible for the centre to sit on the fence while the localities were pursuing de facto privatization. The World Bank (1997, p. 1) estimated that in 1996, 50 per cent of SOEs lost money (unofficial estimates are higher). For the first quarter of 1996 the SOE sector slid into the red for the first time since the establishment of the PRC, with a net deficit of about US$850 million. SOEs were finding it difficult to meet their social obligations and in 1996 bankruptcies rose 260 per cent, exceeding the total of the previous seven years. Two important reforms were introduced to attempt to help reform this sector. The first was the establishment of a social welfare system independent of the individual enterprises and regulated by the government (see Chapter 10). The second was to harden the budget constraints by gaining control over bank loans, trying to introduce better discipline over lending and commercializing loans. Such statistics led the party leadership to decide, in a risky venture, to cut themselves loose from the working class that they had created in the 1950s and to reduce their expectations about what the state could provide. Rhetoric is still forthcoming concerning the importance of the

Economic Policy 259 working class to the leadership, but the reality is that most of this class is now on its own to find new work in an economy that is increasingly unfamiliar to them and that requires very different skills from those they learned under the Soviet-inspired system. The ground for these changes was established in 1993–94 when the central leadership decided that a more coherent set of policies was necessary to prevent the economy from overheating and to prevent runaway inflation and local initiative and growth escaping from their macroeconomic controls. For the first time, the centre drew up a comprehensive statement of its reform plans and articulated them in 1997–98. As Naughton (2000, pp. 56–7) has perceptively pointed out, by 1994 the reform agenda of the 1980s was basically completed and thereafter the leadership had to deal with the tough parts of the reform, such as the SOE system, the institutional impediments to rural–urban labour flows, the banking system and the integration of domestic markets with foreign competition. In November 1993, the Third Plenum of the Fourteenth Party Congress adopted a crucial decision on ‘Certain Issues in Establishing a Socialist Market Economy System’, the details of which were thrashed out at a meeting held in Dalian in June 1993. The backdrop was the feeling that excessive decentralization had caused the centre to lose control over key macroeconomic levers of the economy and that prudent recentralization was necessary. Much of the devolution had been by default rather than by design, with some real decisions on fiscal, monetary, financial and foreign exchange issues residing with the localities. For the state to meet its reform objectives, it became clear that both prudent recentralization and institution-building was necessary. The decision had a number of components. First, a ‘modern enterprise system’ was to be established that would include reform of the organizational and managerial systems. Clearly defined property rights would be central, with each enterprise becoming genuinely responsible for its profits and losses, with bankruptcy a real option. Government interference would be reduced to enable the enterprises to function properly in the marketplace. Second, it fleshed out the extension of the market in the economy that had been raised at the Fourteenth Party Congress. Crucially, for the first time, a CC document saw that economic reform required reform of the financial system – including the taxation, banking and monetary systems – and laid out objectives. A rational division of taxes between the centre and local authorities was to be devised to replace the annual tug-of-war that currently existed. In monetary policy, the major reform was to allow the People’s Bank of China to function as central banks do in other countries. It was to implement monetary policies in an independent manner and to distance itself from provincial political interference by letting the head office assume

260 Governance and Politics of China responsibility for the regulation of the scale of loans. Further, the document recognized that more flexibility needed to be introduced into the social security system and that serious problems existed in the agricultural system. Subsequent policy has marked a clear commitment to a mixed economy, with continued theoretical dominance of the state sector and with attempts to shift to a more regulatory state. The first reform was to reduce the number of SOEs, starting with a policy to reorganize state-owned assets and to form large enterprise groups as a focal point, under the policy of ‘grasp the large and release the small’ (zhuada fangxiao). This meant that small and medium-sized enterprises (SMEs) would be turned into a variety of non-state entities through the expansion of shareholding systems, the formation of joint ventures or via sales to interested parties (see Huchet, 2000). The number of SOEs to remain under state control was progressively reduced, from 1,000 to between 80 and 100. Surprising as it may seem, these large enterprise groups were to be modelled after the conglomerates of the keiretsu in Japan and the chaebols in South Korea. Senior Chinese officials feel that during the initial developmental phase such industrial conglomerates can play a positive role. The dream of appearing in the Fortune 500 list seems irresistible! Some 95 companies made the list in 2013, posting $5.8 trillion in revenue, and two of the top five were in the oil business – Sinopec and China National Petroleum. This formation of large enterprise groups was a core element of the September 1999 CC decision on the further reform of SOEs; not surprisingly, it represented a compromise that sought to steer a middle course. Thus, it did not mention radical local practices such as the sale of the large number of state firms, nor did it cite targets for converting large state firms into shareholding companies. However, it did encourage SOEs to pull out of certain sectors of the economy where there were adequate alternatives, and once again it stressed a mixed ownership system. Yet, the question of managerial autonomy was still ambiguous, as the document stressed the importance of enterprises being guided by party committees. Party organs were described as the political nucleus within the enterprises. At the same time, it called for the establishment of a modern corporate system with clear ownership and separation of the enterprise from government administration. Enterprises were to enjoy full management authority and assume full responsibility for profits and losses. The other important points were that the market was to ensure the survival of the fittest through the encouragement of mergers, standardization of bankruptcy procedures, lay-offs and encouragement of re-employment projects. To soak up the unemployed, greater political

Economic Policy 261 coverage was given to the non-state sector of the economy. These serious reforms have produced a dramatically transformed industrial landscape. Local leaders saw the policy of promoting shareholding as a great opportunity to shed responsibility for the state sector and to raise some much-needed capital as well. However, the big sell-off also increased the potential for corruption, with official speculation becoming rampant, and clearly a number of local officials saw this as a major windfall or one last chance to get rich at the state’s expense. ‘Insider privatization’ was rife. While state assets were diverted into individual pockets, the state was left to cover the debts. An equally severe problem was that of local authorities forcing workers to buy shares in enterprises so that they qualified as shareholding cooperatives. But it is unclear how pervasive this practice was. For already failing institutions, these one-time infusions of cash did not turn around such enterprises and local officials were often confronted by angry workers who had lost their life’s savings. In addition, workers were frustrated when they discovered that their buy-in did not buy them a seat at the decision-making table; the majority of shares were held by the old management or local officials, who received them as a reward rather than through purchase. Such corruption led Hu Jintao to shift policy in 2003, abandoning the primary focus of selling off the smaller SOEs that had produced much of the corruption: some estimates put the loss of state assets at US$41 billion. In April–May 2005, management buy-outs at large SOEs were also forbidden. The new plan separated the ownership and management of the SOEs, with ownership transferred from various ministries to a Central State Asset Supervision and Administration Commission (SASAC, set up in June 2003). The Commission initially took over 196 of the largest SOEs with combined assets of US$834 billion, including the national airline Air China, national oil companies and major telecommunications, steel and auto companies (The Economist Intelligence Unit, 28 May 2003). The new Commission hoped to enhance management, reduce corruption and attempt to restructure 30–50 SOEs to become internationally competitive. By the end of 2013, the number of these under SASAC auspices had dropped to 113 and there was a commitment to reduce this number further. The remaining SOEs have become increasingly profitable and remain so due to their monopoly or quasi-monopoly control over key sectors of the economy. By 2012, SOE assets totalled four times those of 2003 when Hu Jintao first proposed the new reforms. This has been aided by their priority listing on the Hong Kong Stock Exchange. They have large quantities of available credit and not only have consolidated their monopoly position but also have expanded into other lucrative fields such as real estate. During the first three months of 2013,

262 Governance and Politics of China SOE profits for those firms with annual revenues over US$3.3 million increased 8.4 per cent; profits for Chinese private companies were up 16.3 per cent, while those for foreign-invested enterprises increased 15.7 per cent. Not surprisingly, corruption has continued, with some 30 former SOE leaders being arrested. There is a close relationship between party patronage and SOE leadership at the national and local levels. The CEO, party secretary and chairman of the board of the 53 largest SOEs form part of the Organization Department’s appointments list. They enjoy the rank of vice minister and, in some instances, even minister. Others are appointed by the SASAC and have the administrative rank of bureau chief (Duan and Saich, 2014). One-fifth of China’s governors and vice governors have worked in a major SOE (Brødsgaard, 2013). Some 30 per cent of the ministers and vice ministers in the State Council have SOE experience. Some of China’s SOEs are now becoming major players on the international stage by making large overseas investments and attempting to acquire overseas assets. This trend has been due to their own initiative but also due to a government-sponsored programme to ‘go global’ (see Alon et al., 2009). This was sanctioned in the Eleventh Five-Year Plan (2006–10) that called for increased investment to ‘enhance China’s competitiveness’. As a result, the country’s overseas direct investments (ODIs) boomed to US$77 billion in 2012, and of this 89 per cent was by SOEs (the figure had been 100 per cent in 2005) (Eve Carey in The Diplomat, 23 July 2013). This growth in ODI has created a challenge for the political authorities, with corporate entities becoming major players on the global stage. For example, some have complained about the activities of the major company, PetroChina, in Sudan. One Chinese scholar even spoke of the company as having ‘hijacked China’s foreign policy in Sudan’, something he deemed to be ‘truly worrisome’ (Financial Times, 16 March 2008). The power of the growing SOE sector and the oversight role of SASAC have generated debate and a struggle over who should actually control the assets. The Ministry of Finance has tried to gain control of more of the profits from SASAC. Not surprisingly, SASAC has become a defender and promoter of the interests of the SOEs under its jurisdiction rather than carrying out its role as overseer. It has defended governance and also the high bonuses paid out to SOE leaders, which are nothing compared to the scale of US bonuses, but which are significant in the context of a ‘socialist’ China. However, in a significant move in August 2013 the Politburo decided to cut the salaries and the size of expense accounts for executives at SOEs. A possible cap at 600,000 yuan has been rumoured, with state-owned banks being first in line to be affected (China Daily, 30–31 August, 2014). So much

Economic Policy 263 for corporate governance and market forces! SASAC was especially critical of China 2030, a joint study written by the World Bank and the Development Research Center of the State Council (2013) that called for significant reforms of the SOE sector. The study proposed diluting SASAC’s power by setting up one or more state asset management companies that could represent the government as a shareholder and that would undertake the management of SOE assets in financial markets. SASAC’s role would be reduced to policy-making and oversight and would relinquish the management of assets. Despite SASAC resistance, this was adopted as policy in the ‘Decision’ of the Third Plenum of the Eighteenth CC (November 2013) and a number of other important reforms were adopted for industrial policy (see Naughton, 2014a, 2014b). The ‘Decision’ decreed that by 2020 SOEs would turn over 30 per cent of their profits in the form of dividends, much of which could then be used by the Ministry of Finance for social welfare funds. This increased the dividend payments that had been stipulated in 2007 but that were honoured more in the breach than in observance. This had required the SOEs to pay out a range of 5 to 10 per cent of their profits, but during the subsequent four years they failed to meet even the minimum 5 per cent payment and averaged only about 2 per cent. The ‘Decision’ confirmed that state ownership should transition from ‘asset management’ to ‘capital management’, with the possibility that sovereign wealth funds would take over the portfolio management. As suggested by the China 2030 report, some of this state capital could be transferred to the social security fund. This would represent a significantly reduced role for SASAC (World Bank and Development Research Center, 2013). Second, the ‘Decision’ called for the conversion of SOEs into ‘modern enterprises’ by forming joint stock companies and adopting an effective corporate governance system. In a sign of how difficult reform is within this sector, it should be noted that this was already mandated in the Company Law of 1994. Unless the appointment powers of the Organization Department are revised, however, this will be difficult to achieve and it is inconceivable that the CCP will turn over the appointment of its major SOEs to any entity outside of its direct control. Shanghai has been leading the way with reforms in this sector. For the SOEs within its jurisdiction, it has been decreed that the positions of the CEO and the chairman of the board should be held by different people, but, of course, this does not say anything about who would appoint them. In addition, more jobs were to be advertised and incentives provided to managers in terms of stock options. The ‘Decision’ also suggested that the monopoly position of the SOEs should be reduced when possible. Monopoly control by the

264 Governance and Politics of China SOEs is driven by a number of factors in addition to their control of key sectors and appointments and the disposition of assets mentioned above (see Duan and Saich, 2014). For example, the use of franchises, as enshrined in the Mineral Resources Law (amended 1996), has been important in ensuring monopoly control in the energy sector. In the oil industry, the China National Petroleum Corporation, the China Petrochemical Corporation and the China National Offshore Oil Corporation have franchises to carry out exploration and development of onshore and offshore oil and gas. Any enterprise without a franchise is prohibited from carrying out this work. Control over pricing has been important in that it allows the setting of low or high prices in order to enable state entities to maximize their interests. The ‘Decision’ announced that China would move towards market pricing for oil, coal, gas, water and telecommunications, which would significantly shake up the SOE sector. The ‘Decision’ also pulled together initiatives in the financial sector to push forward reforms more generally, and this was confirmed by the Economic Work Conference that was held in December 2013. It is important to note that with the leadership turnover in 2012–13, most of the financial sector leaders were kept in place, signalling that this was a sector where the necessary expertise had to be retained to push policy forward. Financial and banking sector reform has come a long way over the last 20 years, but major problems of government interference in lending continue to exist, resulting in a poor allocation of capital and the private sector finding it difficult to access required funds at competitive rates. According to Lardy (2014), between 2010 and 2012 private firms received about 52 per cent of the loans to all enterprises; yet they created between two-thirds and three-quarters of GDP. Reform of this sector is key to the success of economic reform in general and SOE reform and the development of the private sector in particular. When the reforms began, financial sector reform was not really thought of as part of the economic reforms, and, if considered at all, it was interpreted in the very narrow sense of banking reform. With a weak fiscal system, banks were used essentially to meet the state’s development objectives. This changed in the mid-1990s as China’s leaders recognized the value of an effective financial system and the problems that might result from bad debts in the banking system. While banks have dominated over the last 20 years, China has also developed a framework of institutions that are necessary to run a modern financial sector. The People’s Bank of China has strengthened its regulatory functions and it is allowed to operate more as a central bank, and stock markets have opened with regulatory commissions established to oversee the various sectors (banking, securities, etc.).

Economic Policy 265 Three types of banks currently operate: commercial banks, policy banks and cooperative banks, with a limited but increasing role for private banks. The ‘Decision’ reaffirmed the direction of these reforms and called for further development of capital markets, allowing for a more effective and direct mechanism for funding business. The criteria for listing on the stock exchange were to be codified in order to try to move it out of the realm of close government relations privileging the listing of certain companies and to facilitate listings by the private sector. Quotas were to be removed. In 2014, securities regulators resumed listings that had been stopped for over one year. Importantly, there was an intention to liberalize exchange rates that would affect the cheap lending from which the SOEs have benefitted. It is hoped that this will be part of a process to allocate capital more effectively, based on market principles rather than administrative criteria. The capital account is to be opened step-by-step. Importantly, the ‘Decision’ permitted innovation in the financial sector with the hope that this will integrate many of the underground lenders and quasi-legal lenders into the formal financial sector. Last, but not least, the ‘Decision’ reaffirmed the leadership’s commitment to a system of ‘mixed ownership’, with strong encouragement for the private sector. It encouraged private investment in SOEs in order to reduce the state’s shares; this would include encouraging major SOEs to list on the various stock exchanges. In ‘exceptional’ circumstances, private entities would even be allowed to take a controlling interest. On 5 December 2013, five private equity companies took a further 20 per cent of the shares in the Shanghai property company Greenland, thus reducing state shares to 47 per cent (China Daily, 19 March 2014). Whether private equity investment will change the behaviour of SOEs is debatable. Over one-half of China’s SOEs have already received private investment and, as one commentator noted, SOEs are willing to take your money ‘but not your opinions’ (News China, 1 March 2014). In addition to marketization and decentralization, this diversification of ownership is an important component of the industrial strategy. The expansion of the non-state sector and the growth of the service sector have enlarged employment opportunities, though both have the capacity to grow even further. For definitional reasons, it is difficult to derive an exact picture of the private sector in China’s economy (Huang, 2008, pp. 13–19). According to official statistics, the private sector contributed 60 per cent of GDP in 2012 (6 February 2013, at http://english., but this is almost certainly an underestimate; it also supplied 50 per cent of tax revenues and 80 per cent of jobs (Beijing Review, 1 April 2013). The number

266 Governance and Politics of China of those working in the private sector in urban areas in 2012 was 75.6 million (another 56.4 million were said to be self-employed), as opposed to 68.3 million working in the state-owned sector. Not surprisingly, in 2010 the provinces with the highest percentage of private sector employees in the workforce are: Shanghai (61.9 per cent), Jiangsu (32.3 per cent) and Zhejiang (21.8 per cent). In the same year, the gross value of industrial output of the private sector was 14.7 per cent higher than that of state-owned and state-holding industrial enterprises, with 47 per cent of the assets but with a slightly higher profit return. The growth of the private sector has been accompanied by grudging acceptance and a battle over constitutional reform that seeks to give the private sector better recognition and legal protections and to reduce political interference, thereby providing better access to credit and other necessary resources (see Box 9.1). Policy has moved considerably since the Seventh NPC (1988) that allowed private enterprises with more than eight employees to enjoy legal status for the first time since the early 1950s (Parris, 1999, pp. 265–6).

Box 9.1 Measures to Improve the Status of the Private Sector 1986 Private share-holding first adopted in three Guangdong firms when employees bought 30 per cent of the firms’ shares 1990 Shenzhen Stock Exchange opens 1991 Shanghai Stock Exchange opens 1997 The 15th Party Congress effectively adopts a partial privatization policy and a mixed economy 1998 Banking system shifts from quota lending to profitability; banking shifts from enterprise to consumer funding 1998 More export licences granted to private firms 1999 Constitutional amendment is adopted to allow private firms equal standing 2000 Initial Public Offeringss are opened to firms that are not SOEs 2001 Jiang Zemin’s 1 July speech admits entrepreneurs into the CCP 2002 The State Development and Planning Commission abolishes a number of restrictions on private firms 2003 March, All-China Federation of Industry and Commerce proposes an amendment to the constitution to protect private property 2004 March, NPC approves the amendment 2007 March, NPC approves new Property Law after a one-year delay 2009 October, Shenzhen opens NASDAQ-like board that will help private companies raise capital 2010 Thirty-six articles promulgated to promote development of private investment

Economic Policy 267

2011 November, State Council announces nine measures to extend financial support for the development of small enterprises, including reducing their tax burdens 2013 November, Third Plenum of the Eighteenth CC reaffirms support for the private sector

The sector was provided with political legitimacy in 1997–98, and in 1999 the state constitution was amended to stipulate that the nonstate sector of the economy was an ‘integral part of the socialist economy’, replacing the previous formulation that it ‘supplements’ the state sector. Politically, of course, acceptability was granted on 1 July 2001 when Jiang Zemin welcomed private entrepreneurs to join the party. Since then, employment in the sector has grown from 15.7 million to over 60 million.

Rural policy Economic reforms began in the agricultural system and have been the most radical. Yet the two most dramatic policy developments, the household responsibility system and TVE development, were unexpected, deriving more from spontaneous local initiatives than from government planning. Although the sector now provides less employment and contributions to GDP, it remains important politically and economically as China seeks to feed 20 per cent of the world’s population on only 6 per cent of the world’s arable land (11.6 per cent of China’s land mass is devoted to agriculture). The percentage of those employed in agriculture has dropped from 50 per cent in 2000 to 33.6 per cent in 2012 and will drop further as urbanization proceeds. The role of traditional farming has also dropped, from 80 per cent of the value of gross output in 1978 to 53.3 per cent in 2010, as farmers have sought to produce more lucrative cash crops. Many problems have remained, with stagnating incomes and problems regarding land tenure and access to credit, issues the new leadership is attempting to address. There have been major reforms to improve the livelihoods of those in the countryside, including a return to household-based farming, dealing with land rights (see Chapter 8), improving social welfare (see Chapter 10), removing the state monopoly over the purchasing and marketing of major farm products, and creating more off-farm employment with the development of TVEs and with migration (see Chapter 8).

