Hoping for a Gorbachev in Today’s China

By He Qinglian Created: February 6, 2013

At a recent meeting of the Central Commission for Discipline Inspection, Communist Party leader Xi Jinping stressed that anti-corruption efforts need to target both “flies” and “tigers,” referring to lower and senior level officials. He does not seem to have real political reform in mind, though.
Observers have long concluded from the new Chinese Communist Party leader’s “tour to the south” late last year that “Xi Jinping is following Deng Xiaoping’s heritage.” However, the official media report on Xi’s “southern tour” speech was abridged.
Xi’s complete speech surfaced online recently, and disappointed many reformists. One noteworthy comment that Xi made regards the collapse of the Soviet Union. Xi said, “In the end, Gorbachev whispered a few words and the Communist Party of the Soviet Union collapsed. A huge Party was gone, just like that. The Soviet Union had more Party members than us [the Communist Party of China]. However, no one was a real man to take a stand and fight.”
The phrase “no one was a real man” was coined by Lady Huarui, a poet and concubine of an emperor who lost his empire after the fall of the Tang Dynasty (A.D. 907-960). When Xi Jinping used this phrase to describe the fall of the Soviet Communist Party and the Soviet Union as an “annihilated nation,” he clearly sensed the weight on his shoulders.
I, however, am not at all disappointed by Xi’s complete southern tour speech. In my article titled “Xi Jinping: The Guardian of a Red Regime,” I already concluded that Xi is not a person with an ambiguous attitude. What he talks about is exactly what he wants to do. Whether it can be accomplished is another matter. Xi always has a clear understanding of his role. Moreover, the veteran cadres of the Communist Party of China (CPC) would not have chosen Xi as the person to safeguard the “red regime.”
But the problem is that the Chinese regime is already in such a degenerated state that the only possible outcome is total collapse. Even if all seven members of the Politburo Standing Committee were “real men,” nobody can prevent the inevitable collapse of the regime. The fate of either the Soviet Communist Party or the CPC is not determined by any single Party leader, but by the general public. Now, the Chinese regime is simply refusing to recognize the fact that it has thrown away its good name, replaced trust between people with suspicion, and given up all its own trustworthiness. This is also known as the “The Five Ends.”  
On Dec. 25, 2011, CPC mouthpiece Xinhua published an article titled “Reasons for and Revelations From the Collapse of the Soviet Union,” which shows the CPC’s view on the Soviet Union’s collapse. The author of the article, Wan Chengcai, raised eight questions. Apart from a neutral question on the “important reason for the collapse,” all other questions were raised from the perspective of the CPC’s single-Party rule. For example: Who benefited and who lost out from the collapse? What are the major impacts on the world from the collapse? What should China learn from the collapse? How should one evaluate Mikhail Gorbachev, who initiated the political reform?
Vladimir Putin already gave a two-folded answer to these questions. He said, “anyone who doesn’t regret the passing of the Soviet Union has no heart; anyone who wants it restored has no brains.” On the one hand, Putin was sad because the Soviet Union went from a superpower to a second-tier country. On the other hand, Putin considered it the right move to end the dictatorship in the Soviet Union. However, the Chinese media intentionally paraphrased this so all Putin purportedly said was that he felt sad about the collapse of the Communist Party.
In fact, the root causes behind the collapse of the Soviet Union have long been attributed to three factors. First, corruption by the political elite had contributed to the growing social division and unrest, alienating the common people and intellectuals, who lost faith in the Soviet Communist Party. Just before the collapse, workers organized a nationwide strike to protest bureaucratic embezzlement. Second, to maintain its status as a superpower, the Soviet Communist Party engaged in an arms race with the United States, which caused a financial crisis. Third, Soviet General Secretary Gorbachev initiated a series of “new thoughts” reforms, that resulted in an end to the dictatorship in socialist countries in Eastern Europe.
