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2 China's elite economic double
standard By Willy Lam
break into the field of finance
must team up with a qualified foreign strategic
investor. Those that are interested in doing
wholesale or retail oil business must have
registered capital of at least 30 million yuan,
plus oil-storage capacities of up to 10,000 cubic
meters. With these regulations in place, a sizable
number of private oil retailers in Chongqing,
Henan and Shenyang were left with no choice but to
sell their businesses to the three oil
oligopolies.
Yet another form of
monopolistic practice - high-growth real-estate
and
infrastructure development - has been a direct
result of the massive corruption in the rapidly
growing cities along China's east coast. The
detention of former Shanghai party secretary Chen
Liangyu last September, as well as the arrest of
rags-to-riches speculator Zhou Zhengyi in 2003 -
and again this year - have exposed how dozens of
companies that enjoyed the patronage of senior
Shanghai cadres have made billions of yuan in
profits.
Chen, for instance, authorized
companies set up by his relatives and cronies to
dig into the municipal government's
social-security funds to underwrite highway and
other infrastructure projects. And Zhou made his
millions thanks to choice - but cheap - land
concessions that he had secured through bribing
numerous municipal officials.
Private
firms that have tried to set up footholds in
sectors dominated by either longduan state
firms or companies with sterling political
connections are relatively large operations with
assets well over 10 million yuan. On the other
hand, the fate of small and medium-sized
enterprises (SMEs), including getihu or
"individual enterprises" that employ no more than
eight individuals, has been less fortunate.
While SMEs are energetic, market-oriented
dynamos that were once considered the soul of a
new-style Chinese capitalism, they have been
relegated to a diminishing role in the Chinese
economy. From the late 1990s to 2005, the number
of individual enterprises was shrinking at the
rate of more than 1.3 million a year. The reasons
include the failure to obtain low-interest loans
and the ever rising energy and raw material costs.
Indications are that as the Wen cabinet
gets even more serious with its "macroeconomic
adjustment and control" policies - designed to
cool down high-growth sectors such as the stock
and real-estate markets - private firms of all
sizes are going to see even harder times. While
excessive investments by the longduan
behemoths are a major reason behind the
overheating, these firms have powerful lobbyists
in the party and government.
The political
influence of private corporations has expanded in
the past decade, with dozens of executives having
been appointed to legislative and consultative
bodies such as the National People's Congress and
the Chinese People's Political Consultative
Conference. The clout of the non-state sector,
however, is still much smaller than that of the
"red tycoons" running oligopolies.
Government departments are also set to
tighten their control over the economy because of
the numerous scandals regarding Chinese products
as well as environmental pollution. Hu and Wen
have been hit hard by the recent spate of
unhealthy and even dangerous food products, toys
and other merchandise that have been returned to
the country by angry importers in the United
States and numerous other countries.
The
culprits, in most cases, are non-state firms that
have tried to cut corners by using illegal and
other questionable raw materials. Internally, the
drastic deterioration of the water quality of the
famous Tai and Dongting Lakes is due in large part
to the discharge of waste by privately run
factories and mills, including getihu, as
well as township and village enterprises.
On a macro-level, the overall decline of
Beijing's control over the economy is mainly
caused by the increasing assertiveness of "warlord
cadres" in rich coastal provinces and cities. In
the run-up to the pivotal 17th CCP Congress,
however, Hu and Wen are anxious to project
central-level authority - and to avoid taking the
blame for the side-effects of overheating,
particularly inflation.
With the annual
growth rate of the Consumer Price Index projected
to hit 5% or more later this year, the
party-and-state apparatus seems to have no choice
but to re-employ state fiats now that
market-oriented tools, such as repeatedly raising
interest rates as well as the capital-adequacy
ratios of banks, are not working.
Take,
for example, the extensive efforts that officials
- from Wen down to mayors and county chiefs - have
used to cut the price of pork, which has risen
more than 70% in the past year. Measures taken
have ranged from government subsidies to warnings
to the media not to "sensationalize"
inflation-related reporting. This is in spite of
the fact that the large-scale reappearance of
state intervention, as much as the alarming
decline of the role of private firms, runs counter
to the free-market principles that underpin Deng's
market reforms.
Note 1.
China's overall foreign-direct-investment inflow
levels in 2006 are based on figures reported by
the US-China Business Council, available online.
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