Category Archives: Politics & Society

Gauging Hong Kong

THE TURNOUT FOR Hong Kong’s annual July 1st rally in support of the territory’s continuing autonomy was the largest in a decade.

This year’s protest had added appeal as a way for Hong Kongers to show their distaste for Beijing’s recent white paper on the former British colony. This was read as foreshadowing tighter political control from Beijing and a less independent judiciary in a more-rapid-than-expected convergence of the two systems in the “one country, two systems” arrangements that now prevail.

Such proposals do not suggest that Beijing has a sure feel for Hong Kong’s political pulse. Hong Kong’s ultimate destiny is to be just another big city in southern China. Getting there will be bumpy unless Beijing demonstrates a more deft political touch.

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Xi Jinping’s High-Stakes Tiger Hunt

GEN. XU CAIHOU, one of the PLA’s most senior officers, is not the first “tiger” to be trapped by President Xi Jinping’s anti-corruption drive. He joins Wang Yongchun, deputy head of state energy giant China National Petroleum Company (CNPC), and Jiang Jiemin, former head of the state asset regulator, in being newly expelled from the Communist Party for corruption and abuse of power — a fate also expected to befall former Politburo Standing Committee-member Zhou Yongkang, who once presided over the state’s security apparatus. Were Zhou to be put on trial for corruption he would be most senior leader to face such charges since the Communists took power in 1949, and a significant escalation from last year’s prosecution of former Chongqing Party chief Bo Xilai who was merely a Politburo member.

Nor is Xi’s anti-corruption drive the first to be undertaken by a new leader. His appears to have more legs to it it than those of his predecessors. There have by this Bystander’s best count been some 180,000 cases of actions against officials, military officers and state-sector corporate executives big (“tigers”) and small (“flies”).

Not only has Xi to consolidate his power and make his mark in the  faction-riddled internecine warfare of China’s internal politics, but he also is determined to clean up the image of the Party and to push ahead with economic reform. He believes the first is necessary if the Party is to retain the fast-evaporating trust of ordinary Chinese, on which the Party’s claim to monopoly rule hinges, and the second is necessary to deliver the continuing rise in living standards that are also an essential part of the bargain that allows no political competition to the Party.

There are lots of powerful people in the three most important and tightly interlocked strands of Chinese political life, the Party and the government, the military and the state-owned enterprises whose wealth is far from clean and who have a vested interest in retaining the economic status quo that has provided the opportunities for them to gather that wealth. Xi is both taking out highly symbolic kingpins as well as their underlings who are fast losing the political patronage that has hitherto protected them.

Xi needs to do this if he is to be serious about regenerating trust in the Party and pushing through economic reform. He has to create large breaches in the old guard through which he can drive the forces of change. But he faces three risks. First, he has broken the taboo against going after the families and wealth of the inner circle of China’s leadership; that may provoke a backlash against him. Second, there is a question of how much damage the Party’s reputation can sustain; how many bad apples can be thrown out before the whole crop is considered rotten? Third, he fails to put in place in the Party, government, the military and the state corporate sector systemic mechanisms to regularly detect and prevent corruption in the first place, backed up by an independent judiciary and a free press.

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This Day In History

This Bystander is reminded today not so much, as the former British prime minister Winston Churchill said, that history is written by the victors as that the victors get to choose whether it is written at all.

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Just How Good A Gas Deal Is Beijing Getting From Moscow?

THE KEY NUMBER we don’t know in China’s insert-your-own-very-large-number-here energy deal with Russia is the unit price state-owned China National Petroleum Corp. (CNPC) will be paying.  CNPC has finally signed the agreement to buy up to 38 billion cubic meters of natural gas a year from Gazprom for 30 years starting in 2018 (a new pipeline has to be built first). This Bystander hazards a safe guess that Beijing has got itself a very good deal.

The sale has always been necessary for Moscow to wean itself off its dependence on European markets for its energy sales, but merely convenient for Beijing, which has several sources other than Eastern Siberia from which it can meet its growing need for energy, especially cleaner energy than can be generated from its indigenous coal. After 10 years of negotiations between CNPC and Gazprom that have mainly been haggling over the formula that will determine the pricing, all that has changed is the situation in Ukraine. That has given a renewed sense of urgency to Russia’s need to secure non-European markets, while President Vladimir Putin’s two-day visit to China provides the platform from which to announce the deal with political benefits to both himself and his host. President Xi Jinping and CNPC’s chairman Zhou Jiping will have taken full advantage of that.

