Beijing cracks the whip on rogue
projects By Wu Zhong, China
Editor
HONG KONG - China's central
government has used its iron fist once again to
deal with rampant regionalism that has virtually
nullified its attempts to cool the overheated
economy over the past two years. It remains to be
seen whether the closing of the Xinfeng power
project will scare off the other regional players
in their headlong quest for growth at any expense.
Last Wednesday, the State Council, chaired
by Premier Wen Jiabao, decided to punish
government officials of Inner Mongolia who were
held responsible for the unauthorized investment
in the 2.9 billion yuan (US$364 billion) Xinfeng
Power Plant. One of the major targets of Beijing's
two-year-old macroeconomic control policy is to
curb excessive investment in certain industries,
including electric power.
Inner Mongolia
Governor Yang Jing and Vice Governors Yue
Fuhong and Zhao Shuanlian
were ordered to hand in their written
self-criticisms to the State Council, China's
cabinet. Seven other senior local officials were
disciplined, and two more were to face
prosecution, according to the Xinhua News Agency.
The cabinet also took the opportunity to
order a stop to the construction of all those
power plants under construction in Inner Mongolia
that were launched without Beijing's pre-approval.
Their total generation capacity is 8,600
megawatts, or the equivalent of 14 Xinfeng plants.
Total investment in these power plants would be
more than 40 billion yuan.
A Chinese
proverb says: "Kill a chicken to scare off the
monkeys." Beijing is once again applying this
tactic to a "chicken" to impress its will on all
of the other little "monkeys" in the provincial
governments.
Beijing launched its
belt-tightening policy in early 2004. Inner
Mongolia started construction of the Xinfeng
project only this April. The construction also
violated existing regulations such as the one that
requires pre-approval from relevant central
authorities such as the State Environmental
Protection Agency (SEPA) and the National
Development and Reform Commission (NDRC), the
country's top economic planning body.
In
November 2004, the State Council issued a circular
suspending construction of all power plants that
started without central authorities' approval,
pending examination. But Inner Mongolia simply
ignored the order. In January 2005, SEPA ordered a
halt to 30 construction projects across the
country, including Xinfeng, demanding that they
conduct an evaluation on pollution. Inner Mongolia
officials rushed through an evaluation and made
self-criticisms to enable them to continue with
construction. Later the NDRC also declared Xinfeng
an unauthorized project.
The Xinfeng
project seemed ill-fated from the beginning. In
July last year a building under construction on
the site collapsed, killing six workers and
injuring another eight. The accident prompted the
central government to send a team of officials
from seven ministries for an investigation.
However, even while under investigation,
construction of the Xinfeng project continued.
Local officials were eager to hurry so it could be
completed as soon as possible. They reckoned that
once it was completed, Beijing could not order
them to dismantle such a huge project as this
would be considered a big waste of money.
While dealing with the accident after the
joint-team investigation, the State Council took
the opportunity to flex its muscles, turning the
Xinfeng project into the "chicken" to to rein in
the regional "monkeys".
In his Government
Work Report to the annual session of the National
People's Congress this year, Wen set what seems to
have been a wholly unrealistic goal of dampening
the growth of gross domestic product (GDP) for
this year to about 8%. However, China's GDP is
skipping along at a national rate of 10.9%.
Most of mainland China's provinces
reported even higher growth in January-June.
Twenty-three of the 31 provinces, autonomous
regions and province-level municipalities recorded
a growth rate of higher than 12%. Inner Mongolia
autonomous region topped all others to report
18.2% growth.
The figures suggest that
local officials are still keen on blindly chasing
GDP growth despite consistent appeals from
President Hu Jintao and Wen to change their
mindset to focus on "balance development" or
energy-efficient and environment-friendly growth.
Fixed-asset investment is an effective way
to boost GDP numbers. Inner Mongolia is rich in
coal, which is the major fuel of China's power
plants. So the regional officials might have
figured they could kill two birds with one stone
by building more power plants: it could make
better use of local resources and boost the local
GDP. Indeed, Inner Mongolia's GDP jumped 21.6%
last year.
But this goes against national
policy, so when Beijing decided to wield the "iron
fist", Inner Mongolia was a tempting target. Using
Inner Mongolia as an example, the State Council
stressed that officials would be seriously dealt
with who dared to go against Beijing's policy and
violate regulations.
When Beijing began
its macroeconomic controls in early 2004, its
major goal was to curb excessive investment in the
steel, cement and aluminum industries. But at
first, the policy was largely ignored in the
regions. So in April 2004, the council ordered a
halt to the construction of the Jiangsu Tieben
Iron and Steel Co mill, a privately invested steel
project in Changzhou, Jiangsu province, on the
Yangtze River Delta. The order was also announced
during a State Council meeting chaired by Wen.
The 10.6 billion yuan project was expected
to have a production capacity of 8.4 million
tonnes. It was reported that the local government
approved the project without the central
government's okay. Approval for the use of the
land was also illegally obtained.
Because
of the similarities, Xinfeng is called by the
Chinese media the "second Tieben case". If that's
so, how long will the effect of closing down
Xinfeng last? The closure of Tieben indeed forced
local officials to behave themselves for a while,
but only for a short while, as is demonstrated by
the fact that Beijing has had to take heavy-handed
action again. It is feared that the problem will
become chronic so that Beijing may have to use the
"iron fist" again and again.
Beijing
itself must take some blame for the problem.
Despite its repeated appeal to officials to give
up their "GDP worship", it has yet to establish a
new set of criteria to evaluate officials'
performance. As long as economic growth remains
the sole yardstick to measure officials'
performance and future promotion prospects, it is
only natural for local officials to pursue
high-speed growth.
The fact that the
central government has to use administrative means
to intervene in economic operations is itself
proof that China's economy has yet to walk
completely out of the shadow of the planned
economy. While Beijing is trying to keep its hands
out of the market, local governments still retain
much power in running their local economies. As
such, there are always conflicts of interest
between the central and local governments over
economic development. And having a bigger say in
local economic affairs gives the local governments
the leverage to go against Beijing's macroeconomic
controls.
China needs to restructure its
current political system to clarify and redefine
the role, power, obligations and responsibilities
of the central government and those of local
governments at various levels, as well as their
relationships, in accordance with the new economic
structure so that conflicts of interest between
them can be reduced, if not eliminated.
In
the long run, however, China must continue to
deepen its market-oriented reform. Only when
economic operations are largely, if not
completely, decided by market forces, leaving
little room for local officials to manipulate,
will Beijing's macroeconomic policies be carried
out.
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