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Authoritative Capitalism: A Marriage of Political Power And Market Economy

In a private forum held in Beijing, several well-known scholars carried on a spirited debate over China’s economic reform and called for serious political reform.

A number of Chinese scholars and leaders criticized China’s economic reforms in a private meeting held on March 4, 2006. The event was organized by The China Society of Economics, a research institute affiliated with the State Council. The blunt criticisms highlighted many serious issues surrounding China’s economic reforms. The call for political reform has become louder.

About 20 distinguished scholars in economics and law were invited to the session to discuss and advise the top leaders of the Chinese Communist Party (CCP) on the direction of China’s macroeconomic reform.

Many topics were discussed at the meeting, including medical reform, educational reform, issues related to farmers and their ownership of land, poverty reduction, taxation, the relationship between the local and central governments, and ownership of stock by foreign investors.

The meeting was closed to the media, but Huayue Forum managed to post on its website minutes from the meeting that were leaked. Open Magazine (Hong Kong, May 2006 issue) and The Epoch Times (May 13, 2006) both reported on the event.

Heated Opening Speech

In his opening speech, Gao Shangquan, Chairman of the China Society of Economic Reforms and a reform guru, said, "Presently there is unprecedented controversy and dissent concerning the reforms." The meeting was chaired by Chi Fulin, the Director of the Hainan Reform and Development Research Academy. The meeting minutes revealed disagreements inside the CCP’s elite toward the reforms and that the debate was very intense.

Gao Shangquan described three core controversies:

1. Privatization vs. protection of public ownership

2. Who benefits from the market economy?

3. The widening gap between the rich and the poor related to unfair distribution of wealth, corruption and embezzlement of public property, and intensified social conflict

The group that opposed the economic reforms concluded that the current situation was not working because the reforms were not in line with the socialist principles and the Chinese Constitution. They labeled the reforms "New Liberalism" and alleged that the reformists were cooperating with the CIA to carry out the task of peacefully transforming China from a socialist country into a capitalist one.{mospagebreak}

The opposition group contended that the market economy was harmful to the interests of the majority of working people, identified in the meeting as the "disadvantaged class." In particular, ordinary people could not afford housing after the housing reform, the masses could not afford medical services after the medical reform, and children could not afford schooling after the educational reform.

The grave problems they depicted are indeed the most serious issues in today’s China. These issues have not only negatively affected any assessment of the reforms, but also demonstrated that economic reform without parallel political reform will hurt the interests of the majority of people and become a tool for the few elite to monopolize the power, the national resources, and the wealth.

Nevertheless, this group was also criticized for wanting to return to a Maoist-style "planned economy."

A "Marriage" of Political Power and Market Economy

Sun Liping, a professor in the Department of Social Sciences at Tsinghua University, presented interesting ideas at the forum. "Many people in the past believed that the political power (meaning the single party ruling power) and the free market economy are contradictory. Today, however, this contradiction has disappeared in China." He joked that it was like two people who apparently could not get married, yet managed to live together fairly well. In fact, he gave it a new name—"Authoritative Capitalism." It used to be thought that checks and balances in a market economy would restrain political power, but the emergence of markets in China is now providing more opportunities for political power to demonstrate its usefulness in securing personal gains. Sun pointed out, "As a result, power can be priced and sold, which is what we’re facing today. We’re not sure if such a marriage is merely a phenomenon in the transition period or a permanent mechanism, but our challenge is to prevent political power and the free market from getting married."

Professor Sun described the current social structure as an "oligarchy at the top but cynicism at the bottom. Those at the top become more and more oligarchic, arrogant, and imperious, while those at the bottom are more and more cynical—a situation that will inevitably cause conflicts between the two groups. The superior group does not have a good relationship with the bottom one, while the bottom group will cheer on the Internet and celebrate like it’s a holiday whenever there is a scandal at the top," Sun continued.

The CCP Is Technically Illegal Because It Has Never Registered

The harshest speech was attributed to He Weifang, a law professor at Beijing University. He bluntly recommended splitting the CCP into two political parties, giving the government—instead of the CCP— controlling power over the Chinese military forces, and ensuring freedom of the press.{mospagebreak}

In discussing rule by law, he first explained that the Chinese Communist Party, as an organization, is in violation of the Chinese Constitution because the Party has never registered itself with the government. "When the (CCP) asserts its power and authority over the Constitution, and (the Party) seriously violates the Constitution, how can we talk about ruling the country by law?" He suggested placing the CCP’s power under the rule of law and called for clarification of the boundaries between the CCP and the Congress, between the CCP and the justice system, and between the CCP and the government.

Secondly, he alerted the leaders that the Chinese People’s Congress’s current method of operation and its annual meetings was "an extension of the CCP meetings" rather than a true parliamentary system. Thirdly, he emphasized that basic human rights, including the freedom to gather, the freedom to demonstrate, and the freedom of religious belief, need to be implemented in China.

Lastly, Professor He Weifang indicated that the CCP’s interference in the justice system has recently increased. Supreme Court regulations state that the courts should not accept any case of forced demolition or land seizure. "Who made this rule? How can we let some kind of ‘classified document’ from the CCP supersede the law?" He cited another example to illustrate the point: "When Zhou Yongkang, Minister of Public Security, visited the Supreme Court, Xiao Yang, who is the Chief Justice of the Supreme Court, had to report the court’s work status to Zhou. Why in the world is the Chief Justice reporting to the police chief?" Professor He questioned.