Let’s compare the CPC’s current situation with that of the Soviet Union 20 years ago.
Let’s start by looking at the international environment. Compared with the Soviet Communist Party, the CPC is undoubtedly luckier. In the 1980s, the totalitarian regimes in Soviet Eastern Europe had “angered both men and gods.” Pope John Paul II and the President Ronald Reagan led the war to end communism, uphold justice, and safeguard beliefs. President Reagan’s famous speech to “Tear Down This Wall” was broadcast worldwide, and moved me to tears. The then Soviet General Secretary Gorbachev simply followed the desires of the people and accepted democracy. The Velvet Revolution, which took place in Eastern Europe, opened the doors for democracy, and brought an end to the Cold War. Mikhail Gorbachev became the 20th century’s hero of great wisdom, and he will forever be admired by freedom-loving people.
The world has changed a great deal since then. While China was rising in the first decade of the 21st century, Europe was declining. The formation of the European Union was merely a weak attempt at restoring the glory of Germany and France as world superpowers. Another superpower, the United States, was financially handcuffed by the war on terrorism, the war in Iraq, and the financial crisis in 2008, with debts reaching up to the stratosphere and widespread disgruntlement from citizens with U.S. participation in any kind of war. When the Jasmine Revolution struck North-East Africa, Europe and the United States could barely offer any assistance, not to mention resolving chaos in Syria. Under such circumstances, keeping an eye on the human rights situations in China was merely an international obligation for the U.S. and European nations. They do not have the will nor the resources to become the driving force of democracy as they did in the third wave of democratization.
However, the favorable international environment will not decrease the domestic pressure Xi Jinping is facing. Apart from vowing “not to become Gorbachev,” Xi is in a very difficult situation.
First, the corruption amid the elite circle of the CPC is much worse than that of the Soviet Union, Mobutu, and Gaddafi. This can easily be seen from reports by the regime’s own media, let alone reports by The New York Times and Bloomberg. The embezzlement of hundreds of millions of dollars by a village-level official is not rare. Chinese Internet portal QQ published an article titled “Corruption History of the Soviet Union in the 1970s,” which exposed the corruption of the Soviet Union. It is nothing compared with the corruption of the CPC officials. The so-called “special supply” for the Soviet officials was just importing goods, such as wine, clothes, cameras, and perfume, from the U.S. and European nations. Meanwhile, the CPC officials had reached the state of “luxury goods coming from bribery and no need to spend salary” as early as the 1990s. What the Soviet officials cannot even imagine is the international spread of CPC officials. Millions of Party members have become “naked officials” by moving their family members abroad. The only “special supply” they need is clean water, clean air, and safe food.
Second, the Soviet economic system had abundant domestic resources and a low unemployment rate. But today’s China is plagued by a lack of natural resources and a high unemployment rate. Over 100 million farmers do not have land. Tens of millions of city dwellers are unemployed. The profits from the economic reform have been depleted during the 10-year rule of Hu and Wen.
Just as I wrote in my 2004 article, “The Current and Future State of China’s Authoritarian Regime,” there are four basic requirements for a society to sustain itself: the ecological system as the basis; the moral system as the median among different social entities; basic living rights measured by the unemployment rate; a political system that maintains the normal operations of a society. Currently, the ecological system, moral system, and the basic living rights have already collapsed or are close to collapse. The only thing left is the political dictatorship.
Under such circumstances, only the CPC’s political gangsters would reject political reform. Even the intellectuals, who fear violence the most, are wishing for reform to abandon the one-Party system and avoid a violent revolution.
The person who acts as China’s Gorbachev will become the “good man,” respected and admired by the entire world.

