[Summary:  In order to make a fair assessment of China,it is important to look beyond metropolises like Beijingand Shanghai.This article is a research report by the study group led by Xiwen Chen at the Development Research Centerof the State Council. After the investigation of XiangyangCounty of HubeiProvince, Yanling County of HenanProvince and Taihe County of JiangxiProvince, the report comes to the conclusion that governments at the county leveland in rural areas are facing severe financial difficulties. According toestimates, currently the lowest-level governments in villages and towns allover the country have debts of about 300 billion yuan (~ $36 billion).Including debts incurred by the county governments, the total debt is estimatedto be over 500 billion yuan (~ $ 60 billion).]

Since the reform of thefinancial and tax systems in 1994, while there is improvement in the overallfinancial situation, the finances of the counties and the countryside in mostareas run behind their expenses. Quite a lot of counties and towns are facingsevere financial difficulty, and this problem is not just a simple economicone. It has severely affected the smooth operation of the political authoritiesat the grass-roots level, as well as the development of the rural socialservices. It has become a critical factor that affects the political and socialstability of the rural areas.

Four MajorProblems Expose the Severe Financial Crisis in Counties and Rural Areas

Currently the financialpicture of income and expenditure in counties and rural areas has been clouded,causing a lot of difficulties for accurately depicting the financial situationin rural areas. The study group of the DevelopmentResearch Centerof the State Council has analyzed three typical rural counties in central China –Xiangyang County of Hubei Province, Yanling County of Henan Province and TaiheCounty of Jiangxi Province. According to the investigation, there are foursigns of a severe financial crisis:

First, the finances of thecounty and rural areas follow a model of just getting by, managing to paysalaries only. The administrative costs of the best of these three counties,Taihe County of Jiangxi Province, accounts for 71% of the primary expendituresin the year 2000. The public finances of Yanling Countyhave gotten to a point where even if the government takes on nothing, there isno way to guarantee the payment of salaries. Its actual financial capacity is80 million yuan (~ $10 million), but the salary expenditure is 96 million yuan(~ $11 million). The public finances of Xiangyang Countyare in the most difficult situation of the three counties. In the year 2000,the financial capacity of the whole county is only 198 million yuan (~$23.8million), but the salary expenditure is 154.82 million yuan (~ $18.6 million),which accounts for 80% of the total financial capacity.

Meanwhile, the financesfor the villages and towns are in much worse shape than that of the counties.The report takes Dama Town and Mafang Town of Yanling County of Henan Provinceas examples. Besides paying salaries, the actual capital shortfalls are atleast 2.278 million yuan and 3.657 million yuan. "These two towns’finances are past the ‘make-a-living’ stage, but have deteriorated to the pointof ‘begging.’ Moreover, because of the decline of their financial credibility,the situation has become more and more difficult. The public finances of thetowns have come quite close to total collapse."
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The second probleminvolves budget shortfalls and increasing unplanned revenue. Since the countygovernment doesn’t have legislative power, an important means to make up forbudget shortfalls is using extra-budgetary channels to collect fees and fundingfor all kinds of administrative services, and this is done on a significantscale. In the year 2000, Xiangyang County listed 550 types of fees foradministrative services, 110 departments were involved, and the fees collectedamounted to 64.1 million yuan (~ $8 million), 90 million at its peak. Theextra-budgetary revenue accounted for 30% of the financial revenue in Xiangyang County,44% in Yanling Countyand 69% in Taihe County. Most of the revenue will go backto the original company after going through the books. This kind of managementof budgetary and extra-budgetary funding has weakened the ability and scope ofcentralized control of public finances.

Third, counties areheavily in debt, and the financial base is facing bigger and bigger risks. Inthe year 2000, XiangyangCounty had a directfinancial debt of 289.25 million yuan (~ $35 million), which accounted for140.3% of the available revenue of the whole county. Year 2001 was a peak yearfor due debt payment, as 158.4 million yuan (~ $19 million) came due. Among thepayments due, the principal and interest of the loans by mutual funds, theWorld Bank and the finance working fund are guaranteed by the CentralGovernment’s tax returns. If they cannot be paid by the due date, they arededucted from the tax return and come directly out of the "make-a-livingmoney." If the financial liability is not paid by the due date, it isdeducted directly from the funding. The county’s tax revenue is only about 26million yuan (~ $3 million) per year, so this county will face much difficultyin getting its finances straightened up. It will be very difficult for them topay for salaries and normal administrative expenses. Also, its towns’ debtshave not been included yet. This county’s 17 towns have an average debt of24.11 million yuan (~ $3  million). The debt of Taihe Countyis at more than 90 million yuan (~ $10.9 million), which accounts for 57% ofthe budgeted revenue. YanlingCounty, including boththe county and its towns, has incurred financial debt of 140 million yuan (~$17 million), most of which is incurred by its towns, which amounts to 120million yuan (~ $14 million).

Finally, the countygovernments are not able to provide the most basic public services for therural areas. Because of the financial difficulty, except for paying salaries,the governments have no funds to do anything else. The funding for ruralcompulsory education comes mainly from taxes, fees and education fundraisingfrom peasants. A report said that currently the county public appropriationscover only about 15% of the medical staff’s salaries in the health departments.There is almost no investment from upper-level public finance to the countyhealth services, which leads to bad facilities and low quality servicesprovided by the rural healthcare organizations. At the same time, medical costshave gone up rapidly. The farmers are overloaded with heavy burdens of medicalpayments, which many of them cannot afford. Not being able to afford healthcareand being driven into poverty by unexpected large medical expense have becomevery prominent problems. Except for fighting for special central governmentfunding, the county governments have made almost no investments in agriculture.
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The County andDistrict Level Financial Crisis Affects the Rural Area’s Stability

The county and districtlevel financial crisis has serious consequences for agriculture and ruraleconomic development. They can be summarized into four aspects.

