There is a saying: "If you are confident that you know the Heavenly Empire, it means you don’t know it." Chinese politics has baffled generations of China scholars. The October 8-11 recently concluded Fifth Plenary Session (Plenum) of the 16th Central Committee of the Chinese Communist Party (CCP) was a typical one.

Speculations over the Plenum results have kept China analysts busy. Many think that the CCP leader, Hu Jintao, who became both the Party boss and the military chief last year, would use the meeting to consolidate his power base. Yet the critical motions proposed by Hu Jintao all suffered setbacks at the meeting. There was no sign of political reform, as many had hoped. Some committee members raised critical issues that challenged the validity of the political system. The concluding communiqué issued after the Plenum was nothing but unbridled propaganda concerning the 11th Five-Year Plan (2006-2010). There was not a single word on the shuffle of the top apparatus as many analysts had anticipated. This casts serious doubts on the boasted success of the Plenum.

During the Plenum, in contrast to the intrigue of closed-door elite politics, local CCP organizations arrested thousands of people who had come to appeal their grievances to the CCP leadership in Beijing. Mobs directed by CCP local authorities brutally beat a representative of the National People’s Congress in the remote southern village of Taishi in Guangdong Province. Although such suppression has been common occurrence in recent years, having them conspicuously exposed to the world press during the CCP Plenum cast a satirical glow on the fanfare of the Plenum theme "A Harmonious Society" and signified the overall ineffectiveness of the CCP rule.

Toppled Arrangements

It has been a CCP tradition to use the Central Committee meetings to make key personnel shifts. Deng Xiaoping twice used the fifth plenary sessions (in 1980 and 1985) to arrange for his henchmen to take up important positions.

This Fifth Plenary Session was the first Central Committee meeting since Hu Jintao became the real CCP boss, that is, being both the General Secretary and the President of the Military Commission of the CCP Central Committee. Many believed that Hu would place his trusted followers in Shanghai and Beijing, the two power centers. Early this year, Hu tried to replace Chen Liangyu, the CCP chief in Shanghai who has close ties to Jiang Zemin, with Liu Yandong, a protégé of Hu. Liu, however, declined the offer. It was rumored that Hu would try it again in the Fifth Plenary Session. In addition, Li Keqiang, the CCP chief in Liaoning Province, was rumored to be up for a new key post. The post-Plenum communiqué, however, revealed no such change. Hu’s failure to arrange for key posts indicated that Hu might have suffered setbacks in the meeting.
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Another signal of the failed meeting was that all five major motions put forward by the Political Bureau of the CCP did not get onto the agenda. Those motions were all of the "Sunshine Bill" type. The bills would have required: (1) All top-level CCP officials and their family members to reveal their revenue sources; (2) All top-level CCP officials to reveal to the departments or provinces of which they are in charge the employment and education of their family members; (3) All top-level CCP officials to encourage their sons and daughters to go to work in remote areas; (4) That the CCP General Secretary at the provincial level not serve more than one term both as the CCP Secretary as well as Governor; (5) All top-level CCP officials and CCP-controlled government organizations itemize their public relations expenditures.

This suggests a powerful force against any political change within the Party. By shelving those motions, this behind-the-scenes force successfully challenged Hu Jintao’s newly established authority.

It is ironic that the CCP, a political party that has done so much economic engineering, has failed with all its political motions. In fact it would be much appreciated if the CCP would indeed focus on taking care of its affairs by formulating a five-year political agenda to rectify itself, leaving the economics to functional departments and the private sector.

The meeting also failed to exert its authority and discipline by successfully appointing the coordinators of panel groups. The Fifth Plenary Session was divided into eight discussion panels: the CCP Central Committee and Departments of the State Council, the People’s Liberation Army (PLA), the Northeast group, the North group, the Northwest group, the Southwest group, the South group, and the East group. Of the eight panels, except for the Northwest and the PLA groups, the other six panels did not accept the coordinators the CCP Political Bureau originally appointed. Based on that fact, Hu Jintao had to admit a lack of centralized CCP authority.

The weakening of centralized CCP authority may be beyond the study of factional politics. The communiqué of the Fifth Plenary Session revealed nothing about the factional struggle. The CCP leadership deliberately left the Chinese public ill-informed about the instability within its top leadership, since leakage of a failed CCP authority could be exceedingly dangerous and lead to unexpected results for the entire CCP political system. Therefore, it became a tacit imperative for the CCP leadership to uphold a superficial consensus, for which Hu developed the official title "A Harmonious Society."
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A Hollow Blueprint

A high-level CCP conference is usually a two-sided enterprise: There is a polished façade, and then there is the dirty backyard. The façade is for public relations work and entails discussions of long-term plans. The backyard is where the "dirty linen" gets hung out, typically involving the shuffling of personnel and the reallocating of seats, both of which reflect the results of muddy power struggles. For the façade, the CCP uses its propagandized media to make it center stage. As for the "dirty linen," the CCP tries to conceal it as much as possible.

The only agenda the Plenum released to the public was the 11th Five-Year Plan (FYP). After taking over power from Jiang Zemin at the 16th CCP Congress in late 2002, General Secretary Hu Jintao and Premier Wen Jiabao sought to distinguish themselves from Jiang by hoisting the banner of a "Putting-People-First Leadership." The new 11th FYP crystallized their close-to-the-people approach by laying out a grandiose roadmap for the country’s "scientific development."

In this 17,000-word document, the new plan pretends to take into consideration the welfare of disadvantaged groups, the uneven development between China’s East and the West, as well as environmental concerns. The CCP proclaimed that the newly approved 11th FYP signified a transition from a "government-oriented" economy to a "market-oriented" economy and thereby merited the new title "Five Year Blueprint" (FYB).

However, an in-depth analysis shows that, by every measure, the new 11th FYB is nothing but another grandiose illusion to woo the general public.