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Environmentalists’ Political Threat To China’s Communist Party

ENVIRONMENTAL PROTESTS ARE of even greater concern to the leadership of China’s Communist Party than the threat of domestic terrorism. For one, they are far more widespread. The violence that broke out on May 10th in Zhongtai, a township outside Hangzhou, at a demonstration against building a waste incinerator there, may have been untypically bloody, but such protests in themselves are far from uncommon. Tens of thousands occur every year across the country.

The annual numbers are rising at a marked rate as far as we can tell. Some like one last year against China National Petroleum Corp.’s plans to build a petrochemical plant in Kunming gain international attention, but most remain local affairs. Nor do most secure more than get a delay to the unwanted project. Last year’s cancellation of a proposed lithium battery factory in the Songjiang district of Shanghai following large-scale protests was an exception rather than the rule.

Nor can the authorities point at the finger of blame on outside agitators, as they can do with the recent knife and bomb attacks blamed on militants from Xinjiang — though this Bystander will not be surprised to see the 50-centers on social media and their equivalent official unofficial voices in the public prints doing just that with environmental protests. There is too large a slice of China’s middle class concerned about the environmental degradation that has come with economic development for authorities to crack down on them all. Surveys of public opinion suggest that three-fifths to three-quarters of the public want the government to do more to improve the environment, and particularly to lessen pollution.

There is nothing exclusively Chinese about demonstrations against development projects by those who don’t want them in their backyards regardless of the greater benefit to a broader society. Incinerating waste rather than burying it in landfills and using the energy created as an alternative to coal-burning power generation plants is net for net an environmental gain for Hangzhou and the rest of the eastern China seaboard. Zhongtai residents are more narrowly concerned that what would be Asia largest incineration plant will further pollute their air and contaminate their water.

For the leadership, the long-term threat is that environmental protests will be the kernel form which a political party could grow to challenge the Party’s monopoly on political power. That is one reason it has allowed so many environmental protests to proceed for as long as they remain relatively local and peaceful.  Indeed, thousands of residents have been protesting against the planned incineration plant in Zhongtai for the past couple of weeks.

What the leadership will not tolerate is attacks on symbols of national authority such as police. That puts it on a slippery slope. Throwing a dragnet over the Zhongtai in a search for 15 men suspected of involvement in Saturday’s violent clashes with riot police is meant to show that the leadership will tolerate only so much dissent — and that that has to remain local and disorganized.

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Lessons Of Kunming Station

THE SINGULARITY OF the knife attack at Kunming station makes this Bystander wary of extrapolating its impact on both the public and authorities — and in particular whether it represents an escalation of Uighur dissent against Beijing that will require an escalation of the authorities’ efforts to suppress it.

Twenty-nine people were reportedly killed and more than 130 wounded, 20 still critically so, when a group of masked assailants wielding long knives hacked at the crowd of train travelers on Saturday evening. Police shot dead four and took one suspected assailant, reportedly an injured woman, into custody. The remainder, said at the time to number five, fled. Authorities now say it was three and that they have all been captured.

The attack was blamed in short order on separatists from Xinjiang. No evidence has been offered so far to support that claim. Equally there is nothing to discount it.

Beijing has been fighting a low-level but increasingly violent insurgency in its natural-resources-rich western reaches for decades. The 8.4 million-strong Uighur minority in Xinjiang, mostly Turkic Sunni Muslims, though far from universally supportive of the tiny separatist groups, resents the growing Han dominance of the province. It feels its culture and economic prospects being increasingly diminished. Anti-Han riots in Xinjiang’s capital, Urumqi, left some 200 dead in 2009, and ushered in another crack-down by Beijing as well as the installation of 40,000 riot-proof cameras on the streets of the city.

The Kunming station attack set several precedents, if it indeed was by Uighur separatists. First, the casualty toll was far greater than in previous attacks. Second, the attack was against the public rather than police or officials. Third, it took place in Kunming, capital of southwestern Yunnan and more than 1,000 miles from Xinjiang, though there was a suicide car bombing in Tiananmen Square late last year, said to have been carried out by Uighurs.