First, the fundamentalgovernment financial crisis has increased the burden on the farmers. Overtaxingis one aspect. Based on the situation of the three counties, it is clear thatagricultural tax is a major source of income at the county level. In the year2000, the four agricultural taxes accounted for 44.5%, 27.6%, and 50.7% of theincome of the county governments of Xiangyang, Taihe, and Wulin, respectively.If we take into account the Butcher Tax, which is classified as an Industry andBusiness Tax, the tax revenue related to agriculture accounts for an evengreater proportion in the county and district government income. In addition,this trend is accelerating. As the financial burden of the county and districtgovernments increases, and because it is harder to keep up growth on theIndustrial and Business Tax, more and more effort has been put into collectingthe Special Agricultural Product Tax to keep up with the ever-increasinginfrastructure costs. The collection of the Special Agricultural Product Tax isrelatively arbitrary, because it is calculated according to the number ofpeople in each family. The problem of over taxation is very serious. Theestimated amount of the Special Agricultural Product Tax in Xiangyang Countyis 8.5 million yuan, however, the annual tax obligation designated to thatcounty is 46 million yuan. This accounts for only 18.5% of the required taxamount.

Second, given the factthat there is no tax legislation, the local governments collect a variety offees to pay for different expenses. The local governments are arbitrarilycollecting money, asking for fees and allocating this income. This isdrastically increasing the burden on farmers outside of normal taxation.

The investigation foundthat the burden on the farmers is directly related the county and districtlevel financial crisis. Out of the 59 families investigated in the threecounties, the average income of a farmer is 2,652 yuan (~ $321), with the taxburden at 291 yuan (~ $35), which accounts for 10.9% of the income. The taxburden on each farmer differs greatly for different counties. It is 292 yuan (~$35) in Wulin Countyin Henan province, accounting for 6.5% of theaverage income; 163 yuan (~ $19) in TaiheCounty, accounting for 8.3%; and anamount of 415 yuan (~ $50) in XiangyanCounty, accounting for25%. In addition, the lower the income of a family is, the higher the taxburden rate is.

The county and districtlevel governments squeeze the financial resources of the village levelgovernment so much that the village government can hardly provide any socialservices to the farmers. It’s common for the county and district levelgovernments to make up budget shortfalls from funding allocated for publicservice, sometimes even tapping into the villages’ funds. For the threecounties that were investigated, all of them had this problem. When thecounties faced financial hardship, they squeezed out funds from the villages tomake up the budget shortfall.
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The Dama district only hada total of 1.51 million yuan (~ $0.18 million) available to them in the year2000, and their most essential expenses amounted to 5.12 million yuan (~ $0.6million), leading to a 3.63 million yuan (~ $0.44 million) shortfall. This gapwas made up by borrowing money from the district management department and thevillages. In the year 2000, money from the above two sources accounted for 50%of the district government’s actual spending. If the agricultural tax is takeninto account, then 80% of the actual spending came from various taxes paid bythe farmers.

The investigation of the12 villages found that the county and district level governments did notprovide them with financial assistance. Money only went out of the villages,which were heavily in debt. Out of the 12 villages, 10 were in debt. Onaverage, each village owed 0.8 million. Overall, 96% of the villages in Xiangyan County and over 80% of the villages inWulin and Taihe were in debt. In TaiheCounty, the farmers wererelatively less burdened, and each village owed 48,000 yuan (~ $5,818). In Wulin County,each village owed 12,400 yuan (about $1,503). In Xiangyang County,the amount was shockingly high, as each village owed 1 million yuan (~ $0.12million). The investigation found that a considerable amount of the debt owedby the villages was due to higher-level government budget shortfalls. In recentyears, more and more families are accumulating unpaid taxes. In Xiangyang County, the villages’ debt caused byfarmers not paying due taxes was 440 million, accounting for 47.8% of the 930million debt owed by the villages across the county.

The investigation foundthat the village organizations provided only very limited services to thefarmers. The expenditure at the village level government was very low. Onaverage, each village only used 93,000 yuan (~ $11,272). The main expense wasthe salaries of the village leaders. On average, each village paid 23,300 yuan(~ $2,824) for the village leaders’ salaries. Because the higher-levelgovernments took away most of the villages’ financial sources, the salaries ofa considerable number of the village leaders could not be reliably paid. Thepayment of village leaders’ salaries was very commonly delayed. The leaders insome villages had not received salaries for three years. The expenses used forthe farmers’ social welfare were considerably limited. Most of the expenseswere used in hosting guests, subscribing to newspapers and magazines, andvarious expenses required by the higher-level government such as trainingsessions. Village leaders expressed that the required expenses from thedepartments at the county and district level were numerous. In this way, thosedepartments further exploited the villages’ scant financial resources. Theinvestigation shows that because of the poor financial situation of thevillages, the village level governments were functioning less and lesseffectively, and a considerable number of village level organizations wereabout to fall apart.

Third, the smoothoperation of fundamental government departments is severely impacted. In orderto ensure the stability of those departments, the salaries must be paid, andthe government departments must run normally. The investigation found that inaddition to being insufficient for the normal functioning of those departments,the small amount of allocated funding for public expenses is putting intojeopardy paying for necessities such as electricity, telephone services, andtransportation. Because the district and county level governments have such lowincome and there are not enough subsidies from higher-level governments, theallocated public expenses have been reduced gradually in recent years in orderto pay salaries. The current investigation concludes that the public financialcrisis faced by the rural areas is not just a simple economic problem. Thecrisis may lead to the paralysis of the rural government and organizations.
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Fourth, transferring thefinancial crisis to farmers pits them against the core governmentorganizations. The severe conflict between the two parties has become asignificant factor affecting political and social stability.

The salaries of thegovernment officials come mostly from taxes paid by the farmers. If the burdenon the farmers is reduced, the salaries cannot be guaranteed. If the salariesare guaranteed, then the farmers’ burden cannot be reduced. In such asituation, the government and the farmers are more and more likely to be atodds. The village leaders are elected by the farmers, but the leaders cannotrepresent the interests of the farmers. They spend 60% to 70% of their energycollecting taxes from the farmers and cannot provide any meaningful service.Therefore, there is much tension between the two parties.

Translated from http://www.dajun.com.cn/xianxiangweiji.htm

Chen Xiwen, Deputy Chairman of the Development Research Centerof the State Department.
Han Jun, director of department ofRural areas of the DevelopmentResearch Centerof the state council.