First, the use of the FYP has failed repeatedly. The CCP imported the idea from the Soviet Communist Party. From 1953 to 2005 the CCP has executed 10 FYPs, with an interruption of three years (1958-1960) due to the failure of the Great Leap Forward. The 10 FYPs have not helped China catch up with the developed world, which has instead watched as the gap has widened. Let’s compare China with three other entities-Taiwan, Hong Kong, and Macao-that all share the same Chinese cultural tradition. In 1949 when the CCP took power, the four were economically at the same level. After more than 50 years, the per capita GDP for communist China is only US$1,200. The per capita GDP for the other three non-communist Chinese entities is Taiwan US$13,000 and Hong Kong and Macao each over US$20,000.

Russia stopped the failing FYP practice 14 years ago. The CCP did not. One has to wonder why a superficial term change from "FYP" to "FYB" would prevent the history of failure from repeating itself.
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Secondly, the new FYB cannot ensure that it can close the gap between the rich and the poor. In recent years, this gap has widened to an unprecedented extent. According to an official Chinese estimate, China’s Gini coefficient has reached 0.47, among the top Gini scores in the world. International analysts have graded China’s Gini even higher at 0.54 (varying from zero to one with the higher number closer to socio-economic inequality).

Such a gap and the resulting dissatisfaction resulting from a sense of relative deprivation have given rise to massive riots in Chinese society. Reduction of this gap of inequality requires improvement in a social security system, which in turn requires allocating more money. However, the fundamental cause of the inequality was the notorious corruption by CCP officials that drained the money generated by the "GDP miracle." The annual cost of CCP officials’ corruption has been as high as close to 20 percent of the annual GDP. The money annually smuggled out of China, mostly by family members of high-level CCP officials, has already exceeded the annual influx of foreign investment.

The 11th FYB may help the CCP leadership to achieve high GDP rates. Yet, with the mechanism for corruption unchanged, an ever-larger pool of money will continue to flow into CCP officials’ pockets at the expense of the socially disadvantaged and the social security system. In a CCP-controlled game where both the referee and the player are on the same side, how can the socially disadvantaged and a weak social security system compete with the candid conspiracy of a CCP leadership "referee" and "players" composed of the vast majority of greedy CCP officials?

Thirdly, the 11th FYB failed to lay out the details of how to promote social equality among a total of 900 million rural inhabitants. The blueprint included at least five subsections detailing rural policies. The CCP seized national power largely due to the support of peasants. Since the communist regime came into power, however, it has never given peasants land as promised. "Rural collectives" rather than individual peasants own land in the countryside, as stipulated by law. The local CCP officials have been using this murky ownership situation to sell land-use rights to urban developers, in which members of the "Iron Triangle"— the CCP government officials, bankers (appointed CCP officials) and developers — share the booty. To the victor go the spoils! The peasants are the helpless victims. The new blueprint did not address this core issue at all.

While the new FYB promised to help implement democratic management in the rural areas, there were few details on how to realize this rosy promise. In fact, the local CCP officials in townships and villages are powerfully opposed to those policies. Peasants call those CCP officials "bandits" to allude to roving rebel bands led by the CCP guerrilla forces during the years of "revolution." Those officials are beneficiaries of the CCP rule and have developed various formal and informal taxes to exploit the peasants. They have every vested interest in fending off rural democracy to protect their autocratic kingdoms. It would be impossible to carry out the proposed policies without eradicating the entire CCP apparatus at the local level.
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This points to a core irony: Is it possible for the top CCP leadership to remove its local power base to consolidate the central power? The answer, as evidenced by an incident that occurred in the middle of the Fifth Plenary Session, is "No." On October 9, a delegate to the local People’s Congress was brutally beaten while trying to investigate an election in the village of Taishi. A reporter from the U.K.-based newspaper The Guardian and an interpreter accompanied the delegate. The purpose of the organized brutality was to threaten the villagers of Taishi, who had tried to oust their corrupt chief and elect their own local leaders. The incident was just one of a million such incidents in villages all over China. That the Plenum tolerates such persecution makes a mockery of its proposal for rural democracy.

In sum, without transforming the norms of the totalitarian CCP, it is highly doubtful that mere terminology modification in the new "FYB" will lead to a market-driven socio-economic boost to drastically reduce long-existing social inequalities. In light of the elite power struggle, the new FYB is just another political tactic to attack by innuendo the previous "GDP worship" of Jiang’s developmental model.

Dong Li holds a Ph.D. in Political Science from Columbia University. He is a China specialist who provides news analysis for New Tang Dynasty Television based in New York City.

In the almost three decades since China started its economic reform, China’s economic might and political clout have become hot topics in political circles worldwide. "Made in China" has become a way of life all around the world. China’s rapidly growing cheap labor force has both made China the "world’s factory" and emerged as a potential consumer market of dizzying proportions. China’s economy seems more open than most other transitional economies. China’s accession to the WTO further convinced the world that the Chinese Communist Party (CCP) is committed to making China’s economy open to and integrated with the world economy as a free market economy. Scholars and economists have been analyzing China’s economic issues, and providing suggestions and solutions for problems that have been plaguing China’s reform as if the CCP will ultimately make the right choices. For fear of missing out, businesses stumble over one after another seeking a share of China’s market. They have an optimistic outlook of what the reform will bring. Nevertheless, the world’s governments have very little concept of the creature that China is becoming, except that its power can no longer be ignored.

The Plan

When Deng Xiaoping visited Hong Kong and the United States, his grand plan — to build a modern economy under the iron fist of the CCP — was already set. Deng did not care much about Marxist ideology, but he had even less tolerance for political freedom. At the time, his colleagues either didn’t understand his plan or didn’t agree with it. The old guard wanted less economic reform while his new vanguard tried to push for political reform. It took the June 4 Tiananmen Massacre and Deng’s repeated urgings in the ensuing years for the CCP’s leadership to finally pick up on Deng’s idea.