268 Governance and Politics of China While the industrial reforms of the 1980s and early 1990s presented very little that had not been tried in the Soviet Union and Eastern Europe, the agricultural reforms represented a ‘big bang’ and radical new departure, leading one to question whether there was still a socialist agricultural system in China (on this period, see Watson, 1984; Hartford, 1985). However, the success of the early 1980s had soured by the end of the decade and has since remained a policy headache. At the time of Mao’s death, the Chinese countryside was organized on the basis of communes (set up during the Great Leap Forward, 1958–60). These communes functioned as the highest level of economic organization in the countryside and as the basic level of government. Below the communes were production brigades and teams. For most farmers, the teams were the most important unit, as they made the final decisions concerning both the production of goods and the distribution of income in accordance with the accumulated workpoints. While the radicals of the Cultural Revolution had tried to force this level of accounting upwards (see Zweig, 1989), the reforms of the 1980s placed many of the functions in the hands of the individual household. The old commune system lent itself to central planning, large-scale production and unified distribution, precisely those aspects of rural policy that the reforms set out to undermine. Initial post-Mao policy sought to encourage growth in agricultural production by substantially raising procurement prices and by modernizing agriculture through brigade and team financing. At the same time, policy was relaxed to let different regions make use of the ‘law of comparative advantage’. Also, private plots of land and sideline production played an important role in agricultural growth. To allow the peasants to sell their products – for example, their above-quota grain – private markets were again tolerated. This policy was firmly based on the collective and represented nothing radically new. In December 1978, it was decided that the procurement price of quota grain would be increased by an average of 20 per cent, abovequota grain by 50 per cent and cotton by 30 per cent. The impact was immediate; this single act did more than anything else to lift large numbers of peasants out of poverty. However, the result of this policy was to increase massively state expenditures on agriculture. The Ministry of Finance and the provinces began to spend well over 1 billion yuan per year subsidizing grain supplies in urban areas, helping to account for the state budget deficits of 1980 and 1981. In addition, the policy of agricultural modernization did not bear fruit. A new strategy had to be found that would raise agricultural incomes, but permit modernization without significantly increasing state investment. The most important subsequent reform was the introduction of the household responsibility system. Although this was introduced in

Economic Policy 269 December 1978, initially it did not entail any significant undermining of the collective. However, by 1980 the more radical form, contracting various activities to the household, was becoming commonplace, despite official denials. The household was clearly becoming the key economic unit in the countryside. This household contracting system makes the rural household the nucleus of agricultural production, working on a clearly stipulated piece of land for a specific period of time. The contract includes all raw materials and means of production except land-use rights and access rights to irrigation facilities, the latter rights being made available by the collective. Later legislation confirmed this situation and extended the cropping contracts to 15 years, and then to 30 years in 1993, encouraged the concentration of land with the most productive households, permitted capital flows across regions for investment and reduced the funds that the collective could demand from the peasantry. The Hu–Wen leadership tried to crack down on illegal land transfers and fees, while extending basic welfare support to the countryside. In 2007, the Ministry of Land Resources stated that in some cities in central and western China almost 80 per cent of new land projects were illegal. In 2006, Wen Jiabao announced that agricultural taxes would be abolished entirely. However, the money has to come from somewhere and many local governments have been engaged in converting agricultural land to commercial development land and making huge windfall profits. In October 2010, the State Council authorized the Ministry of Land Resources to supervise and overhaul land use by local governments. A national office, with nine regional bureaus, was to be set up to oversee land use. This followed the issuance in September of an urgent notice on controlling land supply. It noted that local leaders would be penalized if they failed to stop or investigate illegal land sales and officials would be prosecuted if they sold land below its minimum price. These land transactions were also seen as being behind the huge surge in fixed asset investments: 30 per cent in the first half of 2005. It was clear that some kind of policy was needed, but divisions existed over just how much authority farmers should be given over the land they farmed. Privatization and sales could not be mentioned as this would undermine the notion of land being held collectively in the countryside. Thus, in October 2008 the CCP issued rather unclear new regulations that allowed farmers to lease their contracted farmland or to transfer their land-use rights. This was intended to make farming more efficient by increasing the scale and allowing more agribusiness, and it was seen as a crucial part of policy attempts to double farmers’ incomes by 2020. The development of more effective agribusiness is

270 Governance and Politics of China seen as crucial to guaranteeing China’s food supply, with more efficient enterprises replacing the fractured household farms. Markets for land leases and land transfers were set up to allow exchanges and subcontracting. However, the document was careful not to imply that land could be bought and sold. The notion of collective ownership of land was maintained and farmers were only allowed to ‘sublet, lease, swap and transfer’ land rights. In addition, it was stated that such actions should not change the land use, thus trying to restrict the large amounts of rural land that were converted to urban uses each year (Caijing, 20 October 2008). In theory, the regulations were good, but they were poorly implemented and the new leadership under Xi Jinping and Li Keqiang have given new impetus to resolving the challenge of land rights and land transfers (see Chapter 8). In January 1985, in a further radical move, the state announced its intention to abolish its monopoly over purchasing and marketing of major farm products. Instead of the state assigning fixed quotas for farm products that were to be purchased from farmers, a system of contract purchasing was introduced. All products not purchased in this way could be disposed of on the market. Clearly, the aim of this reform was to improve the distribution of commodities and further reward efficient producers. It was hoped that this would encourage wealthier peasants to reinvest capital and labour in the land. Essentially, the contract procurement system was intended to establish a market relationship between the state and the peasantry and between the urban and rural areas. This new measure was a massive shock to the agricultural system and challenged the old economic assumptions on which it had been built. It led to the breakdown of the unequal terms of trade between the rural and urban areas under which an estimated 600–800 billion yuan had been extracted from the peasantry over a 30-year period. New channels opened for the circulation and marketing of surplus grain and other agricultural products. However, the state could not increase the price of grain for urban dwellers and thus returns on grain production began to decline and in some instances money was even lost on grain production. For example, between 1983 and 1985, the average price paid for chemical fertilizers rose by 43 per cent and that for pesticides rose by 83 per cent, reducing net income gained from 1 hectare of grain by about 30–40 per cent. Compared to cash crops, grain production was no longer a lucrative activity. The initial agricultural reforms had thus provided a major boost to the rural sector, but by 1985 they were beginning to falter. Grain production increased from 305 million tons in 1978 to 407 million tons in 1984, only to fall back to 379 million tons the following year, the second largest fall in grain production in PRC history. Further growth

Economic Policy 271 in rural incomes began to slow, from 17.6 per cent per annum during 1978–84 to only 5.5 per cent by 1987. Finally, the income gap between the rural and urban areas that had been declining began to widen again, and by 1986 it stood at a ratio of 2.33:1, worse than the gap at the beginning of the reforms. It was not until 2003–04 that the leadership made another concerted attempt to deal with the rural problems. In the meantime, especially after the demonstrations of 1989, policy focused on rapid economic growth in the urban and coastal areas in order to buy support from the urban population. From 1985 onwards, policy vacillated primarily over what to do about grain production and procurement. This was an essentially statist perspective as the government was concerned with ensuring an adequate food supply to the urban areas at a reasonable cost. It did little to boost rural incomes, but the system of state control did allow for state grain agencies to make tidy profits. Until the late 1990s, rural policy remained in a Never-Never Land that was governed neither by the market nor by the central plan. Also affecting rural production was the state’s decision to cut its investment in the agricultural sector from 10 per cent of the capital construction budget during the 1976–80 period to 3.9 per cent during the 1986–90 period. In part, this cut was to make up for the massive subsidies that were necessary to cover the increased price of grain. The expectation was that the collectives and/ or individuals would take up the investment, thus offsetting the reduction in state funds. The effective collapse of the collectives as powerful economic entities sealed off one of the alternative sources of funds. The newly emerged townships used their funds to invest in the TVEs, a point returned to below. Initially, individual households were wary of reinvesting profits because of their uncertainties about how long it would be before policy would change yet again. When they did begin to invest, it was not in grain production but in more lucrative cash crops or sideline production. These problems led the state to abandon the contract procurement system before the reform had been properly carried out. Under the system there was dual pricing, with the state buying the grain needed for urban consumption and state industry at artificially low prices, while allowing surplus grain to be sold at freemarket prices. Eventually, the difference between the two price systems was to be eliminated. The grain procurement bureaus were kept afloat by Agricultural Development Bank loans that had to be repaid only once the grain was sold. This produced a large empire that profited from the old system. It controlled 80 per cent of the grain wholesale trade and 50 per cent of the retail trade through 52,000 urban retail enterprises. There were over 1 million employees. They were often able to arm-twist the state into lending more money as maintaining grain self-sufficiency was a

272 Governance and Politics of China key priority. Most of the subsidies were never passed on to the farmers. In Anhui Province, the central government provided procurement bureaus with about 4 billion yuan each year, but only about 400 million yuan was passed on to the farmers. The agencies were also a source of corruption, buying grain at low state prices and then selling on the market once market prices moved higher. Premier Wen signalled an end to this system and, in June 2003, the government announced that it would pay subsidies directly to farmers. The farmers were to decide what to plant based on market circumstances and would receive government subsidies if the market slumped. The state grain bureaus had to compete with private grain merchants without preferential loans. These kinds of problems and the unrest that has come about from stagnating incomes and rising local levies moved rural policy back to centre stage, and under Premier Wen it became a key priority. The land concentration, the loss of work in grain-farming and the recognition of the link between poverty and the exclusive engagement in agricultural, especially grain, production resulted in many people moving off the land. In fact, this has been promoted by the government as it tolerated increased migration, sought to boost rural enterprise development and promote urbanization. In 2006, in the run-up to the NPC session, the leadership began to talk of the need to build a ‘new socialist countryside’, and this was pulled together at the meeting. The seeds of the new policy were planted in 1998 with discussions of the ‘three-dimensional rural problem’ (sannong wenti – agriculture, village and farmer). From 2004, the leadership revived the 1980s tradition of the CC and the State Council whereby Document Number One of the year would address rural affairs: for example, 2004, raising farmer’s incomes; 2006, building a new socialist countryside; 2008, consolidating the foundations of agriculture; 2010, boosting job growth and rural consumption; 2014, adopting modern farming techniques. The crux of the policy was to maintain farmers’ income through agricultural productivity gains and improvements in village governance. Governments at all levels were instructed to make sure that they took rural issues as a top priority. The policies involved elimination of restrictions on labour migration and eradication of discrimination against migrants, and increased government spending on education, health and infrastructure. In addition, the aforementioned protection of land rights was pursued and grain and livestock subsidies and price supports were regularized to boost rural incomes. Last but not least, the agricultural tax was abolished. This followed earlier experimentation in Anhui Province to consolidate all fees into taxes. Heilongjiang and Jilin had abolished the tax in 2004 and, by early 2005, 22 provinces had abolished it. Overall, the share of the agricultural tax in the fiscal budget was small (1.7 per cent), but

Economic Policy 273 in some provinces it played an important role. In Anhui, it amounted to 12.1 per cent, and in Henan it amounted to 11.3 per cent of the fiscal budget. For these provinces and those where the agricultural tax accounted for over 5 per cent of the fiscal budget, the centre agreed to provide support. As noted in Chapter 8, the ‘Decision’ (November 2013) and the new urbanization plan (March 2014) have attempted to clarify land rights and harmonize the classification of urban and rural land for development. Document no.1 for 2014 followed up with suggestions for accelerating agricultural modernization. In particular, it seeks to promote food security. The Document also proposes ‘deepening’ rural land reform and allowing innovative rural financial services. Like the ‘Decision’, it states that the market will play a greater role. TVEs have been hailed as one of the wonders of the reforms by Chinese and foreigners alike. By the mid-1980s as farmer incomes were stagnating, one of the best ways to increase them was to stimulate nongrain and non-agricultural production. In 1978 TVEs employed about 28 million people, but between 1984 and 1997 they created nearly 100 million non-farm jobs. After a shake-down in the late 1990s, employment began to rise again and stood at 158.9 million in 2011. The development of these enterprises, as we have seen in Chapter 6, also meshed with the political requirements of local governments, who saw them as a regular source of revenue in a resource-constrained environment. The TVEs built on one of the enduring legacies of the GLF, the commune and brigade-run industries that had been set up to serve the rural areas. However, the latter were not little budding sprouts of entrepreneurship and were restricted to the production of the ‘five products’ of iron and steel, cement, chemical fertilizer, hydroelectric power and farm tools. Their role was limited, and in 1978 the rural areas accounted for only 9 per cent of industrial output, while 90 per cent of the rural labour force was engaged in agriculture. The reforms changed this and, although initial policy measures were intended to use rural industry to divert more resources to the countryside and strengthen the collective, policy changes had a dramatic effect on its role. The results were unexpected, as Deng Xiaoping noted: ‘what took us by complete surprise was the development of TVEs ... All sorts of small enterprises boomed in the countryside, as if a strong army appeared suddenly from nowhere. This is not the achievement of the central government ... This was not something I had thought about. Nor had the other comrades. This surprised us’ (Renmin ribao, 13 June 1987). Of special importance was the decision to relax the state purchasing monopoly on agricultural goods, making them available to local rural industry, resulting in it becoming the most vibrant part of the economy by soaking up excess rural labour, processing agricultural products and

274 Governance and Politics of China diversifying production into a range of consumer goods and products for export. The growth rate was explosive, with rural industrial output growing at 21 per cent per annum from 1978 through the early 1990s. The presence of a ready labour force, made available by the introduction of the household responsibility system, was crucial to the expansion of the TVEs. Moreover, it was a relatively cheap labour force compared to what industry had to pay in the urban areas. At the same time, costs were at or near market prices for water, electricity and raw materials, unlike the prices for the SOEs that received their inputs at heavily subsidized rates. While taxes on TVEs were low (indeed, they were granted an initial three-year tax break), budget constraints were much harder than they were in the SOE sector. This meant that there was a greater incentive to produce things for the market that would produce a good rate of return on investment. Finally, these TVEs were extremely flexible not only in terms of what they could produce but also in terms of their organizational structure (Naughton, 1995, pp. 156–7). They ranged from being run by local governments to being more genuinely independent in nature. However, as Wong (1988, pp. 3–30) has shown, through the 1980s most of the supposedly collective TVEs in practice operated as private enterprises. The use of the term ‘collective’ became a flag of ideological convenience to what was becoming the wholesale privatization of rural enterprises. Huang (2008) has challenged the conventional view that TVEs were collectively run or were covered with a ‘collective hat’ and that it was the economic pressures of the late 1990s that resulted in their privatization. Huang notes that the Chinese definition of a TVE is according to location; however, if one looks at ownership, even in 1985, of the 12 million TVEs, 10 million were actually private and every single net entrant between the mid-1980s and the mid-1990s was a private TVE. TVEs were most vibrant in the poorest and most agricultural provinces of China (ibid., pp. xiv, 31–2). Growth of these enterprises was also strong in areas such as southern Jiangsu (Sunan), around peri-urban Shanghai, and in the Pearl River Delta (Naughton, 2007, pp. 282–4). In fact, enterprises in southern Jiangsu were called the Sunan model of development based on the profusion of small-scale rural industry. In these areas, their growth was closely linked to the proximity of urban SOEs. With the shift to the taxation system for SOEs from the previous profit-transfer system, they had money to invest and many began to outsource their production to the rural enterprises where land and labour were considerably cheaper. However, in the later part of the 1990s dramatic changes took place in the TVE sector. First, the retrenchment of the economy caused many TVEs to go under; some estimates have suggested that 30 per cent

Economic Policy 275 went bankrupt. Second, they became more capital-intensive, and as a result little new employment was created. Third, their limited and dispersed distribution networks and poor management became more of a liability. Fourth, the tendency noted by Wong (1988) that the TVEs were hiding effective privatization became more apparent. If Huang is correct about the 1980s, private enterprise has played an even more important role in China’s development than is generally recognized, and certainly this was clearly the case by the turn of the century.

Chapter 10

Social Policy The impact of reforms on social policy has been no less dramatic than on economic policy. Reforms have produced new inequalities, a dramatic rise in the disparity between welfare provision in rural and urban China and an abandonment of the compact for cradle-to-grave social welfare for the privileged industrial working class. While the reforms may have raised the standard of living for the vast majority and shifted China along the road to a market economy, the country’s policy-makers have encountered considerable problems devising policies to bridge the social transition. State and collective institutions in rural and urban China that previously carried much of the welfare burden have been dismantled and policy-makers have struggled to devise new policies and institutions to carry the burden. Service provision was shifted progressively from government, work places or the collectives in rural China to local governments, families and clans, and even to market-based institutions. Despite improved welfare indicators for the population as a whole, vulnerabilities have increased for certain groups such as the elderly who live alone or migrant workers. Initially, policy-makers did not think through the consequences of the decentralization of service provision combined with greater reliance on the market and the incentives for local officials that rewarded economic growth and higher investment levels. The effective dismantling of the rural collective structures meant that social support was weakened or evaporated for many farmers. China’s integration into the global production chain rendered the institutional structures of state-owned enterprises uneconomic. This altered radically the workplace service provision for the urban elite while the arrival of millions of migrant workers set new challenges for how to serve this rapidly expanding community. It is not surprising that analysis of China’s welfare provision in the 1990s tended to be negative, dwelling on the collapse of the institutional structures of support and the inequalities of access that arose during the reform period. However, since the turn of the century, the leadership has been very active in putting new systems into place and extending benefits from the privileged urban elite to those in the countryside and the migrant workers. For a developing country the ambition is great and ‘social protection programs’ have been introduced at ‘a speed that is unprecedented internationally’ (World Bank and DRC, 2013, p. 336). These have included 276

Social Policy 277 pension and health insurance programmes for urban and rural dwellers, unemployment, illness, workplace injury, maternity insurance for urban formal-sector workers, and a national minimum living support scheme. However, there remain considerable challenges: even with respect to universal coverage, levels of support vary substantially and there is considerable local variation in how national guidelines are interpreted. Thus, while welfare provision has remained selective, it has become more inclusive, and for a developing country the attempts to expand coverage are ambitious. The ultimate direction of the reform remains unclear as to whether the leadership may promote policies to develop a ‘modern’ welfare state, similar to that of South Korea, or whether it will remain a system that is still driven by the demands of economic development. It is impossible to cover every aspect and thus we focus on the difficult policy area of family planning before providing a general overview of social policy development. We then look at an example of a major social investment programme (rural healthcare) and one for social consumption (pension policy with a focus on urban employees) before looking at work in social assistance (poverty alleviation).

Family planning: problems of policy coordination and policy evasion The lack of policy coordination across different line ministries and the adoption of conflicting policies are familiar problems. For example, the quotas that each local bureau of a ministry sets for local farmers are decided independently of one another, with the result that the individual household becomes the point for reconciliation of conflicting demands to produce grain, plant trees and raise livestock. Here we look at the conflicting policies of the promotion of the ‘family planning programme’ and the household responsibility system as well as the unintended policy challenges that it has created. The introduction of the household responsibility system set up incentives for households to increase family size rather than comply with the tightening of family-planning policy. Two primary reasons accounted for this. First, when land was initially parcelled out, it was allocated on the basis of household size and thus there was a benefit in having a larger family. Demographics played a major part in who got rich first in a village, with those families having a larger workingage labour force benefitting more than those families with both very young children and old grandparents. Second, the desire to increase family size was derived from the dismantling of the collective welfare system in the countryside. The policy message appeared to be that if

278 Governance and Politics of China you wanted to get rich and be looked after in your old age you needed more children. This was clearly true, but it was not what policymakers had intended and they were concerned about the baby boom that Mao had set in motion in the late 1950s. They feared that the rapidly increasing population would undermine the economic gains that they had hoped would come from the reforms. In the 1970s, policy encouraged fewer and later births but this was tightened in 1979 under what became known as the ‘one-child family policy’, although for rural dwellers the policy was more relaxed (see Table 10.1). It has been one of the most unpopular and contested policies in China, especially in the countryside. In the urban areas not only is political control easier but there are also stronger economic incentives for smaller families. While many in China recognize the need to control the population and may even feel that the policy is a correct one, many also have specific reasons about why it should not apply to them. In our surveys about what citizens think of government services, given the political sensibilities, they ranked family planning as the service with which they were most satisfied. However, when asked about the importance of different government services, respondents rated family planning as the least important. The state set up an elaborate administrative framework throughout the system to monitor programme implementation. At its peak before the 2013 merger with the Ministry of Health, there were around 400,000 officials at the township level and 1 million in the villages. The State Family Planning Commission (SFPC) set the national birth rate and the provincial quotas; it was then the responsibility of local family-planning officials to establish the birth quotas for their administrative jurisdiction. The family-planning burden falls on women and

Table 10.1 Family Planning Policy in the 1990s Policy regulation

Group covered

One-child policy with few exceptions Two children if first-born is female Two children within a spacing of four years Two or three children permissible

All urban residents and rural couples in Jiangsu and Sichuan Most rural families Most rural families

No restrictions Source: Based on Peng (2002).

Rural ethnic minorities residing in minority autonomous region Tibetan rural population

Social Policy 279 little attempt is made to involve men in the process. In each work-unit or administrative jurisdiction, a list is kept of whose turn it is to conceive, and lists are often also kept of the menstrual cycles of women in order to facilitate control. The creation of the SFPC had a major unexpected impact on maternal and child healthcare with a significant drop in funding (Saich and Kaufmann, 2005). Previously all reproductive health services, including family planning, were the responsibility of the Ministry of Health and its network of health bureaus and institutes throughout the administrative ladder. Since family planning is a state-subsidized programme, resources for service provision were guaranteed from higher levels. The withdrawal of most family planning funds from the broader health system removed a guaranteed funding stream that helped subsidize related services such as gynaecological care and follow-up for contraceptive side-effects and problems. It resulted in a fragmented healthcare system for women. There was an increase in funding for family planning but a drop in funding for maternal and child healthcare (MCH) provision. By 1990, budgetary expenditure for family planning had increased to 1,345 million yuan, over five times the amount expended on MCH (Zuo, 1997, p. 90). In their survey, Saich and Kaufman report from 1994–95 on the poor rural counties in Yunnan Province. They found that in one (Dazhuang), family planning expenditures per married woman of reproductive age increased from 13.74 to 32.28 yuan, by contrast MCH expenditure dropped from 1.76 to 1.05 yuan. The fact that family planning was given the highest priority as a task for local officials meant that implementation often became coercive, even if this was not the intent of the central policy-makers. If local officials can meet all other quota targets, but if that for family planning is missed, then promotion is not possible. This and the general pressures generated by a quota-driven system have led to the frequently reported abuses of forced abortions and forced sterilization of women. However, even with such attention there has been policy evasion and ultimately policy amendment. In fact, the policy was not applied to minority households and in most of the countryside the de facto policy was for two children or even three. With increasing financial opportunities, those families no longer dependent on the state for grain and other basic products could afford to raise more children. In addition, they could afford to pay the fines that would be imposed on them. There have also been many cases of local officials who prefer to pay the fine than to abort the child. Other strategies have been used to evade this as well, such as not registering births of female children or parking children with friends and relatives when officials come to inspect, or the repugnant use of female infanticide.