[Editor’s note: Chinese premier Wen Jiabao openly stated that China’s economy has showed signs of overheating and would stall the economic reform and development if not properly handled. He has since ordered government entities to take immediate measures to cool down the economy by tightening bank credit and limiting the scale of investment. So far, these measures have not been well executed.  They have met tremendous resistance, particularly at the local government level. Below is an excerpt of an article published on a government website on June 14, 2004 by a government economist analyzing the current economic crisis of China. This article is regarded by some analysts as a different voice from the central government resisting Wen’s economic tightening policy.]

Primarily, economic growth is experiencing more and more restraint from lack of natural resource and environmental factors. In the year 2003, the economic growth rate of 9.1% was highly dependent upon the enormous consumption of raw materials. Over the course of the year, China used 260 million tons of steel and steel products, 1.5 billion tons of coal, and 830 million tons of cement, accounting for 25%, 30% and 50% of the world total consumption of each type of raw materials. However, the GDP volume in 2003 is only about 3.9% of the world’s total. This inefficient style of management and production is completely unsustainable.

The second consideration is that there are many imbalances in the current economy. The rate of investment is out of balance with the rate of consumption. In the past few years, the investment remained the main source of growth. If consumption cannot keep up with the investment, over-production will occur in many industries. The ratio of investment was 38% in 2001, 39.4% in 2002, and 45% in 2003. With the rising ratio of investment, the ratio of final consumption has been decreasing. The ratio of final consumption was 59.8% in 2001, 58% in 2002, and 53% in 2003. Our current ratio of investment is about twice the world average, while the ratio of final consumption is 24% lower. One reason for the low level of consumption is that farmers in rural areas don’t have enough disposable income to pay for the consumption expenditures. The second reason is that the widening inequality in the income distribution has been harmful to consumption growth. According to the study of College of Sociology of Tsinghua University, the wealthiest 20% in the country occupy 53% of the national wealth, while the poorest 20% own 3%. While the rich are able to afford goods, they are at the low end of the propensity for consumption. For the poor with a high propensity for consumption, they lack a means of payment. Also, sometimes new reform policies were introduced one after another in a short time frame, resulting in a rapid fluctuation of consumers’ expectations. On the one hand, effective demand and consumption is not sufficient, on the other, the bank’s savings increase rapidly.

Third, the imbalances exist in the industrial structure. China’s agriculture as component of GDP is 11% above the international level, and the tertiary industry is 32% below the international level. The high value tertiary industry, or service sector, has been developing at a very slow pace. Labor force in tertiary industry of developed countries consists of 62.8% of the total employment, while the ratio in China is only 28.6%. The development of tertiary industry not only affects the growth of the economy and prosperity, but also influences the improvement of the living conditions of everyone, and more importantly, affect the rate of unemployment. With the same input into different industries, the effects on job creation will be different. Entrepreneurs should do some studies on the tertiary sector. From the structure of foreign investment, the tertiary sector, especially high value tertiary sectors, has the highest growth rate of foreign investment.
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Fourth, the problem with the first quarter economy is due to over-investment in the fixed assets. It has brought about two problems: A) The quantity and pace of money supply and the issuance of credit have not been in control; B) Shortages in the supply of coal, electricity, crude oil, and transportation. The fundamental problem is the excess of fixed assets investments. Currently, China’s economy cannot be summarized as “overheating”. Cooling and heating co-exist in the economy. Some aspects need to be controlled and some aspects need to be expanded. Currently, China’s macroeconomic problems need to be treated according to the specific situation, and should not be handled uniformly nor should the breaks be put on suddenly.

Translated from http://www1.people.com.cn/jingji/1045/2569191.html

Yao Jingyuan, Chief Officer of Economic Administration and Spokesperson of China’s Statistic Bureau.

During an internal meeting of the Chinese State Council in late May, Wen Jiabao, the Premier, listed eight crises that the new government is facing. These eight crises are very different from the ones Jiang Zemin or Zhu Rongji (the former leaders) had listed.

The crisis of people losing trust in government

1. People have low evaluations of the image and work of the Government. Peoplelosing trust and support in government, to a certain extent, is the mostcritical crisis this government is facing. It directly affects the success ofthe [government’s] working principles and policies. Gaining people’s trust and support for the government cannot be done simply by empty words or propagandaslogans.

2. The government is far from meeting the standard of governing and administeringthe country by law. This is the foundation of political reform and systemreform.

The crises of legitimacy of the government

3. Resolve and eliminate the accumulated problems by law and regulation. Try notto leave them to the next government. This refers to the governmentorganization being too large. All previous streamlining movements weresuperficial, such as ministries and commissions being reduced but sectors beingincreased. As of this past March, not including police and traffic police, thenumber of government clerks reached 42.3 million, and retired clerks now total11.2 million. The clerks’ salaries, pensions and benefits, etc. comprise 45 ~60% of the local governments’ annual fiscal expenses.

4. The situation of corruption and bureaucracy.  It is normal to senseresentment and anger from the people when the government organizations andleaders have bad reputations. This is also an inevitable reflection fromsociety that the government lacks an effective monitoring and supervisingsystem to deal with corruption and bureaucracy within the government. This hasalready generated a crisis of legitimacy of the government.  

The Crisis of the Financial System and Social Security

5. The situation of the "messy, confused, fake and mixed" predicament inthe financial system is critical.  It has now been estimated that thereare 6 trillion yuan (~ $700 billion) of bad loans, 1.25 trillion yuan (~ $150billion) in enterprise triangular debt, and an annual currency printinginflation of 20%. So far, there is no set of good methods to resolve theseproblems. These are potential dangers that could easily ignite a financial andeconomic crisis.
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6. The actual unemployment rate in urban areas is 12% (the official claim of theregistered unemployment rate is between 4.3% and 4.5%).  The socialsecurity system is ineffective. It is also insufficient in reducing the farmers’burden and raising farmers’ living standard.  Wen Jiabao, Song Ping, QiaoShi, Zhu Rongji, etc. all admitted at various times that a large number of bluecollar workers and farmers are still at the bottom level of the economy insociety. No matter what excuses can be found, this phenomenon is not areflection of the advantages of the socialist system.

