SPEAKING FREELY
China's watchdog agencies need watchdogs
By Zhenzhen Chen

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Recently, Laura Cha, the vice chairman of the China Securities Regulatory Commission (CSRC) resigned from her position due to her "personal health condition". This personnel change in late July put the spotlight back on the four main regulatory commissions (China Insurance Regulatory Commission, China Securities Regulatory Commission, State-owned Assets Supervision and Administration Commission, China Banking Regulatory Commission) brought about by former premier and reformer Zhu Rongji.

The departure of the former top Hong Kong stock regulator is more than just another outsider's failure to integrate into the Chinese government and consequently to be unable to effect change. (Shanghai-born and US-educated, Cha was believed to have been the first non-mainland Chinese to work as a vice minister level official inside Chinese bureaucracy.) Her farewell to the regulatory commission in China suggests that the possibility of a drastic social change or an evolution of the civil society brought by these regulatory new entities is limited, if it exists at all.

Zhu Rongji introduced these regulatory commissions into the government as a strategy in response to the rise of bureaucracy power. Back in the 1980s, Deng Xiaoping launched a movement to decentralize fiscal and financial responsibilities to ministries and provinces, incorporated with outsourcing of a government welfare function. This accorded local authorities greater autonomy over economics and expenditure. Without simultaneously instituting the rule of law, this has not only left bureaucrats and local authorities largely free to do whatever they want, but it also has meant that the premier [Zhu] lost his bargaining power to strategically coordinate macro-economics. Likewise, with a set of powerful ministries installed below the relatively tiny State Council, the new structure further restricted the premier's capacity to compel local authorities to comply with policy measures.

In order to consolidate powers to implement his vision for a "managed martketization", Zhu had been seeking an opportunity as early as 1993 to press forward a government reform to alter power distributions between the State Council [or cabinet] and lower authorities. In 1997, Zhu managed to utilize the Asian financial crisis to convince the Chinese leadership to agree on a recentralization of government power through government reorganization. From the beginning, he described the introduction of regulatory commissions as a streamlining of the bureaucracy, but ultimately his goal was to bypass senior leaders and the existing bureaucracy to restore the previously decentralized powers back to the State Council.

In 1998, Zhu Rongji decisively reduced and consolidated 11 powerful industrial ministries down to a single institution, the State Economic and Trade Commission (SETC). Many presumed that the SETC would become a super ministry by absorbing the power of those other industrial ministries. However, Zhu had weakened the SETC by placing its regulatory functions with newly created independent commissions outside the regulatory chain of the bureaucracy, such as the Large Firm Working Commission under the State Council. Coupled with a reduction of the administrative functions, this substantially shifted the policymaking power from the bureaucracy to new entities. Combined with downsizing government, this new bureaucratic structure significantly enhanced the State Council's ability to stabilize the macro-economy and generated more internal incentives to adhere to the State Council's policies and directions, more precisely Zhu Rongji's mandates.

Regulators lack control over their own operations
The effort to introduce regulatory commissions is dramatic in itself and no doubt catches the attention of foreign investors and political scientists, but it should not be mistaken for an indication of any potential rise of popular participation in the government decision-making process. These regulatory commissioners even lack control over their own operations. For example, the personnel power to appoint board members does not lie with the commissions but with the central politburo (the Politburo of the Chinese Communist Party's Central Committee). The setup of new regulatory commissions and the removal of regulatory functions from the bureaucracy should not be interpreted as steps to create internal separation of power. While there are some progressive elements, the essence of the change was little more than a conventional political strategy to gain more control over bureaucracy.

"Regulatory commissions" in China are very different from those in the United States, whose primary goals are to act as gatekeepers to ensure self-regulations enforcement in the free market. They have been formed to impose stricter government controls and interventions. Without formal legal protections granted by an enforceable constitution on the National People's Congress (NPC), the existence of commissions will not be permanent, and can be abolished at any time, just as Zhu Rongji closed many ministries overnight. This uncertainty alone has violated the general principle of the rule of law.

The idea of ruling by laws also requires that government agencies not only constrain the public and lower agencies, and also that the government be constrained as well. Without a mechanism to safeguard this setup, such as an independent judiciary as in the United States, regulatory commissions in China can easily be transformed into rent-seeking instruments. Zhu Rongji, who has showed great political commitment to fight against corruption, has been personally embarrassed by Zhu Xiaohua's corruption case. Zhu Xiaohua, the former vice president of the People's Bank of China when Zhu Rongji was the president, was sentenced to 15 years in prison for taking bribes. Additional new institutions or the individual incentive to do justice will not in themselves change the operation of the Chinese government unless a fundamental reform in the political system is incorporated. (Zhu Rongji was premier from 1998 to 2003, succeeded by Premier Wen Jiabao.)

Due to unrealistic expectations for democracy and observers' miscalculations about the new leaders, some enthusiasm for regulatory commissions was generated, accompanying the rise of the fourth generation of leadership. Some analysts implied that a fundamental political reform started from the expansion of regulatory commissions was expected to take place once former president Jiang Zemin relinquishes his current position as the chairman of the powerful Central Military Commission. However, few have ever investigated current Premier Wen Jiabao's own motivation. Does he ever think of undertaking a democratic reform? Is this his political pursuit? Some say "yes", based on his role in the Tiananmen massacre of June 4, 1989. Yet, the action to accompany party general secretary Zhao Ziyang to Tiananmen Square is no more than a single isolated case in Wen Jiabao's 40-year long political career. (He was an aide to Zhao at the time.)

Neither Wen Jiabao nor Zhu Rongji is China's Gorbachev or Gorbachev want-to-be. The thrust that drives both Zhu and Wen to establish or expand regulatory commissions is similar: to consolidate and strengthen their powers, and secure the continued dominance of the Communist party. As Deng Xiaoping opened the door for freedom of speech in a way to discredit his opponents and later shut it down when the rise of the public endangered his authority, a similar cycle is very likely to repeat itself with Premier Wen Jiabao. Once these regulatory commissions have served their purpose to secure Wen's power, he will probably undercut his goal of increasing the importance of regulatory commissions over individuals.

Footnotes

1) Tony Saich, The Blind Man and the Elephant: Analysing the Local State in China, in L. Tomba (Ed.), On the Roots of Growth and Crisis: Capitalism, State and Society in East Asia, Annale Feltinelli, 2002, pp. 75-99.

2) Jinshan Li, " Bureaucratic Restructure in Reforming China: A Redistribution of Political Power," East Asian Institute Contemporary China. (Series No. 9)

3) George Gilboy & Eric Heiginbotham, "China's Coming Transformation," Foreign Affairs. (2001 V80 I4)

4) China Government Guide, "Government Structure of State Council 98 Reform."

5) US Securities and Exchanges Commission. "The Investor's Advocate: How the SEC Protects Investors and Maintains Market Integrity."

Zhenzhen Chen is a research intern with the Freeman Chair in China Studies at the Center for Strategic and International Study. She can be contacted at zc5m@virginia.edu and zchen@csis.org

Speaking Freely is an Asia Times Online feature that allows guest writers to have their say. Please click here if you are interested in contributing.