The State Council held its executive meeting, originally scheduled for July 5, on July 12, to discuss and review the economic development and achievements of macroeconomic control efforts, and to plan the government’s economic tasks for the second half of this year. Due to conflicting opinions on certain issues, the meeting lasted one day longer than the arranged one and a half days. The standing committee members of the Political Bureau, including Zeng Qinghong, Wu Guanzeng and Luo Gan, were in attendance on the last day of the meeting. All the ministers of related ministries attended the meeting, hoping to reach agreements, balance different opinions and shelve discrepancies.

Conflicts between the “pragmatic group” and the “expeditious group”

Ever since the 1990s, there have been internal arguments and differing opinions, both within the Political Bureau and the State Council, on the direction of economic development and the implementation of macro-control measures. Consequently, the so-called “legal scientific group” and “political indicator’s group” gradually evolved. The communities of political and economic analysts refer to them as “the pragmatic group” and “the expeditious group,” the former being led by Wen Jiabao and Wu Yi, with the latter being led by Huang Ju and Zeng Peiyan.

Wen Jiabao firmly maintains that macroeconomic control measures are necessary

Using a series of statistical illustrations, Wen Jiabao firmly concluded during the State Council meeting that macro-control is desperately needed, in spite of its late adoption. Macroeconomic control has seen its initial positive effect, but it is still not fully implemented. It faces some obstacles from the individual wills of senior officials in the Communist Party and government, mainly related to egoism and regionalism. If we do not directly face and overcome these hindrances, the overheated and uncontrolled economy will resurface. During establishment and development of the economy, those obstacles that defy scientific and pragmatic principles would cause serious damage and consequences, said Wen.

Three fatal problems

According to a report released in mid-June by a research department within the State Council, there are three critical problems in the national economy: the over-investment in fixed assets, the overly-rapid growth of production, and the nearly uncontrolled increase of money supply and growth of bank loans. Since 1999, the economic policy has been overemphasizing the index of the Gross National Product (GNP) and its growth rate, so that the national economy has developed abnormally, and is now on the brink of being off track. These three problems have disturbed and hindered the national economy’s development toward a steady, rapid, healthy and effective path. The direct, indirect and cumulative losses have reached 800 billion to 1.2 trillion yuan, which is equal to 6-9% of GNP, the report states.
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The regional economy remains overheated nationwide

According to a survey report of the State Council, since the fourth quarter of 2002, the economic development in 28 provinces, autonomous regions, and municipalities have overheated. By the end of June 2004, 21 of them remained overheated because their fixed assets investment is still growing too fast. Compared to the same period in 2003. investment in the fixed assets was 82% higher in Jianshu Province, 77% higher in Shandong, 75% higher in Shanghai, 72% higher in Guangdong, 70% higher in Hunan, 70% higher in Liaoning, 60% higher in Henan, and 65% higher in Zhejiang.

At present, the shortage of electricity supply has reached 27%. The railway freight is running at 44% over its capability. 22% of the oil supply relies on imports, and increases 12-15% per year. There is a shortage of 20 categories of raw materials, which must be imported.

Wen Jiabao raising prominent problems to be solved

Wen Jiabao stated at the executive meeting of the State Council that the cabinet should not, at any circumstance, attribute the problems to the previous administration. The current cabinet should take the responsibility to deal with and resolve the conflicts and problems in a scientific, truthful, and pragmatic manner.

While summarizing for the work of economic development in the first half of the year, Wen Jiabao raised the following issues:

1. Many leaders in some areas or government agencies are out of mind. They use every excuse to make the economic development as rapid, diverse, and as large-scale as possible.

2. The scale of investment in fixed assets is excessively large. Structure of the investments overlaps.

3. The tension between supply and demand for coal, electricity, oil and transportation is difficult to resolve in a short-term, or even a longer period of time.

4. Overall economic achievements are weak. The expansion of internal needs is relatively narrow.

5. Unemployment rate is so high that it seriously affects and jeopardizes social stability.

6. The “three farming-related problems” are still very pronounced, although some progress has been made. Policy implementation remains poor.

