Category Archives: Politics & Society

Fan Faces Fine

FAN BINGBING, THE film star not seen in public since June, has been fined 883 million yuan ($130 million) for tax evasion and other offences, state media says. She will avoid criminal charges and prison time if she pays up by a year-end deadline.

Unconfirmed reports in Hong Kong said she has also been banned from working as an actress for three years. It would be unusually for such a ban to be announced by authorities in the absence of a conviction.

A contrite posting appeared on Fan’s Weibo account today, although there is still no indication of her whereabouts.

Her agent remains in detention as a broad investigation into entertainment celebrities’ tax affairs continues. Fan was the highest earning Chinese celebrity last year with an income of 300 million yuan, according to Forbes magazine’s reckoning.

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China’s Film Industry Loses A Fan

IT WOULD NOT be too idle speculation to connect the non-appearance in public of the film star Fan Bingbing these many weeks to the suggestion that the anti-corruption crackdown has reached the heart of the media and entertainment industries.

Her studio as denied the accusation that Fan was using what is known in the trade as ‘yin-and-yang’ contracts — two versions of the contract for an engagement of which the one showing the lower fee is the one intended for the taxman. Their use has been widespread in real estate transactions for at least a decade, not that that makes them any less illegal.

There is, it should be said, no hard evidence either way on which to judge the scuttlebutt that tax evasion was Fan’s ‘crime’, for which, some reports say, she has been arrested, while others suggest, less credibly, that she has fled to the United States to seek asylum. Fan’s public silence would, however, seem to tell its own story.

China’s highest-paid actress did, however, score zero on a recently released ranking of entertainers based on their social responsibility scores. Those can be regarded as a precursor to the ‘social credit’ system now being trialled with the aim of introducing it nationwide by 2020. Low scores could mean for an actor denial of the state licenses they need to work, and provide an easy excuse to film and TV programme makers not to offer parts.

Fan has already been dropped by sponsors, a sure sign she has fallen out of favour with authorities.

Catching tigers as well as flies is a characteristic of President Xi Jinping’s anti-corruption campaign. In June, authorities put limits on the pay of star actors, in part to crack down on tax evasion but also as part of the broader campaign against conspicuous wealth. The pay of actors in Chinese films and TV programmes was capped at 40% of the total production costs, with lead actors limited to 70% of the actors’ pool.

Authorities are also worried about the impact of stars on young Chinese, who are at risk, they fear, of chasing celebrity and “distorted social values” — for which read Western values — rather than following the Party endorsed pursuit Chinese values.

TV dramas last year were instructed to ‘enhance people’s cultural taste’ and ‘strengthen spiritual civilisation’ — strictures that came with a new set of rules governing the programmes’ content.

Reviving Chinese culture is a core strand of President Xi Jinping’s vision of ‘’the Chinese dream’, as is a very particular view of how China will project itself abroad through Chinese values.

The arts have long been seen as a part of the Party’s ideological leadership, with artists, in all realms of the arts, expected to create works that are not only artistic but also politically inspiring. Those are to serve to promote socialist values in line with the Party’s agenda.

Artistic dissent can have no place in that, much as dissent is being cracked down on in a variety of areas from the social sciences to civil society.

The Beijing Trade Association for Performances, which in 2014 took a leading role in the authorities’ crackdown on performing artists alleged to be involved with drug-taking and prostitution, now says it will ‘purify’ the city’s entertainment and performance sector and guide artists towards ‘core socialist values’.

The entertainment industry poses a particular problem in that fandom around TV, movie and music stars creates a potential point of political power that is youth-based, unpredictable and weakly subject to Party control, all characteristics for which the Party does not care.

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China’s New Problems With Total Marginalisation Of Minorities

REPORTS SUBMITTED BY by Amnesty International and Human Rights Watch to the UN Committee on the Elimination of Racial Discrimination that up to 1 million Uighurs are being held in camps in Xinjiang ‘under the pretext’ of counterterrorism sent this Bystander to our archives. In April last year, we wrote:

China’s anti-terrorism policies are based on the same techniques as Beijing uses to crack down on political dissent, which may betray a fundamental misunderstanding of the problem being faced.