State media are being made to walk a fine line between reporting a deadly act of terror that has shocked China and keeping questions from being raised about why the authorities didn’t prevent it happening in the first place and why Uighurs are so resentful of Han Chinese. Staging the attack in the openness of a large railway station makes it more difficult for officials to control the information flow; the first pictures of the event were posted widely on social media, and bloody. The most gruesome have been taken down. Online comment has been curtailed.

The openness of the attack also makes it more difficult to control the public narrative about the event. Hitherto, the state narrative has portrayed ethnic-religious violence in the country as terrorism originating outside China. The finger has been readily pointed at places such as Pakistan, Turkey and, more recently, Syria. The point being made is that it is not home-grown. This has proved an effective tactic for making it more difficult for dissenting ethnic minorities within China to make common cause.

Early comments in state media about the attack being “China’s 9/11” have been toned down. Such remarks misunderstand both the 9/11 attacks in the U.S. and the one in Kunming station. Washington has, however, changed its description of the Kunming station attack from an act of violence to an act of terror. Beijing will welcome that as an aid to its portmanteau crack down on dissent — and to its continuing struggle with Washington over the issues of human rights. That may turn out to be the Kunming station attack’s most lasting impact.

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Xi Jinping’s Fast First Year


Xi Jinping

AS THE NEW YEAR festivities wind down, this Bystander is looking ahead to the first anniversary next month of Xi Jinping assuming the presidency of China.

In effect, Xi has been China’s leader since taking over as Party general-secretary 14 months ago. He has since consolidated his power far faster than most expected and centralized his control over the parts of the body politic and economic he most intends to change. He is a throwback, in that respect, to the strongman leadership of yore after the decade of consensual leadership of his predecessor, Hu Jintao. It is, perhaps, what China needs if it is to steer itself through what will be a critical decade of transformation for both the country and the Party that has exercised monopoly rule over it for more than 60 years.

Xi  moved quickly and decisively to take charge of the tiller. He has set his course for rebalancing the economy in the way necessary if China is to reach the next level of economic development. What is unknown is the extent to which factional political resistance will cause him trouble along the way regardless of his tightening of control over the bureaucracy and Party officials. Indeed, that very tightening could cause a troublesome backlash. One reason for Li Keqiang’s diminished role in managing the economy compared to his predecessor Wen Jiabao is that his principal role now seems to be managing coordination throughout government to ensure the successful implementation of Xi’s reform program.

More clear, though equally unquantifiable, is the risk of foreign affairs blowing Xi unexpectedly off course. The South and East China Seas are the obvious cases of troubled waters. Yet Xi is encouraging the modernization of China’s military and the concomitant extension of the People’s Liberation Army’s global reach. It is part of the price, willingly paid by Xi, it should be said, to secure the military’s support. However, the PLA has national ambitions of its own, and what is seen domestically as the improvement of the PLA’s technological and operational capabilities is readily seen elsewhere as an assertive flexing of military muscle. That is never without risk, and especially in a region that contains a long-standing rival in Japan, an unflinching one in Vietnam and an unpredictable one in North Korea.

Xi has been able to play the dangers of an unexpected economic blow-up to his immediate advantage. The local government debt bomb puts in harm’s way big state owned financial institutions and local governments — to which are attached many of the vested interests that would be potential losers from economic reform. That has let Xi start to tackle the broader fragilities of the banking system and its shadow by expanding financial services and making interest rates more market-driven. That, in turn, is the gateway to the structural reforms needed to address the economy’s distorted price incentives and capital misallocations, and to give the private sector a bigger role.

It will not be plain sailing. There will be defaults and failures with political fallouts to navigate. The global economy will provide squalls. Xi’s rapid centralization of power will make it easier for him to drive the recalcitrant at home into line. His new leading group to coordinate the rebalancing of the economy along with his anti-corruption campaign reaching into even the most powerful state-owned enterprises sends strong signals of top-down political intent to officials, while the new National Security Commission is intended to stifle any bottom-up activism or popular unrest that threatens to compete with Xi’s course of reform.

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Is The Committee For ‘Comprehensively Deepening Reform’ Forming?

