Category Archives: Politics & Society

China Takes Small Steps In Limited Local Judicial Reform

CHINA HAS INAUGURATED its first two circuit courts, one in Shenyang and the other in Shenzen, to spread the workload of the Supreme Court. This echo of Imperial China is one of the early pilot schemes as judicial reform kicks off in one-third of the country’s 33 provinces.

The most intriguing aspect of the proposed reforms is President Xi Jinping’s gamble on increasing the independence and professionalism of the judiciary, which has hitherto been an extension of the Party’s legal arm. But trusted courts are one of the essential requirements if the Party is not to corrode from the inside.

As this Bystander has noted before this first step in judicial reform will only effectively apply at local and municipal levels. The Party will retain its sway over national and provincial courts through the Central Politics and Law Commission, the Party body that oversees the legal system in its broadest sense — from police to prosecutors, judges, internal security, surveillance and prison administration.

Nor should anyone be under any illusion that judicial independence even at local level heralds the introduction of the rule of law. Xi is pursuing rule by law, altogether a different thing. No legal proceedings on which the Party has a national interest will be left to the vicissitudes of independent judges. Judges will be expected to declare their loyalty to the Party, and to take preemptive action in cases of threats to state security.

Where judicial reform will make an impact is that local judges will no longer be appointed and funded by local officials but by provincial or national authorities. That should break the commonly cosy relationship between local officials and local courts. It would then be more difficult for corrupt local officials to remain immune from accountability, a widespread popular grievance.

Not only would that give Xi’s anti-corruption drive some mass support but it will also provide some ‘flies’ whose squashing would warn a new set of ‘tigers’ now Xi is pushing his anti-corruption drive against police and security officials including Zhou Yongkang, the former and much feared head of the country’s security apparatus and the most senior official to date brought down by Xi’s anti-corruption drive.

More independent local courts would also provide a safety valve for the social unrest that has been escalating to the Party’s concern, without the reforms going nearly far enough to satisfy legal activists. It could also create courts that are more robust in their handling of commercial disputes, which would be to the benefit of foreign businesses operating in China and which have long felt local courts to be stacked against them.

As with all reform, it will proceed slowly; what is starting now is the first pilot schemes. The target date for broad based implementation of judicial reform is 2020. The goal is to reinforce the Party’s legitimacy to maintain its monopoly on political power by showing it can govern cleanly and fairly.

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Zhou To Face Trial Shows Xi’s Firming Grip

ZHOU YONGKANG, THE former and much feared head of China’s security apparatus who has not been seen in public since October last year, is under arrest while he is investigated by state prosecutors on charges of corruption, adultery and leaking the country and Party’s secrets, state media has said. He has also been expelled from the Party.

Zhou, a member of the Politburo before he retired two years ago and an ally of the disgraced former Chongqing party chief Bo Xilai, is the most senior official brought down by President Xi Jinping’s anti-corruption drive, and the biggest loser in the power struggle around Xi’s ascent as China’s paramount leader. Zhou’s fate has been a matter of speculation for some time as he has been under Party investigation for more than a year, but the timing of the announcement of criminal proceedings suggests authorities believe they now have sufficient evidence for a trial, and that Xi feels confident enough with his grip on power to proceed with such a sensitive case in public.

However, the inclusion of leaking state secrets among the charges may provide the excuse to keep any trial itself closed. Bo’s open trial did not go as well as a propaganda exercise as authorities would have liked: Bo’s public image, though diminished, survived.

As well as his control over the vast domestic security sector, Zhou held sway over the oil industry and Sichuan province. Many of his loyalists and recipients of his patronage are also under investigation as his clique is dismantled. The question now for its head is the likely sentence he faces. This Bystander believes Zhou’s would be more severe than Bo’s life imprisonment, so likely a suspended death sentence. Senior officials may no longer be untouchable but they remain unexecutable.

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Beijing Drains The Energy Out Of Hong Kong’s Protests

BEIJING HAS GOT its Occupy Central protesters to where it wants them. The energy is draining out of the broad body of protest against Beijing’s insistence that it will select the slate of candidates from which Hongkongers can elect their new chief executive in 2017. The remaining rump, however radicalized it becomes, can be marginalized.

Beijing knows how to crack down on such dissenters. Widespread popular discontent with government is an altogether trickier and more threatening proposition for the Party.

Fears that Beijing might send in the tanks to break up the protest camps in a deadly echo of 1989 in another place have proved unfounded. But the iron grip of the authorities, exercised through a mix of police force and private court injunctions, has been steadily and unsparingly tightened.

The streets of Admiralty, Causeway Bay and Mong Kok have largely been cleared to allow daily commerce to flourish unhindered once more now popular sympathy for the demonstrators has ebbed. Beijing has also skillfully separated the student and civil activist wings of the protests.

