China’s
leadership transition in the wake of the 18th Party Congress and the
“two sessions” concluded in December last and yesterday has been orderly except
a few hick ups created by the by the Bo Xilai episode. With this Xi Jinping is at
the helm of China’s military, party and state, and Li Keqiang has taken the reins
of government affairs. The going would not be as smooth as the transition had
been for the new leadership, for the macro as well micro socio-economic and
political environments are not as conducive as these were a decade back. A year
or two or even more would be invested in consolidating and strengthening
leadership positions before making big decisions. The top priority of the
leadership would be to focus on the domestic economy, the “three rurals” corruption
and other welfare measures as regards the education and health. It would be
extremely challenging to further consolidate post reform achievements, and the
task of making China a fully well off society by 2020. Let’s examine the major
challenges new leadership would face in the coming decade:
1.
High
expectations and pressure on economic front
Topmost
priority for the new leadership would be to maintain the momentum of the growth
so that the social stability is maintained and unemployment rate controlled to
manageable levels. Urban registered unemployment rate at the end of 2012 stood
at 4.1%. Hu -Wen decade witnessed a strong growth, high employment and stable
polity.
Hu’s
tenure witnessed China’s GDP touching to 8.3 trillion USD from
a meager 1.20 trillion USD when he assumed the office a decade back,
registering an impressive 10% and above growth per year. Not only the financial
crisis was effectively dealt with, but it also contributed almost 50% of the
world’s economic growth during the slump. Rapid growth catapulted China to second
largest economy of the world leaving behind countries like UK, France, Germany
and Japan. China’s entry into the World Trade Organization in 2001 brought in
export boom, registering almost 30% annual growth until 2007 capturing more
than 10% of the global market. The trend in recent years have shown that the room
for further expansion is limited, for the wages have been rising, the Yuan
appreciating and China focusing on high end products. The so called famous “Wenzhou Model” of
yesteryears is showing cracks.
Individual
income increased rapidly, with urban per capita disposable income reaching
24,565 yuan (3962 USD) and rural per capita net income reaching 7,917 yuan, (1276
USD) up 9.6% and 10.7% respectively in 2012. China thus came out of the ranks
of poor nations and gate crashed into the middle income level countries.
The
urbanization has registered fastest ever growth anywhere in the world, by the
end of 2012 over 52% Chinese were living in the urban areas. The urbanization
opened up real estate sector, and in fact became catalyst in maintaining and
sustaining rapid growth; as a result the ghost cities in China also registered
an increase. Despite that, the gap
between China’s haves and have-nots has widened as could be seen from the rural
urban income. Moreover, it is estimated that 10% of the Chinese own 56% of the
wealth in China.
2.
Three
“rurals” or sannong issue
Chinese peasantry has been subjected to harshest of
taxes and levies by the Central as well as provincial government throughout its
history. The taxes levied on
peasants by the Central government were 93 types, and those levied by the local
governments included some 269. Besides, there were fines and penalties that are
not counted for (Chen et. al (2004). The exorbitant taxation, illicit fees, charges, and fines lead to a
widespread discontent in rural areas, especially the grain producing provinces. According to reports there were 180,000 mass
incidents in 2010. That’s up from 50,000 in 2002 when Hu Jintao took over.
Governing a less harmonious society will be a challenge for China’s new
leaders. Though the agricultural tax and levies have been totally abolished
since 2006, and there is a massive drop in the petitions, almost 80% according
to my research in 2007, however, the mass protests have gone unabated. The most
recent one being Shangpu in Guangdong on 5th March 2013 over illicit
land sales, it was the day when Wen Jiabao was delivering his Government Work
Report, reviving the memories of the Wukan village rebellion of 2011 in the
same province. China experiences more than 180,000 “mass incidents” every year
– street marches, strikes or violent disturbances. Almost two-thirds of these
incidents are related to the seizure of farmland for development.
