CHINA'S TRILLION-DOLLAR
CRISIS Beijing takes on local-government
mafias By Francesco
Sisci
A new crisis is at work in China.
Its fracture lines are barely apparent; still,
they run deep, reaching the very structure of
power of the Communist Party: the bureaucracy.
It was thanks to the efficient chain of
command and control of the bureaucracy that the
Tiananmen crisis was quickly brought under
control. It was the same chain of command that
worked miracles in neutralizing Falungong
activists within the ranks of the party, by
singling them out and expelling or re-converting
them. But now this line of command and control is
under strain, and this could in
time
bring real problems to Communist Party rule in
China.
There was a turning point just a
week ago.
On February 9, a court in
Handan, Hebei province, sentenced He Feng to life
in prison. He Feng was the former party chief of
Dingzhou city, and was found guilty of hiring
thugs to beat up villagers for protesting low
compensation for land seized to make way for a
power plant last June.
Hiring thugs for
dirty work has been an important tool of local
administration in China. It keeps the police out
of shady business and creates a dangerous liaison
between high local officials and "black
societies", mafia-like organizations that can be
used for matters of "social concern" or for the
private interests of officials. But they also can
start a life of their own, growing independent
from their former "official" masters. The use and
encouragement of these thugs can then provide the
environment for the growth of mafias, which next
to the Communist Party itself are now the most
efficient organizations in China. Therefore, in
this environment, the mafias could in time become
the most serious challenge to party rule.
The He Feng sentence thus had two goals:
to signal to the whole country that Beijing will
no longer turn a blind eye to blatant complicity
with local mafias and, moreover, that Beijing will
no longer cover up for local governments
speculating on the sale of land against the
interests of residing farmers.
According
to Chinese estimates, since 2003 the sale of
farmland for industrial and residential purposes
created a rough turnover of some 5 trillion yuan
(more than US$600 billion). The calculation is
simple. Zhou Tianyong of the Central Party School
argues in Breaking Through the Obstacles to
Development (Tupo fazhande tizhixing
zhang'ai, Guangzhou 2005, Guangdong Jingji
Chubanshe, translated by David Cowhig), "Various
construction projects throughout China had taken
about 100 million mu [6.7 million hectares]
of agricultural land from production. Calculating
at an average market price of 50,000 RMB per
mu, that comes to 5 trillion RMB, but
peasants only received 500 billion RMB in
compensation." (RMB stands for renminbi, or yuan.)
Only some 10% of the money went to the farmers,
some $60 billion.
This land was then sold
to real-estate companies and industries, which
invested in them by building apartment blocks or
factories, producing a final value of more than
five times the sale price. The total amount is
then about $3 trillion, an amount considerably
higher than China's 2005 GDP. This may lead us to
think that there is some serious overestimation of
the phenomenon. But even taking a cautionary view,
it proves that there is a huge economy that moves
outside of the banking circuit.
Furthermore, it is interesting to consider
where 90% of the sales profits go. More than $500
billion went into local coffers, feeding local
administrations and their needs, and into the
pockets of local officials. Taking a cynical view,
bribes are partly necessary, as they motivate
officials in favor of market reforms. With such a
very concrete incentive in sight, the officials
push for economic development rather than
hindering it.
These officials and their
cronies then give birth to new middle and rich
classes in previously poverty-stricken farmland.
However, since only a small portion of the sales
money goes to farmers, they are left out of the
process, possibly poorer than before. Had a higher
price been paid to them, they would have had a
little capital to start other activities.
But there are two considerations to bear
in mind. China's growth has been thriving on cheap
labor. If peasants suddenly got much richer, this
could create a shortage of cheap labor, pushing up
prices in cities and possibly triggering
inflation. Furthermore, there is endemic
corruption in the countryside, dating back
centuries. It is not possible to intervene with a
system to monitor all land transactions. This
would not only make things more cumbersome, it
could add yet another layer of corruption.
What is possible realistically is to keep
an eye on what is happening on the surface,
considering this an indication of more serious
problems deep down. In other words, peasants'
protests are a sign that issues of land payment
have not been satisfactorily solved. Now, the
message from the top is clear: the officials
involved will be put under inquiry and, if found
guilty, severely punished.
In December
Premier Wen Jiabao warned senior rural bureaucrats
against making the "historical mistake" of failing
to protect farmers and their lands, which he
predicted would lead to more violence. In
particular, he cautioned, towns should not violate
the law regarding seizure of land nor sell
confiscated fields to businesses as a way to raise
public funds. Reportedly during his trip to Fujian
province at Spring Festival, President Hu Jintao
warned the local chiefs to clean up their messes
locally and not to pass them on to the central
authorities. It was a clear threat: if local
chiefs are unable to keep their administration in
order, they could be removed.
This new
policy should limit local protests, as it makes
the local chiefs directly responsible for local
social order. They are not simply called on to
quell riots, but to prevent them.
This
creates a new environment for police and their
handling of political action. Police should not
try to solve problems that are not policing
issues. It is the political leadership that has
the task of solving social and political
conflicts, in the spirit expressed by former
central party leader Li Ruihuan in a book he
published at the end of last year (Xue zhexue,
yong zhexue, "Studying and Using Philosophy",
China's People University Press, Volume 2, pp
712-716). He claims that conflicts are a permanent
feature of society and political action should be
able to spot them and find solutions before they
become unmanageable.
Division of
economic interests in the bureaucracy In
all this there is a very entrepreneurial aspect.