WenJiabao said in the meeting that workers and farmers are the most reasonable andtolerant group. If the officials did not receive salaries for three months andtheir benefits were cancelled, would they not riot?

The crisis of the extreme income gap and public health care

7. The gap between the rich and the poor is extreme. Hu Jintao, Zeng Qinghong andZhu Rongji all admitted that a new capitalist class has already formed insociety. In fact, the Party and administrative leaders and their children arethe bureaucratic capitalist class and the most powerful force among thecapitalists. They control the state lifeline of the machinery of politics,economy, and military.

8.  The crises ofthe medical and education systems. The reform of the medical and educationsystems is not based on the country’s actual situation. It has gone from oneextreme to another. There are 50 million residents in urban areas who cannot goto hospitals because of financial difficulties. Five hundred million farmershave medical problems but lack medical treatment because of financialdifficulties. The nine-year free public education policy and laws havecollapsed. This has caused deep and long-lasting ramifications in society.

In order to afford school, eleven-year-old Liu Xiaohuan (above), from Anhui, has to work for a brick production facility. Carrying 16 bricks weighing approximately 40 kilograms, Liu Xiaohuan has to walk a total of 140 meters, while earning only about 3.3 fen (~ 0.4 cent).

This is just one example of the many hardships faced by the farming communities today. Stories like this are beginning to gain more attention in various political and intellectual circles. “Three farming-related issues [1] [will be] the emphasis among all the most important government work [that will be done in the next five years]”, Premier Wen Jiabao announced in his government working report. It sounds like Wen has the determination to resolve these problems, but his focus is still unclear. Just what exactly are the “three farming-related issues”?

A Survey of Chinese Farmers, a new book that vividly describes the lives of farmers today, provides answers to this most pressing question. In the book, husband-wife authors Chen Guidi and Wu Chuntao document numerous stories of farmers in rural Anhui Province suffering from poverty and injustices from abusive and supressive government officials.

At a time when people around the world were turning their eyes to the skyscrapers in the modern cities of Beijing and Shanghai, the release of the book this past Spring made quite a splash in society and shocked both the elite and public masses. The book soon claimed the best seller title after its debut with more than 100,000 copies flying off the shelves within a month in January!

Newspapers, journals and web sites were soon flooded with readers’ fervent comments.

“We have never felt such shock and pain!”

“We have been exposed to unbelievable poverty, crimes, miseries, helplessness, struggles and silence. We have never been so deeply touched and saddened.”

“As reporters, we have interviewed appealing farmers but could only give them helpless signs. Shame on us.”

The book boldly exposes the dark side of rural China which had largely been censored from media reports. The book unveils tragic stories of farmers being killed for exposing village cadres’ embezzlement, policemen beating farmers to death for protesting against heavy taxes and village cadres robbing farmers’ provisions.

In one account, a young farmer, Ding Zuoming, petitioned to audit the village account after suspecting that the village heads were embezzling the village members’ income. As a result, Ding was arrested and brutally beaten to death by local security personnel under the instruction of village leaders.
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The brief benefit the farmers experienced from the economic reform in the early 1980s when the government contracted the land to them soon gave way to heavy taxes and inflation. Over the past 20 years, although the average income of farmers may have doubled or tripled, the heavy taxes imposed on them have increased nearly ten-fold. These increases have made it very difficult for many farmers to survive. It is now even more increasingly common to see disgruntled farmers clash with tax collectors, escalating their conflicts into bloody fights. Though police may be summoned to extinguish the conflict, it’s always the farmers who must suffer the consequences—sometimes paying for it with their own lives.

Implausible as it may sound for a poor, primitive village to become modernized overnight, continual attempts to realize this goal are continuing to be made by local officials trying to impress the top leaders of the central government by showing good results from new government policies. Farmers in “Xiao Gang village” of Fengyang county enjoyed such “prosperity” for three months when in 1998, Jiang Zemin, the then president, made an inspection trip to the village. The village, which couldn’t even afford to build a two-story house, was suddenly equipped with telephone lines and bathrooms in every house. All the homes were also repainted. The confused villagers soon found though, that their sudden fortune was but an illusion after the inspection was over.

The book lucidly depicts how the economic reform in the countryside has failed. After 20 years of stagnant “experimentation”, most Chinese farmers are still living in the most primitive conditions. In a country where 80% of its population (nearly 1 billion people) are composed of farmers, this issue can no longer be ignored.

Mr. Chen told Mingpao Newspaper that a conscientious writer or reporter would have no difficulty finding enough cases to expose the miseries and poverty of Chinese farmers. All it takes is a little more courage to risk reporting the actual facts.

In order to conduct the survey and write the report, Chen and his wife had to entrust their six-month-old son to a guardian. The project took them three years, to fifty counties in Anhui Province and all the 50,000 yuan left in their personal savings to finish the survey. Despite many difficulties, they persevered. To gain input from experts, they went to Beijing, where they were treated with disdain. However, they remained unwavering in their fearless mission to report farmers’ miseries and in publicizing names of involved government officials, from central government leaders to village officials.

The book’s highly acclaimed success, however, could do nothing to spare it’s life in the public domain. Revealing the dark side of the country is usually seen as an insult to authorities. The Propaganda Department inside the Communist Party of China suddenly prohibited further talk of the book just before the commencement of a new session of the National People’s Congress last March. The media’s silence on the topic immediately followed suit. The most popular website in China, Sina.com, also withdrew the posting of the book and any webviewer’s comments. They are now facing a lawsuit of defamation by officials named in the book.
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Wen’s promise is not novel in any way. The government has long been talking about improving farmers’ standard of living and varied “attempts” to resolve their problems but to no avail. In the end, talk is just “talk.” Concerned more with public image rather than true substance and action, not one government official has truly cared enough to really resolve the problem. Banning a book that provides the most honest look at the “three farming-related issues” will only deepen the distrust of the people upon the government—a serious problem Wen and his cohorts will have to eventually face.