The surviving student leaders threatening a hunger strike can be bought off with face-saving ceremonial concessions without authorities needing to cede anything of substance, not that any political concessions were ever likely. In the equally unlikely event that face-saving is rejected and the hunger strike produces a martyr, it shifts the focus of the protest, and the blame from Beijing’s handling of the situation to Hong Kong’s, and offers Beijing the opportunity of some housecleaning of Hong Kong officials should it so choose or need.

Enabling legislation still has to go through the Legislative Council so there will be more possible points of conflict before 2017 that could require some sacrificial official lambs, and especially. If international business confidence in Hong Kong is at risk.

However, the longest shadow of the Hong Kong protests falls over Taiwan. Last weekend’s local elections on the island underlined the extent of popular concern that Taiwan was rushing too quickly towards potential reunification.

Events in Hong Kong will have done little to encourage many in Taiwan that there is any need to hurry or that the political umbrella Beijing wants to put over the growing cross-Strait economic ties is even desirable.

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Party Plenum Indicates Limits To Xi Jinping’s Power

THIS BYSTANDER DRAWS two points of note from the recently concluded Fourth Party Plenum, the four-day annual meeting of China’s 350 most powerful officials. The first is that President Xi Jinping has not centralized power as comprehensively as has been supposed. The second is that there is a distinction between the rule of law and rule by law.

Both points are significant in their separate ways. Xi needs to centralize power if he is to remove the obstacles that the most entrenched vested interests pose to his economic reforms outlined at the previous Party plenum. Xi wants to switch the economy from investment- and export-led growth to domestic consumption. It is a change to a no longer sustainable credit fueled model of growth that powered the past three decades of China’s rise as transformative as the policies of Deng Xiaoping that initiated it.

Xi sees his legacy as being on the same historic scale. Yet there are many powerful Party, state and military elites who have benefited in privilege and pocket book from the old economic model, and will not readily give it up. While Xi has extended his power to coerce them to do so faster than many had expected before he became China’s pre-eminent leader, this plenum has shown that his drive to centralize power is not yet complete.

The PLA is a case in point. It holds a special place in the country’s politics for the obvious historical reasons and has considerable policy autonomy. With China taking on a greater global role, such autonomy gives it more opportunity to calibrate China’s “assertiveness” than may always be comfortable for Beijing. It also has extensive industrial and commercial interests from which senior members of its old guard profit

The plenum had been expected to approve a reshuffling of the Central Military Commission to promote allies of the president. On the basis of the communique issued after the meeting, that did not happen.

Nor was any light shed on the fate that is to befall Zhou Yongkang, the former Politburo Standing Committee member who is the biggest tiger to fall prey to Xi’s anti-corruption drive and the highest ranking Party member be investigated for corruption in many a year.

On both scores, that suggests divisions of view at the top. At the very least, there are still obstructions that Xi feels he cannot yet move.

The communique’s main point of commission as opposed to omission was changes to the judicial system, the plenum’s headline issue. The Party remains firmly in control of the legal process; a democratic separation of powers was never on the agenda, even though many believe that China will not be able to make the economic transition Xi desires without commensurate institutional political, social and legal changes.

For any foreseeable future, the judiciary remains subordinate to the leadership of the party and national security. Top leadership will still be able to control cases at the provincial or national level in which it has a pressing political interest. Rule by law; not rule of law.

That has tempted some commentators to suggest that nothing is changing. There are significant changes at the lower levels, however. Local judges will no longer be appointed and funded by local officials but by provincial or national authorities. That should break the commonly cosy relationship between local officials and local courts. It would then be more difficult for corrupt local officials to remain immune from accountability, a widespread popular grievance.

That in itself won’t shift for Xi any of the big obstacles blocking his economic reforms. It will, however, help to break up the endemic institutionalized corruption at the level that has the most impact on most people’s daily life. If he is still not able to move all the big rocks at the top that he would like, he can still remove a mass of little obstacles at the bottom.

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Facing A Slower Chinese Economy, Xi Needs A Winning Party Plenum

THE INTERNATIONAL MONETARY FUND held its forecasts for China’s GDP growth this year and next unchanged in its latest quarterly economic outlook even as it trimmed those for the world economy. It is still expecting 7.4% GDP growth this year, slowing to 7.1% in 2015, down from 7.7% in both 2012 and 2013. “China is sustaining high growth, but slightly lower growth in the future is seen to be a healthy development,” the Fund says.

For this year, the IMF is projecting that the economy will come up just short of the official growth target of 7.5%. After a slower than expected first-quarter, Beijing launched a number of stimulative measures to get the economy back on track for hitting that target. These included tax relief for small and medium businesses, accelerated fiscal and infrastructure spending, and selective cuts in banks’ required reserve ratios.