This
year Chinese government has earmarked 1.3799 trillion RMB (225 billion USD) for
“three rurals” an increase of 11.4% over the last year. The money would
be spent on enhancing agricultural production, subsidies, and promoting rural
education and health. I believe, following are the areas
where the new leadership would like to focus their energies on:
2.1 Uniform rural-urban property right system
The present property
system has many anomalies, for example the urban land is under the state
ownership, whereas the land in the rural areas is under the ownership of
village collectives. Under the present urbanization drive, when the cities are
expanding towards the suburbs, land property right are subject to conflict and
contradictions, which is not conducive to the efficient and effective use of
land resources as well as labor force mobility. In the light of this, there is
an urgent need to implement a compensatory and transferable urban land system.
The system would enable peasants to lease and transfer their land for a
reasonable compensation through proper channels.
2.2
Uniform HR and employment system
The present HR system in China violates
the basic principles of market economy, which not only has divided the labor
market into rural and urban, but also discriminates rural areas on account of a
series of preferential treatment enjoyed by the urban areas. The education
system also creates rural-urban divide, for the government is responsible only
for the employment registration of the city people not the rural, even the migrant
laborers are not incorporated into the urban labor employment management
system. Even if there have been some attempts to reform the present HR system,
the peasants still do not enjoy the rights enjoyed by the urbanites in the
fields of employment, education, housing and social guarantees. Therefore,
there is a need that the reforms in HR and employment etc. systems are
synchronized.
2.3
Uniform rural-urban education system
At present huge gap exists between
the rural and urban education system. Chinese Government’s investment in rural
education is far behind the investment in urban areas. The discriminatory
policy has had a bearing on the overall quality of the rural residents; as a
result the rural labor force has been put in an unfavorable situation in the labor
market competition. Especially a lot has to be done as regards the 9 year
compulsory education and secondary education in the rural areas. During my field
investigations in Anhui, the peasants I interviewed revealed that the secondary
education was getting very expensive and there are hardly people going to the
high school. They revealed that annual expenditure of sending a child to a high
school is between 1,500 and 2000 Yuan, which was about 70 to 80 percent of
their annual income. I did not find a single student going to the university
during my Anhui investigations. Meanwhile, the peasants favored vocational
training at township and towns levels; this they said would enhance their human
capital accumulation level and fetch good money in the market.
2.4
Uniform rural-urban social guarantee system
The social guarantee system in China
has not yet covered a large number of rural populations. Social guarantees such
as medical insurance, old age pension, housing, minimum subsistence, labor
protection etc. guarantees have largely remained confined to the urban areas.
Therefore, various kinds of insurance system have to be introduced in the rural
areas. Of late there have been
attempts to establish a rural cooperative medical insurance system (2.2
trillion yuan ($354 billion) to support the ongoing medical reform that was
launched in 2009), but the system as such is imperfect, for it only calls for
reimbursement to peasants only for major diseases. Moreover, the central
government pool to the rural medical fund is very small per household.
2.5
Uniform rural-urban taxation and financial system
Almost 80% of the revenues are spent
in the urban areas that have only 40% of China’s population. Hitherto, the
peasantry was subject to various taxes, levies and pool funds. As regards the
rural financial capital, most of it has been diverted to the cities and
townships. Under these circumstances, the peasantry in China has been subjected
to various burdens but has not enjoyed corresponding benefits and rights.
2.6 Scale management of land
Scale management could
augment the income levels of peasants. However, at present due to the highly
fragmented land holding, scale management is not possible. Other factors such
as HR and property rights are also hindrance to the scale management. The
township government or the collectives could explore the idea of renting land
which the relevant household or households do not wish to cultivate to
agricultural enterprises or peasant households who are willing to enlarge their
production scale. The household which surrenders his land should be given
appropriate compensation after carrying out the valuation of land. Qiaoan Township,
Tianchang County in Anhui province has adopted such a method and has been quite
successful. The township government did a survey of the households who were
engaged in nonagricultural sectors or who thought that engaging in agriculture
was not a profitable proposition. The survey took account of their yearly
inputs and outputs as well as the profit on contracted land. Contracts were
signed after negotiation between the respective parties and conditions such as
rent, contract period, rights and responsibilities of parties concerned were
clearly stipulated. The township rent some or all of the land from these
households temporarily or permanently.
According
to Lin Yifu, the leading authority on sannong
in China, to achieve the goal of building a new socialist countryside, China
need to spend about four trillion RMB towards public infrastructure development
by 2020, implying that an average annual capital investment of 270 billion RMB.