We have also noted the shortcomings of such an approach when it comes to winning hearts and minds. Religious restrictions only serve to feed a vicious cycle of repression and violence. If counter-terrorism policy aims to alleviate the conditions and reduce the underlying factors that give rise to radicalisation and recruitment among the domestic population, then characterising all Uighurs as being somewhere on the terrorist/separatist spectrum is not going to achieve that.

Beijing denies the allegations that Uighurs are held in detention camps and accused foreign media of distorting the Committee’s deliberations, but has made a rare admission that “those deceived by religious extremism… shall be assisted by resettlement and re-education”.

It could be in this particular case that an original accusation that the extensive state security presence in Xinjiang has turned the Uighur autonomous region into something that resembles a massive internment camp has morphed into an allegation of detention camps being set up. For the record, the UN committee’s published comment of concern was:

The arbitrary, prolonged and incommunicado mass detention of Uighurs under the pretext of countering terrorism and religious extremism, with estimates of the numbers of detained ranging from “tens of thousands to upwards of a million”.

Such accusations are long-standing. There is no denying the massive security operation and mass state surveillance in Xinjiang that reaches into every aspect of daily life and that Uighurs are detained for what authorities call ‘preventive security measures’. The lower end of the range cited by the UN committee could be accommodated without the need for special camps.

Authorities argue that their actions have prevented Xinjiang becoming ‘China’s Syria’ or ‘China’s Libya’,  That strikes this Bystander to be over-egging the pudding by the output of a battery farm.

True, Beijing has been fighting a low-level but increasingly violent insurgency in its natural-resources-rich western reaches for decades. Today, that self-evidently poses a threat to Xinjiang’s role as a critical logistics hub for the Belt and Road Initiative.

Yet, the 8.4 million-strong Uighur minority in Xinjiang, mostly Turkic Sunni Muslims, are far from universally supportive of the tiny separatist groups that would like to re-establish a republic of East Turkestan.

They do resent the growing Han dominance of the province, which was once more four-fifths Uighur but is now majority Han Chinese, and a majority that does not understand why the new minority does not feel more grateful for being forcibly made more Chinese.

 

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Xi Jinping Extends His Power

THE PARTY’S PROPOSAL to scrap the clause in the state constitution that limits the presidency to two five-year terms has caused more of a popular backlash, at least among those online, than the Party might have been expecting if the hurried after-the-fact propaganda blitz is any measure.

But then Party officials might have been blind to their biases. It is second nature to them that paramount power resides in Xi Jinping’s post of Party general secretary, not the presidency, regardless of where the rest of the world focuses its attention.

The constitution frames the president’s powers and duties expressly in terms of “in pursuance of the decisions of the National People’s Congress and its Standing Committee”, both firmly under the Party’s sway with the Party under the General Secretary’s. China’s presidency does not have the independent executive authority of, say, the president of the United States.

Xi has already consolidated that sort of authority to himself, and more. As Party general secretary and chairman of the Central Military Commission as well as president, he is head of the Party, military and state.

He has been designated the country’s core leader. His Thought is enshrined in the Party constitution, making a challenge to him a challenge to the Party, and since his ascendence to power in 2013, control over national security and the economy has fallen directly under him as head of the new bodies overseeing those two areas, the National Security Commission and the Central Leading Group for Comprehensively Deepening Reforms.

Neither the general secretary nor the chairman of the Central Military Commission is term-limited, so Xi would be able to continue in both roles, effectively running China, for as long as he wished or could keep the jobs.

Last year, Xi set himself up to continue as leader of the Party for another term by failing to appoint a clear successor at the five-yearly Party Congress. The latest proposal is merely a bit of bureaucratic tidying up as much as anything, putting the terms of the presidency in alignment with the other two posts in the ‘trinity’ that forms the apex of power.