280 Governance and Politics of China These demographic choices will weigh heavily on China’s future social policy. The family planning programme has led to two major long-term consequences: the ageing of the population and a badly skewed male–female ratio in the population. The ageing burden will be felt on the economy, and society will suffer the negative effects of higher dependency ratios and greater expenditures for elderly care. Overall, China will age 13.8 years during the first half of this century, as opposed to the US, which will age 3.6 years (Hewitt, 2004, p. 103). This ageing during the process of industrialization and urbanization will keep up the pressure to maintain rapid and sustainable growth. According to UN statistics, China’s population will peak in about 2030 at 1.43 billion before dropping to 1.33 billion by 2050, but it will be seriously skewed in terms of dependency ratios. The family planning programme has meant that the birth rate has fallen to 1.4, well below the replenishment rate of 2.1. Thus, at the end of the 20th century, China officially entered the ageing stage in terms of internationally recognized criteria, with 10 per cent of its population over 60 years of age. This will pose serious policy challenges in terms of dependency ratios and pension obligations that the state will have to meet. The structure of the population will be based on what Chinese researchers refer to as a ‘4-2-1 family’, with four grandparents, two parents and one child. The burden of support that this is placing on current children has already caused the government to shift policy, first by allowing those who are married, and when both husband and wife are from single-child families, to have a second child; and, then, in 2013 to allow urban couples to have a second child, affecting anywhere between 15 and 30 million women. The Population Family Law (2001) had made it clear that such adjustments would not be allowed! The problem for policy-makers who wish to reform the system is that there is significant regional variation, making the preference for a ‘one-size-fits all’ solution less practical. Hussain has pointed out that an exclusive focus on the elderly dependency ratio, which is the focus of the debate around pension obligations, can be misleading. It ignores the large economic gains that come from the declining child dependency ratios, which will accrue before the costs of ageing really begin to be felt. The regional variations are considerable. Thus, Beijing’s total dependency ratio is well below the national average, whereas that in Guizhou is double that in Beijing. Guizhou has the highest child dependency ratio, four times that in Shanghai. Conversely, Shanghai has the highest elderly dependency ratio, and Tibet and Ningxia have the lowest. The north-west and the north-east provinces tend to have the lowest elderly dependency ratios, whereas poorer provinces in the northwest and south-west, such as Guizhou, tend to have the highest child dependency ratios. Furthermore, the nature of support for these two

Social Policy 281 groups differs (Hussain, 2002). Much of the financial cost and care for children falls on the household, for example, with the state picking up a large part of the external education costs. The household carries the main burden for the elderly, especially in rural China, with the workplace and the local state carrying the pension burden for many. Certain consequences arise from these demographics. First, China will have a significant pension obligation to deal with amid a declining workforce to cover the costs. This will be economically intolerable and thus policy shifts will have to be made, such as increasing the retirement age significantly and cutting the amount of benefits available. Second, ageing, and especially the increase in the oldest of the old, will lead to a significant increase in medical costs. China will have to hope that the economy continues to grow rapidly enough to generate the revenue to cover these costs. Third, with the lower fertility rate there will be a lower domestic savings rate, though there will also be higher returns to labour because of its relative scarcity and lower returns to capital. In addition to ageing, another adverse consequence of the family planning policy is the distortion in male–female ratios. Essentially, there are three ways to meet the strong demand for male offspring: have more births (and pay a fine); engage in female infanticide and generally discriminate against a female child; or carry out induced abortions following prenatal sex identification. In some counties the reported differential between female and male children is alarmingly large. However, it is not at all clear how reliable the statistics are because of under-reporting. The current Chinese census (2010) shows that the sex ratio of males to females is 105.2:100, down from 106.7:100 in 2000. However, at birth the ratio is 119:100. One group of researchers has suggested that there could be as many as 100 million Chinese bachelors by the year 2020 (SCMP, 25 August 2003, Internet edition). Such skewed ratios will have significant consequences for family structures and also for the capacity of families to take care of the elderly, perhaps requiring the state or civil society organizations to take on greater responsibilities. Other consequences are the increase in dowry price in the rural areas and increased illegal trade in women and increased prostitution. The thought of large numbers of males who cannot find a bride drifting into cities looking for work is a potential source for concern and the increase in clientele for commercial sex workers will increase the potential for the spread of sexually transmitted diseases. Those pushing for reform have pointed out that other countries in Asia and elsewhere have also experienced a decline in fertility during the process of industrialization and modernization without resorting to the quota-driven and often coercive policy adopted by China. Further integration with other policy areas is necessary for the problems to be

282 Governance and Politics of China overcome, such as ensuring that pension schemes will alleviate reliance on the family as the primary source of support. In addition to the important reform allowing urban couples to have a second child, the Twelfth NPC (2013) made a significant administrative reform by merging the SFPC with the Ministry of Health. This could allow for better integration of family planning with MCH needs and might allow for a better integrated rural development policy. Furthermore, the merger might facilitate a shift from a top-down, coercive work method for family planning officials and facilitate experiments with a more participatory and educational approach, such as that being tested in some areas.

Social policy and the transition in China Policy neglect and a naive faith in the market contributed to the problems created by the economic transition. Initially, the leadership placed its faith in rapid growth raising all boats and lifting citizens out of poverty and the market providing the necessary services in sufficient quantities. In addition, the weak institutions of civil society and the pressures that were exerted on traditional support systems (temples, clans, local place associations) meant that levels of welfare coverage began to drop and access to many services became more dependent on income than ever before. After the mid-1980s, urban–rural inequalities increased and fiscal decentralization contributed further to the inequalities of access. Local governments with access to greater resources were able to mitigate the decline in pre-reform service delivery mechanisms. The system that had been based on the workplace as the principal provider broke down and the Soviet-style approach that sought to pre-empt need by such provisions fell apart. In certain respects, by the late 1990s China’s welfare system resembled more those in other parts of East Asia where the state has been reluctant to take on too great a responsibility for fear of creating a culture of dependency and diverting resources from investment to social development. This began to change during the 1990s as the massive lay-offs led to a rethinking of social welfare provision. It took Chinese policy-makers some time to understand these new challenges and to build or rebuild institutions to deal with service delivery. New categories of citizens had different demands on the state and reforms changed notions of entitlement. Key questions now focus on: To whom and at what levels does the state have an obligation to provide welfare? In addition to the slow realization that the urban welfare system was fraying and that the rural system had collapsed, other factors contributed to the push to provide better access to welfare services. The expansion of new and

Social Policy 283 larger social security programmes has been a common feature of East Asian development, though the expansion has had different causes (see Aspalter, 2006). In some cases, increased competition between political parties and the increase in the number of eligible voters has caused politicians to promise to extend access. Sometimes large-scale social movements have put pressure on governments to expand services. In China, the impetus for policy change has come from recognition of policy failure and the residual influence of a socialist ideology that renders problematic state welfare provision for some while denying it to others. A political party that claims to represent all members of society would find this difficult to justify. This has been supported by pressure from members of the ‘new left’ in China who have pushed for greater state re-engagement in the provision of public goods, especially healthcare. Finally, the leadership has been worried about the possible instability that might arise from the rising inequalities in general and with respect to service provision in particular. Social policy is an indispensable element of rule. Ever since Bismarck set up the first welfare structures and programmes, social policy has been recognized as a key instrument of state building, political rule, social control, maintenance of social order, efficiency and regime legitimacy. Policy has moved quickly over the last decade but the long-term trajectory remains unclear. Various insurance schemes provide the core of the system, supported by expanded social assistance programmes. As we will discuss below, coverage has been impressive but the level of support is minimal in some cases, such as rural healthcare. Initial policy change could be interpreted as an authoritarian regime shoring up support for its core constituencies during a time of rapid change. Throughout the 1990s, initiatives strengthened or reaffirmed benefits for those groups that have provided the basis of regime support: bureaucrats, and those working in the formal sector of the economy (the traditional working class). Consequently, the central leadership began to pull together local experiments into a comprehensive framework for the privileged groups in urban China. Such experiments began in the early to mid-1990s and were codified by the end of the century. Thus, healthcare reforms were initiated in 1994 and were drafted into a new comprehensive scheme that was operationalized by the end of 1999; a new pension system for enterprise workers was drawn together in 1997; and a scheme for minimum subsistence relief was established at the end of 1999, based on experiments that began in Shanghai in 1993. These measures reflect the pro-urban, coastal and elitist thrust of policy throughout the 1990s and involved transferring responsibility for social welfare from the workplace to local governments. However, these initial reforms left most people in rural China and those working in the informal sector to their own devices.

284 Governance and Politics of China The more populist policies that were launched in 2002–03 sought to broaden state support to benefit those who had not yet been so well served by reform and to provide basic support to ward off social instability. The leadership of General Secretary Hu Jintao and Premier Wen Jiabao (2002–13) has often been portrayed as suffering from stagnation and loss of direction. This may be true in terms of bolder economic reform but it has not been the case with respect to welfare policy. Hu and Wen both recognized that some of the problems of social development would not be solved by growth alone. This realization led to the articulation of a more coherent policy framework based on the identification of vulnerable groups who were then provided with targeted support. Policy began to shift from providing short-term safety nets to developing a more integrated, comprehensive system. Specifically, policy offered greater guarantees to China’s rural population and to the integration of the growing numbers of migrants into welfare structures away from their homes. Thus the dominant ideology espoused by the central leadership might suggest movement towards a more inclusive system based on a notion of citizenship. This would entail the phasing out of differential benefits for people based on their place of birth to be replaced by a more equal system based on the notion of citizenship. The references to socialism, albeit with Chinese characteristics, and the stress by Hu and Wen on building a ‘harmonious society’ (hexie shehui) and ‘putting people first’ (yiren weiben), seemed to suggest a more inclusive system. After taking power, they sought to extend benefits to excluded groups such as migrants and tried to reduce the costs of basic services for the rural population. Thus, since 2002 experimentation with rural pensions was stepped up; since 2003 there has been a major push to extend coverage of rural cooperative medical insurance; in 2006 agricultural taxes were abolished; in 2007 rural residents no longer were expected to pay miscellaneous school fees and free compulsory education was introduced for rural children; and, also in 2007, the leadership pledged to extend minimum living support payments across rural areas. A number of measures were introduced from 2002–03 to improve the lot of migrant workers, who, in theory, had been brought into the pension schemes in 1999. In June 2002, it was announced that migrant workers should be able to take out industrial injury insurance; in November 2002, migrants were accorded the important status of being a part of the working class; in January 2003, the State Council confirmed that migrants should be accorded equal treatment to that of urban residents when applying for work and urban education departments had to recognize schools for migrant children and provide them with equal education access; and in 2006 the State Council set up a joint committee to coordinate rural migration affairs across the various

Social Policy 285 ministries. In June 2010, the State Council announced that the central government would gradually introduce a residence permit system nationwide that would replace the household registration (hukou) system. The residence permits would enable migrants to enjoy the same social security benefits as urban residents and allow them eventually to apply for residency in the cities. The reform was implemented on a trial basis in ten cities. The importance of resolving this challenge lies in the fact that around 26 per cent of the urban population is estimated to be migrants, and in Shanghai it is about 30 per cent (Interview with Professor Zuo Xuejin, Shanghai, November 2013). The Hu–Wen policy agenda was pulled together at the Sixth Plenum of the Sixteenth CC (October 2006). The plenum, remarkable for its focus on social development, promoted the slogan of ‘building a harmonious society’. This was reflected in the passing of the national Social Insurance Law by the NPC in October 2010 (effective 1 July 2011). The law further promoted the objective to reduce, and perhaps eventually eliminate, distinctions between administrative units and the rural–urban divide. It was the first law that combined both urban and rural residents working in all enterprises with five mandatory types of insurance: pensions, basic medical insurance, unemployment insurance (these three included contributions from both the employer and the employee), work-related injury, and maternity insurance (with contributions from the employer). The law also sought to free up labour mobility by allowing individuals to transfer the first three types of insurance should they relocate elsewhere for work. Especially important was the provision that medical insurance could be paid in one city, though the service could be claimed in another. Pensions were initially to be managed at the provincial level with the intention of later moving to a nationwide scheme. The implementation of rural pensions could be merged with urban pensions in accordance with local conditions. This was part of a general implementation problem as the law left the specific details to be worked out by the local authorities.

Key features of China’s welfare system As China has moved away from a socialist planned economy and the provision of goods and services through the state or its surrogates (urban workplaces and rural communes), a plurality of organizational forms has emerged for service provision, often by default rather than by design. Under the slogan of the ‘socialization’ (shehuihua) of services, Chinese policy has moved further than many OECD countries along the road of privatization of welfare services. Yet, what kind of a service regime is emerging in China? Will the Chinese polity evolve

286 Governance and Politics of China through a phase of a ‘developmental welfare state’ to a more fully developed ‘welfare state’ as, for example, in South Korea? Or will the polity remain more unswervingly selective in terms of welfare provision as in Malaysia and Singapore? The answer is still unclear but the system shares familiar traits with other developing countries where it has evolved according to economic necessity. There is some truth to this, leaving aside for the moment whether there is an Asian model of welfare provision. While ideology does set constraints to policy, there is no clear vision of a distinctive ‘Chinese socialist welfare state’. Certainly, funded social insurance schemes have become the core, although the level of coverage and implementation remain problematic. Even the Social Insurance Law proposes ‘wide’ rather than universal coverage and it deals with access leaving the challenge of provision up to local governments. China shares two basic points of departure with all other countries in terms of how the welfare system is structured. First, the ideology and value system provide the basis for decisions about who gets what level of welfare support, and for how long. Second, the structure of the economy and the level of economic development affect the kind of welfare choices that can be made. Welfare is a crucial part of the institutional framework of the economy and attempts are being made to coordinate the two to meet the regime’s objectives. Under Mao, the welfare system was seen as subservient to the demands of the economy and to the pursuit of socialism. In practice, this meant that social policy was closely tied to a development strategy that kept the rural and the urban separate, and privileged provision of the urban and the industrial sectors over the rural and the agricultural sectors. At the same time, the organization of the collective in the countryside and the inconsequentiality of cost meant that, for its developmental level, rural Chinese enjoyed good preventive healthcare and basic education systems. While they were subsequently derided, the paramedics of the Cultural Revolution, known as ‘barefoot doctors’, do seem to have provided decent vaccination programmes and preventive care for many who would not have received them in other developing countries. This somewhat redressed the urban bias of the system. Certain key features have shaped social policy. First, during both the Maoist years and the reform period, welfare policy has been subordinate to the demands of economic development, with policy structured to encourage greater participation in the workforce and to reduce the burdens of the vulnerable populations on the state. The government has been unwilling to spend significant resources on what it sees as unproductive investments. This was reinforced by the adoption of a quasi-Stalinist approach to industrial development that did not see key public goods as comprising part of the productive forces (Lu, 1999).

Social Policy 287 The underlying premise that the best way to alleviate poverty and improve welfare is to boost production has been accepted by the postMao leaderships. They have eschewed policies of significant income redistribution to the poor, and welfare will be expanded only as production increases. The obsession to boost production figures has never been seriously challenged by a need to divert resources away from immediate investment in production. However, before the reforms began, ideology did act as a constraint on too great an increase in inegalitarian distributional policies. This made the shift to a more inegalitarian wage policy, and to an openly inegalitarian development strategy, more difficult to accept. Hu Jintao and Wen Jiabao were able to use this sentiment to push for more ‘inclusive growth’, a view that seems to be shared by Xi Jinping and Li Keqiang. The reforms eroded the full, or near-full, employment policy operated by the CCP, which was an important element of the productionoriented development strategy. Until the late 1990s, social policy was designed to encourage as much participation as possible in the labour force by providing support that would allow women with children to work. Second, unemployment relief was difficult to come by, thus forcing into the labour market those who could work. Third, as many people as possible were encouraged to work. Before the reforms, urban China had a group of factories where those who were physically handicapped could work. This increased production and also provided them with a wage, making them useful to the family and integrating them into a social network. With the financial bottom line now paramount, many of these factories have closed down, with negative consequences for many of the handicapped. With no effective welfare system to support them, they are now seen as a burden on their families and they constitute one group of the new urban poor. Like its neighbours in East Asia, China has spent relatively little on the provision of public goods and services, and out-of-pocket expenses for healthcare and education rose rapidly under the reforms until the initiatives by Hu and Wen modified this trend (see Table 10.2). In 2000, personal expenditures accounted for 59 per cent of total health expenditures, but in 2011 it dropped to 34.9 per cent, showing the increasing level of government expenditures for healthcare. The impact of the policies under Hu and Wen may also be seen in comparative data. Not only is the percentage of private expenditure on healthcare much lower than that in India, it is approximately the same as that in South Korea, but still much more than that in Thailand. Per capita government spending expressed in international dollars at purchasing power parity rose from US$45 in 2002 to US$242 in 2011, placing China well above India and Indonesia, and almost on a par with Thailand (see Table 10.3).

288 Governance and Politics of China Table 10.2 Structure of Health Expenditures, 1980–2011

Government expenditures as % of THE Social expenditures as % of THE Personal expenditures as % of THE THE as % of GDP Per capita health expenditures Urban (yuan) Rural (yuan) Ratio of urban to rural expenditures






















— — —





158.8 38.8 4.09

401.3 112.9 3.54

813.7 214.7 3.79

2695.1 871.6 3.09

Source: Table compiled from data at National Health and Family Planning Commission ( Note: THE: total health expenditure.

China’s previous under-investment by the government was accompanied by an emphasis on self-reliance and resolving problems in situ rather than looking to the higher levels of government for relief. Although this has often been written off as a strategy for production, it was also a strategy for consumption. This resulted in local production for local use, leading to much duplication and also to large inequalities in terms of what was available to people in different jurisdictions. Thus, whereas intra-locale inequalities might have been limited, inequalities of services across locales could be significant. The pressures on local governments that prevent providing welfare support have been dealt with in Chapter 6. During the pre-reform period, self-reliance was focused on the collective and the family, but now it is more likely to be seen as focused on the family or clan alone. It has only been in recent years that there have been limited attempts to spread a rights-based consciousness that regards access to a wider range of public goods and services as a key component of citizenship. What has been dominant is the promotion of a caricature of Confucianism that stresses self-help, family support and avoidance of seeking state help, except as a very last resort. With the state playing a crucial but minimalist role, in addition to the family the market and alternative suppliers have begun to play an increasing role in service provision. The form of de facto privatization

55.9 31.0 34.1 56.2 33.3 57.3 75.5 40.4


44.1 69.0 65.9 55.2 66.7 42.7 24.5 59.6


Total public and private expenditures (%)

78.8 86.0 75.7 79.0 83.9 77.1 55.8 93.3

Out-of-pocket expenditures as percentage of private expenditures

12.5 8.1 5.3 6.2 8.5 13.7 14.5 9.4

Health expenditures as percentage of total government expenditures

5.2 3.9 2.7 3.8 4.1 7.2 4.1 6.8

Total health expenditures as percentage of GDP

Source: Compiled from data at World Health Organization ( =).

China India Indonesia Malaysia Philippines South Korea Thailand Vietnam


241.6 43.8 43.3 340.1 56.2 1250.1 266.6 93.4

Per capita government expenditures on health (ppp international dollars)

Table 10.3 Public and Private Expenditures on Healthcare, Selected Countries, 2011


290 Governance and Politics of China that has been dominant in China has been supply-driven, but there has also been experimentation with demand-driven approaches. However, China’s leaders have placed greater faith in the state and the market than in genuine non-governmental providers. Despite the natural Leninist resistance to an autonomous sphere of civil society actors, a controlled sector providing vital public service functions has emerged, with churches or temples becoming key points of reciprocity for many. Policy represents the preferences of the socio-economic elites and the bias of the official ideology and, as a result, it is ‘business-friendly’. Policy is elitist by design and until recently has resisted populist pressures for the expansion of goods and services. In particular, elites have not accepted the idea that state-supported welfare programmes should be used to promote the goals of social justice and significant redistribution (Goodman and Peng, 1996). This has meant that services may be concentrated on those groups considered important to state-led development and this in turn has reinforced the authoritarian polity. There has been preferential treatment for those living in urban areas and those employed in state-owned enterprises as well as for government officials. These groups are seen as important to the industrialization drive and as key constituents of the CCP. The extensive array of benefits through the workplace compensated in part for the low wages during the pre-reform era. This pattern created a major challenge for reforming the welfare system. It has been decided that benefits should be extended to other categories, while also protecting as much as possible the benefits for these elites. There are two distinct features of the Chinese system in comparison with other East Asian welfare systems. First, it is difficult to speak simply of one system for public service delivery; second, the system is marked by greater inequalities of service provision. Rural and urban China have operated under quite distinct systems, with the urban consistently privileged over the rural, as one would expect from the influence of Marxist–Leninist ideology. Even within urban China, the system is fragmented as those working in government or state-owned enterprises enjoy types of support that are unavailable to those working in other sectors of the economy, especially the informal sector that is home to increasing numbers of migrant labourers. Esping-Andersen (1990) calls this a truly ‘Bismarckian’ system, with relatively privileged sectors, underprivileged sectors, and sectors that are completely excluded. By its very design this system has institutionalized inequalities that are absent in other systems in East Asia. We have seen in Chapter 8 the inequality that exists between rural and urban China and in Chapter 6 the problem of regional inequality. Despite the intent of the central leadership to shift to a broader base for the provision of welfare services, there are capacity, economic and

Social Policy 291 political restraints that have an impact on effectiveness. Alternative service providers have expanded gradually since the reforms began and this has led to greater acceptance of non-governmental agencies for welfare provision. In addition, it is difficult for government agencies to reach certain vulnerable and marginalized communities. This is especially the case for those people living with HIV/AIDS (both because of the stigma attached to them and because of distrust of government by the affected populations) or for poor, rural communities that might need access to micro-finance resources. The second major constraint is whether a more expansive welfare system is affordable. As welfare spending increases, naturally it will conflict with spending on other priority areas such as military expansion. China might well find itself involved in the familiar ‘guns versus butter’ debate. This is related to the third restraint – that the incentives for local governments are poorly aligned to expand the pool of people included in welfare programmes, and this in part explains local resistance to abolishing the household registration system. While many local governments have moved to implement the central directives, they have also devised strategies to limit the impact, and there remain significant variances between what an urban resident can expect compared with his or her rural counterpart, while migrants in rural and urban areas continue to be treated as second-class citizens by many local authorities. As noted above and shown below in the review of pensions, rural healthcare and social assistance, welfare service provision is shifting to a system that shares key features not only with other countries in Asia but also beyond. During the reform period, policy has retained the obligation to work, attempted to contain costs for the central government of any programme expansion, and allowed considerable privatization of service provision. Policy has adopted, often unintentionally, market values and methods to allocate public services, with the result that services are contracted out from government and workplace to the family, the private service provider or the NGO. It is still the case that where you live and where you work are major determinants of the level of available benefits. In recent years, this has been changing and the central government has begun, for example, to allocate more significant funding for compulsory education in rural China and to support the expansion of the new rural medical cooperative scheme. While welfare provision remains selective it has also become more inclusive. For a developing country, government policy comprises ambitious attempts to provide basic support to those in the rural areas. These initiatives could mark a shift from the traditional approach to assistance to a modern welfare state. Such a trend is reinforced by the residual impact of the socialist ideology and the quasi-Confucian

292 Governance and Politics of China variation of the previous leadership’s desire to build a ‘harmonious society’ and ‘put people first’, as well as General Secretary Xi Jinping’s ‘China Dream’ that now projects relative affluence for the future. Such policies have introduced glimmers of a rights-based consciousness, one of the building blocks of citizenship, in assessing access to public goods and services. While policy may be moving towards a welfare system based on citizenship, migrants remain significantly disadvantaged. If the leadership under Xi Jinping continues the expansion of the welfare system and pushes for more inclusion on the basis of citizenship rather than place of birth, residence or work, it might begin to resemble what T. H. Marshall calls, in the context of Western Europe, ‘social citizenship’. This encompasses the right to economic welfare and social security (Marshall, 1950, 1964). In China, this process is likely to precede ‘political citizenship’ and fits with the CCP’s preference for economic and social rights over political rights (Saich, 2000b), and reflects the policy focus of Xi and Li, the remnant influences of socialist ideology on policy, and the CCP’s claim to speak for all the nation’s people, thus rejecting the need for any political opposition.