This translation first appeared here, reproduced with minor changes.

Problems with China's New Ubranization (3)

中国没有“贫民窟”的虚荣后面 ——“新城镇化”的难点(三)

By He Qinglian on February 12, 2013.

Speaking of China's urbanization, many would feel proud that there are no slums in cities in China, and they use this as their main supportive argument that China's dictatorship is better than India's democracy.

Problems with China's New Ubranization (2)

Original article in Chinese:
无就业,“新城镇化”=制造流民 ——“新城镇化”的难点(二)
by He Qinglian on February 7, 2013.

Starting from the Industrial Revolution of the British Empire, the urbanization process around the world had never just been simply a migration of people. It is instead a modernization process that is closely related to the industrialization, the modernization of agriculture and the expansion of service industries. The most important issue of all is job opportunities.

Problems with China's New Urbanization (1)

By He Qinglian on February 4, 2013.

Following the emergence of the new industrial zone of Tijuana, Mexico, Beijing has finally realized that “the factory of the world” will relocate elsewhere and it has to find a new supporting point for economic development. Judging from incoming Premier Li Keqiang's speeches on economic development in the last six months, “new urbanization” will be the core of China's economic development from now on.

In fact, the so-called “new urbanization” derives essentially from the same mindset of “using real property (as an engine) to drive economic growth”, only that something new is added. For example, social policies like the probability that individuals of rural registered household could adopt an urban one.

But I think that the registered household policy could only address the problem of discrimination against people from rural background, it is of little significance to the urbanization success and economic sustainability in China.

The problems of new urbanization are as follows: 1) where do the huge funds required to promote the new urbanization come from? 2) who will be the genuine purchasers of these real estate? 3) with urbanization driven by policy, where do the job opportunities for the new urban population come from? 4) and how to solve the conflicts caused by the land acquisition of the rural population?

This article will analyze the first two questions.

First, who would inject the funds needed for “new urbanization”?

The urbanization of developing countries is generally an outcome shaped jointly by the rise or shift of industries and government policy, with diverse sources of funds. This was the case in the Pearl River Delta and the Yangtze River Delta years ago. At that time, various enterprise-based community funds came together to compete projects, be it the construction of industrial zones, living facilities, or logistics infrastructure. But the “new urbanization” that is about to start coincides with the shift of the “world’s factory” to Southeast Asia, Latin America and elsewhere and could only depend on government policy. Therefore, the first question for the “new urbanization” is that where to raise the huge money needed?

Judging from the current situation, this new urbanization is solely driven by policy and thus there can only be one major source of investment, the government funds.

In the past five years, the Chinese government sought to avoid recession and keep thriving amidst the global economic downturn by issuing astronomical amount of currency. The so-called 4 trillion by the Central government and over a dozen trillion in investment by local governments were just approximate numbers. The amount of currency issued by China’s central bank far exceeded this figure, as proven by data: by the end of 2012, the global M2 balance was as high as 366 trillion dollars, the amount of China’s new issued money was half the world’s total. Take 2011 for example, China’s contribution was up to 52% of the world’s new currency; and at the end of 2012, China’s M2 balance was close to 100 trillion. Interestingly, despite being the world’s largest cash printer, China has been openly condemning Japan for its unlimited monetary easing policy.

With new issuance at a scale rarely seen in the world’s history, coupled with the RMB not being an international currency, the impact of excessive issuance could only be digested domestically and it resulted in severe inflation. The so-called inflation indicators of the China's National Bureau of Statistics were far lower than the price increases felt by the Chinese people. However, the property price is a fact that they cannot hide.

In 2012, British luxury property consultant Knight Frank announced the average house prices increase in the last five years among countries. China topped the list with an increase of more than 110%; Hong Kong, and Israel ranked second and third; Taiwan, with an average increase of 30.1% in house prices over the past five years, came sixth.

The statistics calculated the average increase of all countries from the fourth quarter of 2006 to the fourth quarter of 2011 and showed that the housing price in China has more than doubled over the past five years. Take Beijing and Shanghai for example. In 2011, the average housing transaction price in Beijing stood at 13,173 yuan per square meter and the city's per capita income was 32,903 yuan. A person's annual income was enough to purchase 2.5 square meters of flat; in Shanghai, the average housing price was 13,448 yuan per square meter, and the per capita income there was 36,230 yuan, the annual income of an individual could purchase 2.69 square meters of flat.