From the outset, the concept was clear: The CCP wanted only the science, the technology, and all the technical stuff that made a market economy work and to deflect any Western ideas and values from entering China. Not only that, the CCP also shielded China from any Western financial, monetary, and economic forces that could significantly influence or affect China’s own system. The CCP also didn’t intend to genuinely change the foundations of its power such as property ownership, its commanding power over the economy, or its other power over the society.

With little resistance from ideology, the CCP reformers have had quite a free hand in transforming the economy. The CCP created and showcased "special economic zones," which seemed at the time improbable both to the world and to the people inside China. China’s economic gate seemed more open than ever before. The CCP also allowed foreign banking, communication, legal services, and other industries to set up shop in China. Meant to be experiments, these foreign entities could operate only under very restrictive conditions, even though the CCP had no intention of letting them become material. The CCP even created a special environment and community for foreign expatriates to enjoy even more "freedom" than in their home countries. All these strategies helped the CCP to create the illusion from very early on that the leadership was determined to carry reforms all the way to the end, that is, to the establishment of a free market economy, and that anything else was just "technical" and a matter of time. Combined with China’s cheap labor, blazingly fast pirating and copying of foreign technologies and products, low overall consumption, a nonexistent distribution network and other infrastructure for foreign companies to market and sell their goods, and the governmental control of China’s trading companies, China has been able to appear very open, more open in fact than other transitional economies as far as trade barriers are concerned. This, in turn, further enhanced the illusion of the CCP leadership’s reform resolve. This illusion reached its climax when China signed the WTO accession agreement.
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Of course, the economic genie released by the CCP will eventually consume it no matter how hard the CCP tries to prevent such a scenario. But there is no indication so far that the CCP is even willing to reduce or limit its power. On the contrary, there is every indication that the CCP will use whatever force or brutal measure necessary to crush any group and/or movement that is perceived as undermining the CCP’s rule. Obviously, the CCP needs to maintain its foundational roots— its Party branches — if it wants to keep its presence in society. The CCP needs to maintain its commanding power in managing the economy if it doesn’t want to reduce its economic role to that of Greenspan’s, [1] and the CCP needs to retain its supreme position in making and interpreting the law if it doesn’t want to become obsolete. Therefore, the plan started with these fundamental limitations.

The Practice

Ironically the CCP’s reform plan has never progressed very far. When the CCP started the reform, state-owned enterprises not only dominated the economy, they actually were the economy. They were also a major part of the CCP’s social and power base. If the CCP could plan anything, this was all it could plan for. This was indeed what the CCP really hoped for. By opening up to the outside world, the CCP hoped that the state-owned enterprises would then be equipped with modern technology, machinery, and production methods. By introducing and adopting certain market factors, the CCP hoped that the state-owned enterprises would have the incentive to perform. In addition, the CCP hoped that the state-owned enterprises would adopt modern and scientific management; be productive, efficient and competitive; become the power engine of the new economy and revenue source for the central government; and, more importantly, solidify the CCP’s vital social and power base.

The CCP tried, failed, tried again, failed again, tried once more, and failed once more. [2] The CCP first freed the managers from planned quotas to allow them to respond to the market needs and let them take responsibility for their production. It then changed "surrender of profit" to taxation to give the managers more incentive to outperform. The CCP tried to get private investors to take on a fraction of the ownership of those enterprises in hopes of shaking up the management. It later even tried to turn the enterprises’ debt to shares and sell them on the stock market. The CCP finally decided to let the smaller and weaker enterprises go and concentrated on protecting the bigger ones. But none of these strategies worked, even with the protection of a dual pricing system that gave room for the enterprises to catch up with subsidized financing from state banks. What was worse, every time a new strategy was instituted, it created a huge opportunity for the managers and Party officials to steal state assets. The opportunities were so lucrative and the pickings so easy that corruption soon became an institutionalized feature of the CCP and the economy. The enterprises’ property and assets have been disappearing under various schemes. Many of them, usually the better ones, simply changed their ownership from the state to the managers at little or no cost to the managers. The corrupt and money-losing state-owned enterprises have racked up huge bad debts, affecting all four major state-owned banks. Based on the internationally accepted Basel standard, these banks are now insolvent. The CCP’s latest move is to allow the enterprises to sell the previously restricted (non-salable) shares to the already drained stock market. If earlier attempts are any indication, a few will come out ahead, way ahead. But the enterprises themselves and the investing public won’t be among them.
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Case One

A state-owned power plant in Changge City, Henan Province, went through privatization in 2003. At the time, the power plant was one of a handful of profitable, state-owned enterprises in Changge City with a total value of 101 million yuan (US$12.6 million) including a net asset of 32 million yuan (US$4 million). Strangely enough, the plant general manager, Liang Beiling, and several other managers were able to buy the plant for 15 million yuan (US$1.85 million) with a one-time cash payment using a method called "MBO" or "Management Buy-Out."

The new, privately owned company has 35 stockholders. Its chairman is still Liang Bailing. The only difference is that the power plant has a new name, the "Changge City Hengguang Thermal Power Co. LTD."

How did they do it? Liang Beiling, the plant general manager prior to the privatization, was also the principal buyer in the privatization process. By using his power as the general manager, he hired a firm to re-appraise the value of the plant. The result was shocking. A profit-making company was transformed into a company with a 36 million yuan (US$4.5 million) debt. Liang then devised a "reward policy," which gave the management buy-out group a 30 percent break on the purchase price. In addition, Liang instituted a policy providing a 25 percent price break if the buyers made a one-time cash payment. Management established one self-rewarding policy after another, with the result that a 101-million-yuan plant is now a private company controlled by former plant manager Liang Bailing, who owns 19.46 percent of the shares.

Case Two

In 1999, before privatization, the assets of the state-owned Dingxi County Department Store included a three-story office building near Dingxi Railroad Station, a new office building, and two residential buildings.