Is this the committee for ‘comprehensively deepening reform’ that came out of the Third Party Plenum? Or at least its vanguard? A group of 28 senior officials, including ministers, vice-ministers, and provincial party bosses has met under the chairmanship of propaganda chief and Politburo Standing Committee member Liu Yunshan. State media say the committee is charged with promoting the reform plan put forward at the plenum, and will start a tour of the country to that end at the end of the week. It comprises a lot of heavyweights just for a PR push.

Liu is a protege of former President Hu Jintao and similarly comes out of the Party’s Youth League, the faction of its career officials. That should aid him in coordinating reforms, if that indeed is his role, across the many agencies of government at national, provincial and local level, all of which have great scope to be obstructionist where they feel their interests are at risk. Liu’s team appears to be reporting to President Xi Jinping. If this is indeed going to be steering committee for reform, putting of it under direct presidential report is another example of how Xi is centralizing power and thus tightening his political control.

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China’s Starts To Detail Its Long-Term Economic Reforms

The first steps in the long, hard slog to implement giving markets a “decisive” role in China’s economy have been taken with the publication of a raft of detailed measures that flesh out the communique issued after the Third Party Plenum. While easing the one-child policy and ending labor camps are grabbing the international headlines, the overwhelming majority of the measures directly affect the economy. These include:

  • moving ahead with interest rate liberalization, establishing a bond market and further opening capital markets;
  • speeding up moves towards full capital-account convertibility;
  • allowing privately-owned small- and medium-sized banks to open up the banking system and bring some of the shadow banking system into the mainstream;
  • moving towards market-pricing of water, oil, natural gas, electricity, telecoms and transport;
  • raising the remittance of profits from state-owned enterprises to central government to 30% from the current zero-15%;
  • requiring state-owned enterprises to diversify their ownership and allowing private investment in joint ventures with state-owned enterprises and letting employees of mixed-ownership enterprises hold shares in those companies;
  • strengthening protection of intellectual property rights (IPR), including possibly setting up an IPR court;
  • property tax reform;
  • giving farmers more property rights and hastening the loosening of  “hukou” or residency permit system by scrapping it in small cities and townships and then gradually eliminating it middle-sized cities.

These are all areas where the party leadership has forged a broad political consensus, though within each there are still considerable differences between reformers and conservatives to resolve. The dual mandate that came out of the plenum — giving markets a decisive role and strengthening the role of state enterprises — gives both sides a rallying call for their cause. There is plenty of scope for backsliding as those various ideological and political struggles are fought out. Such a transformative economic to-do list carries political risks for President Xi Jinping and Prime Minister Li Keqiang. They will move cautiously, and the various fronts of the reforms will move at different paces.

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China’s Blueprint For Reform Kicked To Sub-Committee

China’s leaders resorted to the old management technique for dealing with broad and deep differences: kick the issue to a sub-committee. The Party’s Third Plenum agreed to set up a working group to co-ordinate “comprehensively deepening reform” — which had, after all, been the meeting’s main agenda item. The questions now are  who will comprise this working group, and how much power it will have within the sprawling network of Party and government organizations to knock heads together to ensure consensus over setting policy and getting it implemented at state and local levels.

As the communique issued after the plenum pointed out, “the core issue is to straighten out the relationship between government and the market”. The task is double complicated by the plenum’s dual mandate of giving markets a “decisive” role in the economy while “unceasingly increasing the energy, control, and influence of the state economy” — that mandate serving as a proxy for the balance of power between the reformers and the conservatives.

Upgrading markets’ role from a “basic” to a “decisive” one is a significant advance by the reformers, but the lack of a more detailed, let alone bold plans for reforming the public sector is a marker of the entrenched power of the big state-owned enterprises including the banks. The areas that were highlighted for reform — fiscal and tax reform,  unified land markets, a sustainable social security system, and rural property rights — are all more directly functions of government and thus more directly amenable to Party and central government discipline.

Elsewhere in the economy, President Xi Jinping and Prime Minister Li Keqiang will have to open up cracks for private and foreign firms to let markets be more decisive in the hope that that will chip away at state monopolies. One place to start is financial services. Loosen state-owned enterprises’ grip over domestic financing and give international markets more power though opening up the capital account and the rest — eventually — will follow.


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