The rapid rise in property prices illustrated that the "economic boom" China maintained by massive over-issuance of money came at the costs of the swift devaluation of the currency and the drastic diminution of the people's wealth. A property market that is above the purchasing power of the majority of the members of a given society and is supported mainly by speculators is only a highly inflated economic bubble. If the government continues to make investment to push for “new urbanization” before the bubble subsides, there will be serious consequences. David Daokui Li, former member of the Monetary Policy Committee of the People's Bank of China, believed that China with such a huge amount currency in stock is like placing a “dammed lake” above it, “A stock of money too large in scale would bring corresponding risks, such as high inflation, asset price bubble or the outflow of funds.”

These are what China is experiencing right now. Regarding the amount of capital outflow, I quoted in “Xi Jinping’s Dilemma: to fight corruption or not to fight” a report by the Central Commission for Discipline Inspection (CCDI) and calculated the ratio of that to the GDP of the year: in 2012 the amount of capital outflow was estimated to exceed $1 trillion, making up 12% of the year’s GDP of $ 8.23 trillion; in 2013, the scale of illegal capital outflow is expected to reach $ 1.5 trillion, based on the annual GDP growth rate of 7%, that would approximately be 17% of the year's GDP.

Second, who would purchase the apartments constructed in the “new urbanization”?

As the term “new urbanization” implies, the focus of future urbanization would shift from Beijing, Shanghai, and Guangzhou to cities of third- and fourth-tiers. But whatever types of cities that would be, apartments constructed have to be purchased, or there won’t be “sustainable development”. Now let’s analyze what kinds of people there are in China that could be potential apartment buyers.

China’s property prices have rendered over 80% of the Chinese people unable to become buyers. Before 2009, China’s property buyers comprised big and small speculators from inside the country and worldwide; after 2009, it was domestic speculators that made up property buyers. These people purchased apartments not for rent or their own use; they stocked up the apartments to preserve the value of their assets and wait for an opportunity to reap a profit. The “apartment families” that got exposed since November 2012 were just a few of those.

The “apartment family” mainly set their target in big and medium-sized cities like Beijing and Shanghai as there is great potential for appreciation, the market is relatively stable and it is easier to cash. They basically would not consider third- and fourth-tiers cities. Therefore, even after a round of promotion, the demand for real property in third- and fourth-tiers cities remains cold. Recently, major property enterprises withdrawn from third- and fourth-tiers cities and moved back to the first-tier ones in succession, the “ghost towns” are spreading in China.

What is more, since November 2012, Xi Jinping has been making “anti-corruption” rhetoric, coupled with the news that real property data network from 40 cities across the country would soon be (inter)connected, predominant members of the “apartment family” like officials and managers of State-owned enterprises jumped on the bandwagon to undersell their real property. These people are now cashing their real property and transferring their assets, and they would not reenter the property market in the near future. Without this legion of apartment buyers, who would purchase the apartments constructed in the “new urbanization” process?

Although I am aware that the "new urbanization" is the most important development plan in the heart of the incoming Prime Minister, I would in no way be able to envisage the following: what is the difference between the apartments that will be built in the "new urbanization" process and the 6,540,000 idle units in 660 cities across the country? Will this difference be so significant that those future apartments would actually attract enough buyers?

According to Chinese media reports, on average 450 acres of arable land are “requisitioned” each day in China, the urbanization project is like an arrow ready to leave the bow at any time. However, faced with the countless “ghost towns” in China—the samples of the bubble economy created by the power of the government, the policy makers should at least think through two questions: first, will the “dammed lake” of excessive currency issuance above their heads burst? and second, with hundreds of “ghost towns” that are already there, does China really need to construct yet more “ghost towns”?

Xi Jinping's Dilemma

Xi Jinping's Dilemma: to fight corruption or not to fight?

Original Article in Chinese: 习总的哈姆雷特之困:反腐败,还是不反?

By He Qinglian on January 30, 2013

Lately, CPC General Secretary Xi Jinping is caught in a Hamlet dilemma. The question on his mind, though, is not "to be or not to be", it is about fighting corruption.

By fighting corruption it could mean a general anti-corruption campaign or one that focuses on a small area; it could also imply a campaign with actions to be taken in full force or with some restraint.