To prepare for privatization, the retail department store expanded this three-story railroad station building by adding four more floors. Wang Xueli, the store’s legal representative, did not provide any information about the expansion to the appraisers. Accordingly, the railroad station building was appraised at 45,785 yuan (US$5,500) as a three-story building.

In August 2000, the assets were finally transferred from the state to the new private company, which then had a total capital of 500,000 yuan (US$60,000), 490,000 of which was owned by Wang Xueli, the former legal representative of the state-owned department store.
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The greed and deception continued. Wang forged a receipt showing that the new private company had paid a fictitious company for construction work. With that receipt, Wang obtained a title certificate showing that he owned the assets from the second floor to the sixth floor of the railroad station building. In May 2002, Wang Xueli sold these five floors to the new private company.

According to a Chinese government investigation, Wang misappropriated a total of 2,140,882 yuan (US$258,000) through the privatization of this state-owned department store.

Case Three

On October 28, 1999, as part of privatization, Anhui Mobile Communication Co., Ltd. (AHMCC) registered a private mobile phone company with two million yuan (US$241,000) in initial capital, 20 percent owned by AHMCC and 80 percent by the AHMCC Workers’ Union. The initial capital was paid via the following fund transfers:

AHMCC wired 400,000 yuan (US$48,000) to the new mobile phone company for its 20 percent. On October 13, 1999, AHMCC wired 1.6 million yuan (US$193,000) to its Workers’ Union. The next day, the Workers’ Union wired the 1.6 million (US$193,000) to the new private mobile phone company to pay for its 80 percent ownership.

Soon after, AHMCC requested that 1.17 million yuan (US$141,000) be raised from its top management and employees. Once the 1.17 million yuan was raised, on January 13, 2000, the new private mobile phone company returned 1.6 million yuan to the Workers’ Union, which forwarded the 1.6 million yuan to AHMCC that same day.

From the end of 1999 to early 2002, the private mobile phone company was so profitable that its shareholders received hefty dividends: The top four senior AHMCC managers each received dividends of 86,500 yuan (US$10,422), the 15 mid-level AHMCC managers 57,600 yuan (US$6,940), low-level AHMCC employees 28,000 yuan (US$3,373), and AHMCC retirees 18,700 yuan (US$2,253).

Why is this private mobile phone company so profitable? Through a Chinese government investigation, it was discovered that AHMCC diverted high revenue business to the private mobile phone company to benefit AHMCC’s own management and employees.

… … …
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The real economic "genie" released by the CCP, the real impetus behind the reform miracle is the people, the people in the rural villages and townships, and the private entrepreneurs in the urban areas. The private sector struggled and succeeded, even under stringent restrictions and absolutely no bank funding and in the face of arbitrary bullying from CCP officials for more taxes and/or bribes. It is this private sector that attracted foreign merchants and manufacturers to China to purchase goods and set up factories to produce more goods. It is this private sector that started to fill the stores worldwide with "Made in China" labels. It is this private sector that has supplied the domestic market with abundant merchandise of all kinds and that has played a major part in raising the nation’s living standard. It is also this private sector that created sufficient wealth to enable the country to develop at a mind-boggling speed. Deng Xiaoping reportedly admitted that this was unexpected and not something he had anticipated. [3] Despite the CCP’s desire to boost the size of the private sector in order to claim market economy status, it is very likely that the private sector has already been responsible for more than 50 percent of the economy for some years. [4]

China’s export industry has overwhelmed the world and has paid its dues in helping to carry the reform this far. In 2004, total exports stood at US$593.4 billion, a 35.4 percent increase over 2003, which itself is an increase of 34.6 percent over the year before. [5] There is no doubt that it will continue to grow. But this only works well for labor-intensive industries, and China has already dominated most of them in product lines such as toys, apparel, footware, and household electronics. In the capital-intensive or technology-intensive industries, China’s chief advantage of cheap labor loses its critical value. Certainly China has and still is producing a very impressive number of engineers, but it is no comparison to the virtually unlimited supply of cheap manual labor. Furthermore, it will be harder to find willing foreign corporations to move their high tech development centers to China if they face the certainty of losing their technological lifelines. As for China, any indigenous effort will certainly be taken on by the state-owned sector, whose managers are questionable for such a challenge.

Another vital component of China’s economy that has kept the reform going this far is the dizzying speed and scale of capital spending and development. It certainly satisfies China’s ego to have the "largest, tallest, fastest," and other superlatives in the world. But the evidence of excess and waste is abundant. In 2003 and 2004, China built so many steel factories that the country’s needs won’t exploit their full capacity until 2010. [6] It is well-known that the return on China’s capital investments is extremely low and much of it is wasted. But this is the only way to keep the economy growing at a sufficiently high speed to generate enough jobs to absorb laid-off workers and migrant workers from the countryside. Since 2003, the fixed capital investment accounted for a whopping 47 to 51 percent of the GDP [7] and 75 percent of the GDP growth in 2004.
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The Outlook

Western scholars and economists have long warned about the fragility of the Chinese economic bubble. To their astonishment, whenever the bubble seemed about to burst, the CCP was able to stave off catastrophe by slowing development temporarily and then speeding ahead to make the bubble even bigger. Under market economy conditions, this bubble would no doubt have burst long ago. But in China, the CCP controls all the financial institutions and owns all the major investment projects. It can ignore all these danger signs as long as people don’t rush to the banks to take their deposits out and inflation remains under control. The financial resource that has made it possible for the CCP to do this comes from the super high savings rate of Chinese household depositors and the large amount of seignorage (the amount of real purchasing power that a government can extract from the public by printing money). [8] Chinese household savers have put away large sums of money into the banks year after year. Total household deposits, as a percentage of GDP, rose from about two percent in 1978 to 22 percent by 1994. [9] From 1994 to 1998, household depositors pumped an average of 770 billion yuan (US$96 billion) a year into their bank accounts, doubling the amount of the previous five years. [10] The total household deposit hovered at around 60 percent of GDP from 1997 to 2001. The increase of the urban work force and household wealth, coupled with the lack of a personal credit/checking system, demanded increasing amounts of cash just to satisfy people’s daily needs, which enabled the CCP to print large amounts of cash with little inflation effect. In addition, the longer cash stays in people’s hands, the more it loses value due to inflation. This combination provided essentially free revenue for the CCP, which averaged an increase of 6.85 percent of GDP from 1986 to 1990 and an increase of 8.09 percent of GDP from 1991 to 1999. [11] These financial resources have enabled the CCP to use the sheer growth of the economy to mask the deeper and fundamental problems the CCP has created.

