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The Huge Trade Surplus And China’s Economy

Looking back at China’s economy in 2006, the most remarkable phenomenon was the gigantic trade surplus of US$177.5 billion. The total foreign trade in 2006 amounted to US$1.76 trillion, representing an increase of US$338.78 billion, or 23.8 percent over the level in 2005.

From January to November 2006, China’s total imports and exports reached US$1.69 trillion. The exports of US$875.4 billion represent a 27.5 percent growth over the first 11 months of 2005; the imports of US$718.52 billion represent a 20.6 percent increase over the same period of the previous year. The 11-month trade surplus was US$156.52 billion.

Year 2006 was significant not only for strong trade growth but also for the trade surplus that grew ever larger almost every month. Monthly trade in October and November reached a record high of US$23.83 billion and US$22.92 billion, respectively. The monthly trade surplus from January to December was, in billions: US$9.49, $2.453, $11.19, $10.457, $13.004, $14.5, $14.61, $18.8, $15.3, $23.83, $22.92, and $21.0, respectively, totaling almost US$180 billion.

The 2006 number was almost double that of 2005’s US$101.0 billion. For previous years, the surplus was US$50 billion in 2004, US$30 billion in 2003, and US$22.5 billion in 2001. What caused the huge growth in the trade surplus over the past two years?

China Has Exported 70 Percent of Its Economic Growth

The US$1.76 trillion trade volume in 2006 was approximately 65 percent of China’s GDP. This ratio is not only an indicator of China’s dependence on foreign trade but also evidence that China’s products flow to foreign countries. Yu Yongding, a famous scholar, once described it: "Trade surplus means a misplaced resource allocation."

The ratio of trade surplus to GDP is an important figure. China’s trade surplus constituted 2.5 percent of the GDP in 2004, 4.5 percent in 2005, and more than 7.0 percent in 2006. If China’s economy grew by 10.5 percent in 2006, then about 8.0 percent of the growth would have gone to foreign countries. Only 2.5 percent of the high growth benefited the Chinese people.

People may say that 7.0 percent of the net exports from the GDP are from Chinese people’s savings accounts, and that it is equivalent to the Chinese people lending US$180 billion to foreigners. It is questionable, however, whether these loans will ever be paid back.{mospagebreak}

China, a developing country that should have used its valuable resources to improve its people’s living standards, has instead been exporting a huge volume of resources. This is indeed the most critical problem in China’s growth mode. Of course, China is also accepting foreign investment. If we assume 2006’s direct foreign investment is US$50 billion, this amount could partially offset the resource drainage from the trade surplus.

The media has reported that, in November 2006, Japan’s trade surplus surged 54 percent, but the total amount was merely US$7.96 billion. After 59 months of continuous growth, Korea’s trade surplus in November 2006 was only US$2.86 billion. The total trade surplus of Japan and Korea in November was less than half that of China, while their combined GDP was more than double that of China. The Chinese economy’s dependence on foreign countries is second to none. If China’s growth is mainly for selling goods in exchange for foreign currency, what is the real benefit to the Chinese people?

Is China’s Economic Development on a Balanced Path?

The huge trade surplus and the 65 percent trade-to-GDP ratio are indications that China’s economic growth is out of balance. Using human body structure as an analogy, some people have strong muscles on their upper body, while others have very strong legs. China’s economy is like a severely disfigured strong man with a big head and puny legs, with one arm very strong and the other skinny. Overall, China’s economy has the following phenomena: Taxes are heavy, income is light; exports are heavy, imports are light; investments are heavy, and spending is light. Consequently, we have the following observation: Monopoly is heavy, competition is light; exports are heavy, domestic consumption is light; upstream sectors are heavy, and downstream sectors are light.

The abnormal development is caused by the unbalanced capital distribution. In other words, the resource distribution among different sectors is severely out of proportion. Some sectors absorb too much nutrition and become very strong. Other sectors are very weak due to long-term shortage of (blood) supply and malnutrition. For instance, Suzhou is famous for its attraction of capital, but in such a high investment area, the personal savings rate is very low. This means that despite large foreign investments, the local people don’t have much money; most of the products sold there are very cheap.{mospagebreak}

Some scholars, however, even praise the high ratio of trade to GDP. For example, Mr. Lin Yifu believes that China’s foreign trade has not exceeded that of Japan and Korea in their peak years. Mr. Wang Jian believes that China’s future trade will be even stronger as developed countries continue transferring manufacturing to China. Mr. Wang Jian even believes that by 2030 China’s foreign currency reserve will be as high as US$10 trillion. But I honestly believe that if China follows this growth pattern, China’s economy will most likely have collapsed long before then. This is because many parts of China’s development are irrational.

Re-examining China’s Mercantilist Development Model

I have been calling China’s current development model a traditional mercantilist model. This model, to make it sound better, is to be frugal. To put it undiplomatically, it is to achieve the country’s growth or, more specifically, that of a handful of people, at the expense of the majority of the Chinese people’s income. This development model includes searching for job opportunities globally, exporting domestic products, and accumulating foreign currency reserve.