Failed Medical Reform

Song Xiaowu, who helped draft the medical reform for the State Council several years ago, and Ge Yanfeng, the minister of Development and Research for the State Council, spoke on medical reform. While Song described medical reform as being very difficult, taking off slowly, but making slow progress, Ge characterized medical reform as a failure. Ge illustrated his point by citing the following:

"According to data published by the Ministry of Public Health, 49 percent of people with medical problems reported that they were afraid to go to a hospital, and nearly 30 percent reported that they dared not stay in a hospital even if a doctor told them to. What is the problem? It is the market-orientation of medicine," Ge concluded. "Medicine falls in the domain of public health, which requires government attention and needs to be fair and universally available and accessible," he argued. "Financial support from a government that takes responsibility for providing adequate medical care is essential."{mospagebreak}

To rebut the argument that the central government cannot afford such support, Ge used a concrete example: "China’s fiscal income exceeded three trillion yuan (US$375 billion) last year. To treat the common and chronic diseases of China’s population, rural or urban, would require 150-200 billion yuan (US$20-25 billion), which is six to seven percent of the annual fiscal income. The increased income in 2005 alone, which totaled 500 billion yuan (US$62.5 billion), would be more than enough to cover the expenditure. Using a fraction of the government surplus to fund the public medical services will not only improve people’s health but also enhance social harmony and is of great political and economic significance."

Education Reform: Selling Education For Profits

Disagreeing with the success story of the education reform published by the Ministry of Education, Yang Dongping, who is a researcher at the Higher Education Research Institute of Beijing University of Technology, and Zhang Luxiong, the Deputy Secretary of the China Society of Economic Reforms, both criticized the education reform.

Instead of being responsible for and taking care of China’s compulsory education for its citizens, the authorities have been pushing education into the marketplace and forcing the ordinary people to pay the bill. This has created severe problems in the Chinese countryside. Under the influence of a market-oriented economy, schools are directed to be self-reliant financially and encouraged to promote profit-making activities, one of which is to raise school fees at will. Yang called this "selling education for profits."

In many other countries, higher education mostly comprises private colleges that are supported by private investments. In China, however, the regime monopolizes higher education, promotes power-centric administration, carries out the planned academic research, and thus fails to form the mechanism of an academy-centric administration.

Zhang Luxiong echoed Yang on the negative impact of the market economy on education. He focused on the Key School system and the College Admission Exams system. In the Key School system, elementary schools and high schools are divided into key and non-key schools, where different curricula are used. Zhang stated that this system created inequality in students’ educational opportunities. He also criticized the elementary and high schools for basing their teaching too much on passing the college admission exams.

Zhang maintained that political reform, referring not to grassroots democracy but to internal democracy in individual institutions, is the key to resolving the issues in education. The topmost administrative position at each school must be elected. Universities should be run by educators rather than by the CCP. Professors should be involved in the decision making for hiring and promoting faculty. Universities must be able to have the final say on student admissions.{mospagebreak}

Foreigners’ Ownership of Stock in Chinese Banks Benefits Both

Xie Ping, the general manager of the Central Huijin Investment Co., raised provocative propositions. Central Huijin Investment Co. is a state-owned investment company formed by the central government. Its function is to use national foreign reserves for injection into state-owned banks or financial organizations. As a result, Huijin Investment Co., representing the Chinese communist government, gains ownership of these enterprises.

According to the agreements reached before China entered the WTO, China pledged to open its financial industries in 2007. Beijing allowed ownership of stock in China’s banks by foreign investors before the deadline in order to advance the reform of its banking system. For example, last year the Bank of America and Temasek of Singapore bought stock in China Construction Bank, HSBC Holdings bought into the Bank of Commerce, New Bridge bought into Shenzhen Development Bank, and Citibank bought into Guangdong Development Bank; and Goldman Sachs of the U.S., German’s Allianz Insurance Company, and American Express purchased shares in the Industrial and Commercial Bank of China.

While there are still risks to investing in Chinese banks, with scandals and improper management, foreign investors are willing to take the risk because they are interested in nationwide branches and the customer-base of the Chinese banks. Because of the brand names and credibility of these foreign companies, the stock prices of the Chinese banks unexpectedly surged, which made sizable profits for the foreign investors.

Gap Between the Rich and the Poor

Dr. Wang Xiaolu, the associate director of the Research Institute of National Economy, made some insightful comments on the gap between the rich and the poor. According to a World Bank report, China’s Gini Coefficient is 0.45.1. This figure is calculated based on data from the Statistical Bureau of China. The actual figure is expected to be much higher.

While some people with political connections can turn into millionaires-or even billionaires-overnight, many people cannot afford basic medical insurance. In the hands of the rich, the accumulated owed income tax to the government can be turned into tax refunds through bribery. Therefore the biggest challenge of the reform movement is the reform of the government. It is not sufficient just to demand that the government become more open, more transparent, and more ruled by law. "There must be some checks-and-balances by the public, including the press," Wang concluded.

The above are selections from the meeting. Many scholars spoke and their viewpoints were diverse. On an optimistic note, everyone was able to be outspoken and voice their opinions.

Translated by CHINASCOPE (excerpt) from May 2006 issue of Open Magazine (Hong Kong).