Reference:
[1]The three farming-related issues refer to issues of countryside, farmers and agriculture.
Levi Browde is a New York based commentator on China.

About four years ago, I often ate out with the deputy head of a state-run enterprise, who was in charge of Party affairs. There were over 1,000 staff members in his company, and among them were three Falun Gong practitioners. He was assigned to be in charge of the Falun Gong "issue" at his company and to communicate directly with the "610 Office." One of his main responsibilities was to stop the three Falun Gong practitioners from going out to appeal in public.

Should they manage to appeal somewhere in a public place, his job required him to stop them and properly "take care" of them. At the beginning, he did not take this seriously. Because he did not want to offend others, he mainly "educated them with a thorough scolding" and used his best persuasive techniques. The three Falun Gong practitioners managed to get out twice. For this, he was severely criticized and given stern warnings. At a meeting, the head of the municipal Party committee warned him that if they managed to get out one more time, even if only one of them did, he would be immediately removed from his position.

As this deputy head was still young, he did not want to hinder his career by losing face at his workplace. But how could he make sure that they would not sneak out again? He said to us, "I’ve made up my mind. I told them and my subordinates very clearly that if they get out, no matter who it was, I would nail his feet to a wooden board." This comment made my hair stand on end. I asked him, "Is this really the right way to handle it? That’s against the law." He said, "Who cares?" Because we used to be classmates, I knew him quite well. He came from a rural background and was relatively kind and honest. I went on to ask him why he would treat people this way. He said, "I don’t see any alternative. I’m forced to do it.

I was concerned that those Falun Gong practitioners would be treated unlawfully, but found it hard to openly voice my concern. So I asked him in a roundabout way, "Are you allowed to kill them?" "No! Just need to keep them from running away." Then, I asked him, "Are they afraid of death?" "They are so stubborn, they are not afraid of death," he replied. Finally, I couldn’t restrain myself, "That’s right. They’re not even afraid of death, what else are they afraid of? You know, for those who are not afraid of death, even gods or ghosts would leave them alone. Your workplace is not a political organ, so you cannot kill them. You should be careful—what if the tables are turned later on and Falun Gong becomes acceptable again in our society? I wouldn’t take any chances. If the situation changes, and you have to ‘settle accounts,’ you will be the fall guy. I don’t think it’s smart to just obey the higher authorities because you’re afraid of losing your job. Who will look out for you when things change? So, listen to me, have mercy on people when you can, and don’t make them suffer too much." He was silent for a long time after hearing what I said. I don’t know if what I said to him had any effect, but after that the Falun Gong issue was never mentioned again.

I would never have believed it possible for a person with a kind and honest nature to be compelled to use cruel torture on people who simply wanted to go out to appeal, had I not heard it with my own ears. It is because of this personal experience and because I have heard and seen so much darkness in the judicial system, that when I read the following material I could only believe it was all too true:
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“At Masanjia Labor Camp, the Falun Gong practitioners are stripped of their clothes in the winter and are then cuffed to a basketball stand. They are cuffed there until they pass out and their faces are covered with numerous frostbitten blisters. In the dark of the night, the practitioners are dragged to the restroom and brutally beaten for 12 days at a time, until the flesh on their legs swells by almost an inch and pus leaks from their wounds."

"The doctors at Xuzhou Mental Hospital forcefully tied practitioners to beds. Medical staff injected practitioners with large doses of unknown drugs. Right after the injections, they lost consciousness. When the drugs took effect, it was so painful that it felt as if their internal organs were being torn apart. After they regained consciousness, they questioned the medical staff, ‘Why did you give drugs to people who are not sick?’ The staff answered, ‘It is not up to us; people at the top instructed us to do so…’ They also said, ‘… Don’t leave the hospital on your own. If we don’t gradually reduce the dosage you will either go crazy or die. Even if you run away, people would treat you as an insane person and send you back here. The pain from the reaction of the drug is very scary and hard to imagine.’"

"The ‘610 Office,’ which specializes in persecution, has branch offices throughout the country. Its other activity is to hold countless brainwashing classes, glorified as ‘study sessions’ or ‘re-education schools.’ There, they arbitrarily abduct Falun Gong practitioners, deprive them of sleep and with threats of violence, force them to write statements guaranteeing that they will not practice Falun Gong. This kind of brainwashing, forcing people to go against their own consciences, is equivalent to robbing them of their souls. It’s even crueler than physical torture and destruction."

I believe after reading these stories, every Chinese reader has the feeling: "How inhuman! Falun Gong practitioners are our fellow countrymen; they are also citizens of the People’s Republic of China. They suffer bestial torture in their own country, and this has exceeded the boundary of conscience!"

What shames me is that this stunning and shocking persecution is taking place right in front of us! They die right in front of our eyes like Sun Zhigang [a college student who was beaten to death by police because he failed to present identification]! All of this is happening in our time! It’s happening in our country!

These innocent practitioners suffered brutality on the same scale as the Jewish people in the Nazi concentration camps, as the Chinese people who were tortured by the Japanese army during World War II, and as the people who were persecuted during the Cultural Revolution!

Did these people commit any true offense? Even if they did, should they be treated in such an inhuman way? I can say for sure that they were innocent, and they were victims of a political plot. The "610 Office" cannot escape responsibility for the fact that these people died such tragic deaths right under our noses, like Sun Zhigang did.
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People like us who are familiar with what happened during the Cultural Revolution and the inhuman treatment people experienced in the birth-control movement such as "if you see a person drinking poison to commit suicide, do not wrestle the bottle from him; if you see a person hanging himself to commit suicide, do not help untie the rope."

In the last four years, I once believed the government’s propaganda attacking Falun Gong. I took an unconcerned attitude towards the Falun Gong issue and did not pay much attention to the inhuman suffering they were experiencing. I kept silent while they were being persecuted—which meant that I indirectly chose to conspire with the autocratic regime. Today, all of a sudden, I woke up to their tragic situation. I see that an enormous evil has been released and is still expanding. I feel shocked, and my heart and conscience are filled with guilt.