Two conditions are necessary for this model to be successful. One is low wages, or cheap labor; the other is a large enough overseas market. The first condition has been achieved. China has a huge labor resource and a legal system that guarantees a ready supply of cheap labor (that is, migrant workers from rural areas, nonexistence of workers’ right to strike or bargain with management, a nonfunctional trade union). Especially in China, the tradition of low wages was already established during the old planned economy. Therefore, after decades of reform, the general level of wages remains very low.

This type of low-income economy not only results in cheap products; it also contributes to a lack of domestic consumption. Economies of this kind share a common goal: to actively develop an international market and sell products to foreign countries. As a result, these countries normally have a high trade surplus and a growing foreign currency reserve, while the bank savings rate tends to be very high.

However, these countries also share another attribute: People’s living standard is kept at a low level because their spending power is low. In these countries, businesses can accumulate huge wealth while governments normally possess powerful financial resources. However, from the perspective of development, this model of a strong government, strong business, and weak labor is different from models that focus on human capital.

In general, there is a limit to China’s mercantilist model, which cannot continue on the same path forever. Its capacity is primarily measured by how people feel satisfied with this mode of growth. If the majority of the people can’t improve their living standard over a long period of time, then they will question the legitimacy of economic reform.{mospagebreak}

Economists, including Mr. Wang Tongsan, have also found that this problem represents unhealthy symptoms in China’s economy. The cycle starts with certain industrial sectors that have an overcapacity while the domestic market demand is relatively weak. Because of this, manufacturers are forced to develop an export market. This causes increased exports and a foreign currency overstock. To balance the foreign currency reserve, the finacial authorities must increase the money supply, which in turn helps accelerated investment. Because of the unbalanced domestic income distribution, investment and consumption disparity occurs. The economy, due to the lack of a strong domestic demand, is led by strong investments and exports. Under such a circumstance, a generous money supply causes implicit inflation pressure. Although in the short run it has not caused the consumer price index to climb, it has obviously led to an increase in the price of capital. This situation provides some upstream industries with the incentive to make irrational investments for short-term profit, making the future overcapacity problem even worse.

Facing such abnormal development and unbalanced cycles of economy, people have given various kinds of policy suggestions, such as changing the interest rate, having a uniform tax for foreign and domestic companies, and placing constraints on land use. In my opinion, the most fundamental problem is still low wages for labor, which leads to low spending and large resources to export at a cheap price. The biggest factor causing low wages for labor is the lack of labor rights. Therefore, economic measures alone are not enough to solve the problem; we need political reform to facilitate a resolution.

Figure 1. Percentage Investment in GDP in China, Japan and Korea in their Perspective High Growth Time
20070304_F1.png

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Figure 2. Investment-to-GDP Ratio for Businesses, Households and Government between 1992 and 2005
20070304_F2.png
Source: International Monetary Foundation Project Paper "What’s Driving Investment in China," December 12, 2006. Website: www.dajun.com.cnimf.htm.

Disproportion in Income Distribution, Saving, and Investment

Different development strategies and policies usually generate different economic structures. The condition of the current Chinese economy, marked by high investment, high saving, and low spending, has never occurred even in other developing countries.{mospagebreak}

Figure 1 displays the investment pattern in China, Japan, and Korea over the course of high economic growth. Japan’s high-growth period was between 1962 and 1976, with its investment-to-GDP ratio being between 30 percent and 35 percent for most of those years and 37 percent as the highest. Korea’s high-growth period was from 1984 to 1998, with the same ratio rising from 30 percent to 39 percent, and then dropping to below 30 percent. In China between 1990 and 2006, the ratio started at 25 percent and increased to as high as 48 percent. Both Japan and Korea experienced about 14 years of high investment before the figure dropped down. China’s high investment period has lasted 15 years, and we have seen no sign of it slowing down. To make heavy investments, one needs to have lots of cash. Let us see who is investing in China and who has the money. Figure 2 clearly shows who the real investors are. The top, thicker curve is businesses’ investment; the bottom two dashed lines represent household and government investment. It is clear from Figure 2 that investments from businesses are consistently between 28 percent and 35 percent, while both household and government investment run about 5.0 percent of GDP.

Song Guoqing, a Chinese professor, once mentioned that, over the past eight years, China has been implementing policies to stimulate spending. However, during the same eight years, the share of personal spending of GDP has declined by 8 percent, and that trend continues. Let’s look at the following table to see the changes between household savings and business savings. In 1996, household savings amounted to 20 percent of GDP, but in 2005, the ratio dropped to 16 percent; at the same time, the ratio of business savings to GDP increased from 13 percent to 20 percent over the same period.