Xi could have installed a figurehead president to succeed him without significantly diminishing his power, though it would have deprived him of the international spotlight that he appears to enjoy as the face of China and the international platform he needs to advance his vision of China in the world.

Not doing so also sends twin messages: internally, that he is no lame duck, and will not be for the foreseeable future; and externally, that China has strong and stable leadership, even if that cannot be said these days for many democracies.

We should also note that abolishing presidential term limits is not the only change being proposed. A more consequential one, to this Bystander’s mind, is writing the Party’s leading role into the constitution.

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Anbang Nationalisation Underlines China’s Financial Stability Priority

Logo of Anbang Insurance Group. Photo credit: Mighty Travels. Licenced under Creative Commons.

WU XIAOHUI, THE politically well-connected chairman of the giant insurance group Anbang (his wife is Deng Xiaoping’s grand-daughter), has been in detention by authorities since last June. Now he is to stand trial for economic crimes, code for fraud and embezzlement, and the company run by personnel from the China Insurance Regulatory Commission for a year or two, an extraordinary move. The state assuming control of a private-sector business, and particularly one of this size and prominence, is unusual.

Anbang has been on an aggressive international acquisitions drive, buying such foreign trophy investments as the Waldorf Astoria in New York and a string of other luxury US hotels. Chinese firms, with official encouragement, have ‘gone global’ in recent years, rapidly expanding their international mergers and acquisitions activity.

In 2016, China overtook Japan to become the world’s second-largest overseas investor. Non-financial outward direct investment that year exceeded $170 billion, a 44% increase from the previous year, according to the Ministry of Commerce. However, such activity entails tremendous financial risk from the leverage taken on, a risk exacerbated by Chinese firms’ lack of experience with the integration and management challenges that M&A brings, especial in deals that cross national and cultural borders.

Anbang appears to fall squarely in this camp. On some estimates (its finances are notoriously opaque), it has encumbered itself with debt to the point that it is fast approaching technical bankruptcy despite having more than $300 billion of assets.

That also makes it ‘too big to fail’. State administration will provide the funding to keep its core life and non-life insurance business operationally solvent. The insurance regulator says the company’s current operations remain stable but that its solvency is seriously endangered by its ‘illegal operations’ unspecified but which presumably include its investments in prestige prime US real estate.

Last August, authorities announced a list of sectors hat should be off-limits for Chinese firms as the foreign investment spree into things like European football clubs and Hollywood entertainment businesses was exacerbating debt concerns.

More broadly, in the drive for financial stability and to forestall any systemic financial shocks, President Xi Jinping has been asserting greater control over state enterprises and reining in sprawling private conglomerates, notably the ‘big four’ — Angbang plus Dalian Wanda, Fosun International and HNA Group — that have expanded rapidly via debt-fuelled foreign acquisitions.

That quartet that accounted for 20% of Chinese foreign acquisitions in 2016. Also, there has always been a nagging suspicion that, given the quartet’s political connections, some of this M&A acted as a conduit for senior officials to get their money out of the country.

All have been ‘urged’ to sell assets and pay down their debt while state banks were told to rein in their lending to them. In January, the chairman of the Banking Regulatory Commission, Guo Shuqing, warned that ‘massive, illegal financial groups’ posed a grave threat to financial reforms and the stability of the banking system and that China would address the issue ‘ in line with the law’.

Taking Anbang into state control may be the prelude to a series of moves against the layer of private conglomerates below the ‘big four’, a group of some 25-30 companies said to be in the regulators’ sights. Despite or perhaps because of his connections, Wu’s treatment, in particular, is intended to show that no tycoon is immune from being ‘deterred’ from risky borrowing and investment overseas, or from being reminded that private M&A strategies should be integrated with national investment priorities.

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China’s Collectivisation of Capital

THERE IS A vacuum in the state’s control of the economy. The combination of powerful private companies arising in new areas of economic activity from which state was absent, such as within the tech industry, and the breaking up of the patronage networks within state-owned enterprises (SOEs) as a consequence of President Xi Jinping’s anti-corruption campaign has created it.