Pension reform in the urban areas: cutting the Gordian knot of the SOEs Pension reform is at the core of the welfare system in China and is the major form of social consumption programme provided by the state. Reforms have addressed a number of challenges. First, it was necessary to provide a new system that relieved the burden on the SOEs and would allow for greater labour mobility. Second, the initial reforms created a very fragmented system that subsequent measures have tried to integrate more effectively, while, at the same time, expanding coverage to the non-state-sector workers, rural dwellers and the urban non-employed. Effectively, China has three and a half systems: one for civil servants, one for those working in urban enterprises (state and non-state) that incorporates a small system for non-employed urban residents (the half), and one for rural workers (Pozen, 2013 describes these as four distinct systems). Finally, the question of sustainability and long-term financial stability needed to be addressed. Progress has been made here, but problems of fragmentation, variable implementation and financial fragility remain. In urban China, the main concern for the country’s leaders was how to move from a system of enterprise-based welfare to one where the government is the main coordinator and upholds minimum support levels. This involved dismantling the hierarchy and privileges that

Social Policy 293 existed within the planned economy and smoothing out the inequalities that existed between the units under the plan and those outside the system. This required developing mechanisms to include the private sector and a question as to whether to integrate the large migrant populations into the urban systems. If the answer to this was ‘yes’, then which services, and how? This caused a diversification of service providers in urban areas, with increasing acceptance of the role of the market in providing services, a demand for cost recovery rather than highly subsidized provision and increasing space for the operation of NGOs. The shift to a more market-influenced economy revealed the high costs that welfare provision placed on the SOEs and the increasing incapacity of this sector to bear these costs. In addition, the existing institutional structure inhibited the further development of a labour market. Labour mobility was highly restricted by the fact that pensions, medical care, but most importantly housing belonged to the workunit. One of the most important days of the year was when enterprises announced the division of new housing units or reallocations for the next year. Many people would time their weddings to coincide with this division, while others might rush back from a trip overseas so as not to be left out. Many families have adopted the approach of ‘one family, two systems’; one would work in the state sector to ensure maximum state benefits while the other would work in the private sector where financial rewards could be higher but where no housing would be provided. Not surprisingly, the system also became prey to ever-increasing demands. While the workers made no direct contribution to benefits and paid little in rent, improvements in benefits were a continual bargaining point at the workplace. Before stricter financial discipline was instituted, it was relatively easy for enterprise leaders to cede on this in return for industrial peace (Walder, 1986). Yet this created a culture of dependence on the workplace that was relatively hard to break. The fiscal problems of the SOEs changed all this. Research by the Labour and Social Security Research Institute found that, by 1998, 58 per cent of the total payroll of SOEs comprised social security expenses, compared with 19 per cent in collective enterprises and 18 per cent in private firms (Nielsen et al., 2005, p. 1762). In 1998 Premier Zhu Rongji announced an end to the enterprise-based, cradle-to-grave care that the Chinese industrial working class and government employees had come to expect. The policy thrust was to ensure greater individual responsibility through contributions to pension, medical and other insurances, and the privatization of workplace housing. At the same time, the ‘iron rice bowl’ of permanent employment was smashed. The basic policy objective was threefold: first, to reduce the welfare burden on the SOEs and redistribute the burden across enterprises and to individuals working in other ownership

294 Governance and Politics of China categories; second, to attempt to provide equal rights and levels of protection across all ownership categories; third, to establish linkages between the contributions an individual makes to his or her own benefits and what he or she actually receives (ibid., p. 1763). Zhu’s announcement was preceded by the State Council document of 1997 that sought to pull together experiments with reform of the enterprise pension system. The document was influenced not only by domestic experimentation but also by input from World Bank staff. This called for the unification of public-pillar benefits, the standardization of the size of individual contributions, and unified management of the funds (Zhao and Xu, 1999, p. 1; see also Box 10.1). The first two pillars would provide a replacement rate of about 60 per cent, redressing the generosity of the existing system that the SOEs were finding increasingly difficult to support.

Box 10.1 Designing a New Pension System The new pension system constructed individual pensions from three pillars. The first pillar is a defined-benefit public pillar for redistribution. This was to be funded by a payroll tax of 20 per cent drawn from pretax enterprise revenues and would guarantee a replacement rate of 20 per cent of the average wages at the time of retirement, if a minimum of 15 years was contributed. The second pillar is a mandatorily funded, defined-contribution pillar for each worker. This is funded through a payroll tax of 11 per cent, initially comprising both enterprise and individual contributions. Subsequently, this was amended to include only individual contributions and was reduced to 8 per cent. On retirement, the worker would receive a monthly payout that equals the account balance divided by 120, the factored annuity. This assumes a life expectancy of 70 and a wage growth rate that equals the interest rate. If 35 years of contribution are made, then this pillar should provide a replacement rate of 38.5 per cent. The third pillar is a voluntary supplemental pillar managed by each enterprise separately or through an insurance company. Importantly, the first two pillars provide a replacement rate of almost 60 per cent, the figure that the World Bank suggested as being a realistic target. It also brings China in line with practice elsewhere in the world. Previously, Chinese pensions had been very generous in relative terms by providing a replacement rate of 80–90 per cent. This was already untenable for many enterprises on the pay-as-you-go system that pre-dated reform. The only source for paying the pensions of retired workers was from current operating funds. To protect cash-strapped SOEs, enterprise contributions to the new plan were not to exceed 20 per cent of the total enterprise wage bill, but because of local practice this was raised to 30 per cent. Source: State Council Documents 35 and 36, 2006.

Social Policy 295 A number of further steps were taken to provide the policy framework for this new system. First, in the March 1998 restructuring of the State Council, a new Ministry of Labour and Social Security was established to provide more effective coordination and to oversee implementation. Second, in August 1999 a new State Council document building on the previous reforms was issued. The 1997 document had called for a pooling of pension accounts at the provincial level but now it was specified that the provinces should have a unified contribution rate and unified management of funds by the year 2000. It also sought to clarify who assumed what responsibilities at the local level. Most importantly, it confirmed that responsibility for the collection and distribution of pensions was to be removed from the enterprises and replaced by municipal social insurance bureaus. To ease the way towards provincial management, each province was to set up a ‘readjustment fund’ to backstop pension obligations and to iron out inequalities among the different municipalities within the province. In a major disincentive for local officials, the document announced that any surplus would be disposed of at the provincial level and most of the money would be invested in central government bonds. This clearly was difficult to achieve as the 2010 Social Insurance Law still stressed the intention to provide effective organization at the provincial level before moving to a nationwide system, a measure that would enhance labour mobility. Third, in January 1999 the State Council issued regulations to expand the contribution base to take into account the diversified urban economy. By the end of 1997, while 93.9 per cent of SOEs were in social pension programmes, only 53.8 per cent of urban collectives and 32 per cent of joint ventures, private enterprises and the self-employed were in such a scheme. Migrant workers were also to be brought into the programme and the 11 industrial sectors that had their own social pooling systems were to be folded into the provincial system. The rationale for this is obvious. First, if the non-state sectors could escape the payroll tax, then workers would have even fewer incentives to stay in the SOEs and would move to other sectors where their monthly costs would be lower. Second, the state needed increased participation to be able to cover the bills of the current retirees and the large numbers who would retire from the SOE sector in the coming years. In making the transition, the government had to deal with the thorny question of how and when to fund the individual accounts as part of the new pension plan. This meant that policy needed to strike a balance between the three goals of meeting the obligations of current pensioners, not placing too heavy a tax on the workforce and minimizing the payment requirements for future generations. As a result, as a fourth goal, to act as a government guarantor, in September 2000 the National Council for Social Security was established to oversee the

296 Governance and Politics of China National Security Fund. The fund’s purpose is to provide a long-term strategic reserve that can cover future social security needs (Salditt et al., 2007, p. 17). At the end of 2009, an ambitious rural pension scheme was introduced that allowed farmers to make voluntary contributions to individual accounts that were subsidized by local and central governments. In just two years, the number covered rose to almost 250 million. Fragmentation of the system has become a problem as has the vastly different benefits that one can enjoy. In February 2014, the Xi Jinping leadership made a major announcement to try to deal with this fragmentation. The State Council stated that it would create a unified pension system for rural and urban residents with the result that it would ‘facilitate the free flow of people, boost the sense of social security, stabilize people’s expectation of life improvement, promote consumption, and encourage innovation and start-ups’ (China Daily, 14 February 2014). However, the details were unclear and urban and rural pay-out rates would differ dramatically. According to the Chinese Academy of Social Sciences, the average urban pension in 2012 was 20,900 yuan, while that in the countryside was 859 yuan, well below the poverty threshold of 2,300 yuan. Further, while the March 2014 NPC meeting announced a 10 per cent increase for urban pensions, it made no mention of rural pensions. The decentralized functioning of the fiscal system has contributed to the persistence of problems. Pension funds can be major sources for investment funds for the localities and thus the incentive has been to find ways to make it difficult to integrate pooling at higher administrative levels. Corruption scandals concerning social security funds have become commonplace and in the summer of 2006 led to the dismissal of Shanghai Party Secretary Chen Liangyu. Shanghai officials were said to have illegally funnelled 6.32 billion yuan into the stock market between 2003 and 2006 and the municipal social security fund had been used to invest in real estate and public infrastructure (SCMP, 21 June 2007). The fact that this occurred in Shanghai does not bode well as the Shanghai programme was seen as one of the better-managed programmes. In 2012, the National Audit Office declared that 1.7 billion yuan had been misused by local governments, with 595 million used for operating fees, 114 million to balance the books, 86 million for offices, and 29.5 million for cars. The move to integrate the non-state sector into the programme has also met with mixed results, as there has been ambivalence on the part of not only the enterprises themselves but also the local authorities about imposing what amounts to an extra 30 per cent cost on these businesses through the payroll tax. A number of provinces have thus allowed cities to set lower rates for the private sector. In Shanghai,

Social Policy 297 the employer has to pay 27 per cent of the previous year’s average wage of the workforce into the individual pension accounts, whereas in Shenzhen the company only has to pay 9 per cent (Salditt et al., 2007, p. 8). This is not surprising as private industry and foreigninvested companies have boomed in Shenzhen. By contrast, Shanghai has a significant legacy of heavy industry from the period prior to the economic reforms. The major problem remaining for the future is the pension system’s long-term financial viability. Bringing in other sectors of the economy and expanding coverage are only part of the solution. Changing demographics provide new challenges while returns on investments from the social security fund must be increased. By 2006, the system was actually receiving more in revenues than it was paying out and the nationwide surplus at the end of 2013 was 3.1 trillion yuan (The Economist, 5 April 2014). However, demographics will change this. In 2012, the number of the working population fell by 3.5 million and in 2013 there was a further decline of 2.4 million. In 2013, 68.1 per cent of the population was of working age (60.7 per cent in the US and 54.6 per cent in Japan). This meant that there were 4.9 people of working age for each person over 60. However, this will decline to 1.6 in 2050 (Pozen, 2013, p. 2). This is still better than Japan, but China will have to deal with the challenge at a much lower per capita income level. One result will be that, unless significant adjustments are made, by 2030 pension deficits will reappear and by 2050 the accumulated shortfall could amount to 90 per cent of GDP (Chinese Academy of Social Sciences, December 2012, reported in The Economist, 5 April 2014). A number of measures will have to be undertaken, including raising the retirement age. Currently, this age is very low, at 50–55 for women and 60 for men, whereas the average life expectancy has risen to 75 years. The current retirement ages have not been adjusted since the early 1950s when the average life expectancy was just 45 years. The modifications in the family planning programme noted above are also intended to deal with this decline in the workforce. Perhaps the greatest problem of all is that for many the system remains one of pay-asyou-go, despite the new pillars that are to be constructed to provide greater long-term viability. ‘Real money’ is not being accumulated. All along, local governments have been drawing from the individual accounts, a practice that is legal. This means that current pension obligations are still being financed out of current revenues, while financing for the future is not being accumulated. Therefore, ways will have to be found to improve the investment returns on pension funds. Most of the funds are invested in government bonds and bank deposits where the interest rates are very low. Economic necessity is forcing a faster pace of market-driven change.

298 Governance and Politics of China Partly in response, the Ministry of Labour and Social Security, together with the Boshi Management Company, announced that perhaps as much as 15 per cent of pension funds could be invested in stocks, with another 10 per cent in treasury and corporate bonds (China Daily, 25 May 2001). Most important was the establishment in September 2000 of the National Council for Social Security to oversee the social security fund, with investment management delegated to qualified asset managers (with the exception of investments in bank deposits and the purchase of government bonds in the primary markets). The fund is expected to cover the shortfalls in provincially managed pension funds. Further reforms have followed, including the establishment of enterprise annuities. The World Bank estimates that the annuities should grow to US$1.8 trillion by the end of 2030. This would make China the third largest scheme in the world, and this new pension market will generate at least US$29 billion for trustees, custodians and investment managers (SCMP, 28 May 2007, Internet edition). Employers must contribute to these funds and employees can choose whether or not to contribute. This is broadly equivalent to the US 401(c), and, on retirement, the worker can take the money either as a lump sum or as an annuity. However, take-up has been much slower than the World Bank had hoped, with only 18.47 million participants in 2012, or about 6 per cent of those in the urban enterprise pension scheme (Pozen, 2013, p. 3). In perhaps the most significant step towards fund investment, in October 2006, the National Council for Social Security signed overseas investment partnerships with two global investment trustees: Northern Trust Corporation and Citigroup Inc. These agreements allowed the Council to move its investments beyond low-yielding government bonds and wildly unpredictable Chinese stocks. In total, the amount for overseas investment cannot exceed 20 per cent of the total funds managed by the council but it is still a considerable amount.

Healthcare in rural China China’s dualistic development strategy dedicated more resources to the urban areas, with the countryside expected to fend for itself. This resulted not only in a significant disparity in household income but also in markedly different outcomes in social indicators. This is especially noticeable in the area of healthcare. Healthcare coverage in urban China suffered from the same kinds of problems as the pension system. However, experiments with a new system began in 1994 and the government put into operation a ‘basic health insurance scheme’ for all cities in 1999, with all enterprises and employees expected to participate. This included non-state enterprises and those working in

Social Policy 299 foreign enterprises and joint ventures. While the government recognized universal coverage was beyond current capacity, the coverage rate has been rising steadily, from only 1.4 per cent in 1993 when the local experiments began to 29.2 per cent in 2012. This was followed in 2007 by the launch of a voluntary public health insurance programme, the Urban Resident Basic Medical Insurance, which mainly covered the unemployed, the elderly, students and children. It covered 30.4 per cent of the urban population, providing total coverage through the two schemes of 50.6 per cent. The Hu–Wen leadership made healthcare reform a priority for both urban and rural dwellers and, as a result, local officials became more serious about implementing the suggested reforms. Experimentation has been launched for a medicare-style network in urban centres, with an expansion of the role of community healthcare centres to support the basic medical insurance scheme. Beijing and Shanghai were the first two municipalities to launch this programme in 2008 with 5 per cent coverage. Coverage in the basic medical insurance scheme was expanded to all in Beijing by 2008 and in Shanghai by 2010. The impact of market-influenced reforms was felt most dramatically in the countryside with the collapse of the collective welfare support offered through the communes. The shift to a fee-based system meant that those who could afford it received decent medical access, and sometimes excellent access, but the vast majority were left to a system that was poor in terms of quality and scope of provision. As Blumenthal and Hsiao (2005) have noted, the Chinese health system was marked by ‘pockets of medical affluence in the midst of declining financial access and exploding costs and inefficiency’. Commenting on the situation in rural China before the new push for healthcare reform began in 1996, Dr Marcel Roux, then head of the China branch of Médecins sans Frontières, stated: Healthcare is better in Africa, for sure. There, people are organized and there are good African physicians and health workers but in China, they don’t have the knowledge, the structures or people to make it work. (SCMP, 19 October 1999, Internet edition) It was not only foreigners who made critical observations. The State Council think tank, the Development Research Center, noted in a report that access was biased in favour of the rich and ‘poor people cannot even enjoy the most basic healthcare’. It called on the government to provide good healthcare as a public good. The problems stemmed not only from the rural bias in funding and the collapse of the collective support but also the decentralized provision of public goods that meant that many local governments had few incentives to

300 Governance and Politics of China invest sufficient funds in welfare structures. Finally, with the shift to a fee-for-service system and clinics in the countryside becoming profit centres, care was beyond the financial capacity of many. Also, the care they received was heavily distorted to the provision of drugs, the use of invasive surgery over preventive care, and the use of expensive medical procedures, when they were available. The view of the inadequacy of the healthcare system in general and rural provision in particular was shared by the central leadership as it came under increasing pressure to re-engage with the health sector and not leave resolution to the market and family support. In December 1996 a National Conference on Health was convened in Beijing to try to fix the broken system. The change in tone was remarkable as the leadership shifted from presenting its healthcare system as a shining example for other developing countries to one of concern about its collapse (discussion with participants; for the joint CC and State Council Decision, see Jiankang ribao, 18 February 1997). The central government was clearly alarmed at the social consequences of financial decentralization and it tried to put forward a coherent policy to restore standards and access to healthcare. First, it was declared that spending in the national budget would be raised from 2 to 5 per cent. Further measures sought to restore preventive healthcare and public hygiene awareness through education. The proportion of the government’s budget for spending on preventive care had dropped from 23 per cent in 1978 to 18 per cent in 1994 (Hu and Jiang, 1998, p. 192). Village doctors were to receive a pay boost to bring them in line with government officials and to stop the reliance on kickbacks and other non-sanctioned revenues. The centrepiece of the reforms was the decision to revive the cooperative medical system, a commitment that had been made in 1994. In rural health, China was suffering from ‘state withdrawal’ and a lack of public funding, training and regulation. Medical insurance coverage dropped from almost 80 per cent in 1980 to only 2 per cent in 1987 before improving to 6.57 per cent in 1997. However, it was really only in 2003 that a major effort was made to expand the rural cooperative medical insurance scheme. In part, this was a response to SARS, the epidemic that had originated in rural Guangdong and spread to become a global health threat. The impact of the disease shocked the newly installed leadership, revealing just how weak the rural health infrastructure was and how much it had deteriorated. This was also a period when the economy was booming so the government had more revenue to disburse. Finally, rebuilding the rural health system fitted well with the Hu Jintao–Wen Jiabao emphasis on ‘building a harmonious society’. The new rural cooperative medical scheme is defined as voluntary public medical insurance. It is based on pooling risk at the county

Social Policy 301 level, with the majority of the financing provided by the provinces and counties. The central government does provide fiscal transfers to poor and middle-income enrollees. The household forms the basic unit for participation, initially with the fee set at 10 yuan and the government contributing 20 yuan, divided equally between the central and local authorities. This has risen steadily and by 2014 the objective was to have an annual subsidy of 320 yuan. The programme expanded rapidly from a 75 per cent enrolment rate (80 million people) in 2004 to a 99 per cent enrolment rate (802 million people) in 2013. The objective was to keep the rate above 95 per cent. Our 2007 survey revealed the relative popularity of the new scheme, with 51.6 per cent of rural residents feeling that the new system could protect them against major illnesses and 72.8 per cent reporting that they would continue enrolment in the following year, while only 5.5 per cent responded that they would not enrol in the following year. To enhance efficiency and financial viability, the use of commercial insurance companies has been promoted to manage the schemes. In 2011, 24 per cent of China’s counties, districts and cities were operating in this fashion. In 2009 further impetus was given to implementation by setting the objective of complete coverage within three years, an objective that has been basically achieved. In addition, a national essential drug system was to be established, effective prevention systems were to be put in place, primary care facilities were to be upgraded (with a clinic promised for every village) and there were experimentations with reform at public hospitals. This was supported by considerable financial investment, some 850 billion yuan by the end of 2012. The 2009 reforms also set the ambitious objective of equalizing the differential in rural and urban benefits by 2020. This will be a difficult target to achieve and will require considerable investment by the central government. Given the above, it is not surprising that health outcomes, as well as expenditures, vary greatly between urban and rural China. For example, infant mortality rates in 2012 were 12.4 per 1,000 in rural areas but they were 5.2 in urban areas; maternal mortality rates were 25.6 per 100,000 in rural areas but 22.7 in urban areas. Urban dwellers can expect to live longer at 77.33 years as opposed to 72.29 years, although urban life expectancy may fall with the rise in pollution. The number of medical technical personnel, licensed doctors and registered nurses are 2.51, 2.27 and 3.35 times higher respectively for urban areas. In terms of per capita expenditures, the differential has been falling in recent years. In 2007 urban per capita spending was over four times that of rural China but this dropped to 2.8 in 2012. The coverage has expanded but it remains at a low level of reimbursement and again with a large differential between urban and rural areas and among various provinces. In 2012, the premium per capita