However, in 2005, China’s investment in rural infrastructure construction is
only 29.3 billion RMB; in the year 2006, the entire outlay for “sannong” was
44.2 billion RMB. There is a huge gap between an annual projected expenditure
of 270 billion RMB and the entire outlay for agriculture. Even if the public
infrastructure investment is mobilized from cities, banks and other channels
the spending on rural infrastructure is going to be a big problem.
3.
Dealing
with corruption
Government
control of major investment projects, and key resources like land, offers
multiple opportunities for graft. Out of 176 countries in the world, China
ranks 80th in the Transparency International Corruption Perception Index.
Nothing to cheer about as India ranks 94 even worse than China. Along with
problems like land grabs and environmental degradation, corruption has
contributed to an increase in social unrest. It would be the top concern for
the new leadership and Xi Jinping and Li Keqiang has pronounced this very
categorically in their speeches.
It could endanger social stability and the
legitimacy of the CPC, for the 1989 Tiananmen protests were triggered by the corruption
issue itself. According to a recent
report in February a former vice president of the Shenmu Rural Commercial Bank
in the northwestern province of Shaanxi, Ms. Gong Aiai (popularly known as House
sister, there are many house brothers and house uncles in China) owned 41
residential and commercial properties in Beijing alone. Such exploits, however, appear puny next to
those of Zhao Haibin, a party official and former public security chief in
Lufeng in southern China, who was accused by a local businessman of accumulating
at least 192 apartments and other units of real estate (New York times Feb 5
2013). These are still smaller fish in the ocean of corruption. The very top
party leaders including Jiang Zemin, Zhu Rongji have been airing their views
against the corruption. Former Premier
Zhu Rongji vowed to give his life in the fight against official malfeasance. He
pronounced in 1998 shortly after assuming office: “I’ll have 100 coffins prepared, ninety-nine
are for corrupt officials, and the last one is for myself.” However, his son, Zhu
Yunlai, became head of one of China’s biggest investment banks shortly after
Zhu left office. Jiang Zemin’s son, Jiang Mianheng has stakes in China Netcom
Telecommunications Limited, Shanghai Automobile Industry, Shanghai Information
Network, and Shanghai Airport Corporation. Wen Jiabao, China’s departing prime minister,
have controlled assets worth at least $2.7 billion according to a New York
Times October 2012 story. According to public documents compiled by Bloomberg, Xi
Jinping’s extended family expanded their business interests to include
minerals, real estate and mobile-phone equipment. Those interests include investments in
companies with total assets of $376 million; an 18 percent indirect stake in a
rare-earths company with $1.73 billion in assets; and a $20.2 million holding
in a publicly traded technology company. Other influential leaders such as
Beijing Mayor Chen Xitong, Shanghai Mayor Chen Liangyu have all been fired and
punished for alleged corruption charges. Zheng Xiaoyu, the director of the
State Food and Drug Administration was found guilty of personally approving
unproven and unsafe medicines after taking bribes from eight pharmaceutical
companies totaling more than 6.49 million and executed in 2007. Lai Changxin,
the business man who built a business empire under the nose of influential
party chiefs including Xi Jinping the then governor of Fujian, have been
sentenced to life after China secured his extradition from Canada in 2011.
It
could be seen that there are “tigers” as well as “flies” in the battle against
corruption. Xi Jinping, who became president on last Thursday, has been driving
an anti-graft campaign ever since he was made party chief in November. He has
told that he would deal with both the “tigers” and “flies” sternly. He has identified
fighting corruption as a priority It has been speculated that Xi will put a
broad anti-corruption law on its legislative agenda for the coming five years. Other
measures could be the declaration of assets by the party officials on the lines
of Guangdong experience; Law on whistleblowers, to bring in transparency and rule
of law; the publication of family backgrounds even private lives of the leading
party members is an inkling in this direction. Finally the crackdown
would be another measure, as more than 160,718 people were punished in China
for disciplinary violations in 2012 and 7.83 billion yuan (around 1.24 billion
US dollars) in economic losses were recovered. Wang Qishan, the new secretary
of the Central Commission of Discipline Inspection of the CPC, is going to have
a tough time ahead. The Commission is already busy drafting a working plan on
punishing and preventing corruption between 2013 and 2017. However, many in
China say the problem cannot be rooted out unless the party undertakes
fundamental political reforms, such as the development of an independent
judiciary and media.