The Party abhors a vacuum and has stepped in to assert its control as the state’s wanes. Under Xi, the People’s Daily opined in June, the Party has sought to address the “weakening, watering down, hollowing out and marginalisation” of party leadership at state enterprises.

Two months ago a government statement made it clear that private-sector business should follow Party guidance, including ‘patriotism’, ‘observing discipline’ and ‘serving society’ within its definition of entrepreneurship.

The mechanism for exercising Party control is the Party branch within companies. These have long existed within SOE’s (they are present in 93% of the 147,000 SOEs big and small) and have become prevalent in the private sector. Qi Yu, deputy head of the Central Organisation Department, said in October that 68% of 2.73 million private businesses had Party branches as of the end of last year.

Party cells are also becoming more common in joint ventures with foreign firms, and are being pushed on foreign firms with wholly owned local operations as part of the ‘new era’. Qi said 70% of foreign-funded firms in China – or 750,000 – have set up Party branches and 106,000 foreign-invested companies, against 47,000 in 2011.

Samsung and Nokia are two foreign companies who have acknowledged publicly that they have set up Party branches in their local operations; The medical systems division of Japan’s Toshiba has had a branch since 2007. The US chemicals multinational DuPont had one when it set up in Shanghai in the 1990.

The influence of Party cells varies greatly between companies and industries. At their best, or at least as portrayed by authorities, they promote goodwill and communication between the company and the Party. They run companies’ internal labour unions and be a source of labour through the agencies that coordinate them.

Some are little more than a cost irritant (the company foots the bill for Party branches’ activities). In joint ventures, especially with SOEs, they can make operational decision making more opaque and cumbersome. At the other end of the spectrum, they can seek to determine strategic and operational investment and business decisions.

Some SOEs listed in Hong Kong have gone as far as changing their articles of association so as to give the party a leading role in management decisions. And there are reports circulating of joint ventures being pressed to rewrite their terms of agreement to give the Party a more formal say in operations and management, including a final say over investment decisions.

It is that direction of travel — expanding the party’s presence in areas where it has previously had a limited role, such as in private and foreign joint-venture companies and the boards of listed firms, that is exercising foreign multinationals operating in China.

In late July, executives from more than a dozen top European companies in China met quietly in Beijing under the aegis of the EU Chamber of Commerce in China to discuss their concerns about the Party’s growing role in the local operations firms like theirs. Last month, the Delegations of German Industry and Commerce in China, representing German chambers of commerce, also raised their concerns and said some German companies might consider withdrawing from the market if the Party’s influence on their local operations grew.

Part of their argument was that companies from multi-party democracies should not be bound to promote a particular party, especially one that claims a monopoly on political power. However, the concern is that once Party presence is written into governance, commercial management autonomy is lost for good. In addition, Party members are subject to the Party’s disciplinary procedures, which, of course, is beyond any internal policies a company may have.

A statement from the State Council Information Office earlier this year, saying that “company party organisations generally carry out activities that revolve around operations management, can help companies promptly understand relevant national guiding principles and policies, coordinate all parties’ interests, resolve internal disputes, introduce and develop talent, guide the corporate culture, and build harmonious labour relations” is less reassuring to foreign investors than the Office probably intended.

The other end of the telescope is that the Party should intervene to assert the collective interest of the whole over the that of the part, the whole, in this case, being the state capitalist class.

An old-school Marxist ideologue might describe the presence of Party units in companies, and the guidance and discipline they would provide, as a precursor to the collectivisation of capital, in which individual companies become units of a state corporate whole.

In these more pragmatic days, this Bystander sees it just as the Party extending an strengthening its presence and control over all sectors of society, even in areas where it has previously had a limited role, which might be much the same thing.

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No Change At The Top

Members of the Politburo standing committee elected October 2017

THE QUINQUENNIAL CONGRESS of the Chinese Communist Party has, by recent convention, set the course of the Party’s future leadership. The 19th, just concluded, is no exception. The future leadership of the Party is for the foreseeable future, general secretary Xi Jinping.