302 Governance and Politics of China for rural insurance was 308.5 yuan, as opposed to just over 2,000 yuan for employees in the urban insurance scheme. A study by the People’s Bank of China in 2012 found that the monthly expenditure for those insured in rural China was 792.15 yuan, of which 220.36 yuan was covered by the insurance and 571.79 yuan was borne by the individual (72 per cent). For those in urban China, the cost was 1166.77 yuan, with 549.26 yuan picked up by the insurance and 617.51 yuan paid by the individual (53 per cent). For those with no insurance, the monthly expenditure for rural dwellers was 438.01 yuan and for urban dwellers it was 1,306.06 yuan. There was also a large provincial variation in the rural premium, ranging from 1232.5 yuan in Shanghai and 707.3 yuan in Beijing to a low of 271.7 yuan in Guangdong and 290.5 yuan in Jilin. Interestingly, the cumulative per capita premium for those provinces defined as being a part of central China is lower than that for western China (1,877.3 yuan as opposed to 2,904.6 yuan). This reflects the extra state support that has been provided to the west of China since the ‘Develop the West’ programme was launched under Jiang Zemin. The reimbursement rate is also biased against those in the villages. While in 2012 the reimbursement rate was around 75 per cent, it ranged from 80 per cent in township-level medical institutions to just 50 per cent for village clinics. One problem that plagues both rural and urban dwellers is the distortion caused by the shift to fee-for-services and the pricing of drugs. These were not adequately addressed in the 2008–09 reforms. The change in incentives has been more important than the change in ownership (Eggleston et al., 2006). Some analysts have blamed the health problems on the de facto privatization of health facilities in the villages (UNDP, 1998, pp. 36, 38). Not only was the financing of most healthcare decentralized, but also from 1981 healthcare facilities were instructed to cover recurrent costs from user charges (with the exception of those for staff). Beginning in the mid-1980s, preventive care facilities charged on a fee-for-service basis. The private practice of healthcare was legalized in 1985 and by 1989 healthcare providers were transformed into feefor-service organizations and active competitors in the healthcare market. Government support was not related to performance-based criteria but rather to the number of staff and beds, thus skewing the incentives further (Eggleston et al., 2006, p. 7). The shift to fee-for-services has resulted in many unnecessary medical procedures. When visiting villages in rural China, it is common to see patients lying outside with saline drips, no matter the nature of the illness. A World Bank study of village clinics suggests that less than 1 per cent of drug prescriptions are necessary and 20 per cent of expenditures for appendicitis and pneumonia are unnecessary. A study

Social Policy 303 in Ningxia reports that 60 to 70 per cent of drug prescriptions for the common cold and upper respiratory infections were inappropriate (Hsiao, 2014, p. 63). Fashion and the profit-making ethos have led to 45 per cent of births in China being subject to Caesarean procedures, against a WHO standard of 10 to 15 per cent. The tendency to overuse drugs is furthered by government policy. As a part of the framework to cover basic care for certain procedures, they are priced below cost, but medicines and many high-tech procedures have a 15 to 20 per cent mark-up. A sniffle or a cough will lead to a prescription for antibiotics, which is leading to concern about the long-term effectiveness of certain drugs as resistance builds up. In fact, almost one-half of healthcare spending is on drugs, far higher than a drug-user nation such as the US where it is only 10 per cent. The problems in the healthcare sector, and the rising costs and the often inadequate attention often paid to patients, have led to an undermining of public trust in the profession. The need to make money has led to a serious decline in professional ethics in the field and citizen dissatisfaction has spilled over into a number of high-profile attacks on medical institutions and officials. Restoring trust may prove to be a more enduring problem than pumping more money into the system to balance rural–urban inequalities.

Poverty alleviation and social assistance China’s approach to dealing with poverty has undergone significant evolution during the reform period. In the rural areas, the initial policy interventions, which were not well-targeted or focused, were based on funding to poor counties. This geographic targeting, which continued to 2001, meant that poor households often did not benefit from the funding that was disbursed. With the poor now more dispersed, to be effective policy will have to be increasingly focused on the household. The earlier focus on the development of the poor regions as a whole anticipated that a ‘trickle down’ would work. Urban areas were not considered at all, despite the growing numbers of poor. Although the number of poor declined dramatically, the effectiveness of specific poverty interventions was increasingly questioned by domestic and international critics alike. These criticisms led to a significant shift in policy. Beginning in 1997, micro-credit programmes were expanded to reach poor households and, beginning in 2001, with the completion of the ‘Eight-Seven Poverty Reduction Plan’, policy was focused on poor villages, even though there were still key designated poverty reduction counties. In 2001, the policy was reoriented from 592 poor counties to 148,000 poor villages (about 20 per cent of the total). This

304 Governance and Politics of China approach sought to deal with the development of human capital as well as to deal with specific constraints to development, such as access to credit. The programme covered over 80 per cent of the rural poor. Finally, in 2011, the State Council released a new ten-year plan for rural poverty alleviation. This plan brought together the two major approaches, the regional-based targeting to promote economic development and the emerging programmes to provide social security and social assistance. As we have seen in the previous section, rural medical insurance coverage expanded rapidly. This was supplemented by rural pensions in 2007 and the extension of the minimum living support scheme (MLSS, dibao) to the rural areas in 2009. This brought support for the poor in rural areas in line with support for the poor in urban areas. Unlike rural areas, policy for urban areas did not suffer from the problems of regional targeting. Instead, it was household-focused, first through the elaborate system of benefits provided by the workplace and later through the revamped social insurance schemes backed up by the MLSS for the very poor. The plan also earmarked 14 regions in central and western China for state support. Programmes are primarily funded by the central government with local implementation. In 2012, the first year of the plan, the central government allocated 299.6 billion yuan for rural poverty work. Most of the funding was allocated for social welfare and development: 23.3 per cent for social security, 13.15 per cent for education and 6.84 per cent for health. Only 11.08 per cent was earmarked for fiscal transfers, which had constituted much of the original poverty alleviation efforts. Poverty alleviation is one area where the market, rather than government intervention, has clearly had a major impact. The return to household farming and the effective abandonment of the rural collective structures released the pent-up energies of the rural population, with farmers able to produce and sell on the market. This, combined with the state’s decision to raise the purchasing price for staple goods such as cotton and grain in the early 1980s, led to a significant increase in farmers’ incomes, pulling tens of millions out of poverty. Producer prices had been held artificially low so as to transfer resources from the rural to the urban areas and to contribute to the programme of urbanization and industrialization. The numbers of those living in absolute poverty dropped from 250 million in 1978 to about 125 million in the mid-1980s. By contrast, the state interventions to deal with poverty alleviation that were introduced from the mid-1980s were less successful in raising significant numbers out of poverty. Poverty reduction slowed considerably until the progrowth policies of 1993 took effect. However, between 1996 and 2001, poverty reduction slowed once again and in 2003 the number

Social Policy 305 of absolute poor rose for the first time. This led to renewed focus on interventions in the household and to support education and health. However, the poverty line that is used for Chinese calculations is very low. It is defined as an income or means of consumption that is insufficient to meet basic living standards. This is a much lower threshold than international norms; in 2011, China raised the threshold to 2,300 yuan, which caused a sharp rise in the official number of rural poor, from 26.9 million to 98.99 million, a more realistic assessment (see Table 10.4). These figures do not include the urban poor but nonetheless they are impressive, and it has been calculated that the number who moved out of poverty accounted for 94 per cent of the decline in extreme global poverty. China now accounts for only 15 per cent of the world’s poor. Yet, despite this tremendous progress, there is still a significant group in the countryside that has not been helped by government policy, a very large group living just above the poverty line who are still very vulnerable, and a smaller but growing group of urban poor who are the creation of the reforms. Recidivism is also a problem as 62 per cent of those estimated to be lifted from poverty in 2009 have fallen back below the poverty line (Qian, 2014, p. 15). The basic view of the government has been that people are poor because of physical disadvantages (such as living in remote areas) or lack of reform. The Jiang Zemin–Zhu Rongji leadership seemed to follow the ‘trickle-down’ Table 10.4 Official Rural Poverty Statistics

Year 1978 1985 1990 1995 2000 2002 2003 2004 2010 2011*

Poverty line (yuan/person)

Rural poor (millions)

Rural poor (%)

100 200 300 530 625 627 637 668 1,196 2,300

250.0 125.0 85.0 65.4 32.1 28.2 29.0 26.1 26.9 98.99

30.7 14.8 9.5 7.1 3.4 3.0 3.1 2.8 2.8 10.2

* The rise is accounted for by the recalculation of the official poverty line. The statistics are drawn from a range of published sources. Note: The percentages do not tally with the official figures given for the rural population in the Statistical Yearbooks. Using these figures would produce slightly higher percentages.

306 Governance and Politics of China notion, giving primacy to rapid economic growth accompanied by limited targeted interventions. As inequality became a political concern in the late 1990s, a more pro-active ‘Develop the West’ policy was promoted. But the leadership recognized that this was insufficient and thus attempted to enhance mechanisms for redistribution while pursuing an urbanization drive. However, policies of redistribution raise questions about targeting: whether such funds will be used optimally and whether redistribution will have a negative effect on the development of the most productive parts of the economy. The initial measures to alleviate policy were fourfold. The main strategy was to target resources on poor areas. The other three programmes were: a subsidized loan programme managed by the Leading Group and the Agricultural Bank of China (in 1998 responsibility was returned to the Bank from the Agricultural Development Bank that was set up in 1994); the food-for-work programme managed by the former National Development and Planning Commission (now the National Development and Reform Commission); and the budgetary grant programme. The impact of these three programmes to help the poorest has not been significant and there have been serious distortions in implementation. Here we shall focus on the main programme. In 1984, the government set up a special agency under the State Council, the Leading Group for Poverty Alleviation, with offices at the county and township levels to coordinate policy. The government invested a huge amount of funds into this objective, some 274.6 billion yuan from 1986 to 2004 (in budget support and subsidized loans), and devised a number of specific policies targeted at those counties where it thought the poor were situated. Beginning in 1986, the central government and the provinces began to identify ‘poor counties’ that would receive targeted poverty alleviation interventions. In even a moderately poor county, it was beneficial to be listed as one of the counties to receive benefits and dispensations, so intense lobbying took place both at the national and the provincial levels. Of the initial 258 officially designated national poor counties in 1986, only one-third (83) actually met the criterion of below 150 yuan in rural per capita net income in 1985, indicative of the intense politicization of the process. Another 82 had incomes between 130 and 200 yuan and 93 had average incomes between 200 and 300 yuan (Wang, 2004, p. 20). Included on the list were counties that had been part of the pre-1949 CCP revolutionary base areas, counties that contained ethnic minorities, and pastoral counties. By 1988, there were 328 nationally designated poor counties, and an additional 370 provincially designated poor counties. After a major overhaul in 1994, the total nationally designated poor counties was expanded to 592. This expansion took place despite the fact that the

Social Policy 307 total number of poor had fallen, according to official statistics, from 120 million in 1985 to 80 million in 1993. In addition, two of the ten poorest counties were not among the nationally designated counties (Nyberg and Rozelle, 1999, p. 97). In addition to the fact that targeting has clearly not been very effective, the two main objectives of the poverty alleviation programme often clash. One objective is to help the poor and the second is to promote economic development. Many of the absolute poor live outside the nationally designated poor counties, so the distribution of funds within the poor counties is not effective in supporting the poorest households. The National Statistics Bureau has estimated that one-third of the rural poor live outside of the 592 counties, and other studies suggest that the number may even be as high 50 per cent (UNDP, 2002, p. 35). The leakage of funds through misappropriation and bad investments, and use by the non-poor households, has meant that effectiveness is low. Within the counties, the money is not properly directed to the poor households; instead it is usually divided out evenly between poor and non-poor townships. Somewhere between 55 and 75 per cent of poverty alleviation funds may not reach poor households. Zhu (2014) has calculated that in 2009 less than 3 per cent of poor households with those of working age actually received poverty alleviation funds. For many local leaders, poverty alleviation funds are regarded as general development resources and thus a useful supplement to local state income. With the lack of transparency, the funds can often be siphoned off to support pet projects. This was especially a problem in the early and mid-1990s before central policy shifted back to targeting the household. The World Bank (2000, p. xxiv) calculated that in 1992 and 1993, around one-half of all poverty-alleviation-subsidized loans were lent to industrial enterprises. A survey by the Ministry of Finance came to similar conclusions, finding that the majority of subsidized loans were made to large-scale enterprises or were used for infrastructure. The problems that have been associated with these approaches of regional targeting and poorly directed subsidized loans led to a rethink of policy, culminating in the 2001 policy shifts to focus on villages and the 2011 plan to integrate more effectively regional economic development programmes, education investment and social welfare programmes. In addition, new policies were introduced to complement the general reduction in the burden on the rural household, for instance the abolition of the agricultural tax and efforts to raise household incomes by increasing direct subsidies to agriculture, including grain and input subsidies. The social protection programmes have also played an important role and there has been increased interest in the

308 Governance and Politics of China use of micro-credit that can reach poor households directly. The new policies have entailed a shift of emphasis from targeting the county to targeting the village or the household. The 1996 decision by the Leading Group to focus attention on loans to poor households led to a boom in interest in micro-credit schemes. In 1997, a number of provinces began to authorize the use of poverty alleviation funds for such schemes and in 1998 the Leading Group emphasized that micro-credit should be expanded to all provinces. Small-scale lending schemes have been very successful in other Asian countries, not only in targeting the poor but also in building up the lending infrastructure and reaping high rates of return, well above those in China. But local groups in China have been highly innovative and programmes targeting poor rural women have been run by the local offices of the Poverty Alleviation Bureau and the Women’s Federation. Programmes modelled on those of Grameen Bank in Bangladesh or Cash Poor in Malaysia have been introduced by international organizations such as the United Nations Development Programme and private organizations such as the Ford Foundation. In 1998 it was also decided that the loans should be distributed through the local branches of the Agricultural Bank of China rather than through the poverty alleviation offices in order to ensure better supervision and repayment. However, the lack of incentives for local governments and lenders combined with the enforced low-lending rate mean that micro-credit schemes have not provided the ‘magic wand’ that the Leading Group was hoping for and will not be as successful as their counterparts elsewhere in Asia. The interest rates cannot cover operating costs, which in turn will make it impossible to keep such programmes sustainable. Despite these problems, there were renewed attempts under Premier Wen to expand micro-credit schemes. A major problem with implementation is due to the way Chinese officials view such programmes. They essentially see them as welfare programmes rather than as something that can be financially sustainable. The traditional top-down approach of planning discourages the kinds of local and communitybased networks that are necessary to allow such lending programmes to prosper. Such thinking is difficult to shift as is state policy on low interest rates. These barriers led to further experimentation. In 1999, as China’s leaders began to see many of the internationally sponsored microcredit programmes operating successfully, the rural credit cooperatives started pilot schemes for households. In 2005, policy and regulation were loosened, leading to a significant acceleration of policy endorsing commercial and sustainable micro-finance. Provincial governments began to see its value and played a more important role in policy and

Social Policy 309 regulation. One interesting by-product of this shift was that NGOs that had pioneered much of the earlier micro-finance work were marginalized as commercial entities and state actors took over. With this intrusion, the use of micro-finance was extended to micro-lending to small and medium enterprises, with an average loan of about $75,000 to $100,000. Village and township banks, set up in 2006 to boost rural growth, are government-owned and usually controlled by traditional commercial banks. They can take in deposits but cannot lend outside their own administrative jurisdictions, thereby limiting their scale of operations. Thus, by comparison with other South and South East Asian countries, the number of bona fide micro-finance institutions was limited, with only 67 in late 2011 and a total loan amount of $13.3 billion (www.about Of course, this does not include the innumerable loan schemes that operate within villages and the unofficial lenders in the countryside. A major problem with these various poverty alleviation strategies is the fragmented nature of the implementing agencies. A more comprehensive and participatory approach to rural development is needed. Despite the 2011 plan, current policies are implemented by different, vertical bureaucratic hierarchies, with little attempt to integrate them effectively. Further, there is very little consultation with farmers about what they actually want in terms of help and little effort to build with them sustainable participatory institutions. The paternalism of CCP rule is evident, as many local officials are convinced that the farmers do not know what is in their best interest. The phrase ‘their cultural quality is too low’ (suzhi tai di) is frequently used by local officials to justify why they do not ask farmers for input on the design and implementation of projects. To resolve the problems of poverty, and rural social policy more generally, the Chinese government needs to develop a pro-poor approach that integrates social and economic development policy that is more participatory and inclusive. Such interventions must be part of the broader strategy for development. Obviously, urbanization, if well-conceived, will resolve many of the problems, but in the meantime the structure of public finance is largely biased against the rural areas. The main thrust of economic policy is to achieve rapid growth, often by shifting resources away from the poor and then returning some funds through limited poverty alleviation interventions. Investment patterns, as we have seen, favour the coastal and urban areas. However, any major reallocation of resources is liable to be politically unacceptable. Wang (2004, pp. 56–7) concludes that although poverty alleviation programmes may have stopped the poor areas from falling even further behind, the efficiency of the investment has decreased and the impact

310 Governance and Politics of China of other investments has been greater. He concludes that investments in agriculture, education and health would be more effective than the local government preference for investment in industry in poor areas. Certainly, the intent of the 2011 plan is to integrate more effectively the traditional economic development approach with human resource development and social security programmes, but fragmentation and conflicting incentives remain a problem. In addition to increasing the effectiveness of design and delivery of government programmes, it is also necessary to create conditions that enable the poor to cast off poverty on their own, which is often a matter of ensuring that they are able to secure access to and control over productive resources and credit. Strengthening the rights of farmers and rural communities to manage and derive benefits from the natural resources on which they depend is one of the keys to securing sustained improvements in the lives of the rural poor. Policy under Xi Jinping recognizes this and has continued efforts to strengthen farmers’ rights. In terms of social assistance, the most important policy initiative has been the introduction of the MLSS, first in the urban areas and then extended to the countryside. This marks a clear step in the direction of a modern welfare state and a shift away from the traditional approach of alms and charity for specially identified groups. China resembles other developing countries in the sequencing of social insurance and social assistance programmes. By contrast, the OECD countries developed social assistance programmes, such as poverty laws, before putting in place social insurance schemes (Overbye, 2005, p. 312). On the whole, social insurance schemes tend to favour those who are in the formal sector of the economy and those in society who are better off. To deal with others who are not so fortunate, the World Bank (1994) suggested that social assistance should be the ‘first pillar’ of social protection in all countries. Social assistance schemes can more effectively extend social protection to the poor than can the formal social insurance schemes. These kinds of schemes can also reach not only the urban poor but also those vulnerable groups in the rural areas. The social assistance category has been a residual one in the urban areas, but it has been growing more quickly in recent years. From the mid-1990s on, social assistance schemes have received greater policy attention. This derived from the recognition that the social insurance schemes that had been developed still left significant sections of the population exposed to risk, for example, the elderly living alone or the new urban poor, such as the recently laid-off state workers. The need is even greater in the rural areas, but again coverage is low. There are a number of categories of social assistance, but policy has been to try to consolidate payments into a means-tested system. Under Hu Jintao and Wen Jiabao, there was a shift to a rural minimum

Social Policy 311 income scheme, which was stated clearly as central government policy at the January 2007 rural work conference. Traditional social assistance programmes were focused on the ‘five guarantee households’ (to provide food, fuel, clothes, healthcare and burial) that received support if they were unable to earn income and had no other visible means of support. This support was provided through the local offices of the Ministry of Civil Affairs. It is clear that where possible government policy intends to shift people onto an MLSS. As a result, the numbers have risen from 3.05 million in 2001 to 53.6 million at the end of 2013. In fact, in June 2007 one Ministry of Civil Affairs vice minister declared that the rural MLSS formed the ‘foundation for a nationwide social security system’ and that it would be possible to cover all the rural poor by the end of 2007 (Xinhua News Agency, 31 July 2007). Because the level of support to those identified as poor is left to the decision of the local authorities, there is considerable variance in terms of both who is covered and the amount that is provided. Benefits are lower in the rural scheme than in the urban scheme; the monthly average in the former is 106.4 yuan (covering 53.6 million people) and in the latter it is 241.3 yuan (covering 20.8 million people). The bias against the rural areas goes even further since when the family’s total income is calculated, all members are counted, but spouses who do not have an urban registration are not included in the benefits. This attempt to expand the programme rapidly caused controversy about whether or not a ‘universal’ minimum support system was feasible. Those who prefer not to extend support argue that farmers have land and housing to provide a minimum guarantee. They fear that if minimum support is provided, some may give up farming completely. Yet land no longer provides an adequate guarantee and large numbers of farmers are vulnerable in rural China. Yu Jianrong (2006) estimates that there are 64.3 million impoverished people in the rural areas and within this group there are 23.6 million people with annual incomes below 683 yuan who do not have sufficient food and clothing. This group includes the elderly, sick and orphaned who have no means of support. In Yu’s opinion, and it would appear that this is now the government’s view, these people should be provided with the MLSS. The Chinese leadership has begun the process of moving towards a modern welfare state by shifting its social assistance programmes from benefits based on specific groups such as veterans or the disabled to programmes that adopt a means-tested approach to provide benefits to those in financial need. If completed, this will mark a major transformation and open the possibility for developing a social welfare system based on citizenship rather than a system that is arbitrarily defined by the leadership at the national and local levels.

312 Governance and Politics of China The more traditional relief and poverty alleviation programmes have also undergone significant changes during the reform period. The Chinese authorities have begun to accept a limited role for the market through micro-credit schemes and the gradual adoption of international best practices, such as bringing NGOs into project implementation as well as enhancing community participation. China’s statist predisposition still predominates, with most officials, presuming that they know best what the poor need in terms of support, preferring a top-down approach.