To be fair, “not to fight corruption” is truly not what’s on Xi Jinping’s mind. Otherwise, he would not have personally led five other CPCCC Standing Committee members to the Central Commission for Discipline Inspection (CCDI), an organ oversaw by Wang Qishan, to deliver his speech that he would "catch both tigers and flies" when fighting corruption and corrupt officials, regardless of the scale of the bribe they took and their social prestige, would not escape punishment.

That speech was, in all probability, an attempt to correct Wang’s comment earlier that the anti-corruption campaign should be gentle and low-key. However, the dilemma Xi is facing is that there is an overwhelming number of both large and small bribe-takers—"tigers" and "flies"—in the government, and it is difficult to determine where and how to strike. Apartments owned by officials are but an example of a problem impossible to address.

The dramas triggered to officials' apartments in China are related to the economy and politics. And since these dramas are also relevant to the people's livelihood, they have become aggregation points for people's grievances. As a result, the anti-corruption campaign in China's officialdom and the mass selling of real property from late November 2012 could be likened to a two-act play in which officials assume the leading role and their apartments served as the predominant props.

The first act began when the so-called “the apartment families” that were exposed by an internet anti-corruption campaign in late November 2012. In the twenty-odd days to follow, netizens across the country took the opportunity to report officials of middle and low rankings who processed a dozen or even more than twenty luxury apartments. Based on the age and gender of those officials, they were dubbed “apartment uncle”, “apartment grandpa”, “apartment auntie”, “apartment sister”, “apartment girl” and “apartment ancestor” (!). Officials included in this list have at least a dozen apartments to their names. The most noticeable “apartment ancestor” at the moment is Cheng Shaochun, chief of Licheng District Public Security branch bureau, Jinan city, Shandong, who reportedly owns 16 luxury apartment complexes—not just apartments, but apartment complexes.

With reference to the property price in China, it is nearly impossible for the country's officials, regardless of their ranks, to purchase commodity flats using their salary alone, not to mention owning ten-odd or even dozens of apartments.

Without doubt, these apartments are related to their owners' acts of corruption.

Once dawned on the mind of those officials that their assets could come to light at any moment and would be used as the target to fight corruption, the apartments these officials used to see as the symbol of their wealth are now “risk assets”. The officials and their family became anxious about their apartments.

And so the second act of the play began. In dozens of cities across China there have been selling of apartments en masse.

According to a circular by the CCDI, the statistics prepared by the Ministry of Housing and Urban-Rural Development (MOHURD) and the Ministry of Supervision has it that 60% of the luxury apartments and mansions sold were owned in anonymity, using pseudonyms or corporate names. All of the sellers requested payment be made in cash and the money not to be wired via financial institutions; the selling of the property was done solely by lawyers and the owners did not show up in the entire transaction process.

After checking the initial purchase records and movements of capital between accounts, it was found that some of the owners who sold their property are public servants or in the rank of senior management in state-owned enterprises.

Allegedly, by mid-December, the CCDI, the General Office of the CPC, and the Organization Department of the CPCCC have already summoned over 120 senior officials currently in office to instruct them to tell their family to stop underselling property and closing bank accounts registered in anonymity or using pseudonym.

The anxiety caused by the apartment issue has eventually become the worries of the Party and the government. The CCDI circular has also listed the counts of recent withdrawal of foreign currency by the family members of middle and high-ranking public officials of Party and government organs in nine provinces and municipalities directly under the Central Government: Tianjin, Jiangsu, Shandong, Shanghai, Zhejiang, Guangdong, Fujian, and Hubei.

Guangdong topped the list with a withdrawal amount of 1.792 billion US dollar; and the lowest was 370 million US dollars. The CCDI circular stated that, according to incomplete statistics, the amount of illegal capital outflow in 2010 was 412 billion US dollars (6.9% of the year's GDP of 5.98 trillion US dollars); in 2011 the number reached 600 billion (8% of the year's GDP of 7.49 trillion US dollars); in 2012, the number was projected to exceed one trillion US dollars (12% of the year's GDP of 8.23 trillion US dollars); in 2013, the scale of illegal capital outflow is expected to reach 1.5 trillion (based on the annual GDP growth rate of 7%, that would approximately be 17% of the year's GDP of 8.8 trillion.)