But these problems are real and growing more severe by the day. The CCP’s insistence on reviving its state-owned enterprises without genuine ownership change has resulted in the complete failure to transform these enterprises. As a result, much of these enterprises’ assets have been stolen by their managers and the collaborating CCP officials, making more and more of these enterprises unsalvageable. At the same time, corruption has become an institutionalized feature of China’s system— it is simply everywhere. These inefficient and money-losing enterprises have created such huge bad debts that the state banks are crippled and unable to perform their financial functions. Increasing numbers of workers are being laid off and pushed out into society. To alleviate this pressure, the CCP has resorted to massive, mindless capital investment projects, which can only make the matter worse over time. The unnaturally high growth rate, combined with poor planning and rampant corruption, has made the situation nothing short of disastrous.
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Over the years of reform, the CCP has been able to hide these problems by high growth and high spending. But the growth rate of exports is unlikely to be sustained in the future, and the high growth in capital investment can only make the matter worse and the bubble bigger. The third component of GDP is consumption. If consumption increases, it will result in fewer deposits in the banks and may cause higher inflation.

It may be as futile to try to predict when this bubble will burst as to predict the same for stock markets elsewhere in the world. Even in an economy as free as in the United States, the last stock market bubble lasted much longer and reached a much larger size than many could have expected. As we have learned from China’s reform history, the Chinese bubble can get much bigger, but so will the damage when it bursts.

The private sector is still capable of cleaning up this mess. If the restrictions on the private sector are lifted, if they can be on the same footing as the state-owned enterprises in terms of growth and size and obtaining financing from banks, they will very likely and almost surely be able to grow and expand, to take over the weaker state-owned enterprises, to absorb workers who need jobs, and, finally, to start to improve the nation’s overall productivity and efficiency. In order for this to happen, the CCP has to accept genuine migration to private ownership, has to restrain itself from interfering and obstructing private enterprises’ business activity, and has to let an independent judiciary preside over the courts of commercial law. In essence, the CCP has to be prepared to wrap up and head to the exit. It is squarely confronting the very economic forces it released.

One group of scholars has long argued that economic reform should be but a small part of a constitutional transition. [12] Without reform, the constitutional system under which the CCP holds the monopoly of all political power, the CCP’s vested interests (its Party officials) will hijack the economic reforms and reap most of the benefits at society’s cost. Some of the scholars further point out that if such economic reform succeeds, China will be following in the footsteps of pre-Second World War Germany and Japan.

Given the history of the CCP’s willingness to use any means to keep itself in power, given the serious problems that are brewing with increasing intensity under the glamorous surface, given the more and more apparent fact that the CCP has become the proverbial "cow on the track" of the speeding reform train, and given the fact that the CCP has been increasingly relying on nationalism to rally its people, this warning should not be neglected— not by the world and especially not by the Chinese people.
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Footnotes:

1. Alan Greenspan is Chairman of the Board of Governors of the Federal Reserve System in the U.S. and Chairman of the Federal Open Market Committee, the system’s principal monetary policymaking body.
2. He Qinglian, China’s Trap, Chapter 3.
3. Fishman, Ted, China Inc, P. 74.
4. Chandrasekhar, C.P., Frontline, "How Large is China’s Private Sector?" Vol. 22, Issue 21.
5. World Bank, China Economic Indicators – Cumulative, http://www.worldbank.com.
6. Macabe Keliher, "Red Lights Flashing for China’s Economy," Asia Times, http:://www.atimes.com.
7. World Bank, China Economic Indicators – Cumulative, http://www.worldbank.com.
8. Lardy, Nicholas. China’s Unfinished Economic Revolution, P. 184.
9. Ibid, P. 14.
10. He Qinglian, http://www.mlcool.com/html/01090.htm.
11. Ashima Goyal and A.K. Jha, Economic and Political Weekly, October 15, Vol. 39, 2004.
12. Jeffery Sachs, Wing Thye Woo and Xiaokai Yang, Economic Reforms and Constitutional Transition, Perspectives, Vol. 1, No. 6.

Hua Yi is a freelance writer based in New York.

Dae Jang Geum

South Korean movie and television dramas have been popular in Asian countries like Hong Kong, Taiwan, Singapore, and China for the past decade. The globalization of Korean TV series and actors has spawned a pop culture called Korean Wave, also known as hallyu, which refers to Korean culture in general, including movies, music, and fashion.

Korean Wave continues to sweep Asian countries and had a massive impact in 2004 with the introduction of the historic television drama Dae Jang Geum (Jewel in the Palace). With its attention to the details of people’s everyday lives, its well-rounded characters, and rich cultural content, Dae Jang Geum has drawn millions of viewers. Fans say they feel as if they are participating in the experiences of the characters.

Korean Wave in Asia

Korean Wave is the national pride of Korea. It introduces the historical Korea to the world and is successfully breaking down historical grudges with neighboring nations. Korean television movies have also boosted South Korea’s economy in the areas of trade and tourism. In 2004, exports of South Korean programs, mostly dramas, totaled US$71.4 million, up 70 percent over 2003, according to the Ministry of Culture and Tourism. The Korean National Tourism Organization, the state-run tourist association, claims the impact of the TV dramas has brought almost one billion dollars in tourist income to Korea.