But with the  property market still weighing on the broader economy, GDP in the third quarter, due to be announced on October 21st, is likely to confirm that growth continues gently gliding downwards, somewhere in the 7-7.5% range is this Bystander’s best guess. We expect some more if modest stimulus in the fourth quarter to make sure the full-year number comes out as close to the higher end of that range as possible. Prime Minister Li Keqiang is only the latest official to blur what counts as 7.5%; about 7.5% will be close enough.

It is likely that next year’s official target will be lowered to a more realistic 7% as the economy makes the transition to more sustainable long-term growth through rebalancing demand away from investment toward consumption, and the property market, especially residential investment, remains sluggish. However, infrastructure investment and credit will remain the main drivers of growth next year.

Excess industrial capacity and the dark shadow of provincial and municipal debt remain the main risks to the growth forecast along with the deflation of the property market getting out of hand. While the government has great capacity to absorb such a hard landing, that capacity isn’t infinite, and the policy challenge is exacerbated by the two-tier property market that has emerged in China. Bubble prices persist in large cities while small cities are experiencing a property recession thanks to overbuilding spurred by local governments desperate to spur growth.

A too-fast slowdown in property prices would work through to the banking and shadow banking system in short order. The IMF rightly notes in its report the importance of reforms to buttress financial sector stability:

It is crucial to implement key elements of the authorities’ structural reform that aim to strengthen the regulation and supervision of the financial sector, reduce implicit guarantees, liberalize the deposit rate, and use interest rates instead of quantitative targets for the implementation of monetary policy, thus encouraging market-based pricing of risks. Further expansion of the social safety net, by reducing the current high rate of social security contribution, and better health care benefits would help reduce household saving rates and raise domestic consumption.

More broadly, China needs to structural reforms to its education, labor and product markets to raise firms’ competitiveness and productivity while lowering credit growth and local government borrowing. All that touches just about every vested interest. That is meat for the forthcoming Fourth Party Plenum.

Last year’s Third Party plenum announced the need for reforms to strengthen social safety nets and the social security system as part of a 60-point blueprint sketched out for President Xi Jinping’s plan to rebalance the economy. This year’s plenum, due to start on October 20th, has as its first objective the consolidation of Xi’s rule of law cum anti-corruption drive — which will be a proxy for the jockeying for power and influence between Xi and his predecessors Jiang Zemin and Hu Jintao.

While Xi has moved faster to consolidate his power base than might have been expected, his ability to advance his economic-reforms agenda will require the backing of Jiang and Hu and their respective Shanghai and Communist Youth League factions. The appearances at National Day celebrations of some senior figures in the Party and army thought to be the subject of anti-graft investigations and who have not been seen in public recently suggests Xi may be rallying unity in the ranks to that end.

Xi may well feel his best next tactical move for economic reform will be to revamp the 100-or so central-government controlled state-owned enterprises to improve their business performance and governance. These are the big dogs in the economy, and entrenched obstacles to reform in their various sectors. Making them over would have the added bonus for him of weakening some of the power bases of those not aligned with him.

The trick for Xi remains aligning the political realities he faces with the underlying structural slowing of economic growth, but without getting too close to the feared hard landing of the economy that would undermine his political position. As we have noted before, every mini-stimulus ratchets up a notch the difficulty of introducing the policies needed for rebalancing because they don’t address the underlying causes of unsustainable booms and the vested interests that benefit from them. And that needs a political solution before it can get an economic one.

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Hong Kong’s Umbrella Protest: Tanks For The Memory

PRESIDENT XI JINPING will not want a photograph of even a single Hongkonger facing down a line of PLA tanks to be the iconic image to emerge from the current Umbrella protest in the city. However, sending in the tanks, whether metaphorically or not, remains an option for the Party leadership in Beijing which has to suppress this protest against its monopoly on political power in short order.

While Hong Kong in 2014 is in a different time and place to Beijing in 1989, Beijing’s combination of cajoling condemning and cudgeling hasn’t yet done it. Xi may be prepared to wait out matters in the hope that the internal divisions among the demonstrators will eventually break their protest apart. Yet, as our man in Tiananmen Square in 1989 pointed out to us, there is a terrible symmetry taking shape: a tidy protest (demonstrators street sweeping in 1989; plastic bottle recycling in 2014) turning violent and unruly before being brought to a forceful end by the authorities.

The Party has to weigh the internal and external costs of shutting the protest down forcefully. One external consideration is the international sanctions it would bring. Beijing has been carefully following the response of the U.S. and Europe to Russia’s military intervention in Ukraine. It may conclude from that that those are the least of its worries. More concerning would be the effect of international confidence in Hong Kong as a place where China business can be done with Western legal safeguards. That would be shot, at least for a while, but there are internal municipal constituencies within China that would be happy for Hong Kong to be taken down a peg or two.