I feel I must break my silence and I want to loudly appeal to the intellectual circles and people who are on the Internet:

Kind-hearted Chinese people who are still silent, wake up! While you are keeping silent, the spirit of the Nazis has returned and usurped the power of our government, killing your countrymen with the most inhuman means. It is time we take action! It is time we offer the victims our helping hands! Voice your support to those unfortunate people who have the same civil rights as us! Say "No" to that huge beast. It is high time we end this miscarriage of justice.

(This article was originally published on July 26, 2003 at http://english.epochtimes.com/)

Du Daobin was born in 1964. He is an Internet essayist living in Yingcheng city in the central province of Hubei. On June 11, he received a three-year prison sentence with four years suspended on charges of "instigating subversion."

Before his arrest, Mr. Du was an ordinary civil servant in the city’s Office for Medical Care Reform, but his name was well known in the Chinese-language cyberspace.  He began to write Internet essays in 2000 and has since authored over 388 Internet articles.  Among the popular Internet essayists in China, Du Daobin was the first to publicly criticize the "Three Represents," the first to publicly condemn the persecution of Falun Gong, and the first to successfully initiate cyberspace signature campaigns on such subjects. He is known as a prolific and influential writer.

Even though Du Daobin never held back his sharp tongue, he remained a civil servant inside the system and never advocated violence or revolution.  Many Chinese intellectuals regarded his arrest on October 28, 2003 as a chilling signal: the government would criminalize them for mere words.
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Shortly after Du Daobin’s arrest, over 2000 Chinese individuals publicly signed names in a cyberspace campaign to free him. This is again a group action in which the Chinese people and Chinese intellectuals tried to protect their own rights within the existing legal framework—a new phenomenon often referred to as the "Civil Movement to Protect People’s Rights."

In its march toward socio-economic reform, China seems to still fear one tool of a modern, open society: an independent media. Chinese media is strictly controlled and regulated by the government. International news agencies operating within China are on constant alert that their broadcast signals will be interrupted or blocked whenever something unfavorable happens to the Chinese Communist Party or whenever news occurs that the government doesn’t want the Chinese people to know about.

As global media vie for the huge Chinese market and accommodate government control, some have used the strategy of "self-censorship, self-restriction" to trade for limited access to China. According to Time Asia, Rupert Murdoch’s News Corp. has gone so far as to pay for a part-time advisor to CCTV International’s 24-hour English news channel in order to improve the image of the Mainland propaganda machine. CCTV International is just one offshoot of the massive, global Chinese Central Television operation, which manages 12 different channels.

China’s chokehold on the media has earned it dubious recognition as one of the 10 worst places in the world to be a journalist. In bestowing the "honor," the Committee to Protect Journalists (CPJ) noted that in 2003, President Hu Jintao’s government "arrested high-profile editors, closed publications, and imposed news blackouts on politically sensitive events." Among the high profile arrests were three editors from Southern Metropolis News who were arrested earlier this year, soon after the paper published news of the reappearance of SARS in Guangdong province. As of May 3, World Press Freedom Day, China had 41 journalists imprisoned, "making it the world’s leading jailer of journalists for the fifth year in a row," according to the CPJ.

China’s intimidation of journalists is not limited to the mainland. Four of Hong Kong’s most popular talk show hosts recently resigned due to concerns over individual and family safety. Some cited death threats. The first was Albert Cheng, host of "Teacup in a Storm." He spoke about death threats and abruptly left Hong Kong for Europe on May 2. Then, Raymond Wong, who received a message warning him of "extermination by patriotic forces," and Allen Lee, Cheng’s replacement on the program, both resigned.

Independent media organizations do not fare well either in China, witness the experience of the New York-based New Tang Dynasty Television, or NTDTV. Founded by Chinese Americans, NTDTV is the first independent, non-profit Chinese-language television station. NTDTV has blazed a new, though arduous, path to China by beaming its programming directly to Chinese households via satellite. The difficulty it has experienced provides a case study worth watching.

Challenges to the New Launch

Since May 1 of this year, NTDTV has been accessible to satellite dish owners in China and other Asian areas through transmission on the W-5 satellite by the Paris-based Eutelsat. China’s control of satellite signal access is tighter than its control of individual dish ownership. NTDTV viewers can pick up reliable, good-quality signals with 60-90 cm satellite dishes in the southern part of Liaoning Province and the heavily populated eastern region of Gansu Province.
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On June 9, Agence France Presse (AFP) reported that the Foreign Ministry of France had confirmed that China had contacted it about NTDTV. China claimed that France’s Supreme Audiovisual Council (CSA) should deal with the issue independently. The CSA, which issued a broadcast license to NTDTV on March 30th of this year, told AFP that it had not been contacted by the French Foreign Ministry about the station.

NTDTV spokeswoman Carrie Hung thinks this is a test case for freedom of expression in China. "We know that the Chinese ambassador and diplomats have been meeting with the French government and with our commercial partner Eutelsat," she said. "We’re concerned that the broadcast will be cut off due to Beijing’s pressure."

According to Reporters Without Borders, the Netherlands-based satellite operator New Skies Satellites (NSS) had begun broadcasting NTDTV on an open signal to Asia on July 1, 2003. But just three days after the start of the broadcasts, under Beijing’s threat of financial retaliation, NSS encrypted the signal, thus preventing Chinese satellite dish owners from seeing the channel. NSS’ contract with NTDTV was terminated on May 1, 2004, after prolonged financial and political pressure from Beijing.

Similarly, at the start of 2004, Philippines satellite operator Mabuhay cancelled plans to transmit a special Chinese New Year broadcast after threats from the Chinese ambassador in Manila.

Tighter Control

About 40-to-60 million households in China have limited access to satellite broadcasts from abroad but the Chinese Department of Television and Broadcasting limits foreign satellite broadcasts to the Pearl River Delta, foreign residence complexes, and some hotels for foreigners.

When it came to license renewals for foreign broadcasters this year, the Department of Television and Broadcasting revised its rules to make foreign TV stations assume all responsibility and bear any losses in case of conflicts with Chinese media control policy. The clause is so vague that many media organizations have delayed renewing out of confusion and fear of unlimited responsibility and revenue loss from commercials if their broadcasts were cut.