Dae Jang Geum made a huge success in Asia after it was first aired in Korea in 2003. With a popular start in Taiwan, the series was enormously successful and received the highest ratings in Hong Kong’s TV history. When the drama aired next on America’s AZN Television, a network company targeting Asian-American viewers, it scored another huge success. Korean Wave, already a cultural phenomenon in Asia, is making its mark worldwide.

According to Asia Times, when the show’s finale played in the San Francisco Bay area, more than 100,000 fans tuned in, landing the show higher ratings in that time slot than ABC’s Extreme Makeover, Warner Brothers’ Starlet, or PBS’ Live from Lincoln Center. In Japan, Dae Jang Geum aired its first episode on October 8, 2005, on NHK.

Korean Wave in China

Since the beginning of Korean Wave (Han Liu) in China in 1993, Dae Jang Geum has pushed the wave to new heights in 2004. Hunan Satellite Television paid 10 million yuan (US$1.2 million) to buy the mainland distribution rights. It purportedly has already doubled its investment by simply reselling the rights to other regional stations. Xinhua News Agency reported on October 17 that the series averages a 3.15 percent rating in 31 medium and large cities, and the number is climbing.
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Produced by Korean TV channel MBC in 2003, Dae Jang Geum focuses on the life of Jang Geum, the first female royal physician in the Joseon Dynasty during the reigns of Yeonsangun (1494-1506) and King Jungjong (1506-1544) in Korea. The main themes are Jang Geum’s perseverance and the traditional Korean culture, including Korean royal court cuisine and medicine. Jang Geum was a real person as documented in the Annals of the Joseon Dynasty and a medical document of the time. However, references to her were few and mostly short.

Chinese fans are glued to this slow-paced Korean show. Besides the appeal of the exquisite Korean court food and fashion, and the beauty of Lee Yong Ae, the actress who plays the title role, fans indicate that the success of Dae Jang Geum is attributed to the deep cultural content of the show.

Freelance writer Shan He has pointed out that the popularity of Dae Jang Geum is not simply about the story of Jang Geum’s suffering, endurance, and triumph over hardship, but rather her purity and her kind, feminine character, especially her compassionate way of resolving conflicts. The show highlights the true nature of humankind and reawakens in viewers the inherent longing for truth, compassion, and tolerance.

Feminine Beauty and Persistence

"It teaches me how to live," one fan wrote on an online Dae Jang Geum discussion forum. Many female fans are delighted to learn the proper demeanor of a woman worthy of admiration — elegance, gentleness, kindness, and respectfulness. They say that beauty shines through the characters in the show, and many female fans say they would like to have those qualities themselves. Fans write about the persistence Jang Geum demonstrates in the face of suffering and tribulations. Her persistence, compassion, righteousness, and dedication to justice, even at the risk of her own life, have great appeal.

In the story, after Jang Geum returned to the palace as a female doctor, she embraced the moral values of a doctor and gave up her hatred towards those who killed her mother and teacher. She insisted on preparing the right type of food to serve the ambassador from the Ming Dynasty who was suffering from diabetes, despite the risk of losing her life if her dishes failed to improve his condition.

As a royal cook, she was taught by her teacher, Lady Han, to always consider the guest’s health when preparing food. She eventually won high praise from the ambassador for her care and steadfastness. Resisting a barrage of conflicting opinions, she insisted on the proper treatment for the king even though she was denigrated as an inexperienced female doctor. When she was offered the chance to spy for the queen, she replied that she was willing to give up her life if necessary but would not do things that were against her principles.
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Liu Yajuan, a student from Wuhan University, posted this message online: "Jang Geum is so admirable, but in the real world, people try all kinds of means to survive in society. We stab each other in the back. I truly hope that in our society, we can have as compassionate a heart as Jang Geum to tolerate those around us."

A Classic Love Story

Jang Geum’s love story is classic and subtle. The scenes of her love for Lord Min Jung Ho consist of infrequent eye contact, gentle greetings and smiles, occasional conversation, and a short walk. There are no sex scenes, not even a kiss. But the audience can feel the strong tie between the two. Their unconditional love for each other has elevated to trust, respect, and admiration. When King Jungjong falls in love with Jang Geum but finds out about her love for Lord Min, both Jang Geum and Lord Min demonstrate the courage to acknowledge their relationship. In the end, Jang Geum sacrifices the king’s affection and chooses to follow Lord Min to live a simple but meaningful life.

The love story of Jang Geum has brought the fans tears and laughter as well as the longing for a true and secure relationship in real life. "It is a classic and beautiful love story, one that is long gone in today’s materialistic society. I would like to have a love relationship just like this," one fan wrote.

Respect for Traditional Chinese Culture and Moral Values

Throughout the series, Dae Jang Geum has conveyed the richness of Chinese culture, including Chinese calligraphy, medicine, food, clothing, and ancient systems of governing. The show blends classic tales into the story line that are refreshing and reassuring to Chinese audiences. It also demonstrates the deep influence Chinese culture had on Korea during that time period.

Some fans say that the training Jang Geum received in cooking and medicine illustrates the ancient emphasis on the cultivation of the individual’s moral conduct. In ancient China, all the professions taught people to have a pure heart, high moral values, and an inner understanding or enlightenment.