Chapter 11

Foreign Policy The unprecedented level of China’s integration into the global economy, energy markets and foreign reserves accumulation, its role in climate change and other environmental challenges are forcing fundamental changes in its relatively passive international position. These factors have added to significant challenges provided by the end of the Cold War at the beginning of the 1990s, the US–China agreement on WTO entry at the end of the 1990s, and China’s analysis of US power following the global financial crisis of 2008–09. The end of US–Soviet superpower rivalry meant that China had to reconfigure its international position without the room for manoeuvre that had been offered by the Cold War. It also brought the latent antagonisms in the relationship with the US to the forefront. China’s entry into the WTO builds on the extraordinary economic integration into the world economy that has taken place since the reforms began and reveals the commitment of its leaders to being an active member of the world economic community. At the same time, it presents new challenges for the leadership in terms of just how much foreign presence China is willing to tolerate and how destabilizing the foreign presence will be to domestic industry. The US focus on the ‘War on Terrorism’ after 11 September 2001 has brought unexpected benefits for China as it has quietened the ‘China as a threat’ voices, but it has raised fears about potential US unilateralism following the 2003 war with Iraq. China escaped the worst effects of the global financial crisis but the crisis did strengthen the view among its leaders that the country was correct to follow its own developmental path and not uncritically accept advice from overseas about how its economy and society should be organized. Some analysts, including those in the PLA, saw this as a sign of US decline over the longer term and promoted the idea that China could now more actively pursue its own interests. This view has not dominated, but it remains powerful. Certainly since 2008–09, China has become more assertive in defending its own record and more recently its sovereignty claims in the East and South China Seas. The emergence of the Chinese economy as a key element in the global production chain has meant that many countries and companies have reorganized their own production strategies to adjust to China’s development. It is clear that the resolution of any significant global


314 Governance and Politics of China challenge will require China’s participation. The Xi Jinping leadership has followed that of Hu Jintao in terms of being more energetic in promoting an independent foreign policy based on China’s strategic interests. Currently, the new leadership is trying to balance a robust defence of its territorial ambitions with the hope that its economic clout will make sure that neighbouring countries do not challenge its rise too openly or too strongly. This marks a major departure from Deng Xiaoping’s view that China should not become involved in global politics and Jiang Zemin’s essentially pro-US position. Under the slogan ‘taoguang yanghui’ (‘do not show off one’s capability and keep a low profile’), Deng Xiaoping had cautioned the country to bide its time and develop its own internal strength before venturing into engagement in the global environment. Given China’s global role and influence, clearly such a position is no longer tenable, but the new leadership will be required to give a more explicit explanation of how it regards the evolution of China’s role in the future. But many feel that China has been too passive in sharing the provision of global public goods. This frustration was evident in President Obama’s comment that ‘they are free riders. And they have been free riders for the last 30 years and it has worked really well for them’ (The New York Times, 13 August 2014). Clearly, the overriding priority of China’s foreign policy is to maintain a peaceful international environment that is conducive to allowing it to focus on its domestic agenda. However, this is becoming more difficult as the country defends its territorial claims more forcefully, becomes a major trade and investment partner of many countries around the world, and becomes a major exporter of pollution and, together with the US, a key contributor to global warming. This chapter considers first China’s perceptions of global integration and how this may hamper or contribute to success. Second, it reviews China’s position within the region. Third, we look at the crucial US–China relationship before concluding by looking at the economic dimensions of China’s foreign relations.

China and globalization The November 1999 agreement between China and the US on China’s terms of accession to the WTO, following its signing of the two UN covenants on human rights in 1997 and 1998, signalled the Chinese leadership’s intention to become a part of the global community. By signing these agreements, China has implicitly acknowledged that international monitoring is justifiable, not only for domestic economic activities but also for political behaviour. However, in practice, while China clearly wants to be a respected member of the international

Foreign Policy 315 community, it is deeply conflicted about how active it should be and what kind of a role it should play in international governance (Saich, 2000b). Like other countries, China wishes to derive the macroeconomic benefits of globalization, but it is uncomfortable about the costs of the associated social, political and cultural readjustments. Moreover, while it is critical of certain aspects of global governance and would like to see a change in bodies such as the IMF and the World Bank, it has neither indicated that it is willing to play a key role in providing global public goods nor has it put forward a coherent outline of how it envisions a new global order. Similarly, Western observers have been ambivalent about how to deal with the rise of China’s economic power and its integration into global frameworks of governance. Some, taking their cues from historical parallels with the rise of new powers such as Germany and Japan at the turn of the twentieth century, see conflict as inevitable; others argue that the changed international situation makes successful accommodation feasible. The strongest expression of the conflict school is that of Bernstein and Munro (1997), while a more balanced assessment is presented by Nathan and Ross (1997) and Johnston (2003). The value and nature of US–China engagement is debated by Lampton and Mann (2007) and Lampton (2001b). Certainly it has been the approach of all US presidents beginning with Nixon that the more China can be engaged with the international community the better. The Obama administration is wrestling with what kind of relationship it wants with China that promotes cooperation but does not negate criticism of China’s human rights record and its actions in Tibet. The difficulty in steering this course was shown during Secretary of State Hillary Clinton’s 2009 first visit to Beijing when she was criticized for downplaying human rights problems in order to get more traction on other issues. China has become increasingly assertive in defence of its human rights records and dismissive of comments by current Secretary of State John Kerry on these issues. A glimpse of Xi Jinping’s true feelings on foreign criticism was provided in 2009 when as vice president on a trip to Mexico he made the following comment: ‘there are a few foreigners, with full bellies, who have nothing better to do than try to point fingers at our country … China does not export revolution, hunger, poverty, nor does China cause you any headaches. Just what else do you want?’ It was reported that Vice President Xi criticized his Mexican hosts for siding with the UK and the US in calling for human rights improvements (The Daily Telegraph, 16 February 2009). Although these comments were quickly taken down from Chinese websites, they reflect the current leaders’ sentiments and also the desire of Xi to be treated as an equal by the US. Successive US administrations have consistently taken the view that engaging China is better than confronting it, as the former will lead over time

316 Governance and Politics of China to acceptable political change. The jury is still out on this assessment and, as China’s powers grow and it becomes more assertive, more commentators have called for the US to confront China more directly. However, despite engagement in some 90 or so bilateral dialogues, the US still finds it difficult to approach China on equal terms. Xenophobic outbursts and leadership manipulation notwithstanding, withdrawal from deeper integration into the world economy and its evolving structures of governance is impossible. This point was made emphatically when, despite significant domestic opposition, Jiang Zemin and Premier Zhu Rongji pushed ahead with a deal with the US on the terms of accession to the WTO. This reflected the leadership’s need to deliver further economic progress to strengthen its legitimacy; such progress can only be delivered through increased trade, foreign investment and a more disciplined domestic economy that over the long term WTO membership would bring. Entry contributed to the boost in economic growth and the accumulation of foreign reserves that underpinned the first dozen years of the 21st century and provided the funding that allowed Hu Jintao and Wen Jiabao to carry out their extensive welfare reforms (see Chapter 10). This rise in foreign reserves and China’s purchase of US debt has linked the fate of the two economies and enhanced China’s global clout. By joining the WTO, China hoped to forge alliances to secure policies more beneficial to its own national concerns. Despite recurrent concerns, China has remained extremely open to foreign engagement in its economy and, according to Steinfeld (2010), has even outsourced to foreign organizations the design of the institutional structure to oversee its economic development. Despite this more accommodating approach to foreign trade and capital, in crucial respects China’s policy approach has mirrored that of its 19th-century predecessors during the ‘self-strengthening movement’ that sought to import Western techniques and equipment while keeping out new cultural and political values. This previous policy of selective adaptation proved shortsighted. The Chinese did not comprehend the interrelated nature of Western societies and failed to see that Western technology could not be easily disentangled from the social and cultural matrix in which it was embedded. It remains to be seen whether the CCP will be more successful in gaining the benefits of globalization without accepting its underlying premises. For example, WTO membership seems to presume not only a liberal trading order, but also an independent legal system that constrains government as necessary, transparency, accountability and a relatively pluralistic political order. Since Mao Zedong initiated contacts with the US and engineered the PRC’s entry into the United Nations in the early 1970s, the general

Foreign Policy 317 consensus has been that China has moved from rejection of the international status quo to acceptance. However, it is more correct to say that China has acquiesced in the international order and, while it has been a joiner, for the first 35 years of reform it has not been a doer or rule-setter in terms of international governance. In major part this has been because the main priority has been for China to develop its own economic strength and it has seen international organizations as helping it to meet this objective. From 1977 to 1996, Chinese membership in international government organizations rose from 21 to 51 and in international NGOs it increased from 71 to 1,079 (Kim, 1999, pp. 46–7). As Ikenberry (2008) has written: ‘today’s Western order is hard to overturn and easy to join’. This has made China reluctant to challenge the existing rules of the game unless they directly confront Chinese claims to sovereignty or economic interests. In addition, coming out of a period of self-imposed exile, China had very few administrative personnel who could work in international organizations to advance its interests effectively. Second, as a latecomer to all international governmental organizations, China did not participate in the drafting of the ‘rules of the game’. Its incapacity to change significantly these rules of the game to suit its national conditions has reinforced its perception that international governance is structured essentially to pursue the agendas and interests of the West, especially the US. China’s self-told history of 150 years of shame and humiliation at the hands of foreigners, the anti-imperialist thrust of Leninism, the party’s own legacy of distrust and betrayal and the leaders’ tendency to interpret decision-making in terms of a ‘zero-sum’ game mitigate against constructive engagement and interaction with the existing international governing structures. As noted above, China has not made it clear in what ways it might want to amend the global order. It has received increased voting rights within the IMF and its nationals have held senior positions in both the IMF and the World Bank. In a first inkling, in July 2014, the BRICS (Brazil, Russia, India, China and South Africa) announced a $100 million launch of a new development bank to be based in Shanghai. Clearly seen as a rival to the IMF and the World Bank, the announcement made it clear that lending would not be bound by the same kind of conditionality that is imposed by the existing institutions. China is wary of any organization that may weaken national sovereignty in international affairs and would like to see the UN Security Council as the only legitimate body that should make decisions on issues affecting other nations. Yet, even here China has been extremely cautious. It abstained in the UN vote over the legality of Russia’s annexation of Crimea and has attempted to keep out of taking a clear-cut stance on the 2014 conflict in Ukraine.

318 Governance and Politics of China One thing that is clear is China’s continued desire to restrict Taiwan’s international space It was noticeable that Xi Jinping’s second overseas trip was to Latin America where a number of countries have retained diplomatic relations with Taiwan. The desire to punish any country that shows sympathy towards Taiwan can have unanticipated consequences. One extreme example was China’s veto in the Security Council (February 1999), something almost unprecedented, against continuation of the UN Preventive Deployment Force in Macedonia, because of the latter’s diplomatic recognition of Taiwan in January of that year. Sadly, in light of subsequent events, China’s Ambassador to the UN, Qin Huasun, did not mention Taiwan as justification for its vote, but said that peacekeeping forces were no longer necessary as Macedonia had ‘apparently stabilized in the last few years’ (New York Times, 26 February 1999, p. 11). Perhaps China’s lack of engagement is a good thing as the CCP has never been successful in transnational governance. Its attempts in the 1960s and 1970s to lead a loose coalition of nations to oppose ‘US hegemonism’ and ‘Soviet revisionism’ failed, as did its attempts to fund pro-Maoist groups to destabilize neighbouring governments in Asia. Not surprisingly, Deng Xiaoping’s advice to his colleagues and successors was not to take the lead in international affairs, but to lean towards the US and to concentrate on economic development. However, this is difficult for a nation with a psychology that emphasizes the superiority of Chinese culture and that is an increasingly influential global player. Such sentiments can lead to instability when combined with the more strident nationalism promoted, or acquiesced in, since 1989. To restore support after the 1989 student-led demonstrations, the CCP launched a ‘patriotic education’ campaign for all students. This entailed teaching materials that emphasized the ‘century of humiliation’ that China had endured at the hands of the foreigners and the ‘heroic role’ that the party had played in liberating the nation. Naturally, Japan played the role of enemy number one in this narrative, but the US as the ‘hegemon’ seeking to ‘contain’ China’s rise came a close second. This included, in 1995, the enlargement and renovation of the Memorial Hall for the civilians massacred by Japanese troops in 1937. Thus, while China is currently open for business, distrust of foreigners and significant periods of closure are commonplace. The ‘Gang of Four’ criticized Deng Xiaoping for his attempts to promote foreign trade, but Premier Zhu Rongji suffered similar accusations of treason once the US published what it claimed were the terms to which Premier Zhu had agreed for WTO entry during his US visit in April 1999. The sudden and xenophobic outpouring of anti-foreign sentiments reveals how close to the surface distrust of foreigners still lies. Anti-US

Foreign Policy 319 sentiment broke out following the accidental NATO bombing of the Chinese Embassy in Belgrade on 7 May 1999 and the downing of the US EP-3 aircraft in April 2001. Anti-Japanese sentiment is not far below the surface as well. The most recent case occurred during the August–September 2013 demonstrations and the later violence following the escalation of tensions over the Diaoyu/Senkaku island disputes. In each of these cases, the Chinese government not only tolerated the demonstrations but also appeared to encourage them. The authorities then had to step in to shut them down once they slipped out of control and became violent. The CCP became particularly concerned when demonstrators began to question the strength of the government response. Thus, since 1989, the Chinese leadership has been fairly successful in manipulating public opinion to instil nationalism as a legitimizing core value. However, the CCP has been careful to set limits to the ramifications of a strident nationalism that might challenge its own position. While this appeal to nationalism may aid the regime’s short-term stability, it presents two challenges in terms of governance. First, it mitigates against constructive involvement in international organizations as rising nationalism compromises the ability of the nation-state to deal with internationalism. Second, it reinforces the outdated notion of sovereignty that still underpins the current leadership’s global perceptions. By and large China is an empire with a Westphalian concept of the nation-state trying to operate in an increasingly multilateral world. In fact, what China wants is an economic order that is international in terms of the benefits it brings but not necessarily global if that involves decentring decision-making away from the nation-state. These trends explain the seeming contradiction in China’s international behaviour. The dedication to sovereignty and a territorial definition of China that is the most expansive in history, as well as China’s reluctance to move discussions out of bilateral frameworks, are cause for uncertainty in the region. This also means that China is more willing to join regimes that govern the international economy, but is less enthusiastic about regional or global frameworks that would place real restrictions on its military capabilities (Economy and Oksenberg, 1999, p. 21; Swaine and Johnston, 1999, pp. 90–135). The CCP and the military have been adamantly opposed to any attempts to establish an Asian collective security system, primarily because they do not wish to give the South East Asian nations a forum in which to criticize collectively its claims to sovereignty in the South China Sea (SCS). China has worked to influence Kampuchea and Laos to keep any collective statements about the SCS off of ASEAN communiqués. In October 2009 it stressed that it would not accept a role for ASEAN in resolving such disputes and stated that they must be resolved through

320 Governance and Politics of China bilateral arrangements. At the ASEAN meeting in May 2014, the Philippines, seemingly at the urging of the US, called for disputes in the SCS to be resolved through arbitration within the framework of the UN Convention on the Law of the Sea and for a moratorium on actions such as a freeze on seizing unoccupied islands and land reclamations. China’s foreign minister called the motion ‘premature’ (Reuters, 9 August 2014). This was a more restrained response than that of former foreign minister, Yang Jiechi, at the 2010 gathering when he responded to then Secretary of State Hilary Clinton’s call for freedom of navigation in the SCS stating that her comments were an ‘attack on China’; he also informed the Singaporean Foreign Minister that ‘China is a big country and other countries are small countries, and that’s just a fact’. China needs to be able to feel comfortable with the framework for international governance in which it is an increasingly important player. Many important issues beyond the directly political and economic, such as climate change and environmental protection, drug smuggling, trafficking in women and HIV/AIDS, require China’s active participation for resolution. In turn, other major nations need to incorporate China as a more equal partner and to build its reasonable concerns into the architecture of international governance. China, for its part, must reduce its suspicion of hostile foreign intent and adjust its outdated notion of sovereignty to accept that some issues need transnational solutions and that international monitoring does not have to erode CCP power. Without accommodation on both sides, China will remain a rather grumpy, unpredictable player in international governance. As noted, the strategy of not being overly proactive and not interfering in the affairs of other countries is coming under increasing pressure and significant changes are beginning to take place. First, while China, like most nations, prefers bilateral negotiations, it is shifting from suspicion of all multilateral organizations to a realization that, rather than ensnaring the country, such organizations can be used to promote the nation’s own interests, even if this might mean antagonizing US interests. This is especially important as new institutions are being developed to deal with challenges such as climate change and old institutions such as the IMF are being restructured to reflect better contemporary rather than post-World War II realities. In the WTO, China has stressed the organization’s regulations that ‘regardless of size, all member countries enjoy equal rights’ and that labour standards and other non-economic subjects should not enter into WTO considerations. Whether China likes it or not, more countries are likely to lobby it for support on a wide range of global issues and look to it as a leader on some trade and investment-related issues. Second, China will have to define its national interests more clearly, and this will mean acknowledging that other principles of its foreign

Foreign Policy 321 policy may, at times, be overridden. For example, the continual crises around nuclear proliferation in North Korea have caused China to moderate or even abandon its principle of non-interference in the domestic affairs of other countries and to take on a more active and public diplomatic role (see below). The actions of its companies overseas and state investments as far afield as Africa and Latin America and the search for energy resources are increasingly pulling China’s interests into the internal affairs of these nations. Whether China acknowledges it or not, its commercial activities have become important in the politics of a number of countries in the region and beyond. For example, China’s export competitiveness and the volume of its exports will severely affect the trade prospects of other countries, not just in Asia but in other parts of the world as well. Its high levels of FDI require other countries also to adopt more hospitable environments for international capital. China’s search for the resources to fuel its economic growth will mean that it will have to become more assertive in pursuing self-interest in foreign policy. Oil is already becoming an important element of that policy. This is leading to tensions with the US. Shut out from many mature markets by the US and the EU, China often has no alternative other than to deal with countries such as Sudan, Iran and Russia. This, in turn, leads to criticism from the West for China’s support for what the West considers ‘rogue’ regimes.

China and the region While historically Taiwan has been the major sovereignty issue in the region, China has disputed claims with most of its neighbours, including Russia, India and Vietnam, with all of which it has fought border wars. In recent years, China has had territorial disputes with Japan and with a number of South East Asian neighbours over the demarcation of territorial boundaries in the SCS. Despite China’s seat on the UN Security Council, its interests during most of the reform period were overwhelmingly regional (see Hinton, 1994, pp. 348–72). While China claims that it has no hegemonic ambitions in the region, its previous support of liberation movements in Asia, its rapidly growing economy, its relative military capacity and the ongoing territorial disputes make it a major focus of concern for most countries in the region. Although much of China’s foreign policy is rooted in Asia, at the conceptual level in the past it has rarely thought in regional terms at all. This was because its foreign policy was driven by the relationship between the superpowers and by ideological factors. China’s leaders are now being forced to develop a regional policy and to think more

322 Governance and Politics of China carefully about engagement with regional institutions, such as the Asia–Pacific Economic Cooperation Forum (APEC) and the ASEAN Regional Forum (ARF). Increasingly, Beijing has begun to see the development of a ‘Greater China’ cultural and economic sphere that would include Hong Kong and Taiwan and that would benefit from more open markets in Asia. Throughout the 1980s, China enjoyed considerable success with the ASEAN nations, helped by the situation in Kampuchea, and it was noticeably successful in allaying fears about its revolutionary past; this was seen most visibly with the restoration of diplomatic ties with Singapore and Indonesia and with a deal to prevent clashes in the disputed areas of the SCS. Two main factors provided China with the opportunity to improve relations in the region, but this improvement has been threatened more recently by territorial disputes. First, US preoccupation with Central Asia and the ‘war on terror’ meant that, before the Obama administration announced its rebalancing towards Asia, the US was perceived to be paying less attention to its post-1945 role in regional economic, diplomatic and security fields. Second, China has become a lynchpin in the reorganization of the international production chain, with many other national economies and companies in the region restructuring their own domestic production strategies and external investment plans to match China’s development needs. China has become the most important assembly and manufacturing hub and its growth has been especially important for aiding the recovery of the Japanese and South Korean economies during the early part of the 21st century. Its need for natural resources has been beneficial to countries such as Australia and Indonesia and it has become the number-one trading country for Japan and South Korea. Unlike the US, the ASEAN countries run a trade surplus with China and countries such as Kampuchea and Laos are virtual client states because of Chinese investment and aid. China needs to assure the countries of the region that its continued economic growth will continue to benefit them and not come at their expense. However, concerns have been raised both about China’s economic influence and its impact on domestic industry and employment and, for some, about its expansive territorial claims. China’s ‘nine-dash line’ claims 90 per cent of the SCS for China. It would be impossible for any Chinese leader to back away from its claims in the SCS or the East China Sea, making it difficult to negotiate an acceptable agreement. In the SCS, the situation is complicated further by fishing rights and the possible presence of significant oil and gas deposits. China’s leaders seem to be hoping that the country’s economic importance to the region will outweigh concerns caused by sovereignty aspirations. Initially, the leadership under Hu Jintao promoted the slogan of ‘peace and development’ (first used by Hu at the Baoao Forum in May