Table 1. Change of Percentage Saving in GDP from 1996 to 2005

  1996 2000 2004 2005
Family 20 15 16 16
Business 13 15 19 20
Government 5 6 6 6
Source: Beijing Dajun Economic Observation and Research Center Data Bank

From Table 1, it is clear that over the past decade, the percentage of GDP of the government’s fiscal revenue and of state-owned businesses has steadily risen, while the percentage of personal income has continuously declined. At present, household savings make up 33 percent of total savings, while business savings are 49 percent and government savings are 16 percent. These changes are the reason why domestic spending remains weak. On the one hand, people have little money to spend; on the other hand, the government and businesses have plenty of money to spend and invest.{mospagebreak}

Since the fiscal reform started in 1994, the steady fiscal revenue decline of more than 10 years has turned around. Year after year, revenue has risen. The government’s tax revenue has grown considerably. This to a large extent has deterred personal spending and forced more products to be exported. The cheap exports have not only affected people’s living standards and wasted valuable domestic resources but also have fueled global risk factors, such as the U.S. dollar devaluation. If the U.S. dollar keeps going down, China’s foreign currency devaluation will continue. The hard-earned foreign currency reserve will be at a higher risk.

Let us make another international comparison. Table 2 shows several countries’ saving structure as part of their GDP. Among those, the saving rate in the United States is only 14.3 percent; Korea has the second highest saving rate at 31 percent; China’s saving rate in 2006 was likely to reach 50 percent of GDP. This high saving rate can only cause high investment and high trade surplus. This is why China had a huge trade surplus in 2006.

Who Designed This Model?

From the above analysis, we can see that, due to income distribution disparity, China’s household savings ratio is declining, and the share of disposable income in GDP is rapidly declining. From 1978, when China began the reform and open door policy, until today, private citizens’ income has undergone an "n" shaped change (went up and down). Is this change normal or abnormal? There are many different viewpoints.

I have to point out the following serious situation: That capital income is greater than labor income is the root cause of all economic problems in China. This type of income distribution structure is never seen in Western developed countries.

Table 2. Percentage of Saving in GDP of Several Countries

   China  U.S.  France Japan  Korea  Mexico  India
 Total Percentage of Saving  41.7  14.3  20.7  25.5  31 20.8  28.3
 Household  16  4.8  10.8  8.2  4.5  8  22
 Business  20  10.3  9.5  19.4  14.8  10.6  4.8
 government  5.7  -0.9  0.3  -2.2  10.7  2.2  1.5
Note: Chinese data is for 2005, Mexico is for 2001, India is for 2004, and all others are for 2002. Data source: Beijing Dajun Economic Observation and Research Center Data Bank

Zhong Dajun is the director of Dajun Economic Observation and Research Center in Beijing.

Translated by SCHINASCOPE from http://www.dajun.com.cn/shunc.htm

Hu Jintao Re-emphasizes Communist Party’s Absolute Control over Military

In an article published in the January 2007 issue of Cheng Ming magazine based in Hong Kong, it was revealed that at the Central Military Commission’s year-end (2006) meeting, Hu Jintao (re)emphasized "the Party’s absolute leadership over the military." Hu said: "We have many things to do, but we cannot slack off the army and military issues a single moment. The Party’s absolute leadership over the military is a principle that should be strictly and firmly followed in any time and any condition…"

Since the end of last November, five documents addressing the "Party’s absolute control" were issued within 20 days. Meanwhile, as chairman of the Central Military Commission, Hu along with various vice chairmen visited troops and military bases to bolster soldiers’ spirits.

The following are details from the five documents:

1. On November 24, 2006, the Communist Party Central Committee, State Council, and Central Military Commission issued a document titled "General Principle Regarding Party’s Absolute Leadership over Army and Military System." This document was sent down to every Party committee in all military districts, all branches of the service (navy, air force, etc.), and to group military districts.

The document emphasizes that at any time, during any situation, the Party’s absolute leadership over the army must be guaranteed. Any negligence or shift of the Party’s leadership must be rectified quickly and firmly, and any incident must be dealt with quickly and firmly. No incident of neglecting the Party’s leadership should be allowed.

2. On November 27, 2006, the Communist Party Central Committee’s Central Military Commission issued a document titled "Requirements Regarding the Strengthening of War Preparation and Military & Technology Training."

The document emphasizes that during peace time, the army needs to improve its quality, high-tech military equipment, tactics, and technologies, as well as eliminate fake inventions, fake technology improvements, and fake progress.

3. On December 1, 2006, the Communist Party Central Committee, the State Council, and the Central Military Commission issued a document titled "Notice Regarding No Political Party, Group, or Religious Activities Allowed in Army and Military System."

4. On December 12, 2006, the Military General Staff Headquarters, the Military General Political Department, and the Ministry of National Defense issued a document titled "Strengthening the Discipline and Organizational Control in the Army and National Defense System."{mospagebreak}

The document lists many issues where discipline and organizational control in the army and national defense system is very lax; individualism and liberalism are widespread. This has damaged the army’s image and nature. Most importantly, incidents of military staff disciplinary violations increased 80 percent annually, while monetary and property-related criminal cases increases 20 percent annually.

5. On December 15, 2006, the State Council and Central Military Commission issued a document titled "Notice Regarding Strengthening Relationships between Military and Local Government and Populations." The document was issued to the military at the division level.

The document requires the army, military, and national defense system to follow local regulations strictly, and not to damage or infringe on local interests.