Beijing’s Anxiety

According to NTDTV, its Chinese-language programs reach about 200 million viewers around the world. They say they dare to report the truth about China, including what Beijing tries by all means to cover up. NTDTV was the first Chinese-language media to report about SARS. While viewers of CCTV who believed its falsified reports were later shocked by the facts when they went to China, viewers of NTDTV had learned the truth about the epidemic. NTDTV also reports about the persecution of labor union organizers, religious groups, Falun Gong practitioners, and pro-democracy advocates.
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Ironically, the free flow of information could benefit China’s reform and opening up process in the long run. Independent satellite broadcasts into China can help broaden people’s outlook, provide accurate economic and political information, and promote universal values for Chinese people, especially those in business and government, who may make a positive contribution to China’s plans and policies.

Terrence Chen, MBA, is a Washington DC based analyst who closely follows issues regarding the media in China.

Many scholars have noticed the current overheating of China’s economy, and a fiery debate is ongoing among the people who claim to be "China savvy" about the manner in which the high-flying economy will come back to earth: a soft-landing, a hard-landing, or even a crash landing? Mr. Wen Jiabao, China’s Premier, seems to be the person sitting in the cockpit of that proverbial Chinese airplane struggling to be grounded without too much impact. On April 28, 2004, Mr. Wen told Reuters that the country would take "very forceful action to cool its red-hot economy, since inflationary pressure was building due to a surge in money supply, credit and fixed investment." Whether Mr. Wen really meant business when he said that-and more importantly, if he did, whether he will ever have any chance to see his words translated into reality remains to be seen.

Overheated Chinese Economy

The National Development and Reform Commission released China’s total investment in the year 2003 as 1.6 trillion yuan (~$200 billion). This was about the same as the total investment of 2000, 2001 and 2002 added together. If you need a reference point to have any idea about the magnitude of those investments and the rate of their increase: China’s GDP of 2003 was only 1.16 trillion yuan (~$140 billion, according to official numbers released by the National Bureau of Statistics of China). As it turns out, those numbers are only a small part of the sizzling economy; when you go behind them, some more disturbing patterns emerge, indicating the breakneck boom is as much about the dollars spent on wasteful show-piece projects as about China’s sclerotic system.

After Hu Jintao became China’s President, most seats in the Politburo were still occupied by protégés of former President Jiang Zemin. What is more, Jiang had already placed many of his close allies into different key positions in the government in advance of that transition personally ordained by Deng Xiaoping. However, the two factions, of Hu-Wen and Jiang respectively, differ in their philosophies about economic growth—such as the priorities and strategies—and their interests vary too. In Jiang’s plans, Shanghai and the neighboring Jiangsu Province would have the priority, while Hu has picked the rust belt of Northeastern China (also known as Manchuria) as the new economic focus. But their similarities are just as evident: Both factions have aggressively resorted to exorbitant but doomed loans from state-owned banks to finance and sustain the boom. As a result, what we saw was a top-down chain reaction, as unbridled investments at the national-level bred provincial-level investments, which in turn trickled down to the city-level and the township-level.

The central government has made a practice of not releasing the number of investment projects. Some might guess that the government probably doesn’t track it to start with, given the insurmountable task of doing that. According to related administrative rules, projects under 500 million yuan (~$63 million) do not need to have mandates from the provincial level government. For example, the city of Changzhou, a medium-size boomtown on the Yangtze River can proceed with any projects of choice under 500 million yuan (~ $63 million). By the same reckoning, Nanjing, the capital city of Jiangsu Province with a population ten times larger, should be given the discretion to go ahead with any projects under $630 million; and Shanghai, one of the four directly governed cities in China, can freely work on any projects under $6,300 million. It is easy to see that China’s directly governed cities, its 27 provincial-level cities, its over 200 regional-level cities, its 400 town-level cities, and its over 2,000 town-level executive units have joined forces to form a vast pool of "sovereign" investments that are unknown to the mandarins at the central government.
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Some China experts have estimated that China’s inflation is well within manageable areas as long as its currency in circulation is kept under 1,200 billion yuan (~$145 billion). Since the fourth quarter of 2003, China has experienced three waves of price surges, and the total amount of currency in circulation once peaked at around 6,000 billion (~ $727 billion). A quick, backward calculation would tell us how much those "sovereign" investments could be, for they are supposed to fill in the gap between those two divergent numbers—a hole of several trillion yuan.

Problem Solved?

It is no secret that both Hu and Wen are well aware of the complexity and the seriousness of an overheated economy. The conundrum facing the new leadership, however, is not the symptoms—and problems—of the economic fever but any prescription drug to cure it. A larger, Catch-22 question is: if there is such a drug, one that not only relieves the pain but kills the old patient to create a new, more robust one, are Hu and Wen ready to swallow it? And if they do, will Jiang and his Shanghai faction be willing to go along with it? Right now, the chest-thumping and empty rhetoric from above to cool down the economy is nothing but background noise to the special projects championed by the Shanghai (Jiang) faction. In reality, those projects are still going forward full blast, just as those special projects in Manchuria, darlings of Hu and Wen and their much-hyped New Deal, cannot be recalled or cancelled, either. As such, a question with Chinese characteristics would naturally come to mind: is this discussion about "economic landing" a healthy debate about economics, or another thinly-disguised game for power?

For all the talk, and uncertainties, about deflating any bubbles in the Chinese economy, one thing is certain, that is, it will be those millions of middle—and small—size private enterprises that bear the brunt of the sacrifice required by the "cool-down" measures fervently pitched by the Chinese leadership. Without any political clout, these private enterprises are at the bottom of the pecking order, and subject to unconditional "closure, suspension, or merger" as long as they need support from state banks. In contrast, those enormous special projects in Shanghai and Manchuria will continue to hurtle forward defiantly, although the consensus has it that China’s hope lies in its fast-growing private sector. Apparently, this paradox is not so much about Chinese economics as about the country’s engrained political culture.