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The conflicts on the macro-control/overheated economy issue

The conflicts on the issue of macroeconomic control/ overheated economy within the State Council and local governments are as follows:

1. Was it necessary and effective to take macroeconomic control measures during the previous stage?

2. Whether the policy of macro-control and the soft landing of the economy should be continued?

3. Whether the growth rate of national economic development should be controlled below 9% or go above 10%?

4. Shall the economic and financial independence of local governments be regulated or deregulated?

5. How will the central government deal with conflicts and contradiction on policies and measures, between the central government and local governments?

Source: August, 2004 issue of Qianshao Magazine

[Editor’s note: This is an article translated from Boxun (http://www.peacehall.com/news/gb/china/2004/07/200407211511.shtml.) Analysis of the aggregate supply and aggregate demand with the statistical data from China’s offical publication indicated a potential imbalance within the economic system. The original article was written in 2002. In order to reflect the current changes, the editor has updated the article with most recent data available, while keeping original analysis intact.]

The mainstream economists and the press have left the public the following impression about China’s economy: the speed of economic development is extremely fast, once termed "taking flight" and now using the buzzword "8%"; the Chinese people live a relatively comfortable life; and China’s GDP and its foreign trade have resulted in record numbers. Some media claimed that the achievements we have made in our national economy in the past thirteen years have not happened in two hundred years. It sounds like some miracles have been performed in China. While many economies in the world are decelerating and some even in recession, it sounds like only China’s economy is an exception, and it is growing rapidly in a "healthy, stable and continuous" manner—it can sustain this growth until the middle of the century until it exceeds that of the United States, presently the largest and the premier economy in the world.

Looking back at China’s history, when its economy was truly in good shape, such as the economic adjustment period between 1963 and 1965, the press usually did not hype the success. On the other hand, when the national economy was in dire straits in 1960, major media reported on a daily basis that "the situation is great", "the situation is extremely good", or "the situation is excellent across the board." Between July and September of 1967, when the whole country was in chaos and embroiled in violent riots, the media stated unanimously, "The situation is not simply good, but is great, and in fact, it has never been better!" It is apparent that one cannot judge the situation of the national economy merely by reading what the state media say.

Furthermore, many aspects of the macroeconomic data about the Chinese economy are hardly convincing.

For instance, while China’s economy is said to be developing at a healthy pace, how can one determine if a national economy is truly healthy? In my opinion, the first criterion should not be the speed of development, but whether the aggregate supply and aggregate demand is in balance. This is analogous to the growth of a child. When the child grows too fast, he gets taller, becomes very skinny, and his body loses the balance and thus may not necessarily be healthy. In comparison, let us look at the supply and demand on the development path.
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Aggregate supply

Many renowned economists have addressed in the TV programs that China has two treasures-investment growth and foreign trade. "With these two treasures, China’s economic growth is balanced and the supply and demand are balanced," they claim. However, such reasoning is not logical. With the growth of investments and foreign trade, there is no guarantee that the economy is balanced in terms of overall supply and demand. As the data shows, the overall supply in China far exceeds the overall demand, and it results in a tremendous imbalance. This year, there is no supply shortage in any single merchandise, and the supply of 86% of Chinese products exceeds the demand, with the total value of the overstocked inventory reaching as high as 4 trillion yuan (~$482 billion). This number was 1.33 trillion yuan (~$160 billion) back in 1996 and 3 trillion yuan (~$361 billion) in year 2001. Within one year, it exploded to 4 trillion yuan (~$482 billion), which is equivalent to 41% of the GDP. This is a terrifying ratio, yet in China, nobody seems to be worried. On the contrary, everybody seems to be exuberant in celebrating the success. To put this in perspective, this ratio generally does not exceed 1% in Western countries.