Chris Wu is Chief Editor of the U.S.-based Chinese website Chinaaffairs.org.

Translated by CHINASCOPE from www.Chinaaffairs.org

Hu Jintao Acknowledges That a Disqualified CCP Will Have to Disappear from Chinese History

In his speech at the New Year Tea Conference of the National Committee of the Chinese People’s Political Consultative Conference (CPPCC) to the vice chairman of the CPPCC, President Hu Jintao said: "To have a deep understanding of whether we have achieved the expected progress in cleaning up the Party as well as in the struggle of anti-corruption is essentially a test for the CCP’s legitimacy and the foundation of its rule. The result of the test can only be either negative or positive. If it (CCP) fails to pass the test, it has to disappear from history." Quoting the January 1, 2007, issue of Briefings of the State Council, Chen Jinjiang reported this comment in the latest issue of Trend Monthly.

Why did Hu Jintao make such a statement? What is meant by "the ruling party’s failure to pass the test?" In what way will the CCP disappear from the stage of history? These are the questions in readers’ minds after reading Trend Monthly.

As a matter of fact, Hu has raised similar alarms several times in his latest speeches. As Luo Bing reported in Hong Kong’s Cheng Ming magazine recently at the 12th Regular Activities Meeting of the CCP Central Committee Politburo, Hu Jintao acknowledged: "The (Chinese) ruling Party is facing tremendous pressure and conflicts from three unprecedented crises: political, social, and government. The three crises are all related, but to some degree the government crisis is the most significant and it is the most critical. They directly affect the fate of the country, the interests of 1.3 billion people, and the lifeline of the Party and its qualification as a ruling party."

At the Politburo meeting on December 25, 2006, Hu said, "These grave situations tell us again and again: Corruption and the abuses of power are not conducive to building a harmonious society. They are the source of social conflicts and the emergence of crises, the key issue that the Party and the government has to resolve, and the factor determining whether or not the masses support and trust the Party and government.

"The situation regarding corruption is alarming. In many areas, corruption has become structured and connected. The Party committees and the government at various levels must take this situation seriously and be alert: The time our people give us as a ruling party will not be long," Hu continued. He acknowledged, "Despite the 17-year-long anti-corruption campaign, we find the reality unsatisfactory and very passive. The vast majority of people are even less satisfied [with the corruption situation]. The root cause is in the system, in the supervision and investigation mechanisms, in the quality of the Party members, and in our understanding."{mospagebreak}

It seems that Hu has a deeper and deeper understanding of the crises that the CCP government is facing, and he strongly feels the pressing crisis of the abandonment of the CCP by the Chinese people. Over and over, Hu has warned the CCP officials that if corruption and embezzlement cannot be fundamentally corrected and eradicated, the CCP will not survive and will lose its political power and become history’s criminals. With so many facts and so much information before President Hu Jintao and Premier Wen Jiabao, they have no choice but acknowledging the upcoming downfall of the CCP. The following contains facts and information illustrating how corrupt and degenerate the CCP officials are.

At the Politburo meeting on December 25, 2006, Wu Guanzhen, secretary of the Central Commission for Discipline Inspection of the CCP, announced a research and investigation report written under the auspices of the Central Commission for Discipline Inspection, the Research Office of the State Council, and the Ministry of Supervision. The report stated that the extravagant spending of the Party and its government reached an astronomical 2 trillion yuan (US$0.25 trillion) in 2006, which includes the misappropriations of government funds, meals and entertainment, retreats and travel, education abroad, gifts, and excessive bonuses and benefits, all with public funds, together with the private use of government vehicles.

Two trillion yuan (US$0.25 trillion) is equivalent to 50.5 percent of the 3.98 trillion yuan (US$0.5 trillion) of the total national tax revenues in 2006, or 11.5 percent of the 2006 GDP, which is 18.5 trillion yuan (US$2.3 trillion).

It is about the same as China’s GDPs in both 1981 and 1982 (the GDP reached 1.8895 trillion yuan in 1981 and 2.0141 yuan in 1982).

It is equivalent to the combined domestic products of China’s agriculture, forestry, and animal husbandry in 2005.

As an example, let us look at the income levels of the high- to intermediate-level government officials in Shanghai, Guangdong, Jiangsu, Zhejiang, and Shandong provinces.

In July 2007, the Research Office of the State Council and the Counselors’ Office of the State Council conducted a joint research project titled "On Financial Income of Intermediate and High Level Party and Government Officials in Certain Provinces," which concentrated on the officials in the above-mentioned five provinces.{mospagebreak}

The annual income, including wages, benefits, subsidies, and bonuses, among other things, of the bureau-level officials in these five provinces ranges from 550,000 to 1.05 million yuan (~US$69,000-$131,000). Their actual disposable incomes received exceed the actual incomes and living standards of the governors and mayors in Western and Northern European countries.

