Monthly Archives: June 2011

The Persistence Of Party Power Over China’s Private Enterprises

Xinhua has lifted the skirts of the Party’s influence over private enterprises. Some 3.8 million grassroots Party organizations, which will include those in private enterprises, but also everything from private schools to non-governmental organizations, now exist, up from 2.1 million in 1978, it says. The exact number of Party cells in companies is difficult to determine, though we have seen statistics that said there were Party organizations in 250,000 companies (including foreign owned companies such as Wal-Mart) with 3 million members at the end of 2006, plus 800,000 self-employed Party members. The numbers have surely risen since, as overall Party membership has risen from 70 million to 80 million, with 23% of the total, or some 18 million people now, managerial level staff in public and private enterprises. The implication of the Xinhua piece is that the Party’s goal is to have a presence in every private enterprise with at least 80 employees.

The Party has never made any secret of its belief that it provides the political guidance for the whole economy. In a country where the Party mimics the organs of government and state and once controlled all businesses of any size, to do the same for the private-sector economy should come as no surprise. Free-market capitalism has no meaning in China, if by free is meant free from the Party’s leading role.

Yet beyond the statistical titillation of the apparent success of a policy to  grow formal representation in private enterprises that was kick started in 2002 lies the questions of whether this provides an explanation of how private companies’ business goals are kept aligned with Party policy and how it changes the structure of the country’s elites. Have the old elites secured control of the new economy: or is their power only temporarily persisting in it, to wane as market institutions eclipse the administrative power of the cadres; or are the old elites just being replaced those made newly wealthy by business?

We suspect the answer lies along the lines of the second option and that temporarily is being strung out over decades by the adeptness of local Party committees in keeping their fingers in the decision-making pie of private enterprises thanks to a institutional environment that is already based on formal and informal personal connections. For companies, sponsoring a Party cell, is as much about winning a “red hat” as it is about making a “black hat” available for local officials whose careers have been judged by their success in achieving local economic development. A vested interest shared limits the resistance to reform. Political capital is still as important as financial capital to an enterprise in China. Close ties between a company and local officials make access to scarce resources such as capital easier for a company via the Party’s network of connections, and minimizes the risk of the thing any business most dislikes, uncertainty, particularly policy uncertainty.

It is anyway a delicate line to walk for a Party whose commitment to national economic growth is taken as a basis of its political legitimacy to rule. The growing liberalization, internationalization and industrialization of the economy demands to an increasing degree professional managerial expertise in enterprises. Cadre core skills such as price controls, plan fulfillment and quota setting are not the functional expertise required of a manager in a modern company.

State-owned companies, by definition, already have a high degree of political involvement, including those with publicly-listed subsidiaries, which may prompt some interesting corporate governance and disclose-to-shareholder questions. Perhaps such companies should have to list in the their annual reports their top-ranking Party members as they are required to list their directors and top earners?

What strikes this Bystander is how the liberalization of China’s economy has been accompanied by a relatively stable power structure and the survival of the political elite, which has also acquired an extensive stake in the economy. Unlike in Russia, part, not full privatization of state-owned enterprises, particularly in the pillar industries, has been an important to prevent the creation of large areas of privately owned property in the economy beyond officialdom’s sway.  The Party has, so far at least, found a way of absorbing the rise of private power that which elsewhere in industrializing economies has led to the rise of new centers of political power. Indeed for central government, the bigger challenge is the power of semi-independent local party bosses on whom have to be imposed periodic crackdowns from the center in the form of anti-corruption campaigns.


Filed under Economy, Politics & Society

China’s Railways Said To Sacrifice Safety For Speed

Former railways minister Liu Zhijun sacrificed safety in pursuit of China having the world’s fastest high-speed trains, according to the ministry’s former deputy chief engineer, Zhou Yimin. In an interview with the 21st Business Herald (via Caijin), Zhou claimed that Liu overrode contract specifications by the German joint venture manufacturer, Siemens, that the trains’ top speed should be 300 kph because he wanted them to run at 350-380 kph.

Liu, the driving force behind the rapid buildout of the country’s high-speed rail network, was sacked in February following a bribery and corruption investigation. Test runs on the flagship line between Beijing and Shanghai concluded last month, but safety concerns persist, including around the settlement of the tracks, the trains’ brakes and the signalling and communications system along the line. Zhou says that there are often glitches with the trains on the high-speed network, but these are kept quiet. Several times trains on the Beijing-Shenyang have broken down, he says. Speed limits have been imposed on the whole network, in part as a cost saving measure.