The worries of the Party and the government are of course not just limited to this. When the officials undersell their apartments, it means they would not become new buyers of real property in future. And this is relevant to the smooth implementation of future economic development plan—the new urbanization project, I would present my analysis of this in a separate article.

Judging from the Economic Observer report on January 18, the CCDI has a fairly accurate understanding of the number of apartments owned by officials across the country. It was several years ago when the MOHURD started the establishment of the information system of individual property ownership in 40 cities. The time that system became publicly available for use was, however, postponed time and again. To this date the list of those 40 cities has still not been announced. Reportedly some of the cities have not yet completed the makeup of the housing history archival data. The reasons for the slow progress are that, apart from the complexity of the data entry work, the project encountered invisible boycott from officials of various regions.

It was said that to ensure smooth progress of the data entry work, MOHURD Minister Jiang Weixin told senior officials across the country that “the housing data of a particular individual would be retrieved only when there is consent from the Municipal Committee Secretary, the Mayor, and personnel from the MOHURD.”

Deputy Minister of the MOHURD once said that “the data collected from ministries, and provincial (regional) government is for statistical, analytical and aggregation purposes only; apart from local inquiry made in accordance with existing relevant provisions, no other inquiry service would be provided.

The government of the Guangdong province promised that the housing data gathered would be for statistical, analytical and aggregation purposes only, inquiry permission would be set in strict accordance with the relevant provisions.

It is precisely because the data has close relevance to the amount of assets owned by officials that a professor doing a research project of individual housing information system said:

Data entry of individual housing information is a risky job. Officials of the relevant department who have higher “political consciousness” would be reluctant to take this “hot potato”.

Regarding the issue of property ownership alone, there is concrete evidence of corruption of officials across the country, and Xi Jinping has repeatedly expressed his determination to crack down on corruption. Now there is only one problem left: to fight corruption or not to fight.

In view of the people's interests, Xi Jinping has to punish these officials because “he came from the people”, a propaganda highlight of the Xinhua News Agency since Xi ascended to the highest position in November 2012.

And the feature article about Xi Jinping was entitled “the people is the spring of our strength”.

But to make the people feel happy would mean great suffering to the Party cadres. If Xi is serious about fighting corruption, like carrying out the campaign pursuant to the provisions laid out by the Criminal Code, then his every move could be startling.

I did a quick check and found that the Article 383 of the Criminal Code stipulates four levels of meting out punishment on corruption. The lightest punishment would be criminal detention for fewer than two years for taking bribes of less than 5000 yuan; the heaviest sentence would be ten years or life imprisonment and confiscation of property for those who took bribes of more than 100,000 yuan. For cases of particular seriousness, the convicts would be punishable by death and the confiscation of property.

If Xi Jinping truly means to rule by law, then the majority of cadres of numerous Party organs and government departments are likely to get the maximum penalty pursuant to the Criminal Codes about corruption. In that case, how would Party offices and the government function?

Therefore, the "best" way is to hold high the banner of "anti-corruption"—otherwise the Party could hardly face the people, and Xi Jinping would be considered untrustworthy—and secretly amend the Criminal Codes, so that the meshes of the “cage” would be both big and wide, say by allowing every official to own 5 to 20 apartments in accordance with their respective ranks and put forward the crime of “illegally obtaining individual housing data” to deter those troublemakers who dare to leak on the Internet information of assets owned by officials.

In so doing, the “anti-corruption campaign” could achieve instantaneous results and end swiftly. If not, Xi's campaign would end up like the alcohol ban imposed by Yuri Andropov, 
General Secretary of the CPSU—scrapped without any success. However, Andropov managed to hunt down a few “tigers” such as the sons- and brothers-in-law of Brezhnev, his predecessor, former General Secretary of the CPSU in his anti-corruption campaign when he newly assumed office.