The income of officials at or above the level of deputy governor ranges from 1.25 million to 2.5 million yuan (~US$156,000-$312,500). Annual expenditure for family transportation at the provincial official level amounts to 180,000 to 250,000 yuan (US$22,500-$31,250), while their spending of government funds on hotels, restaurants, and night clubs to entertain and treat their families and relatives totals 400,000 to 1 million yuan (~US$50,000-$125,000) per year per family.

These categories merely document their expenses using government funds that are open and known to the public. They do not include income from bribery or dividend distributions from their power-for-money conspiracies, let alone the enormous incomes their family members accumulate in their own businesses because of their special status and ties.

As the CCP officials constantly dine, wine, engage prostitutes, and gamble with government money, the state treasury continues to shrink. At an internal finance meeting of the State Council after the 2007 New Year, (Premier) Wen Jiabao disclosed that bad debts and nonfunctioning loans at the commercial banks and banks owned by stockholders totaled as high as 10 trillion yuan (US$1.25 trillion), despite the infusion of 4.662 trillion yuan (US$0.58 trillion) by the central government and 920 billion yuan (US$115 billion) by the local governments. As of November 2006, among the real estate loans of 3.45 trillion yuan (US$0.43 trillion), the bad loans/assets were estimated to stand at 30 percent.

Both Hu and Wen repeatedly sent out warnings about the severity of the financial crisis. Wen said bluntly: "As premier, I am most worried that, as he financial problems mount, certain domestic or international complications or incidents may one day trigger the collapse of (our) financial system and lead to political chaos. When the day comes, not a single country will be able to help China overcome and resolve the crisis." Did the CCP officials listen to the warnings of their president and premier? Not at all! Instead, they are speeding up their misappropriations of state assets with the slogan, "Why not take whatever I want? Whatever I take is free of charge."{mospagebreak}

What happens if the state treasury is depleted? The approach the CCP government will take is to raise taxes and to open its financial door to foreign capital. In particular, hiking taxes will provide additional resources for the communist officials to spend on their lavish lifestyles, while it will take away money from ordinary people and adversely affect China’s domestic demand. Bringing in foreign capital is to help foreign investors pave the road for their profits in the Chinese market. Neither approach will benefit China.

Looking back at the history of various countries, the 1997 Asian and Latin America financial crises triggered the downfall of a few governments. While he did not elaborate, Hu must have had a good reason and a sufficient amount of supporting evidence to warn at the New Year Tea Conference of the National Committee of the CPPCC, "If the CCP is not qualified to rule the country, it will have to exit the stage of history." Neither Mao Zedong nor Deng Xiaoping, the former paramount communist leaders, made such a statement. Hu’s predecessor, Jiang Zemin, did acknowledge that "Anti-corruption will doom the Party; leaving corruption alone will doom the country," but encouraged corruption nonetheless. Since last year, Hu has made a much more serious effort to clean up corruption and to save the communist regime, but the goal failed. Hu had to acknowledge that the party that fails has to go through the exit door of history.

Chris Wu is Chief Editor of the U.S.-based Chinese website Chinaaffairs.org.

Translated by CHINASCOPE from www.Chinaaffairs.org

Not an Easy Bill

For the Chinese regime, it is never difficult to pass a law as long as the communist leadership needs it. However, it took eight years for a property rights law to finally pass when the curtain fell recently on the National People’s Congress (NPC) in Beijing.

A History of Controversies

In 1994, the Chinese Academy of Science (CAS) submitted a proposal to the central authorities, suggesting that the authorities draft a new property rights law. According to media reports, when CAS was revising the Contract Law, it had difficulties in defining the basic rights of parties involved in the property transactions. Therefore, CAS proposed to draft a property law to overcome the difficulties.

Five years later, the first draft of the property rights law was submitted by the CAS to the Standing Committee of the National People’s Congress (SCNPC). However, voices of objection greeted the first draft. The main objection was that the draft did not "sufficiently reflect socialistic characteristics." In April 2001, another version of the property law came out of the People’s University, and the debates escalated.

Later, the Legal Works Committee under the SCNPC made an "official" draft of the property law based on both versions of the CAS and People’s University. Beginning in 2002, the property law has been subjected to five reviews.

After 2004, when China added a clause to its constitution saying that private property was "not to be encroached upon," the controversies intensified.

In June 2005, a special clause to protect state-owned assets was added to the bill, which stipulated that management of State-Owned Enterprises (SOEs) is responsible for the loss of value of state-owned assets.

In August 2005, a law professor at Peking University, Gong Xiantian, wrote an open letter to Wu Bangguo, Chair of the NPC, calling the proposed bill unconstitutional. Later, Li Chengrui, former chief of the State Statistics Bureau, launched a letter campaign to collect signatures against the bill. The more than 3,000 signers included seven former government ministers or deputy ministers, five former provincial leaders, a few retired senior military officers, and about 50 professors at the Communist Party’s Central School, a place that trains top Party officials.

At the same time, there were others who supported the bill, calling it a show of respect for private property and an aid to reinforcing social stability. Many of them encouraged the passage of the bill to protect the private economy.{mospagebreak}

The debates were so intense that at the NPC in 2006, the bill was not even put on the agenda for a vote. Not until the recently concluded NPC, after the situation had been clarified, did the authorities show their resolve to get the law passed.