In China, entrepreneurs often live in a gray area,
where they are required to be very aggressive
while still lacking sufficient legal protection.
In many cases their past hides instances of tax
evasion, bribery or worse. These sins are due to
the ongoing process of transformation from planned
economy to market economy.
In many cases
the opportunities for business faced by Chinese
entrepreneurs are also gray, if not black,
especially in cases involving expropriation of
land from peasants. When an investor buys from the
local authority, he can't tell if the farmer was
properly paid or not. In other words, he operates
in a risky environment, but his active
participation is necessary if industrialization is
to move forward. Therefore he can only be
interested in business ventures that offer high
returns: big risks, big returns. If returns get
slimmer, he may be unwilling to take risks.
But it is not just the fact that investors
are unwilling to accept lesser returns; they also
can't really tell if these lower returns are truly
compensated by lower risks. So when profits have
to be cut three ways - entrepreneurs, officials,
and peasants - the weakest link is the peasant,
who can be squeezed out of his profit with fewer
problems.
The new system of responsibility
for the chiefs may improve protection for the
peasants, but it doesn't change a thing for the
entrepreneurs, and puts a greater burden on the
officials. The officials are the ones who stand to
lose most from the redistribution of profits. The
entrepreneurs still have to be lured in with the
promise of fat profits, while the peasants have to
be made happier, so the officials stand to lose.
Looking at it from another angle, there is
a risk of a big conflict between local and central
chiefs, which if not well managed could become
explosive. There appear to be two blocs: the
central government, entrepreneurs and farmers on
one side, and local officials on the other. In
theory the local officials are isolated, because
the interests of the former three are consistent
and in contrast with those of the local officials.
This is not some vague power struggle between
central and local government; it is a struggle
over how much money goes into whose pocket.
It could well be, then, that Beijing is
trying to enact a system to curb the power of
local officials. However, it could well be
something very different.
As local
officials are constantly in contact with farmers
and entrepreneurs, they may have the opportunity
to create new problems for the entrepreneurs and
put the blame for these new troubles, as well as
the old woes of the peasants, on the central
government. Besides, they have some capital, that
$500 billion accumulated over three years, to
advance their cause and maneuver in the internal
political arena, where money plays a rising role.
While these structural changes appear
necessary, in the long run they could be dangerous
for the country's stability. By redistributing
money that otherwise would go to individual
officials, the chain of command is broken. This is
dangerous, as these officials need to feel that
their personal interest is generally consistent
with that of their country.
Certainly,
even in the past there were differences of
interest between the provinces and the center. But
this situation involved various large entities and
it was basically solved first by inviting
representatives of the strong provinces into the
Politburo, and second by constantly changing the
heads of important provinces and cities. But in
this case, the conflict is at a lower level: in
districts, in counties, and China has thousands of
them. It is impossible for the center to take care
of the problems of every single district, and it
is very difficult to monitor the rotation of
officials in those districts. In fact, this new
clash calls for a general reconsideration of the
whole local-government bureaucracy.
In the
short run, the party, which still has a very
strong structure, will have no problem sustaining
the stress. But the party discipline in the long
run might not be enough. There is a classic
historic example. In France in the 18th century,
when the king tried to bolster his position
against the power of the aristocracy, dominating
the country and its administration, he sought the
support of the newly emerging bourgeoisie. He
created a conflict with the aristocracy but
successfully concentrated the power in himself.
Eventually, however, the growth of influence of
the bourgeoisie and its conflict of interest with
the absolute power of the king created the
conditions for the French Revolution.
In
China the center doesn't challenge an aristocracy,
but its own administration, and no matter what, a
country needs an administration. The point at the
moment is that district administration is
schizophrenic: on the one hand it represents the
local interests to the center and on the other
hand it represents the requests of the center
locally. Ultimately the local officials,
disoriented and under thousands of temptations and
pressures, only look after themselves.
It
seems necessary to split the interests into two
bodies, one to represent the center locally, and
the other to run the local government. But such a
split of functions, which has already been
attempted, can create conflicts between the two
bodies, or more corruption, as the officials of
both bodies can collaborate for one purpose,
making themselves rich.
However, the
present administration system can work without
major revamping for a few years if strong party
discipline and administrative measures are
enforced by both Beijing and the provincial
capitals, which themselves have an interest in
preventing riots. In the short run the threat of
removal from the job, or even the possibility of
being sentenced to life in prison, can work
miracles to keep the local bureaucracy in line.
Furthermore, the role of the Chinese press
should not be underestimated in keeping an eye on
local officials. Although many journalists who
denounced local abuses lost their jobs, and many
papers were put under scrutiny because of their
attacks, their action is feared in China, and it
can take place only because the central
authorities en large approve of it, as it
is useful to keep an eye on unruly local
chieftains. Their role in the near future will
certainly be enhanced and will help create an
overall new environment for a greater, though
still limited, freedom of the press.
At
the same time, some of the enriched local
officials could leave their offices and turn into
full-blooded entrepreneurs. To end the fuzzy
situation of many "collective" (jiti)
enterprises, in reality run by a local
official, they could be privatized and given clear
lines of responsibility, separating
entrepreneurial activity from government activity.
In many localities the two are still confused.
It is hard to say how long the new social
pact might take to strain party discipline
seriously, but this could well be something to pay
attention to after the crucial 2007 party
congress.
Francesco Sisci is
Asia editor of the Italian daily La Stampa.
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