Another likely, and ironic, victim of the policies to douse the heat in the economy will be Taiwanese business people throwing big money into all kinds of projects in China. During most parts of the 1990s, Beijing bent itself backward to jump-start its stalling reform program in the wake of the Tiananmen Massacre, when most western investors, still hounded by gory pictures on the TV, balked at doing business there. As it turned out, those Taiwan businessmen filled the void and received a lot of benefits, including preferential treatment in taxes. Now there are over 300,000 Taiwanese-funded enterprises in China. However, all indications suggest that Beijing no longer needs to be so sweet to Taiwan businessmen. The main reasons are as follows:
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• Most Taiwan businessmen do not have very strong political allies in China. Those who are in favor of the popular President Chen Shuibian are more vulnerable to economic penalties due to their political orientation.
• For cultural and other reasons, much of the Taiwanese merchandise produced on the Mainland competes with similar Chinese products.
• China is vigilant about its reliance on money pumping across the Taiwan Strait, as it could erode its firm stance against Taiwanese independence—right now a bargaining chip with the U.S.

Some shrewd businessmen from Taiwan have realized this, and have started to leave the Mainland. For the majority still refusing to come to terms with the reality, and to fold their business in China, it is only a matter of time before a trickle becomes a torrent that becomes a tidal wave, rolling for withdrawals from the Mainland. If they wait for too long—until next year or even later—they may not be able to recover the losses due to a hostile investment environment.

Why So Much Spending?

i. Waste

In China, because of poor management, most projects cost more than can be justified. Consequently, Return on Investment (ROI) of many special projects was zero or even negative. This problem was compounded by blind passions and thus poorly planned actions of many Communist functionaries aggressively promoting economic development as a way to promote their own political careers. They do not respect economic laws governing the market; all they want is statistics that give them the bragging right and the stepping stone for ascendance in the regime.

When former Party leader Zhao Ziyang resigned following the Tiananmen Massacre and Jiang Zemin took over, the reserves in the four major state-owned banks were over 1,300 billion (~$157 billion). After 15 years of breakneck development, or low-efficiency exploitation of resources reminiscent of the famed Schumpeterian growth theory, Chinese banks are now full of non-performing loans. In November 2001, the former chief of the People’s Bank of China (China’s central bank) Dai Xianglong openly admitted to the public that total loans of the four major banks were 680 billion (~$82 billion), among which non-performing loans accounted for about 20% and losses about 7%. This has resulted in none of the four largest state-owned commercial banks reaching the 8% Capital Adequacy Ratio stipulated by the Barsel Accord. On May 8, 2002, former Premier Zhu Rongji said at the National Financial Leadership Caucus, an internal meeting, that national loan losses were as much as 680 billion (~$82 billion). Since he didn’t have to lie at a meeting closed to the outside, this means the entire savings of Chinese citizens had been almost all gone by then.
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At the beginning of the 1990s, there were about 110,000 state-owned enterprises (SOEs). In 1999, only 1,000 of them survived after being repeatedly resuscitated by state-owned banks. These survivors, mostly national champions carefully cultivated by the central government over the years, all weathered the storm that swept across the country between 1995 and 2001, when most SOEs, and the central government, finally accepted their fate to go bust. In fact, the losses of 680 billion yuan (~$82 billion) only refer to those stemming from bank loans; there are many other types of losses associated with those tens of thousands of failed SOEs that will never be known.

In addition to deficits of the four major banks, there are different types of debts of the government, for example:

4,000 billion yuan (~$500 billion) foreign debt;
6,000 billion yuan (~$727 billion) treasury bonds;
8,000 billion yuan (~$969 billion), deferred salaries of state-owned enterprises and social securities;
6,000 billion yuan (~$727 billion) local government debts.

Debts of the government are at least 24 trillion yuan (~$2.9 trillion). The total internal and external debts of the Chinese government are over 50 trillion yuan (~ $6 trillion). If the 1.3 billion of Chinese population have to share this debt now, each person needs to be responsible for 38,461 yuan, equivalent to $4,668. In comparison, China’s GDP in 2003 was 1.16 trillion yuan (~$140 billion).

ii. Corruption

A primary reason for overheated investment in China is rampant corruption. For a government official in charge of investments, an additional project means an additional source of kickbacks and extra power. There are about 60 million Communist Party members in China. Among them, about 6 million are cadres, or the functionaries supervising the rank-and-file members. The Stalinist system that was kept intact during the economic boom has enabled these cadres to be at the forefront in the drive to "get rich hilariously," as exhorted by Deng Xiaoping. Since it is always hard to draw a line between political and economic matters in China, these cadres, no longer called "party secretaries" but perhaps known as "CEOs" or "the Chairman of the board" to outsiders, take on all the trappings of a capitalist but still retain the unquestioned power accorded to them by the Party over every matter within their jurisdiction, whether it be a county or the whole country. Chinese law dictates that any officials who have more than 10,000 yuan (~$1,212) in inappropriate income are to be brought to trial. In the eyes of the masses, those officials with petty violations are only "small greed’s." There are millions of "big greed’s" that take bribes in millions of yuan. According to the Financial Times and other credible sources, in the past five years, over 10,000 corrupted officials in China took $450 billion out of the country, earning China the dubious distinction of number four (after Venezuela, Mexico, and Argentina) in capital loss from large numbers of high-ranking officials and their families fleeing with the country’s financial resources.
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Conclusion

While it is common knowledge that the overheated Chinese economy is caused by excessive investments, the root cause for the country’s economic fever is systemic and intrinsic to its basic infrastructure. Before any substantial changes take place in China that allow it to take real “medicine”, such talks of a soft versus hard landing might be misleading. Remember, the Chinese economy is not yet a free-flying airplane seeking a better landing spot, but only a blip on the screen of a kid’s game machine that is monitored and completely controlled by much older tacticians whose motive and belief are at odds with each other and different from outside analysts. For them, effecting a soft-landing is as easy as producing a consistent 8% GDP growth rate as prescribed in the country’s five-year plan. So, when the Chinese economy finally achieves a landing, the real question is not whether it is "soft" or "hard," but whether it is real.

Li Ding is a Washington DC based economist.

Texts of From the Editor 200410