In one scene, Jang Geum participates in a royal cooking competition. The cooks have to use the food discarded by the commoners in order to show how the country can survive in times of food shortages. Eager to succeed in the contest, Jang Geum adds milk to the beef bone soup for better taste but loses the contest because milk was considered a luxury food, hardly affordable to the common people.
Seeing that Jang Geum has developed complacency, her teacher, Lady Han, tells her, "I would have never guessed that your talent would also become your poison" and sends her out of the palace to think things over. Jang Geum finally learns that having sincerity and diligence is the secret to making delicious food.
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When Jang Geum was studying to become a female medical doctor, she was criticized for lacking the basic values as a doctor even though she was the top student in the class. She was perplexed, but upon observation and reflection, she learned that she was thinking too highly of herself and lacked modesty, consideration, and concern for her patients. She also learned that her purpose in studying medicine was tainted as she was seeking a way to take revenge on her enemies. She realized that she lacked the compassion to save people. Fans praise Jang Geum for her high moral standards and express admiration for the high standards of those times.

Chinese Television Industry Confronts The Korean Cultural Invasion

Dae Jang Geum has been a runaway hit in China since it aired in September 2005. Its fans even include Chinese President Hu Jintao and Wu Bangguo, Chairman of the National People’s Congress. The Central News Agency reported on October 2 that since the show’s broadcast in the mainland, it has reached an 18 percent rating with close to 18 million people watching it. China Youth Daily indicated that Chinese people like to watch the show to form their dreams and search for the moral values that have been lost in society.

While Dae Jang Geum has been successful in China, it has also been the object of criticism from the Chinese television movie industry. Zhang Guoli, a famous television star and producer in China, told Sina News that after watching one episode of Dae Jang Geum, he was not touched at all and found the show disturbing. Zhang has produced many historical television dramas in China. He said there were too many loopholes in Jang Geum’s character and that the show was too long and slow. He complained that Chinese audiences are overcritical of Chinese dramas but generous toward Korean dramas. He also expressed concern about the cultural invasion from Korea and asked the media to give Chinese productions more coverage.

Responding to the negative feedback, Jiang Xun, a reporter with the BBC, wrote on October 17, "I personally have not watched any Korean television dramas, nor am I a fan of them. But the popularity of Korean dramas, books, and video games that have made their way into China indicates that they do have appeal and a market."

"Culture is a form of identity for a country," Jiang Xun wrote. "It is very common for a country to create such a cultural influence and phenomenon in neighboring countries, as was witnessed in history during the Tang Dynasty, when Chinese culture had its impact on Japan, Korea, and Southeast Asia. When the content of the cultural influence is Chinese culture while the player in the center is Korea, some people feel uneasy and resentful. But Chinese people should think about catching up, becoming an exporter of culture, and regaining China’s reputation."
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One fan of Dae Jang Geum said that even though Chinese television drama has matured over the years, with its grand historical scenes, complex story lines, top quality productions, elaborate costumes and stage settings, it still lacks the most important part— uplifting cultural content, which Dae Jang Geum amply provides. Examples abound in the show with such themes as the role of fate in one’s life, retribution for wrong-doing, a king who cares for his people and follows the will of heaven, and the importance of virtues such as truthfulness, kindness, and tolerance.

In China, ruled by an atheist regime, it is almost impossible for such cultural content to thrive because China’s ancient cultural heritage has been attacked and discarded as feudalistic garbage, particularly since the Great Cultural Revolution. Nonetheless, these values still reside in people’s hearts. Dae Jang Geum has simply revived them. This is the secret formula behind the series’ success.

Lukun Yu is a writer based in New York.

On October 29 Government Information Office (GIO) Minister Pasuya Yao said the GIO had sufficient evidence to prove that cable TV station TVBS was a foreign-owned company and therefore breaking the law. On November 8, TVBS was issued a fine of NT$1 million (US$28,700) under the principle of proportionality and was required to rectify the situation before December 20, 2005. On November 15, 2005, the GIO published a position paper regarding the handling of the TVBS ownership structure issue. The issue has involved many Taiwanese, legislators, officials in the executive branch, and even the President of Taiwan.

In the position paper, the Taiwan government concluded that TVBS, a subsidiary of the Hong Kong Television Broadcasts Ltd. (commonly known as TVB) was 100 percent owned by foreign shareholders, and therefore violated Article 10 of the Satellite Broadcasting Act, which stipulates that, "the total shares of a satellite broadcasting business directly held by foreign shareholders shall be less than 50 percent of the total shares issued by the said business."

When TVBS applied for license renewal six months ago, it claimed that 47 percent of its shares were held by the Hong Kong-based TVB Investment Ltd. and the remaining 53 percent by the Taiwan-based Countless Entertainment (Taiwan) Company Ltd. However, TVB Investment Ltd owns 100 percent of Countless Entertainment (Taiwan) Company Ltd., making TVBS a completely foreign-owned company.

A goal of further investigation is to find out if there are any investment holdings by the People’s Republic of China (P.R.C.) in TVBS. The Chairman of TVBS, Norman Leung, was the Chairman of the Hong Kong Broadcasting Authority from 1997 to 2002. Some legislators from the Democratic Progressive Party stated that a 100 percent Hong Kong ownership of Taiwan media’s TVBS was the equivalent to a 100 percent P.R.C. ownership, especially considering Norman Leung’s background. Wen-chih Yao, Minister of the Government Information Office (GIO), stated, "Given the TVBS Chairman’s background as a Hong Kong official, legislators are questioning the station’s political stance, and the GIO has required that TVBS clarify this too."

Starting on November 5, Taiwan Southern Society launched a campaign to boycot TVBS. According to the President of the Society, Cheng Chengyu, TVBS and United Daily News are the base for P.R.C. forces in Taiwan television and newspapers. On the surface, they embrace the sovereignty of Taiwan. However, their programs and reports don’t live up to the level of support that they have stated. Cheng thought TVBS had abused freedom of the press in Taiwan and had issued malicious reports that harmed Taiwan.