Let’s look at this from another angle and examine new residential home sales. According to statistical figures, in the first five months of 1999, both real estate investment and the total square footage of newly constructed homes are 30% higher than those for the same period of the prior year. However, the square footage sold increased only by 13.65%. In other words, the non-occupancy rate is very high. The real estate supply in the three years between 1995 and 1997 was 440 million square meters, with non-occupancy rate of 16%, a "dangerous rate" called by experts. However, this was ignored. As predicted, the non-occupied areas of the newly constructed homes reached as high as 120 million square meters at the end of July 2002. This is 30 million square meters more than three years ago. The non-occupancy rate reached 26% – 4 times as high as that of the U.S., 8 times that of Hong Kong, and 2.5 times the internationally recognized alert level. Nevertheless, even today, new structures are being built across the country. Every construction firm is racing to build luxurious skyscrapers, and new home sale prices refuse to decline in spite of the high non-occupancy rate. From January to July of 2004, the total square footage of newly constructed homes is 118 million square meters, a 12.9% jump over the same period last year. The square footage of unoccupied commodity housing amounted to 96.8 million square meters at the end of July 20041.

As good indicators of aggregate supply, the domestic inventory rate and non-occupancy rate of commodity housing only show the supply is far beyond the demand. With the ongoing construction of "basic infrastructure" and enormous investment in power plants, gas pipelines, large ethylene projects, or manufacturing industries, the already great aggregate supply will surely become even greater as compared to the demand.
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So as investments and production increase, the overall supply builds up. With less overall demand, merchandise is harder to sell, the businesses environment becomes even more challenging, and so on. The end result is the proverbial vicious cycle.

The obvious solution to the problem is to expand the overall demand, to provide an outlet for the overall supply and circulate the corporate capital. This way, businesses will be able to continue to produce and make profits to avoid bad loans, which in turn will improve the capital and labor market. To expand the overall demand, economists have been appealing for "expanding the domestic demand". This is certainly the right idea, because China’s exports account for only 20% of its GDP. While this is much greater than United States’ 7%, it is not much better than that of the European nations. In spite of the global economic depression, the total amount exported has grown significantly. Ultimately, 80% of the GDP must still come from domestic demand.

So how is China’s domestic demand?

Aggregate demand

Let us first look at the Chinese people’s purchasing power. As a starting point, let us take a look at the total amount of wages paid, which is presumably the majority of the legal income in the country. This number in 1999 was 987.545 billion yuan (~$119 billion) and reached 1.066 trillion yuan (~$128 billion) in 2000. I was unable to locate the 2001 figure. My estimate is that it was about 1.2 trillion yuan (~$144.58 billion) in 2002 and should not be much higher than that, as no major raises were executed nationally. The nationwide pay raise in 2001 cost the government 70 billion yuan (~$8.43 billion) for the 45 million workers. Even if all of the 70 billion yuan went back to the consumer markets, it is still a trivial amount compared to the 3 to 4 trillion yuan worth of overstocked merchandise.

The table in the previous page contains the calculation for the wage ratio leading up to the year 2003 based on the data from China’s Statistical Yearbook and State Statistic Bureau.

The above figures are all based on the prices for that year, and they do not include the inflationary adjustment. Therefore they are not "comparable prices" and cannot be used to represent an indicator for increment or decrement. Note that total wage figure includes the sum of all workers’ wages from state-owned, collectively owned enterprises and other economic entities. The wages include: 1) Hourly wages; 2) Base wages; 3) Position wages; 4) Piece rate wages and additional piece rate wages; 5) Yields; 6) Various subsidies; 7) Overtime wages; 8) Other wages. In the China’s Statistical Yearbook, in addition to various economic entities, state-owned economic entities also include: 1) Government organizations, Organizations of various political parties and social organizations; 2) Organizations for scientific research and technological services; 3) Organizations for education, entertainment, arts, various broadcasting, film, and TV industries; 4) Healthcare and sports industries and social benefits; 5) Other services.
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The above figure clearly shows that the total wages account for only a small portion of the GDP. In addition, its ratio relative to the GDP has decreased in most of the years since the economic reform.