Who Owns What?

The question to ask is why the regime needs this law at this moment. The Chinese Communist Party has been ruling China for almost 60 years. It was not necessary to define who owned what, as all property was seized from domestic capitalists and landlords during the "liberation" and rounds of political movements after the regime came to power. In name, all the wealth and property belongs to all the people, but in reality it belongs to the Party. Why should the Party bother to make a law to regulate the ownership of the property?

Now the situation is different. Ever since the "reform and opening up" policy was launched in the late 1970s, capitalists from Hong Kong, Macau, and Taiwan have come to China, one after another. Foreign capitalists from the United States, Japan, Europe, and other countries also came to invest. At the same time, there was a certain degree of freedom for domestic capitalists, many of whom were Party members and princelings who "transformed" the state assets into their private assets and became entrepreneurs. Over the past years, foreign and domestic private enterprises have shared a greater and greater portion of the gross domestic products (GDP). In 2006, half of the 4 trillion yuan (US$519 billion) state taxation income came from those enterprises. Of course, it is impossible for the Communist Party to forcefully take away "new" capital assets as it did to the domestic capitalists back in the 1950s. On the contrary, the Party relies on the tax income from those enterprises to maintain its rule. To this end, it is thus important for the Party to pass a law to make sure the properties of the "new" capitalists are well protected; otherwise, they may just transfer their investments to other countries.

Nevertheless, the bottom line is still to protect the interests of the Party. On March 8, 2007, When Wang Zhaoguo, the deputy chair of the NPC, explained the general principles of the law, he said that "it is guided by Deng Xiaoping’s Theory and Three Representatives and sticks to the correct political direction." In other words, the definition of property right needs to be politically correct.

However, some of the extreme leftists inside the Party still strongly oppose the passage of the law because the law clearly acknowledges and protects the rights of private ownership, an even worse backslide from the revision of the constitution in 2004. At the same time, many Party members support the bill in order to protect the assets they obtained legally or illegally.{mospagebreak}

For Hu Jintao and Wen Jiabao, this was really a difficult choice, and why it took so long for the law to finally be passed. After weighing various pros and cons, Hu-Wen took a middle path, which was to make the property law politically correct in name, and protect private property to a certain degree.

A Law for the Urban Areas

Article 10 of the Constitution of China says: "Land in the cities is owned by the state. Land in the rural and suburban areas is owned by collectives except for those portions that belong to the state in accordance with the law; house sites and private plots of cropland and hilly land are also owned by collectives. The state may in the public interest take over land for its use in accordance with the law. No organization or individual may appropriate, buy, sell or lease land, or unlawfully transfer land in other ways. All organizations and individuals who use land must make rational use of the land."

In the newly passed property law, urban land for construction can now finally be privately owned. This was to solve the dilemma that urban housing can be privately owned while the land is subject to only 70 years of usage. [Note: Before the new law, land could not be privately owned based on the Constitution of China. One could use the land his or her house was built on for up to 70 years. After 70 years, the government would take over ownership of the property. Now this new law allows private ownership, which contradicts the constitution.] This created a new problem for legal scholars. The property law now contradicts the constitution. Which should one follow?

On the other hand, the rural land is still collectively owned. Farmers have as long as 30-year leases but cannot purchase or sell lands. The farmers in rural area still constitute the majority of the Chinese population.

In reality, state ownership is a rather vague concept. There is not a law or regulation that clearly specifies which government agency handles the rural lands. The gray area has given rise to the phenomenon that millions of acres of farmers’ lands are being "transformed" by local officials to state ownership at an extremely low price and then sold at high prices to individuals. This has become one of the major sources of widespread corruption and subsequent social unrest as more and more farmers are being unjustly deprived of their lands.

The newly passed property law, which gives more rights and freedoms to those living in the cities, still puts restrictions on the basic and fundamental rights of farmers. More importantly, it does not regulate many interest groups that continue to abuse farmers’ rights in order to acquire land on a large scale.{mospagebreak}

What Really Matters?

Overseas scholars are questioning the real purpose of passing the law in the same way they question the purpose of the regime’s drive to develop the economy. They see the law as helpful in protecting the accumulated wealth of small interest groups, while the standard of living for the majority of Chinese people still falls short.

On March 5, Premier Wen Jiabao gave a Chinese version of a "State of the Union" address, which was focused on people’s living standard. In his report, Premier Wen mentioned that in 2006, the government spent 77.4 billion yuan (US$10 billion) on the development of science and technology, 53.6 billion (US$7 billion) on education, 13.8 billion (US$1.8 billion) on health care, and 12.3 billion (US$1.6 billion) on cultural programs. The latter three expenses, which are directly tied to people’s everyday lives, added up to 79.7 billion yuan (US$10.4 billion). On a per capita basis, in 2006, the average Chinese received 61 yuan (US$8.0) from the government for education, health care, and cultural programs. Compared with the total fiscal revenue of 3.93 trillion yuan (US$510 billion), the expenses directly related to people’s livelihood amounting to about 2 percent.