Foreign Policy 323 2005) as a response to those who saw the country’s rise as a current and, more importantly, future threat. Xi Jinping, while not renouncing China’s territorial claims, has also taken pains to assert that China’s rise will provide benefits to all. In June 2014, at an anniversary celebration for the ‘Five Principles of Peaceful Coexistence’, Xi stressed that China’s foreign policy remained peaceful by nature and focused on non-interference in the affairs of other countries. A fuller outline was provided in May 2014 at the Conference on Interaction and Confidence Building in Asia (from which the US and Japan are excluded). Xi announced a ‘new security concept’ for a ‘common, comprehensive, cooperative and sustainable security strategy for Asia’. He stressed that security should be mutually beneficial and based on economic development in order to be sustainable, with no country seeking to dominate regional security affairs. In a dig at the US, Xi commented that a ‘military alliance that is targeted at a third party is not conducive to common regional security’. He did note his support for a variety of multilateral forums. The problem arises, of course, because in China’s view there is no dispute about sovereignty as the contested areas belong to China and thus its actions do not constitute interference in the affairs of others. While the US and its allies see recent tensions stemming from increased Chinese assertiveness, China sees the US behind the push for confrontation by Japan, the Philippines and even Vietnam. In a further admonition to the US at the June anniversary meeting, Xi defended the right of a nation to choose its own path and noted ‘flexing military muscles only reveals the lack of moral grounds or vision rather than reflecting one’s strength’ (Washington Post, 28 June 2014). The shift was clear in Hu Jintao’s Work Report to the Eighteenth Party Congress (November 2012) where he called for China to become a maritime power and that the CCP should strengthen its ability to exploit marine resources and develop the marine economy while ‘resolutely safeguarding China’s maritime rights and interests’. The question of sovereignty in the SCS has been defined as a ‘core interest’ and, in July 2013, Xi Jinping told his fellow Politburo members that ‘no country should presume that we will trade our core interests or that we will allow harm to be done to our sovereignty, security or development interests (Beijing Review, 29 August 2013). He did, however, hold out an olive branch by offering to shelve disputes and carry out joint development. Tensions have been particularly high in the SCS with the Philippines and Vietnam and there is the potential for an increased arms race. Tensions with Vietnam increased in May 2014 when China moved an oil exploration rig into a contested area very close to Vietnam’s coast. This led to demonstrations in Vietnam that turned violent,

324 Governance and Politics of China with attacks on Chinese businesses, a number of which were, in fact, Taiwanese. It was only in mid-July that China moved the rig back towards Hainan. The always fragile relationship with Japan heated up again in September 2012 with sovereignty disputes around the Diaoyu/Senkaku islands. Then Prime Minister Noda’s government purchased the islands to prevent the right-wing governor of Tokyo, Shintaro Ishihara, from acquiring them. While Noda saw this as heading off a potentially worse development, he did admit later that he had under-estimated China’s reaction. China stepped up air and naval patrols around the islands and, in November 2013, declared an Air Defence Identification Zone in the East China Sea, requiring all aircraft passing through to report to the Chinese authorities. The US military immediately flew two planes through the zone without reporting. The situation has not improved under Prime Minister Abe, who the Chinese leadership sees as having greater militaristic tendencies because of his desire to rewrite Japan’s post-war constitution to give the Japanese military more flexibility of action. Abe’s previous visits, and those by members of his government, to the Yasukuni Shrine, which honours the nation’s war dead but includes 14 people classified as class A war criminals, have not helped matters. In August 2014, Abe chose not to visit the shrine but sent an offering with one of his colleagues instead, perhaps hoping that this would not upset China. China responded in just as angry fashion as usual. It is noticeable that no summit meeting had taken place between the two leaders as of mid-2014 but rumours persist about the possibility, although the latest shrine incident will not help. The tensions have clearly affected trade and investment relations. Japanese businesses have operated a China plus one strategy for some time. Japanese trade in 2013 was down 32 per cent, while investment in the ASEAN countries doubled. This may be more of a problem for China than it is for Japan as Japanese companies are significant employers. The downturn in the economic relationship is more significant for Vietnam as well, since 30 per cent of its imports come from China, which accounts for just 1 per cent of its total exports. Moreover, China imports roughly 40 per cent of Vietnam’s rice and rubber production. Vietnam may be hoping that the launch of the Trans-Pacific Partnership might help alleviate the situation, a partnership that China views with suspicion as a US-led attempt to develop a broad regional trading group from which it would be excluded. In conclusion, China’s relationship in the region faces three general challenges and four specific problems. First, as noted, China needs to continue to convince its neighbours that its economic strength will be beneficial to all rather than at their expense. Not all will agree with

Foreign Policy 325 China’s ‘win-win’ scenarios, especially farmers who are priced out of the market by the import of cheap agricultural products from China. Second, there remains the need to develop new institutions and a framework that will allow the countries in the region to cooperate effectively. Third, China’s increased influence in the region needs to be pursued in a manner that does not challenge, at least in the short to medium term, US fundamental interests in the region. For other countries to accept a partial withdrawal of the US would mean that China would have to take their interests into account and even give up its expansive view of sovereignty and enter into new security arrangements so that they would not feel the need to rely on the US security umbrella. The potential for friction is apparent in all four of these specific challenges. First, as mentioned above, there are the remaining territorial claims in the SCS and East China Sea. Second, there is the problem of cross-straits relations. China views reunification with Taiwan as an internal matter left unresolved from the civil war. For many years, the leadership in Taiwan shared Beijing’s view but simply disputed who was the legitimate ruler of the one China. As far as China is concerned, this is a domestic matter that does not involve the US, and it has continually pushed for the US to accept its position and to halt weapon sales to Taiwan that it claims makes Taiwan more likely to pursue independence. The challenge presented by this unresolved issue has been put on the back-burner in recent years following the election of Ma Ying-jeou who was returned as the new president in 2008: direct flights across the straits began, trade and investment expanded and tourism took off. When the Democratic Progressive Party (DPP) controlled the presidency between 2000 and 2008, relations had been tenser and it remains to be seen how Beijing might respond if the DPP wins the 2016 presidential election. Beijing’s maturity in not responding to every perceived slight has improved the atmosphere, and the increasing Taiwanese investment in the mainland economy has integrated its economy to such an extent that conflict would be very destructive to it. Critics of Ma’s policy have claimed that he has given away too much to Beijing with little to show in return. It seems that leaders in Beijing decided to adopt a similar tactic as it did with Hong Kong by tying the fortunes of the business elites to the mainland and hoping they will become a pressure group for improved relations and eventual reunification. This has had some success, but nationalism may still trump economic rationality. However, Taiwan’s international space continued to shrink as China nibbled away further at the few countries that still accorded diplomatic recognition to Taiwan. The third problem is the question of North Korea’s nuclear ambitions. China and the US have a common strategic interest in ensuring

326 Governance and Politics of China that there is no conflict on the Korean peninsula and that North Korea does not become a full nuclear power. The situation is tricky for Beijing, and both rapprochement between North and South Korea and the deterioration of relations present problems. North Korea’s nuclear and missile tests have placed China in a difficult position. However, in a clear change of policy following the January 2013 missile tests, China supported UN sanctions against North Korea. China also stopped state-owned banks from lending to North Korea. It is noticeable that neither Xi Jinping nor Li Keqiang have met with Kim Jong-un since he took power, and on his July 2014 visit to South Korea Xi Jinping, together with President Park, criticized North Korea’s nuclear ambitions. The slight must have been clearly felt in the North. However, China is still party to the 1961 Peace Treaty with North Korea that commits it to supporting North Korea in the case of war – unlikely but still embarrassing. China and the US have cooperated more effectively in trying to resolve the problem and the US has ceded considerable authority to China to bring North Korea to the negotiating table, primarily through the Six-Party talks (also including Japan, Russia and South Korea), but China has discovered, if it did not know already, just how difficult it is to deal with North Korea. China is clearly the country with the most influence over North Korea and it could bring the country to its knees should it wish to do so. Seventy per cent of North Korea’s energy needs are met by China and China accounts for 39 per cent of its imports and exports. China is clearly frustrated at North Korea’s behaviour but is more concerned about regime collapse that would bring migrants flooding into China and potentially allowing a US presence on its borders. As a result, it has opposed sanctions that are too harsh and it has tried to encourage the North Korean leadership to adopt Chinese-style economic reforms that might usher in gradual change. The fear of regime collapse has also been a major concern to South Korea and it has oscillated between attempts to engage and attempts to isolate the North. By contrast, the major concern for the US is to prevent North Korea from possessing an adequate number of effective nuclear missiles, an objective shared by Japan. The fourth challenge is the question of leadership in the region. This involves China, Japan and the US and, more specifically, how well China and Japan can accommodate each other. As noted above, this latter relationship is highly unpredictable and potentially very volatile. Despite the obvious compatibility of the two economies, twoway trade has suffered a number of problems and Japanese economic involvement in China remains far below its potential. The reasons include the normal frustrations that foreign investors face, combined with the suspicions that both countries harbour about the other as a

Foreign Policy 327 result of the 1937 Japanese invasion and China’s view that it has not yet made a satisfactory apology for its treatment of the Chinese during the occupation. The historical animosity that continue to the present mean that any incident might ignite nationalist sentiments in either country. A functioning working relationship needs to be established in order to prevent long-term uncertainty in the East Asian region. The renewal of the US–Japan security guidelines has caused concern in Beijing and has heightened its view that Japan plays an important role in US attempts to contain China. The presence of US troops in Japan and discussions of the theatre missile defence have increased these worries.

China and the United States It has become commonplace to refer to the US–China relationship as the most important bilateral relationship in the world, commonplace as it is true. It even led historian Niall Ferguson (2007) to refer to ‘Chimerica’, since the two economies had become so complementary. As he noted, the Chinese save and the US spends while the Chinese lend and the Americans borrow. However, by 2009, Ferguson felt this relationship was deteriorating, with the Chinese not only no longer willing to bankroll US debt but also deeply concerned about America’s profligate ways. This reality was at best only a temporary arrangement and the relationship has been and will be much more complex. At first glance, the relationship is a classic case of the international order seeking to accommodate the rise of a new great power. This has given rise to very different views in the US about how to deal with China’s development. The dominant view, since Nixon and Kissinger opened the way to normalizing relations, has been to seek to integrate China into the current global order. The idea is that increased engagement will ensure that China’s development is not disruptive and that even partnership will be possible. By contrast, others have argued that China’s rise is disruptive, as witnessed by its more aggressive posture in the region and the persistence of its own authoritarian political system that challenges US sensibilities on questions of human rights, intellectual freedom and Tibet. It has also breathed new life back into the notion of a ‘Thucydides Trap’ whereby the rise of a new power creates fear in existing powers and can lead to conflict (Allison, 2012). Allison highlights the two crucial variables of ‘rise’ and ‘fear’ and raises the question of whether the two nations can make the necessary adjustments to enable a peaceful transition in the world order. Despite 35 years of diplomatic recognition, the US and China have not developed a clear foundation for cooperation that provides,

328 Governance and Politics of China instead of short-term expediencies, long-term durability. The relationship is marked by mistrust and differing interpretations of the same events. Thus, while the US sees renewed assertiveness in the SCS, China sees the US mobilizing its allies to create mischief within the region. While the US sees the rebalancing of Asia as something positive that will aid regional security and reassure its allies, China sees it as part of US attempts at containment. The fact that the most visible elements of rebalancing have been military has not helped; these are the stationing of more troops in Australia, the new cooperative defence agreement with the Philippines, and the support for Abe’s desire to enhance Japan’s defence capabilities. Neither country has been able to conjure up a description that can encapsulate the relationship and give it a positive spin. Robert Zoellick’s idea of China becoming a ‘responsible stakeholder’, despite his appointment of Justin Lin, a World Bank chief economist when he was head of the World Bank, did not gain traction in Beijing. The phrase put forward at the June 2013 Sunnylands meeting between Presidents Obama and Xi of a ‘new type of great power relationship’ has not moved forward. The meeting was said to have met its objective of establishing a personal relationship. Both accepted the generally held premise that a good relationship is beneficial for both countries. There was strong agreement on the problem of North Korea, and their respective positions were outlined on the SCS and the East China Sea, US concerns about cyber security, and China’s desire for an end to arms sales to Taiwan. Certainly, the meeting presented Xi with a great opportunity to consolidate his position within China as the domestic press covered the meeting extensively to show how seriously its leader was taken by a US president. However, it is difficult to know whether that momentum has been maintained. The hope for progress, while acknowledging sharp differences, was noted by Secretary of State John Kerry in a speech at the East– West Center (Hawaii, August 2014) that stressed that a ‘constructive relationship’ was crucial to maintaining regional peace and stability. Again welcoming China’s development, Kerry noted that the US was ‘committed to avoiding the trap of strategic rivalry’ and was ‘intent on forging a relationship in which we broaden our cooperation on common interests and constructively manage our differences and disagreements’. He termed the ‘constructive relationship’ a ‘new model’ that should be shaped by better cooperation and shared challenges. However, in an appeal for China to play by the existing rules of the game, he added that this new model ‘will be defined by mutual embrace of the rules, norms and institutions that have served both our nations and the region so well’ (Associated Press, 14 August 2014).

Foreign Policy 329 The flourishing relationship in the 1980s faltered subsequently as it became clear that China’s reforms were not intended to create a liberal, free market economy that would provide an acceptable partner for the West. As China entered the 1990s, two major events significantly affected its foreign policy relationship with the US. The first was the fallout from the repression of the 1989 demonstrations that produced a strong backlash from the Western nations. The honeymoon period that China had enjoyed with the West throughout the 1980s abruptly ended and the rights abuses about which Western criticism had been muted suddenly became the focus of extensive media and political attention. It led to a US arms embargo that has not been lifted to the present. Second, the tearing down of the Berlin Wall and the subsequent collapse from power of the Soviet Communist Party dramatically affected Chinese foreign policy. China found it hard to adjust to the new world order, even more so as its leaders were used to thinking in terms of an overarching framework based on ideological premises that provided structure to policy and relationships. China had settled into a foreign policy based on the notion that international politics would be dominated by the existence of a bipolar relationship between the two superpowers. This afforded China the opportunity to play off one against the other and to create more space for itself in international affairs. With the balance upset, China began to feel vulnerable and marginalized in world affairs. The main advantage to China was that it was now free to pursue unashamedly its own national interests without reference to ideological considerations. As an internal document published shortly after the failed coup of the hard-liners in the Soviet Union in 1991 states, China needed to move away from allowing the dominance of moral judgements and ideological considerations. The drafters of this document are members of the same generation as Xi Jinping and hold similar ideas about China as a great power that deserves respect. The document calls for national interest to be first and foremost, and states that it is no longer necessary to dress up policies in socialist rhetoric. It concludes: China is a great power, it should forthrightly establish a general strategy in keeping with its great power status. Moral foreign relations cannot be conducted any longer, the principle of national interest should take the guiding role. (Translated in Kelly, 1996, pp. 13–31) This would certainly keep China from repeating the messy involvement resulting from its radical anti-Soviet stance of the 1970s when it provided support to Pinochet in Chile and to the National Union for the Total Independence of Angola (UNITA). With no superpower

330 Governance and Politics of China rivalry, China had less interest in Third World conflicts as it did not matter so much who won. This may change again over the next 20 years as China becomes more oil-dependent on the Middle East. Iran and Saudi Arabia are China’s two main oil suppliers, and imports from the Middle East account for 50 per cent of its total imports. However, in such a case engagement will be a result of pragmatic economic need rather than ideological necessity. China, as discussed below, is now heavily involved in Africa, with its natural resources and markets being primary targets for its development. China moved quickly to establish diplomatic relations with both former pro-Soviet regimes in the developing world and with the newly independent states that emerged from the break-up of the former Soviet Union. The reasons are twofold. First, China wished to deny Taiwan the chance to exploit any possibility to establish diplomatic relations. Second, in recognizing the new central Asian states, China wished to pre-empt the chance that they might become supporters of Muslim fundamentalists within the country. The first Gulf War (1991) provided China with the chance to improve its standing as a global actor and to work to overturn some of the sanctions imposed after 1989. It used its role in the UN Security Council in the offensive build-up to side with the US-led coalition. However, as it became clear that force would be used, it abstained in the crucial Security Council vote that authorized the use of force against Iraq. The overwhelming US military might that was used shocked the Chinese high command and among the leadership more broadly there was the concern that the new multipolar world it was touting would in fact be unipolar and US-dominated. As a result, no new basis for a relationship between the US and China was forged throughout the 1990s. The Chinese leadership sought, despite domestic opposition, to maintain Deng Xiaoping’s legacy of a neutral or pro-US international orientation that would help facilitate China’s ambitious plans for modernization. This meant that, despite attempts to improve the relationship on both sides, suspicions remained and unforeseen events could often set the relationship into a tailspin. On the positive side, there was: the 1994 Clinton decision to delink trade and human rights (reversing his 1993 executive order conditioning Most-Favoured Nation status on human rights, protecting Tibet’s culture and allowing broadcasts into China); the June 1998 Clinton statement on the ‘three nos’ (see below); the November 1999 agreement on the terms of WTO entry; and the signing into law in October 2000 of the provisions for China’s permanent normal trading status. The three nos were apparently communicated to Jiang Zemin by Clinton in the summer of 1995 and relayed orally during Jiang’s visit to the US and then mentioned publicly by Clinton in Shanghai

Foreign Policy 331 in June 1998. They refer to no recognition of Taiwanese independence, no support for two Chinas or one Taiwan and one China, and no endorsement of Taiwan’s entry into any international organization for which statehood is required. This abandoned the two-decadesold policy designed to preserve the right of Taiwan’s people to selfdetermination (Tucker, 2000, p. 251). This has remained policy down to the present. On the negative side was China’s general impression that it did not count sufficiently in US policy-making and the perception that the US had an active, if undeclared, policy to contain China. There was also the casual way in which President Clinton appeared to deal with the 1995 invitation of the then Taiwanese President Lee Teng-Hui to visit his alma mater, Cornell University: Chinese foreign minister, Qian Qichen, had been assured that no invitation would be issued, but President Clinton relented under pressure from Congress. This did have the effect of forcing Chinese policy-makers to realize that they had to deal with the US Congress. Previously, they had focused on the executive in the belief that the President formulated policy on China and then simply informed the legislature on it. Certainly, this had been the case previously. The Bush administration that took over in January 2001 seemed to confirm China’s worst fears as it adopted a much more confrontational stance and a seemingly more sympathetic view of Taiwan. The collision between a US spy plane and a Chinese jet fighter (April 2001), resulting in Chinese loss of life and a tense stand-off, marked a new low in the relationship. However, it also had the effect of awakening some in the new US administration to the fact that some kind of constructive dialogue with China was necessary. In diplomatic terms, China was a major beneficiary of the 11 September 2001 terrorist attacks on the US. It was hard to establish the political rhetoric of China as a threat or enemy when al-Qaeda terrorists had just flown fully loaded civilian aircraft into the World Trade Center and the Pentagon. China has been seen as cooperative in the ‘War on Terror’ and in many ways this has led to a better relationship than at any time since the 1980s (for thoughtful sets of essays, see Vogel, 1997; Rosecrance and Gu, 2009). The need for cooperation was reinforced by the issues of North Korea and Taiwan, as discussed above. In addition, both countries have a vested interest in preventing an escalation of conflict between India and Pakistan. The economic relationship requires good political relations, while there are a number of other issues on which collaboration would be beneficial, such as environmental pollution – China surpassed the US in 2009 as the world’s biggest carbon emitter. Starting with his February 2003 speech at Tsinghua University, President

332 Governance and Politics of China Bush and his administration made it clear that they wanted a positive relationship with China. The President noted that America welcomed ‘the emergence of a strong and peaceful and prosperous China’. Strong voices on both sides doubt this, and in China US attempts to remain the one dominant superpower are viewed with alarm. With US troops stationed in Afghanistan, Iraq and central Asia, as well as its traditional bases in Japan and South Korea, it is feared that a possible collapse of North Korea would bring US troops right up to the Chinese border. The Bush administration did work to improve the relationship and in December 2005 the then Deputy Secretary of State, Robert Zoellick, clearly outlined that the strategy of engagement had been correct and encouraged China to become a ‘responsible stakeholder’. This reflected the view that this would encourage China to work with the US and others to sustain, adapt and advance the peaceful international system that has enabled it to succeed economically. The more China was bound into the existing international architecture, the more likely it will be a responsible international citizen (for a contrary view see Mann, 2007; for a sympathetic view see Lampton, 2001b and 2007). The Obama administration inherited a reasonable legacy that it has tried to build on this view but, as suggested above, progress seems to have stalled. Obviously, the administration also inherited the problem of the wars in Afghanistan and Iraq and the major foreign policy priority was to extricate US troops from the conflict and to try to find an abiding solution. It proved much easier to enter than to extricate itself from the conflict. Despite the stated desire to ‘rebalance’ or ‘pivot’ to Asia, most US diplomatic efforts have been focused on the two wars, the unexpected events in Libya and Syria and ISIS, the ‘Arab Spring’ and, of course, trying to find a solution to the Israeli-Palestinian problem. This has left little time for creative thinking on the question of the US relationship with China, despite its obvious importance. Policy has been dominated by response to immediate events while ‘rebalancing’ has reinforced China’s fears of ‘containment’ and has raised unrealistic expectations among US allies in the region about what the US might actually do. A number of key challenges remain. It is clear that the growth of China’s economy and its strong and quick rebound from the 2008–09 financial crisis have made it more assertive in terms of what it seeks from its relationship with the US. China no longer considers itself a junior partner and is not willing for the US to dictate the terms of the relationship. This requires a psychological shift on the part of the US. To maintain the broader focus of the relationship, the two countries have established the annual Strategic and Economic Dialogue, which first met in July 2009 and is a successor to the Strategic Economic