The national average monthly wage for salaried employees was short of 460 yuan (~$55.4) in 1995. Even in 2001, that number was around 780 yuan (~$94.0). In Beijing, where the cost of living is fairly high, the average monthly wage was around 1000 yuan (~$120.5). Note that these numbers do not take into account inflationary factors, but raw numbers for those years.

In 2004, the average monthly wage is about 1,183 yuan (~$142.5), but still low compared with wages in other countries. In 2003, the United States’ average monthly wage was 45.8 times, Japan’s was 28.2 times and Korea’s 13.7 times that of China’s3. Korea’s average GDP growth rate in the twenty years of "miraculous" economic development between 1962 and 1982 was merely 8.3%, compared with the China’s average growth rate of 9.6%, as calculated based on GDP figures from 1978 to 1999. In the early 1960s, Korea’s per capita national income was around $90, with a lower average growth rate for 20 years, how come its average monthly wage is more than 10 times higher than China? Where did the rest of our money go, given that our wages make up such a small portion of the GDP?

Outside of salaried employees, most urban residents do not have high incomes. According to public records, 2001 was considered a year where urban families had significant improvements in their income. The average annual disposable income of urban families totaled 6,860 yuan (~$826.5) in 2001, which was 8.5% higher than that of 2000 after inflation was factored in. Assuming the average head count in a family to be 3.58, the average monthly disposable income per capita was a miserable 159.68 yuan (~$19.2).

Disposable income is defined as "the actual remaining income of the surveyed urban families after income tax, property taxes and other routine repeated payments are subtracted." However, the disposable income number is often inconsistent with the national total wage, even though both numbers were officially published by the central government.

As reported on the Internet, a spokesman from the State Statistical Bureau claimed that the average per capita disposable income of urban residents in the first quarter of 2002 was 1,752 yuan (~$211.08), a 7.5% increase on an annual basis. It was a 6.9% increase after inflation was factored in. This really puzzled me, because the annual average per capita income should have been 7,008 yuan (~$844.34), so that the total disposable income of the 360 million to 380 million urban residents would have totaled 2.5 to 2.7 trillion yuan (~$301.1 to 325.3 billion). In reality, the total national wage amount was only 1.1 to 1.2 trillion yuan (~$132.5 to 144.6 billion). I once suspected that the spokesman had mistaken per family with per capita, but such an assumption still does not make sense, because the total disposable income based on "per family" would end up at 0.69 to 0.75 trillion yuan (~$8.31 to 9.04 billion), which would be too low. By and large, the numbers are inconsistent. If the number came from a random sampling, then the per capita disposable income of 7,000 yuan (~$843.37) would result in a total urban income that was 1.5 times higher than the national total wage. Could it be that the urban residents’ "extra income" would total 1.5 trillion yuan (~$180.7 billion)?
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Now let us look at what makes up the income of farmers—the core of the Chinese labor force.

The State Statistical Bureau also claimed that in the first quarter of 2004,the per capita income of Chinese farmers was 834.3 yuan (~$100.5), a year-over-year growth of 13% in current price. This number, I believe, was a bit exaggerated. If the number were true, the annual per capita cash income of the farmers would be 3,337.2 yuan (~$402.1). With a rural population of about 1 billion, the total income of all the rural residents would wind up at 3.3 trillion yuan (~$401.2 billion) – a quarter of the GDP. Is this possible4?

Even according to the State Statistical Bureau, the per capita income of farmers was only one third of that of urban residents. Since 1990, the farmers’ saving ratio has been consistently declining—at a rate of 5% decline every five years. In 1999, only 23.7% of their income was saved. Therefore, the total savings of China’s farmers totaled 1.4 trillion yuan (~$169 billion) in 1999, or 1,400 yuan (~$169) per capita. The State Statistical Bureau and the Central Bank have not published the increase of rural savings in recent years. The farmers are very unlikely to have spent 3.3 trillion yuan (~$401.2 billion) in a year. As a result, the total purchasing power of the farmers is probably slightly less than that of the urban residents.