According to Hong Kong-based Dongxiang magazine, on December 25, 2006, the Chinese Communist Party Central Disciplinary Committee (CCPCDC) submitted a working report to the Politburo. In a joint investigation by the CCPCDC, the Research Office of the State Council, and the Ministry of Supervision, 2 trillion yuan (US$260 billion) or half of the 2006 government revenues were put to corrupt uses: embezzlement, banquets and dinners, vacations and sightseeing, personal education expenses abroad, gifts, and excessive bonuses. If we assume there are five million government officials, on a per capita basis, an average official consumes 0.4 million yuan (US$52,000) of the government’s fiscal revenue—more than 6,000 times that spent on the average person.

Other scholars are taking the passage of the new law lightly: "Anyway, China is still ruled by the Party, which supersedes all laws. Since the Party routinely violates people’s basic rights endowed by its constitution, why should one care so much about mere words on a paper?"

Li Ding is an economist based in Washington, D.C.

Gao Yaojie: A Doctor with Conscience

It would be naïve to think that all grandmothers are simply a social burden. Gao Yaojie, for one, an 80-year-old retired gynecologist in Henan Province, has been a thorn in the side of the Chinese communist government for the past 10 years. In 1996, she discovered that the spread of AIDS in Henan was due to governmental corruption and deliberate oversight. Since then she has traveled far and wide throughout the nation to raise awareness about the deadly disease. Suppressed by the authorities, she has spent over a million yuan (US$125,000) from her own savings to print and distribute AIDS-awareness flyers, save patients and orphans, and—most courageously—expose the truth of the widespread AIDS epidemic that has resulted from blood-selling campaigns throughout the nation.

In 2001, Dr. Gao was awarded the Jonathan Mann Award for Global Health and Human Rights by the Global Health Council. In 2002, she was named in Time Asia‘s 25 Greatest Living Asian Heroes, and in 2003 she was awarded the Ramon Magsaysay Award for Public Service.

House Arrest

In both 2001 and 2003, she was refused a passport to travel overseas to receive her awards, because local government officials felt that it would greatly embarrass them and adversely affect their prospects for promotion.

In 2007, after years of house arrest, she was again detained at home by a dozen police officers on February 2 to prevent her from traveling to the United States to receive an honor bestowed upon her by the Vital Voices Global Partnership, a well-known nonprofit organization.

On February 13, the eleventh day of her house arrest, she was told to write a letter to authorize someone else to receive the award for her. She said: "I have to write the letter. It looks like it is impossible for me to travel overseas to receive the award. I have no other choice. My son and daughter are both in their 50s already, and they told me that they’ve had all sorts of pressure from the authorities. My daughter has been crying nonstop, and my son told me that if I went overseas, they would all lose their jobs. He knelt in front of me for two days.

"However, I said I cannot lie. I cannot deceive the entire world. I am a doctor, and I cannot lie."

Finally, on February 16, due to the efforts of international organizations, NGOs, and foreign media, the Chinese regime finally gave way. When asked why the Chinese communist government did not want her to travel to the United States to receive awards, she answered, "They’re afraid that I will expose the fact that (illegal) blood selling is the main reason for the AIDS epidemic in China."{mospagebreak}

The pressure from the Chinese authorities is obvious. At the end of the awards ceremony held in Washington D.C., on March 14, 2007, she was asked how she felt. "I feel so unsettled. I do not know what my fate will be when I return to China." As of that date, she had not been able to reach her family in China—the telephone lines had been blocked.

The Official Version: AIDS Spread Mostly Due to Sexual Transmission

For years, the official word from the Chinese regime has been that the AIDS epidemic in China is due to "sexual transmission" or "drug abuse." According to Dr. Gao, however, "The farmers in China now are so poor that they don’t even have money to eat. How could they have money to pay for prostitutes? Modern Chinese society is extremely polarized—the poor are on the brink of death, while the rich are suffocated by their wealth. I am very against such propaganda. The truth is, the majority of AIDS victims contracted the virus through blood donations or transfusions."

In the early 1990s, blood-selling stations mushroomed throughout China, especially in rural, undeveloped country areas. Many poor farmers, unable to survive on their meager incomes, participated widely in selling their blood at these stations. However, in trying to reduce costs and increase revenues, the government health officials neglected health and safety measures. Blood sellers were not tested for health problems, nor was blood tested before mixing. Since then, a myriad of blood products has been manufactured, and the HIV virus has spread widely among both blood sellers and patients who received blood transfusions.

Dr. Gao continues: "There are two things that I think people should be clear about. One is about condoms. In the past few years, condoms have been propagandized in the media as the miracle tool against AIDS. Every year, whenever people talk about AIDS, there’s nothing else besides condom advertisements. On December 1, 2003, a condom manufacturing company called me and asked how many condoms I needed. I replied very simply, ‘I cannot sell out my soul! Money is worthless compared to human life! I have been to a dozen counties, towns, and villages and I’ve seen thousands of AIDS victims. All of them contracted the disease from selling their blood at blood stations!’

