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2 China's elite economic double
standard By Willy Lam
While widely recognized as holding
conservative ideological and political views, the
Chinese leadership of President Hu Jintao has been
given reasonably high marks for pushing forward
economic reforms initiated by the late patriarch
Deng Xiaoping.
According to World Trade
Organization provisions, the Chinese Communist
Party (CCP) has opened up an unprecedented number
of sectors for foreign-equity participation. Yet
the authorities have at the same time tightened
control over other
aspects of the economy. This
has resulted in the truncation, if not atrophy, of
thousands of private firms. These are in danger of
being edged out by powerful monopolies and
oligopolies that are controlled either by the
party-and-state apparatus or by senior cadres and
their offspring.
Officially, the
leadership under President Hu and Premier Wen
Jiabao has been committed to expanding the
non-state sector, which has grown exponentially
because of high levels of foreign direct
investment - US$69.5 billion in 2006 - as well as
the massive outlays of gumin, a reference
to the millions of "stocks-crazed" Chinese who
have opened securities-related investment accounts
with banks and brokerages. [1]
Yet it must
be noted that the sector that has benefited most
from what pundits call the "preliminary stage of
capitalism with PRC [People's Republic of China]
characteristics" consists of the so-called
"aircraft-carrier-type" enterprise groupings under
the CCP and government apparatus.
These
giants are supervised by the powerful State
Council agency, the State-owned Assets Supervision
and Administration Commission (SASAC). While
nearly all of these quasi-governmental behemoths,
including the three oil-and-gas monopolies, the
energy and electricity groups, airlines and
telecoms, and most of the major banks, are now
publicly listed companies, government ministries
or State Council entities control up to 50% of
their shares. Moreover, most of their top
executives are appointed by the CCP Organization
Department in consultation with the SASAC. These
privileged "red businessmen" carry the official
ranks of ministers or vice ministers.
Last
year, total assets of these 160 or so state
monopolies and oligopolies amounted to a stunning
12.20 trillion yuan ($1.6 trillion), or about 57%
of the country's gross domestic product. In
addition, they generated 720 billion yuan in
earnings, half of which were made by the three oil
giants alone. Up to 80% of the year-on-year
increase in profits realized in 2006 by all
Chinese enterprises were attributable to
longduan (monopoly financial groups) or
monopoly firms in the areas of oil and
petrochemicals, electricity, coal and metals.
Thanks to their cartel-like powers, these
firms are also least affected by the rise in costs
of raw materials or energy. Equally controversial
is the fact that their chief executive officers
and senior executives are earning up to 10 million
yuan a year. While China is still a putatively
socialist country with egalitarian values, the
paychecks of these top managers are up to 27 times
those of their employees. For an administration
that is committed to "putting the masses first",
it does not help that a number of the bosses of
the longduan firms are the sons and
daughters of party elders.
The children of
former premier Li Peng, for example, are running
two of the electricity monopolies. This has
prompted even the state media to decry the rise of
"special privileges" and the emergence of a "new
class of monopoly state capitalists" at a time
when friction among disparate socioeconomic
groupings is threatening to tear apart the social
fabric. Even the official Xinhua news agency
recently ran a commentary decrying the fact that
"the high earnings of longduan sectors have
posed a challenge to social harmony".
Beijing has consistently denied that it is
protecting the big groupings - reminiscent of the
keiretsu in Japan and chaebol in
South Korea - while constricting private economic
entities. Two years ago, the State Council
unveiled a set of "36 regulations on the non-state
economy", which in theory extended "national
treatment" to the non-government sector.
Private firms were allowed to venture into
areas such as finance, electricity,
telecommunications, railways, civil aviation, oil
and natural gas. In 2005, when 14 private airlines
went into business, it was hailed as a high-water
mark for non-state firms' debut in the
transportation sector. Most of these private
airlines, however, are now in dire straits for a
number of reasons, including difficulty in
securing loans from big banks.
More
important, SASAC published a contravening set of
policies last year, which said that seven sectors,
including military equipment, electricity, oil and
petrochemicals, telecommunications, coal, civil
aviation and shipping, must be either entirely
controlled or dominated by state firms.
"Domination" means that the three biggest
companies in a longduan sector must be
SASAC-affiliated firms.
Moreover,
regulations governing private companies entering
state-protected sectors are deemed even more
stringent than those for multinationals. For
example, non-state companies that want to
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