We now turn to the situation of the Chinese people’s savings from a macroeconomic perspective.

From the beginning of the economic reform till 1999, with the exception of 1995, the incremental savings rate has never exceeded the total wage. However, the incremental savings were still incredibly high. It was almost equivalent to 80% to 90% of the total wage. In 1995, the year-over-year incremental resident savings unbelievably surpassed the total wage of that year, 4.4 billion yuan (~$530 million) higher than the total wage of that year.

As I learned that resident savings set a new record of 8 trillion yuan (~$964 billion) at the end of May 2002, and the fixed term savings ratio increased from 26.3% in late 2001 to 56.1% in May 2002, I realized that these facts strongly signaled that corruption was rapidly spreading across the country. In the three quarters from September 2001 to May 2002, the resident savings in China increased by one trillion yuan—from 7 trillion to 8 trillion! This is equivalent to 1.25 trillion yuan (~$151 billion) on a yearly basis. As we discussed above, the total wage of the country was only 0.98 trillion yuan (~$118 billion) in 1999, 1.06 trillion yuan (~$128 billion) in 2000. What is clear is that the increased savings will far exceed the total amount of wages. The savings exceeded the total wage by only 4.4 billion yuan (~$530 million) back in 1999. In 2002, it was at least 100 billion yuan (~$12.05 billion) more.

In January 2003, the residential saving reached 9.1 trillion yuan (~$1.1 trillion). One year later, in January 2004, the number jumped to 10.9 trillion yuan (~$1.3 trillion). The 1.8 trillion yuan (~$220 billion) increase in saving again exceeded the 1.16 trillion yuan (~$140 billion) of total wages in 20035. It is apparent that unknown sources of funds are pouring into the savings of ordinary residents. Given the widespread reports of corruption, it is apparently accelerating even more rapidly.
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The degree that the wealthiest Chinese are corrupt was especially alarming in 2002. Two issues are particularly clear:

1) Wages are how laborers survive from day to day. It cannot all flow into residential savings. According to inflated calculations by modern economists, even assuming that the percentage for food expenditure according to Engel’s Curve has reached 50% and China has made great achievements, China’s salaried residents must use at least 500 billion yuan (~$60.24 billion) for food, and farmers’ food costs amount to a big number. Among the urban population of 360 million, each person will spend on average 109 to 115 yuan for food each month. In addition, one person will spend an average of 120 yuan on clothing, transportation, education, medical expenses, and housing. These routine expenses will almost use up the total wage, not counting illegitimate sources of income.

How much can an ordinary urban resident save each year? How much can an ordinary farmer save each year? In my estimate, if the annual growth of the total long-term savings from all of our residents can reach 200 billion yuan (~$24.1 billion), it would be a reasonable number, accounting for one tenth of the total wage. In contrast, the actual net increase of the savings on a year over year basis reaches 1.45 trillion yuan (~$174.7 billion), which is 14 to 15 times higher than expected. This means that more than 90% of the newly saved money in banks, especially the fixed-term savings, does not come from salary.

2) Given that the newly added resident savings do not come from normal wages, where do the 1.3 trillion yuan a year of additional savings come from? The only likely answer is corruption.

China’s official data of economic statistics is probably not the most reliable source for conducting serious studies on the country’s economic issues. However, those figures from the published statistics did show us some alarming potential problems in the economy. The results from the analysis clearly indicate that the growth of China’s economy is far from a balanced one. Adding to the problem is the rampant corruption. We don’t know how much of the excessive aggregate supply is absorbed by corruption. Even if large portion of it are absorbed, the economy is still away from a stable and healthy track.

Footnotes:
1. Data updated by the editor.
2. Table updated by the editor, the chart created with the data in the table.
3. The calculation updated with 2003 data by the editor.
4. 2004 data is provided by the editor.
5. Recent years’ data added by the editor.