"I hate it when the authorities always links prostitution and drug abuse with AIDS. These so-called ‘experts,’ in my view, are simply mouthpieces for the regime government, because when they link AIDS with these behaviors, it gives people the impression that people contract it as a result of their own dissolute behavior and is therefore unrelated to the government. On December 18, 2003, Deputy Prime Minister Wu Yi talked to me and said that a professor had told him that most of the AIDS victims had contracted it as a result of their own sexual behavior, and I told him, quite simply, that this professor was lying."{mospagebreak}

When asked about a future remedy, Dr. Gao replied, "There are still many (underground) blood-selling stations throughout the nation, and there are many sellers who still frequent them in order to have an income. At many of these stations, the sellers sell their blood once every two days—and the AIDS infection rate is almost 100 percent."

According to Chinese official figures, the projected number of HIV-positive citizens in the nation will be approximately 10 million by 2010. Dr. Gao believes the number will be much, much more if it is not controlled.

Can Sun and Xiao Tian are correspondents for Chinascope.

AIDS Cases Posted on Dr. Gao Yaojie’s Web Blog
 

[Note: The following is the translation of a few postings on the home page of Gao Yaojie’s blog: posted on 2007-02-11 13:44:29 (http://blog.sina.com.cn/u/4b22ef9201000786)]

The blog begins: Those of us who had blood transfusions in the past now find that we ourselves have contracted the AIDS virus. Some of our spouses are also infected. So are our children. A total of 39 of us are infected; 11 of those infected have died.

1. My name is Mu Zige (pseudonym), female, 37 years old and a native of Lingning County, Henan Province. In June 1995, I had a blood transfusion during a caesarean birth at the Lingning County Women and Children’s Hospital. In August 2004, at Shangqiu People’s Hospital, I was diagnosed with AIDS. Three people in my family have been infected. My oldest daughter was diagnosed in Shangqiu City; she died the next day. My contact: 0370-7810912, 135-6931-9760.

2. Wang Zhen (Pseudonym), male, 33, a native of Qiaoshi Town, Lingning County. On June 12, 1996, Wang’s wife received a blood transfusion during an operation in the Lingning County Women and Children’s Hospital. In February 2004, at the Henan Province Epidemic-Prevention Station, she was diagnosed with AIDS. She passed away in September 2004.

3. Ms. Hu, 37, was a native of Baohua Township, Lingning County. In March 1993, during a medical operation at the Lingning County Women and Children’s Hospital, she received a blood transfusion. In August 2002, at the Henan Province Epidemic-Prevention Station, she was diagnosed with AIDS. She infected her six-year-old son, who then died of AIDS at the end of August 2002. She also transmitted the disease sexually to her husband. He died in 2003 at age of 56.

4. Zhao Yin (Pseudonym), male, 43, was a native of Louliu Township, Lingning County. In 1995, his wife received a blood transfusion during a medical operation at the Lingning County Women and Children’s Hospital. In October 2002, at the Henan Province Epidemic-Prevention Station, she was diagnosed with AIDS. She died that same month. In September 2003, at the Hunan Province Epidemic-Prevention Station, Zhao Yin himself was found to have AIDS.

5. Liu Mei (Pseudonym), female, 37, was a native of Guancheng Township, Lingning County. In January 1999 she received a blood transfusion at the Lingning County Women and Children’s Hospital. In August 2004, at the County Hospital, she was diagnosed with AIDS. At the same time, her six-year-old son was found to have AIDS.

6. Ms. Yu, 41, is a native of Gangluo Township, Lingning County. In April 1996, she received a blood transfusion at the Lingning County Women and Children’s Hospital. In October 2004, at the Henan Province Epidemic-Prevention Station, she was diagnosed with AIDS. Her husband is also infected with AIDS.

7. Liang Yu (Pseudonym), female, 35, is a native of Yiyang Township, Lingning County. In September 1995, she received a blood transfusion at the Lingning County Women and Children’s Hospital. In February 2003, at the Henan Province Epidemic-Prevention Station, she was diagnosed with AIDS. At the same time, her husband was found to have AIDS.

8. Zhang Xia (Pseudonym), female, 30, is a native of Louliu Township, Lingning County. In February 1999, she received a blood transfusion during a medical operation at the Lingning County Women and Children’s Hospital. In October 2004, she was diagnosed with AIDS at the same hospital.

9. Lu Zhi (Pseudonym), female, 37, is a native of Qiaoshi Township, Lingning County. She received a blood transfusion during a medical operation in 1995 at Lingning County Women and Children’s Hospital. In August 2004, at the Henan Province Epidemic-Prevention Station, she was diagnosed with AIDS. At the same time, her son and daughter were also found to have AIDS. Her daughter died at the end of August 2004. She was only one and a half years old.

10. Zhang Qin (Pseudonym), female, 40, is a native of Louliu Township, Lingning County. In September 1995, she received a blood transfusion during a medical operation at the Lingning County Rehabilitation Hospital. In May 2005, at the Shangqiu City Hospital, she was diagnosed with AIDS.
…… ……

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