Two signs of Xi’s sway are, first, that his ‘Thought’ has been written into the Party’s constitution by name. That not only elevates him to the level of Mao Zedong but makes any challenge to his authority a challenge to the Party as a whole. Second, he has been able to avoid installing a Politburo Standing Committee — the seven men (and it is all men, as seen above) at the apex of Chinese affairs — that contains any obvious successor.

That may be his most important achievement of all at the Congress. It avoids him being seen as a lame duck during the second of his two five-year terms as president, and leaves him the most flexibility in putting in place whatever arrangements he wishes for when that five years are up.

His options then are:

  • to hand over the presidency to a loyalist who would perform the role as a ceremonial head of state (like a queen in a constitutional monarchy) while he exercises executive power from a post such as Party general secretary or head of the military commission (as Jiang Zemin did);
  • to ensure that a hand-picked successor takes over the presidency and general secretary positions while he exercises control for behind the scenes as ‘core leader’ (as Deng Xiaoping did as ‘paramount leader’). That successor would be promoted from the Politburo without the customary five-year preparation period of being on the standing committee, though, as that is meant to be a time for the successor to establish his authority, that would not be needed as the authority would stay with Xi anyway;
  • or he could baldly amend the national constitution to allow himself to continue as President for a third term.

In the meantime, Xi will embark on his second term with a Politburo standing committee that contains some allies but no fierce opponents, and all of an age at which they can have no expectation of taking the top job before they retire.

Five of the seven members of the previous standing committee have retired, leaving Xi and prime minister Li Keqiang as the only two carryovers. Among the newcomers, the two most important factions within the Party, Jiang’s Shanghai faction and the Communist Youth League of Xi’s predecessor Hu Jintao, have got places at that highest of high tables, notably Han Zheng for the Shanghai group and Wang Yang for the Youth League, which can also count Li. But both factions have been considerably weakened by Xi’s anti-corruption-cum-political-purge campaign.

To say that Xi has established his own faction may be over egging the pudding. If he is at the centre of one it is the amorphous group known as princelings, which has many cross-overs with other groupings.

However, jockeying for power is part of the warp and weft of China’s elite politics. Xi now has two firm allies. One is his former chief of staff and long-standing associate, Li Zhanshu, who will head the rubberstamp parliament, the National People’s Congress, in which role he would be critical if Xi did want to amend the natonal constitution to permit a third term as president. The other is the former head of the Party’s Organisation Department, Zhao Leji, who will head the Central Discipline Inspection Commission in succession to Wang Qishan, who led the anti-corruption operations that were instrumental in consolidating Xi’s power.

Yet, apart from supporting Xi, the overriding characteristics of the new standing committee, however, is experience and competence. These are people who know how to run a large operations as well as operate at the highest levels of the Party.

Xi also knows the importance of snuffing out factional struggles. In Hu’s last term, Xi and Hu spared over how quickly the outgoing president would successively yield his Party, state and military offices as he attempted to cement his legacy and power behind the throne.

Below the standing committee, the 25-member Politburo is broadly pro-Xi. The same can be said for the 200-member Central Committee beneath them.

Perhaps most critically, Xi loyalists now control all the key provinces and provincial-level municipalities that matter — Beijing, Shanghai, Guangdong, Chongqing and Tianjin, for example, and those where the could be unrest, notably Xinjiang. The mountains may be high and the emperor far away, as the old proverb has it, but Xi has his loyalists in place to ensure there is no repeat of city bosses like the disgraced Bo Xilai and his recently purged successor Sun Zhengcai getting uppity.

Our man in Davos sent word of how he remembered seeing a somewhat hesitant Xi being unveiled to the world at a World Economic Forum meeting a decade or so back and contrasted that with the assured, commanding figure that was seen at the 19th Party Congress. This Bystander also remembers some words penned here about Xi back in 2012 just ahead of the 18th Party Congress that would bring him to power:

Cunning, calculating and ambitious Xi plays politics like a chameleon playing poker.

He has played a winning hand, and still holds most of the aces.

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