Foreign Policy 333 Dialogue begun by the Bush administration in 2006. This broadens the agenda of summit meetings from their earlier focus on discussions of human rights, nuclear proliferation and trade to include a range of global issues. The ‘strategic track’ is led on the US side by the Secretary of State and covers political and strategic issues. The ‘economic track’ is led by the Treasury Secretary. President Obama’s visit in November 2009 covered a similar broad agenda without resulting in any specific progress. The delicate balance that needs to be struck between satisfying allies and not antagonizing China was evident during President Obama’s four-nation (Japan, South Korea, Malaysia and the Philippines) Asia trip in April 2014. In Japan, Obama guaranteed that the US would defend Japan in a territorial dispute while he urged the country to show restraint. At the same time, he tried to reassure China that he wished for a good relationship. He attempted to maintain a similar balance while in South Korea. While on tour he stated clearly that ‘we are not interested in containing China’ and he expressed the hope that China’s ‘peaceful rise’ would be as a ‘responsible and powerful proponent of the rule of law’, which would require China to ‘abide by certain norms’. That the trip was not intended to contain China was not shared by Chinese analysts and the idea was even more difficult to maintain while he was in the Philippines. The visit concluded a tenyear pact to provide the US military greater access to the Philippines, although it fell short of re-establishing the military bases. China’s response was that the Philippines was a ‘troublemaker in the SCS’ and it was very critical of US intentions, claiming that they might ‘embolden Manila in dealing with Beijing’ (Xinhua, 29 April 2014). Thus, distrust remains on both sides. Tsinghua Professor Yan Xuetong captures the Chinese perspective well by stating: ‘we are business partners who share material interests rather than common values’ (quoted in the Wall Street Journal, 9 November 2009). However, this does not mean that there are no grounds for discussion and agreement even if these fall short of an ideal relationship. As Douglas Paal (1997), now vice president for studies at the Carnegie Endowment for International Peace, noted: ‘China will be likely at most a source of “problems” for America, not a “threat”. And problems can be fixed’. They do require effort and mutual respect. In addition to the territorial disputes and the North Korean nuclear proliferation problem discussed in the previous section, there are two traditional issues that have caused disputes: human rights practices, and trade and related economic issues. The question of human rights has become a major issue in the relationship since 1989. The breakdown in bipartisan support for constructive engagement with China has led to a more powerful voice for human rights activists

334 Governance and Politics of China and religious groups critical of China’s record. This includes: groups focusing specifically on China, such as Human Rights in China; groups that have a broader mandate with a particular concern about China, such as Human Rights Watch; and labour unions and Christian groups that are concerned about persecution of believers in China. There is also a strong lobby that is concerned about the situation in Tibet and what is seen as the destruction of Tibetan culture and the swamping of Tibet with ethnic Han Chinese. On the whole, attempts by the US government and private organizations to make any headway in these areas have been unsuccessful, with the exception of a few cases of engineering the release of particular individuals. Importantly, in 2003 the Bush administration took a new approach and did not sponsor a motion critical of China’s human rights record at the Geneva meeting of the UN Commission on Human Rights. European nations had long decided that this was a fruitless gesture that only made building relations with China even more difficult. The administration decided to heed China’s comments that not exerting public pressure but engaging in quiet diplomacy would bring greater progress. This US move was also intended to give China’s new leadership a chance to ameliorate the situation without appearing to succumb to pressure. With the revival of bipartisan support for trying to develop a more comprehensive relationship with China, the space for human rights organizations to influence US policy has shrunk and the Obama administration has made it clear that no one issue will dominate the bilateral relationship. Second, there are a number of frictions regarding trade and investment, not all of which have been improved by the WTO agreement. Despite the omnipresent McDonald’s in urban China, US businesses have complained of the hidden barriers to entry into the country and the hope that WTO rules on transparency would clear for them a path that has not been fully realized. In particular, US companies have complained about piracy that has resulted in significant annual losses for them and, more recently, about cyber theft. The periodic highprofile crushing or burning of pirated materials and collaboration with Pinkerton’s in China has not stemmed the growth of piracy. In contrast, the Chinese have complained about US restrictions on technology transfer from the US, with the latter often holding back on the most advanced technology not only for commercial reasons but also because of concerns about military adaptation. Chinese officials regularly claim that, if the US wants to reduce the trade imbalance, allowing exports from the US in this area would have a significant impact. Although China is now the second-largest trading partner of the US, there has been considerable friction about the level of the US trade deficit. This mirrors earlier US concerns about Japan and Taiwan. With Japan and Taiwan now moving up the development chain, much

Foreign Policy 335 of the anger now focuses on China using its cheap labour to promote exports of goods, such as toys, clothing and electronic goods. No one can deny that the deficit has risen rapidly as China’s exports boom, but there are considerable differences about how the deficit is calculated, whether it is structural and will continue to grow, and who is the beneficiary. When China entered the WTO, the US trade deficit with China was $83 billion (in 1980 the US had a small trade surplus of $2.7 billion). But this figure skyrocketed to $318.7 billion in 2013, although it now seems to be stabilizing. Robert Scott has calculated that the deficit between 2001 and 2011 eliminated 2.7 million US jobs, 2.1 million of which were in manufacturing ( bp345-china-growing-trade-deficit-cost/). Chinese estimates of the deficit are much lower. Independent assessments that discount factors such as re-exports through Hong Kong (half of the bilateral trade) and discount the value-added that accrues to US companies producing in China also produce a much lower figure than the US official statistics. The fact that a significant amount of exports to the US are from US-invested firms is distinct from Japan’s exports to the US, which are made up almost entirely of local products manufactured by their own companies. The production of iPhones provides a good example. About one dozen companies from five different countries provide components for the iPhone, but China is not one of them. These parts are assembled by a Taiwanese company, Foxconn, in its massive plant in Shenzhen. When shipped to California, each one is registered as a $200–$275 import, thus adding some $6 to $8 billion to the trade deficit. Yet, only $10 or less in direct wages is paid to the Chinese workers (Kraemer et al., 2011). There has been a strong voice in the US complaining that the root cause of the deficit is the value of the Chinese currency that makes US exports too expensive and has contributed to the undermining of manufacturing. China does not have a market-based floating currency and, between 1994 and 2005, it pegged its currency to the dollar at a rate of 8.28 yuan. Some analysts have complained that by 2005 it was undervalued by anywhere between 15 and 30 per cent. The US has consistently pressed China to revalue the currency, something that China’s leaders resisted as they feared it might lead to a decline in exports and cause domestic instability. However, in July 2005 the value was appreciated by 2.1 per cent when China moved to a managed floating rate based on a basket of major foreign currencies (but still dominated by the dollar). By September 2014, the value of the yuan (renminbi) had risen to 6.2 to the dollar, causing a lull in debates within the US Congress calling for a revaluation. It is interesting to note that, even at the height of the debates about the value of the Chinese currency, the Bush administration never cited the Chinese

336 Governance and Politics of China government for currency manipulation. The Obama administration followed suit. The non-convertibility of the Chinese currency has meant that there are high costs for sterilizing the currency, which has led to the build-up of massive foreign reserves that China has then reinvested in purchasing US debt. By September 2008, China had overtaken Japan as the largest holder of US Treasuries. By April 2014, it held foreign reserves amounting to $3.95 trillion, an all-time high, of which two-thirds are thought to be in dollars and one-quarter in euros. Over the last 15 years, this system had worked well both for US consumers and for Chinese growth. China recycled the money it earned from exports to buy US debt, allowing the US to keep interest rates low and permitting US consumers to continue to buy cheaply produced Chinese imports. However, the 2008–09 financial crisis upset this cycle, raising concerns from both parties. Some in the US are worried that Chinese control over US debt may give it undue leverage with respect to US domestic policy decisions. China’s leaders are concerned about US profligacy and the fact that over time a massive bail-out may lead to inflation in the US or a large decline in the value of the dollar, both of which would cause a drop in the value of the Chinese-held assets. To receive better returns on their dollars than from buying US Treasuries, China set up a sovereign wealth fund so as to invest more effectively. It is also clear that China’s leaders feel that a fully convertible currency is part of being taken seriously as a great power. While the renminbi has been convertible on the current account since December 1996, the Asian financial crisis set back its attempts to make the currency fully convertible by 2000. Since then, China has moved very cautiously, but in January 2011, the head of the State Administration of Foreign Exchange claimed that this objective would be achieved by 2016. Slowly, the currency has been made available in markets outside of China and, in March 2014, it was announced that the Shanghai Free Trade Zone would be the test-bed for currency convertibility. To this agenda can now be added positive areas for cooperation, such as climate change and energy development. In August 2014, Secretary of State John Kerry highlighted the importance of cooperation in this area, hailing US–China initiatives to reduce greenhouse gas emissions and deforestation as well as working on sustainable, clean energy outcomes (Associated Press, 14 August 2014). The US and China together account for 40 per cent of the world’s greenhouse gases, with China taking over in 2009 as the main emitter of carbon gases. It is clear that there can be no meaningful global agreement on climate change without the cooperation of these two economic powerhouses. However, while the Obama administration is taking global warming far more seriously than the Bush administration did, it shares the view that

Foreign Policy 337 America will not agree to cap emissions without similar commitments from developing countries such as China. China, for its part, does not want to be seen bending to US and Western pressures on this issue and shares the view of other developing countries that it should not be expected to match US actions and that the developed economies should make significant payments to help transfer the necessary technologies to the developing countries. The importance of this aspect of the relationship is indicated by the fact that, of the 116 outcomes agreed in the 2014 US–China Strategic and Economic Dialogue, almost one-half were related to energy, climate and the environment. Mutual understanding on climate change has improved since the 2009 UN Conference on Climate Change in Copenhagen that revealed frictions and produced an inconclusive outcome. The climate change working group that was established in April 2013 has launched six action initiatives: reducing emissions from heavy duty and other vehicles, smart grids, carbon capture, utilization and storage, energy efficiency, and collecting and managing greenhouse gas emissions data. The main route for reducing energy effectiveness and energy independence are through increasing efficiency. The Chinese economy produces one-quarter of the economic output of the US, yet uses three-quarters of the energy of the US. Thus, China’s legacy of industrial development has an energy intensity three times that of the US. By contrast, the Japanese economy is one-third the size of that of the US, yet it consumes only onefifth of the energy of the US. China has recognized this problem and is now investing heavily in renewable energy, with targets not far behind those of the European Union. In 2013 China ranked first in terms of the amount invested in renewable energy (US$56.3 billion), 61 per cent of the investment by all developing countries. This was at a time when global investment had dropped, meaning that China is now home to almost 25 per cent of the world’s renewable power capacity (Forbes, 17 June 2014). China is rapidly developing wind and solar power and intends that these should provide 15 per cent of its total power supply by 2020. China is already the world’s leading renewable energy producer in terms of installed generating capacity, with the largest hydroelectric sector and the fifth largest wind power sector. Further, it is the world’s leading manufacturer of solar photovoltaic technology and is vying to take the lead in other critical renewable and low-carbon technologies, such as solar water heaters, energy-efficient home appliances and rechargeable batteries. These developments provide the potential for fruitful US–China cooperation. The Chinese leadership under both Hu Jintao and Xi Jinping has tried to raise China’s international profile and knit together its own set of strategic alliances. The leadership desperately wants to believe

338 Governance and Politics of China that the world can be multipolar, even though this view is ridiculed by some of the country’s own academia. It has led to attempts to breathe new life into the relationship with Russia and thus Xi’s first overseas trip, in March 2013, was to Moscow. Western sanctions against Russia have pushed President Putin to seek a closer relationship with China. During his May 2014 visit, a ‘new stage in Russian–Chinese relations of comprehensive partnership and strategic interaction’ was announced. This was underpinned by joint naval exercises around the Diaoyu/Senkaku islands. Despite this declaration, it is clear that for both the relationship is secondary to that with the US.

China’s foreign economic relations One of the most striking aspects of the pragmatic post-Mao foreign policy has been the important role that economic factors have played. As late as 1977, the Chinese press was insisting that the country ‘would never receive foreign loans’ and ‘never allow foreigners to meddle in the management of our enterprises’. Despite the occasional hiccups and the frustrations of many foreign business investors, the speed of change has been staggering. Beginning in 1979 Chinese development strategy shifted from import substitution, the privileging of accumulation over consumption and viewing foreign trade as irrelevant to economic growth, to active interaction with the world economy in which foreign trade – and, latterly, investment – were seen as major engines of growth. China entered global markets at a fortuitous time, and with its cheap and abundant labour supply benefitted from the rapidly unfolding globalization of the manufacturing process, rapid strides in telecommunications and the internationalization of capital markets. The economic figures speak for themselves and the effects of WTO entry have been dramatic. The ratio of foreign trade to GDP rose from 12.6 per cent in 1980 to a record high of 67 per cent in 2006 as a result of WTO entry, before declining to 47 per cent in 2012. Export dependence was 24.9 per cent and imports 22.1 per cent, making China the largest exporter and the second largest importer. In the month of July 2014, China’s trade surplus was US$47.3 billion. In 2013 its trade surplus was US$295 billion, up from US$22.5 billion in 2001 but down from the peak of US$298.1 billion in 2008, though this was a marked recovery from the low of US$154.9 billion in 2011. The desire for foreign technology combined with the constraints at the end of the 1970s meant that China turned to a variety of methods, both commercial and non-commercial, as well as boosting trade (for the politics on this, see Howell, 1993). The first major step was the adoption in 1979 of the Joint Venture Law, amended in 1990, that

Foreign Policy 339 not only led eventually to equity joint ventures but paved the way for the establishment of contractual joint ventures and wholly owned foreign enterprises. This was China’s first foray into the world of FDI. It also began to take medium and long-term loans on generally favourable terms from foreign organizations, governments and international organizations, such as the IMF and the World Bank. In 1986, the passage of the Law on Wholly Foreign-Owned Enterprises marked a further step in the acceptance of foreign capital as a key plank in its development policy. Especially important was the decision in 1980 to establish the four special economic zones (SEZs) (Shenzhen, Zhuhai, Xiamen and Shantou) to function as export processing zones. They were important as pilots of reform for the rest of the Chinese economy and many new laws and regulations were tried out there. The more flexible policies were extended to 14 coastal cities in April 1984 and to Hainan island, which in 1988 became an independent province and was accorded the same privileges as the original four zones. The strategy evolved by January 1985 to establish three large development triangles along the coast, based around the Pearl River Delta, the Min River and the Yangzi River. The Yangzi development was seen as part of the resurrection of Shanghai as a key financial and trading centre, with the development of Pudong as the focal point. The zones were to operate as a ‘window’ for the introduction of technology, management techniques and information. The belief was that the benefits would ‘trickle-down’ to the hinterland of China. At the 1989 NPC annual meeting Premier Zhao Ziyang’s ‘coastal-strip strategy’ was accepted. However, it was not without critics and even at the NPC meeting 300 voted against and 700 abstained. Essentially, the poorer areas were disgruntled with what they saw as the continued preferential treatment of the already wealthy areas. Others criticized the economic benefits as negligible; they complained of the diversion of large amounts of funds to develop infrastructure and communications in the zones in exchange for which little advanced technology was brought in and with only a small fraction of total output being exported. Last, but not least, there were attacks on the zones as carriers of a variety of ‘bourgeois’ afflictions that would undermine the communist edifice. However, the zones survived such attacks, despite the 1989 crackdown and the removal of Zhao Ziyang. Rapidly, their ‘specialness’ became commonplace as many provinces and even towns took their own initiative to open free zones for foreign investors, even when there was no legal basis to do so. At the end of the 1990s, in its efforts to develop the western part of the country, the government formally allowed localities to increase the tax benefits for foreign investors. Many have been dazzled by the levels of FDI entering China and most multinationals have been keen to gain a foothold in the Chinese market,

340 Governance and Politics of China but China’s experience with FDI has been more nuanced than the headline figures reveal. This has been persuasively argued by Yasheng Huang (2000, 2003) that the large amount of FDI reveals a fundamental weakness, rather than strength in the Chinese economy. While there was gradual growth through the 1980s, Huang shows that the real take-off occurred between 1992 and 1994 and that the institutional imperatives on the Chinese side for FDI did not necessarily match the intentions of its central policy-makers. As noted above, the rationale for opening up to FDI was to bring in advanced technology and capital. Huang concludes that policy has failed to import technological hardware but that the picture is mixed with respect to factors such as the acquisition of new organizational techniques and managerial skills. Most of the enterprises that have foreign investment are labour rather than technology-intensive. Even in Shanghai, 80 per cent of such enterprises are judged to be labour-intensive. Certainly large amounts of foreign capital have come in, but this has occurred at a time of a general significant rise in capital flows to the developing countries. As we have seen, the primary use of FDI is often to evade restrictions on domestic enterprises, thus suggesting that it may not be being used optimally. Getting FDI to flow to the private sector of the economy where it could be used more effectively has been more difficult. The last vital component of the early policy to open China’s economy and to integrate it into the world economy was the decentralization of the foreign trade apparatus and the various reforms that stimulated a massive increase in foreign trade. By the end of the 1990s it had become apparent that the success of China’s overall reform objectives would be influenced significantly by international factors outside of its control. This was already the case before the agreements were reached between it and its major trading partners regarding WTO entry. The policy of raising foreign capital through the production of export goods depends on the health of the international economy and especially the views of the US Congress, while the need for advanced imports of foreign technology depends on the status of Western import controls, a fact that was brought home to Chinese leaders during the brief period of sanctions after 1989. There is no doubt that China is now integrated with the global economy and the fate of its domestic reforms is now more dependent than ever on trends in the international economy. However, the point should not be exaggerated as, while trade and foreign investment are important, they should not be overstated because China is a continental-size economy. Thus it was able to avoid the worst impacts of both the Asian financial crisis and the global financial crisis. China’s development has had a number of other important impacts. First, its economic growth has led to major imports and investments

Foreign Policy 341 in natural resources and the energy sector. The search for natural resources has pushed China into new markets in Africa. Second, there has been a major move for Chinese enterprises to invest overseas under the government’s policy of ‘going out’. Third, to receive better returns on its currency reserves, China has set up the world’s largest sovereign wealth fund: the China Investment Corporation (CIC). Since the turn of the century, China has also become a major player in terms of overseas investment. Importantly, the nature of that investment has undergone significant changes over the last 15 years and the view of its engagement as state-led and focused merely on natural resource extractions is outdated. It is true that China’s overseas investment began with the green light from the central government when it announced its ‘Going Out Policy’ at the March 2000 NPC meeting. Initially, policy clearly favoured the SOEs, with a priority list that would enable them to access low-interest loans and subsidies that they could draw on from the official aid programmes. Two policy banks provided most of the financing and support: the China Development Bank and the China Export and Import Bank. Reforms in 2004, 2009 and 2011 decentralized application procedures, eased foreign exchange controls and provided strong financial incentives (for details, see Tong, 2014). In April 2014, the National Development and Reform Commission (NDRC) announced new regulations that would facilitate mergers and acquisitions (M&As) overseas. Previously, the process was very cumbersome, with approval required from the NDRC for projects valued over $300 million for natural resources and $100 million for other projects. Further approvals were required from the Ministry of Commerce and the State Administration of Foreign Exchange. For SOEs, there was the added burden often of SASAC approval. Now, new M&As under $1 billion only have to be reported to the NDRC, while those over $2 billion need to be approved by the State Council on recommendation from the NDRC. In addition, the new regulations set a limit of 20 days for approval after submission. However, projects in ‘sensitive countries and regions’ and sensitive industries (telecommunications, water management, large-scale land development, electric power transmission, and the news media) are still to be subject to prior review. As a result, Chinese outbound investment has boomed and it is now the number-three source after the US and Japan and is likely to become the main source in the near future. The ratio of inbound FDI to outbound investment has dropped from 20:1 in 2002 to 1.3:1 in 2012. The amount has increased from $800 million in 1980, to $2.5 billion as the ‘Going Out Policy’ was getting underway in 2000, to $101 billion in 2013. This represents 7 per cent of the global total. China is now active in every area of the globe and the structure of its

342 Governance and Politics of China investment has changed. Thus, while mining comprised two-thirds of its investments in 2006, it dropped to only 15 per cent by 2012 (ibid., p. 4). Similarly, the share of SOE investments fell to below 60 per cent in 2012. In absolute numbers, but not total investments, non-state players dominate. This has comprised high profile M&As, such as Lenovo’s acquisition of IBM’s personal computing, Geely’s acquisition of Volvo cars, Wanda’s acquisition of AMC cinemas, and Shuanghui’s acquisition of Smithfield foods. With the new regulations, we can expect more such M&As in the future. As China seeks to acquire more assets in the US, this might create the kind of frictions that one witnessed earlier with the Japanese purchase of landmark buildings such as the Rockefeller Center in New York, and tensions are bound to increase. Concerns have already been raised over security issues, with projects being referred to the US Committee on Foreign Investment. Chinese buyers are also becoming a dominant player in the US real estate market, jumping ahead of Canada in 2014 as a major purchaser. They bought $22 billion worth of property in the 12 months prior to March 2014, accounting for 24 per cent of all foreign purchases. It will be interesting to observe how the politics of this plays out. Despite the tensions in the US–China relationship, the US is still a favourite destination for Chinese capital, tourism and study. In 2012–13, 235,597 students came from China to study in the US, the most foreign students from any one country and representing 28.7 per cent of the total. India was second with 11.8 per cent of the total. With the importance of Chinese investment, all US states have representative offices in China, as do many cities, in order to court Chinese entities. With states actively pursuing Chinese investments, this might create differences in incentives between many locally elected officials and the federal administration, and possibly also for senators who might feel more compelled to take a tougher view of China. Certainly, it will produce a different response from those states that may feel they have lost manufacturing jobs to China and those that are seeking new Chinese investment. China’s search for raw materials to maintain its economic growth has had a major impact on rejuvenating its relationship with Africa. Since 2001, there has been an enormous growth in trade, especially in the import of natural resources and the export of Chinese products (for an interesting exploration, see The China Quarterly, 2009 and also Rotberg, 2008). China has become Africa’s largest trading partner, and of the top five in Africa, four of them are crude oil exporters, the one exception being South Africa where crude oil only accounted for 3 per cent of exports in 2007. In 2011, over 80 per cent of China’s imports were still crude oil, raw materials and resources. However,

Foreign Policy 343 with a trade volume reaching $20.2 billion, this amounts to only 4 per cent of the trade with the European Union (Sun, 2014). The fact that China is also taking crude oil from Sudan and the Congo has led to criticisms by some in the West that it is propping up regimes with terrible governing records. This has been heightened by China’s expressed commitment not to attach conditionality to its loans and investments and not to criticize the governing practices of countries with which it trades. This is, of course, not entirely true as China has made it clear that its benefits will extend to only those countries in Africa that do not recognize Taiwan and are not overly critical of its own practices. However, as noted above, with China as a late developer and with many mature markets already dominated