Li Zhining is a scholar from Institute of Economic Research, Chinese Academy of Social Sciences
Source: http://www.peacehall.com/news/gb/china/2004/07/200407211511.shtml

Since taking office more than one year ago, China’s Hu Jintao, drawing from his own faction, has actively assigned leadership roles to top positions in various provinces, cities, and autonomous regions. Sixteen people from Hu’s clan received general secretary or governorship positions in provinces throughout China. In addition, more than 30 cadres (all are former staff of the CCP’s Youth League) have been appointed Deputy Minister, an important provincial position. Among the former Youth League alumni is a 46-year-old “iron woman,” Shen Yueyue. She is Deputy Minister of the Department of Organization of the Communist Party’s Central Committee. She oversees all central and provincial departments, providing the final word in overall personnel decisions.

The following is a list of those promoted by Hu after the CCP’s 16th Congress:

Li Keqiang—Secretary of the CCP Committee of Hunan province, formerly the First Youth League Secretary

Ji Yunshi—Governor of Hebei province, formerly Secretary of the Youth League Committee in Jiangsu province

Li Yuanchao—Secretary of the CCP Committee of Jiangsu province, formerly the Secretary of the Central Youth League

Li Chengyu—Governor of Hunan province, formerly Secretary of the Youth League Committee of Ningxia province

Huang Huahua—Governor of Guangdong province, formerly Secretary of the Youth League Committee of Guangdong province

Qian Yunlu—Secretary of Guizhou province, formerly Secretary of the Youth League Committee of Hubei province

Yang Chuantang—Deputy Governor of Qinghai province, formerly Secretary of the Youth League Committee of Shandong province

Wang Lequan—Secretary of Xinjiang Autonomous Region, formerly Vice Secretary of the Youth League Committee of Shandong province

Song Fude—Secretary of Fujian province, formerly Secretary of the Youth League Central Committee
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Ma Qizhi—President of Ningxia Autonomous Region, formerly Secretary of the Youth League Committee of Ningxia Autonomous Region

Yang Jin—Deputy President of Inner Mongolia Autonomous Region, formerly Secretary of the Youth League of Inner Mangolia.

Zhang Baoshun—Governor of Shanxi province, formerly Secretary of the Youth League Central Committee.

In addition, Hu Jintao’s Central Youth League colleagues-former Secretaries and Standing Committee members-have also received appointments to important positions in provincial and ministerial departments. These include:

Li Zhanshu—Deputy Secretary of the CCP Committee of Heilongjiang province (next in line as Governor of Heilongjiang province); formerly Secretary of the Youth League of Hebei province;

Wu Aiying—Deputy Minister of the Standing Committee of the Department of Justice (and ready to take office as Minister of Department of Justice); formerly Vice Secretary of the Youth League Committee of Shandong province;

Huang Xiaojin—Deputy Secretary of the CCP Committee of Fujian province, and Standing Deputy Provincial Governor of Fujian; formerly Secretary of the Youth League Committee of Fuzhou City, Fujian province.

Since last year, seven regional leaders in deputy provincial positions were promoted to provincial positions. Four of them are former Youth League staff.

The majority of these “Youth League” cadres were nominated and cleared by Shen Yueyue. Moreover, after the CCP Central Committee approved their appointment, the majority of these officials were announced and sent to office by Shen Yueyue. In the Central Department of Organization, Shen Yueyue is responsible for the examination and background check of all candidates. She has considerable power and control of personnel changes at provincial and ministerial levels.

Shen Yueyue was born in Hangzhou in 1958. She was the Vice Secretary and Secretary of the Youth League Committee of Zhejiang province. In 1995, she became the Deputy Decretary of the CCP Committee of Hangzhou City. On March 6, 1997, she was appointed Secretary of the CCP Committee of Shaoxing city. In October 1997, she was nominated as an alternate member of the Political Bureau of the Central Committee of the CCP at only 39 years of age. In 2000, she was promoted to CCP Standing Committee member of Zhejiang province, and Minister of Department of Organization. In 2001, she was again promoted to Deputy Secretary of CCP committee of Zhejiang province. In April 2002, she changed places with her Anhui province counterpart, Qiao Chuanxiu. In February 2003, less than three months after Hu Jintao became the General Secretary of the CCP Central Committee, Shen was transferred from Anhui to Beijing. She was appointed Deputy Minister of the Organization Department of the Communist Party’s Central Committee—thus becoming the “Personnel Manager” of Hu Jintao.