Filed under Transport

More Rain, Floods Deluge China’s Yangtze Basin

More than 36 million people have been affected by the flooding along the middle and lower reaches of the Yangtze this month (map) and the death toll has risen to 175 with at least 86 missing, state media say. More than 1.6 million people have had to be evacuated in what are being said to be the worst floods since the 1950s with many of the Yangtze’s tributaries swollen to dangerous levels. The direct economic loss is now put at 35 billion yuan ($5.4 billion).

Zhejiang has borne the brunt of the latest downpours with river embankments in Lanxi reported as being at the point of bursting. Some 80,000 residents have been evacuated. More torrential rain is in the forecast for the next three to five days. Meanwhile heavy rain and floods are also hitting Gansu in the northwest.

Update: Caixin has a series of photographs of a very wet looking Wuhan.

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Map Of Flooding In Central and Southern China

The International Red Cross has published a map of the provinces most affected by the flooding caused by the torrential summer rains this month that broke the drought in central and southern China. Just about every one along the middle and lower reaches of the Yangtze river has been hit by what are being said to be the worst floods since the 1950s. The thumbnail above clicks through to a .pdf version of the full sized map.

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China To Beef Up Maritime Patrol Force

China is to beef up ifs ability to patrol the waters off its shores, according to state media. The People’s Daily, quoting an unnamed senior official, says the China Maritime Surveillance (CMS) force will increase its personnel numbers to 15,000 from the current 9,000 by 2020. The number of ships in its fleet is to increase to more than 520, up from the 350 in the build-up plan under the current five-year plan. The number of aircraft will be increased to 16 from nine by the end of the decade.

China says there is a growing need to protect what it calls its “maritime security” as there has been a sharp rise in intrusions by foreign vessels and planes into what it claims are its waters and airspace. In 2010, the CMS monitored intrusions by 1,303 foreign ships and 214 foreign planes compared with a combined 110 cases in 2007, the CMS official said.

The comments come against a background of continuing tensions within the 200 miles of territorial waters China claims, particularly in the resource-rich and much disputed waters of the South China Sea. Earlier this week, the CMS dispatched one of its largest and most modern patrol vessels, the Haixun-31, after Vietnam has conducted live fire exercises there.

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KFC China Goes Its Own Way

The Harvard Business School has taken a look at the U.S. fast-food chain KFC’s success in China where it has become the largest such chain in the country by not being much like its U.S. counterpart. Authors Professor David Bell and his colleague Mary Shelman, identify four key reasons for KFC’s success:

  • In China, KFC’s strategy was to be part of the local community, not be seen as a foreign presence.
  • China division chairman and CEO Sam Su combined the best ideas from the US fast-food model and adapted them to serve the needs of the Chinese consumer.
  • Only a small number of menu items would be familiar to Western visitors—the Chinese KFC offerings include fried dough sticks, egg tarts, and foods tailored to the tastes of specific regions within the country.
  • To counter concerns about fast food and obesity, Su offered a healthier menu and supports exercise and youth events.

Think local, act local.

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Death Toll Rises In China’s Worst Floods Since 1950s

The flooding in southern and central China–the affected provinces are marked in blue, above–is now being described as the worst since the 1950s with more than 170 people reported dead since Jun 3 as a result of this summer’s rains and at least 63 missing. Thousand of homes have been destroyed. Two embankments along the Puyang River in  Zhejiang were breached following the latest torrential rains, requiring 120,000 people to be evacuated.

In all, rains have caused 555,000 people to be evacuated across 13 provinces. Some 400,000 hectares of farmland have beeb flooded. Disaster relief teams in Zhejiang, Anhui and Jiangxi are treating the situation as a Level 4 disaster, the highest, The torrential rains that have fallen all week show little sign of letting up. State media say economic losses from this week’s rains are 2.85 billion yuan ($2 billion), which is more than the combined direct economic losses that resulted from the two previous rounds of heavy rains.

Meanwhile, more than 200,000 acres of farmland in Anhui, Jiangsu, Hunan and Hubei along the middle and lower reaches of the Yangtze are still drought stricken, with more than 1 million people short of  drinking water. There is also prolonged drought in Ningxi in the northwest.


Filed under Environment