4.
Political
reforms?
Wen
Jiabao, the outgoing premier has been the strongest votary of political reforms
in China in recent times. Wen had joined the student protesters at Tian Anmen
with the then Party Secretary, Zhao Zeyang, who was equally sympathetic about
the cause of the students, and political reforms being one of their demands.
Zhao got booted out for his sympathy, whereas Wen survived. Since then,
especially in his last stint as Premier, he did reveal his thinking, on and off
about the political reforms in public. Last he spoke about these reforms was in
March 2012 when he said during the National People's Congress meeting in a live
broadcast on March 14 that "Without the success of political structural
reforms, economic structural reforms cannot be carried out in full.” So far his
remarks proved to be no more than rhetoric.
As far as
the President designate Xi Jinping’s attitude towards political reforms is
concerned, he has been talking a lot about reforms, but what he is indicating
so far is his commitment towards economic reforms. His south China visit
between December 7-11, 2012 is an indication, and more symbolic in terms of
market reforms. And, why not, he represents the Shanghai clique in the Party
who has vociferously advocated the deepening of reforms without touching the
sensitive political reforms.
The hue
and cry about political reforms in China has been kept alive in its best
political tradition by the Peking University, which was at the forefront of
these movements, be it the May Fourth New Culture Movement of 1919, or the Tian
Anmen demonstrations of 1989 or the recent 8,000-word petition drafted by
Peking University Law Professor, Zhang Qianfan, and signed by 70 odd renowned
legal experts, political scientists, economists, journalists and writers.
Professor Zhang came to limelight last in 2011 when one of his classroom
lecture entitled “The Xinhai Revolution and the Chinese constitutional
government” went viral on the You Tube and China’s own version of You Tube, the
Youku. Zhang took the stock and unleashed scathing attack on China’s present
situation, and called for political reform, so as the sufferings of China are
done away with. He said, although the reforms and opening up brought China a
relative peace for three decades or so, brought China out of the dangers of
famine and ‘great revolution’; brought China to the folds of the comity of
world civilizations, but the nature of the totalitarian structure of the power
has not changed at all. Prof. Zhang
continued, “In a century after the Xinhai Revolution, civil rights have
remained constricted as against the unprecedented expansion of the government
power. Extortion, unlawful acquisitions, indiscriminate demolitions, and even
disregard for human life are rampant.”
Prof. Zhang further says that “today,
China seems calm on the surface, but it is sitting on a powder keg. China could
draw lessons from the fall of the Manchus, only the swift implementation of
constitutional reforms can prevent the tragedy of the revolution. Past hundred
years of history and ups and downs demonstrates that only a constitutional government can save
China. We must rely on people to get rid of the totalitarianism…”
The
petition drafter by Professor Zhang was released on 25 December 2011 and sought
milder political reforms in China. This is in contrast to the Charter 2008 when
signatories asked for democracy and end to the single-party rule. The architect
of the Charter, Liu Xiaobo, a dissident writer ended in prison for inciting
subversion, even though the Nobel Committee found him suitable for the Nobel
Peace Prize.
It is too
early to predict the impact of such petitions in China, however, I believe Xi
would require a few years to consolidate his power before initiating drastic
changes, we can expect, however, him enhancing intra-party democracy; greater
transparency as regards the assets of CPC leaders. Administrative reforms could
be another area where we can see Xi initiating some steps. For example The
Ministry of Railways will be dissolved, and amalgamated into the ministry of
Transport; The National Family Planning Commission will be merged with the
Ministry of Health; General Administration of Food and Drug, the newly formed
body will have the responsibility of taking over the duties of Food Safety
Office of the State Council; the merger of two main media watchdogs - the State
Administration of Radio, Film and Television as well as the General
Administration of Press and Publication; National Oceanic Administration will
come under Ministry of Land and Resources; State Electricity Regulatory
Commission will also be dissolved and its responsibilities transferred to the
reorganized National Energy Administration. The kind of political reforms
dissidents in China and abroad are seeking would be a distant dream as China
has categorically said that it will never go down the path of western
democracy.
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