P.R.C. infiltration of Taiwan media was already been brought into question when Phoenix TV, a Hong Kong-based TV station, tried to expand its presence in Taiwan. According to a November 5 report by Liberty Times, three or four years ago, Phoenix TV applied to the GIO for a permit to broadcast its programs in Taiwan. The GIO turned down the application because Pheonix TV’s programs were considered prejudiced in their reports on cross-strait relations. About two months ago, the President of Phoenix TV, Liu Changle, made a secret trip to Taiwan and visited GIO Minister Yao, hoping to apply for the permit again.
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Phoenix TV is regarded by many as Beijing’s overseas mouthpiece and even bears the nickname, "overseas CCTV (China Central TV)." Speaking of Phoenix TV, Wu Guoguang, who was once part of the think tank advising former Secretary General of the Chinese Communist Party (CCP) Zhao Ziyang and is currently the China Program Chair at the Centre for Asia-Pacific Initiatives of University of Victoria, Hong Kong, stated in the Chinese article, "The Sophistication of China’s Political Propaganda" that it was part of Communist China’s strategy to "export in order to import." He explained this by telling about a personal experience he had. The night before Iraqi soldiers surrendered en masse in March 2003, Wu was in Hong Kong, closely following the news. He watched the Phoenix TV station, because it broadcast in Mandarin, while all the other local TV stations broadcast in Cantonese, a dialect that he did not understand. He learned from the news that the U.S. troops met fierce resistance in Iraq.

To his surprise, the following day, all the newspapers reported on the front page that Iraqi soldiers surrendered en masse. He was both shocked and upset. Phoenix TV followed the propaganda of the Chinese government media so closely that it misrepresented the fighting and simply did not report the surrender of the Iraqi soldiers.

Wu then called his friends in mainland China and discovered that none of them heard the news from Iraq. His friends told him that they did not watch CCTV, China’s state-run TV station, but instead watched the "overseas" Phoenix TV.

"Why doesn’t it [Phoenix TV] have a Cantonese channel or Cantonese programs, given that it is stationed in [Cantonese-speaking] Hong Kong?" questioned Wu in the article. Wu’s answer was that the majority of the people in China have lost both their confidence and interest in China’s state media. "Overseas" media — media from outside China—are believed to be credible. Therefore, the Chinese regime created its own "overseas media" to spread its political propaganda. Many Chinese consider Phoenix TV to be an overseas media.

A top staff member of the Phoenix North American Chinese Channel (PNACC) was recently arrested for stealing U.S. military secrets. The history of the PNACC, including the personal background of its founding CEO and the station’s role as a propaganda arm of the Chinese regime, raise serious questions regarding the role of PNACC itself in China’s espionage efforts in the United States.

On October 28, U.S. intelligence officials arrested two Chinese couples in the Los Angeles area and charged them with stealing U.S. military secrets. One couple was arrested at the Los Angeles airport, the other at their home in Downey. The man arrested at the airport, Tai Wang Mak, is said to be "a broadcast and engineering director for the Phoenix North American Chinese Channel." The man arrested in Downey, Chi Mak (also known as Jack Mak), was the Lead Project Engineer for the defense contractor Power Paragon (a subsidiary of L3/SPD Technologies/Power Systems Group in Anaheim, California), and is his elder brother.
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According to an FBI affidavit, Chi Mak allegedly took computer disks from Power Paragon with sensitive information about a Navy project. Allegedly he also e-mailed photos and reports about the project to his home computer. He and his wife then copied the information onto CDs and delivered them to his brother Tai Wang Mak. He and his wife were scheduled to fly to Hong Kong on October 28 in order to meet later with a contact in Guangzhou, China, the affidavit says.

TVBS in the meantime is invoking freedom of the press to protect its position and fend off the legal attack and is attacking the GIO. The extent and success of P.R.C. infiltration of Taiwanese television remains to be seen.

In China’s TV market, the state-owned China Central TV Station (CCTV) has enjoyed a virtual monopoly since its creation and boasts nearly 70 percent of the overall market. For smaller players, gaining a significant market share is a daunting task. Before 2005, Hunan (Satellite) TV was a no-name regional channel that few outside its territory had ever heard of. After two bold and successful program launches this past summer, though, Hunan TV has become the darling of the industry, a model of boldness that may spark a revolution in China’s TV world.

One of the breakout programs was a singing competition called Super Girls or Super Female Voices, in which the selection process was conducted by viewers voting through mobile phone short message services. The program garnered tremendous interest and drew unprecedented participation from Chinese TV viewers. As a result, it raked in record revenues for the local TV station, and set a new standard for viewing rate and advertising price previously held by CCTV.

Flush with the success of Super Girls, Hunan TV bought the broadcasting rights for a 70-episode South Korean drama series called Dae Jang Geum (Jewel in the Palace) for a hefty 10 million yuan (US$1.2 million) price tag. It was another blockbuster move. According to the Report of China’s TV Drama Market (2005~2006), China produces 40,000 episodes of TV drama series each year, with 7,000 eventually making it to living rooms across China. But none has come close to the success of Dae Jang Geum. As a matter of fact, many have criticized the industry for its predictability and lack of taste.

After Dae Jang Geum aired, it quickly drew tremendous interest across the nation and attracted audiences of all demographics. Commentators credited the series’ success to having traditional Chinese values at its core, presented in a package uniquely appealing to today’s audience. The drama highlights virtues such as honesty, love, dedication, compassion, and perseverance through a true historical story from the royal palace.

Although the programs’ success is indicative of what the Chinese people want, the airing of such programs is not going unnoticed, as both programs have irked some of the politically sensitive authorities. In the case of Super Girls, it reminds one of a democratic referendum, which is what the communist regime fears the most. As for the popular Korean drama, it poses the issue of "culture infiltration," another touchy subject in a Communist-governed society.

We are featuring an article about the phenomenon of a Korean craze brought on by Dae Jang Geum in this issue. We have also invited political analyst Dong Li to share his insights (page 22) on the Fifth Plenum of the 16th Chinese Communist Party Conference held on October 8 to11.

In the culture section, we have an article introducing one of the wonders of acupuncture-a needle to the ear that can relieve pain from any part of the body.