All of that pales against the internal calculation. Hong Kong is both a part of China and apart from it. One country; two systems. If its 50-year post-colonial assimilation agreement was seen from the south side of the Sham Chun River as prologue to the future — a chance for Beijing to experiment along the well-trodden development path of industrializing nations, letting the Party learn how to handle a growing middle class developing expectations of a greater voice in how they are governed and more say over their economic interests — then from the other side of the river that has just become to look like an existential threat. The further north you go, the acuter that threat seems.

The tinder that sparked the current demonstrations is Beijing’s requirement that no candidate may run in a Hong Kong election who has not in effect been nominated by the Party. Protesting Hongkongers want anyone to be allowed to stand. That is a long way from demanding reform to the elections themselves, which are a limited expression of popular democratic will at best. But it is a direct challenge to the Party’s notions of tight political control. And Hong Kong provides a beacon for the millions of urban middle class Chinese on the mainland where there is widespread dissatisfaction about the way they are governed, especially by local and municipal officials.

That, in turn, is a long way from saying that there is a groundswell of support for U.S. or European style democracy in China. There is not on any great scale, anymore than there was in Japan and South Korea at a similar stage of their economic development, even if democracy becomes shorthand for political reform, and a shorthand that is often misread in the West. But the bargain of rising economic prosperity in turn for docile political compliance no longer looks as attractive to many Chinese as it once did when they were poor.

The experience of industrialization has always been harsh for those living through it. For most, it is a hard daily slog in large, crowded cities with all the accompanying quality of life issues from adulterated food to killingly dirty air. Officials living high on the hog from corruption and cronyism sits ill with that. For Party bureaucrats the change is no less unsettling as they lose control of their economic levers of command and control.

Attempts by authorities to censor news of what is happening in Hong Kong are being only partially successful at best. How Xi settles his current Hong Kong issue will reverberate in the mainland for years to come, and especially if it is with tanks.

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Zhou Anti-Graft Probe Tests Limits of Xi’s Power

IT COMES AS little surprise to this Bystander – or to most others – that former security chief Zhou Yongkang is under investigation. The announcement that Zhou is suspected of serious Party disciplinary violations – for which read, serious corruption – only formally confirms rumours that have been circulating for months – rumours that were informally confirmed by Zhou’s disappearance from public view since last October and investigations of his family and dozens of associates in the oil industry and security circles.

As tigers go, Zhou is the biggest to be brought down by an anti-corruption campaign since the time of the Gang of Four; he headed the Ministry of Public Security until his retirement in 2012, oversaw the state oil sector, and was a member of the Politburo standing committee.

By disgracing such a senior powerbroker, albeit one past the zenith of his political power, President Xi Jinping is sending a clear signal to both his political adversaries and to the public: his anti-corruption campaign will be wide-ranging and no mere exercise in frightening off political rivals, though it is certainly that, too. Zhou was a supporter of Bo Xilai, the former mayor of Chongqing who was given a life sentence last year for corruption and abuse of power after challenging Xi for the leadership. He also remained a powerful figure in the state oil industry, and thus an obstacle to Xi’s economic reforms.

Zhou’s investigation will also be seen as Xi signaling that he believes he has consolidated his power sufficiently that no official or politician is beyond the reach of his anti-corruption campaign. That is a message that will play well with most Chinese, who are at the sharp end of petty official corruption day-in, day-out. Yet popularity is one thing and political power another. Whether a Party investigation of Zhou turns into court proceedings will indicate how absolute Xi’s political control over the Party has become.

Party discipline means expulsion and house arrest without public prosecution. Zhou’s case indicates that Xi isn’t yet in a position to antagonize all the high-level power brokers and elders in the Party, notably former President Jiang Zemin, by initiating court proceedings that could lead to lengthy jail terms or the death penalty – and the lid being publicly pulled back on the multimillion dollar business enterprises of many of the ruling elite and their families. For now, suffice it to say that the long-standing understanding that serving or former Politburo standing committee members will not be incriminated in anti-graft probes clearly no longer holds.

That is a more startling message for the political elite than the one to lower level officials have had to swallow, that the days of flaunting their perks and privileges and expecting expensive gifts as a right of office are over. So far, according to statement’s by various judicial officials, 51,306 officials were investigated for corruption and related economic crimes in 2013, a twelfth more than in the previous year. That number included 20 ministerial- and vice ministerial-level officials, about half of whom can be considered associates of Zhou.

Xi advocates that corruption threatens the Party’s long-term viability. One common facet of industrializing countries that successfully move up the economic development ladder is that they reform and strengthen their institutions. In China, the Party remains the paramount institution, so reforming that is Xi’s priority. For now though he is emphasizing clean governance over the rule of law, by using top-down political power to set the Party on what he believes is the correct course. The fine line he has to walk is between cleaning up the Party and tearing it down in the process of tearing down his political opponents.

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