As an old Chinese saying goes, "Fallen leaves return to the roots," which refers people returning to their ancestral homes in old age. Little Valley Garden Condos, a suburban residential area, was developed in 1994 with attracting overseas Chinese in mind. Located ten miles away from Guangzhou, the capital of Guangdong province, this residential project consisted of 165 condominiums across twenty acres of land. For many, this was the perfect place to retire to, and they spent their savings on the homes that cost approximately 750,000 yuan (~$90,000).

Life was good for the community for six years, as 165 families moved in, among them many prominent artists and writers. Many cultural activities were organized to celebrate the community. Three art festivals were held with artists from France, Hong Kong and other areas in China. The Chinese media showcased this as one of the success stories of community development.

This all changed in January 2001, when the Municipal Government of Guangzhou started a new development project, the Guangzhou University Town. By April 2003, the Guangzhou Land Resources and Housing Management authorities posted the notice of housing demolition to provide the construction site for the new project, which included Little Valley Garden Condos.

The original real estate developers of Little Valley Garden Condos obtained all of the legal documents, including a 70-year lease on the land, from the Guangdong provincial government, as well as the permit for construction and sale from the Fan Yu city government. All of the condo owners possessed documents of legal ownership. However, the local government voided their deeds to the land with no explanation.

Upon seeing the notice of demolition, some residents of Little Valley Garden Condos hired a lawyer, Mr. Gao Zhisheng. As their legal council, Mr. Gao immediately sent three requests to the provincial and municipal government on behalf of the residents to protect their constitutional rights to private property.

The first request went to the Guangdong Provincial Government, which was ignored.

The others were sent to the Ministry of Land Resources and the Ministry of Supervision, requesting an investigation into the planned demolition of private housing. The government officials either refused to get involved or denied receipt of documents from Mr. Gao. In both cases, Mr. Gao never received a response.

Twice, Mr. Gao attempted to file a lawsuit at the Guangzhou Municipal Court, but the court refused to accept his papers. Mr. Gao talked about his encounters there. "I told them that they could dismiss my case, but they should not refuse to file the lawsuit, because that is taking away my clients’ constitutional right to go to court. But they still refused to accept the papers." His attempt to file the lawsuit in the Guangdong High Court also failed. The court authorities, again, refused to accept the papers. Mr. Gao told a witness that he knew what the result would be before he went there, but he still went to the court. "This is the proper procedure to follow," he said, "even if I am dealing with crooks, when they are in that position, I have no choice but to work with them."
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Mr. Gao explained: "The right to private property is a part of the Chinese Constitution. However, the Municipal Housing Demolition Management Regulations by the State Council stipulates that when there is a dispute about compensation regarding housing demolition between the property owners and the government agency that wants to carry out the demolition, the local government has the final say. This in essence renders private property rights meaningless."

After exhausting all legal channels, more than thirty condo owners prepared their backpacks for their journey to Beijing to petition the Ministry of Construction, Ministry of Land Resources, and the State Council to uphold their rights to private property. They also sent an open letter to Premier Wen Jiabao.

Before their case was resolved, the condos were demolished in July 2004.

Zhao Tong is a correspondent for Chinascope.

According to the National Appeals Bureau, one of the biggest issues brought forth by petitioners is local government taking farmers’ land for development projects. This year, the number of petition letters increased by 50% and the number of petitioners increased by 47% over 2003 figures. From June to August of 2004, more than 19,000 people visited the Beijing Appeals office, a record high since China’s economic reform began in the late 1970s.

On October 4, 2004 at 3 am, the Yulin municipal government in Shanxi Province mobilized 1,600 police officers and surrounded the village of San Cha Wan. The police opened fire and wounded 50 farmers and arrested 30 people, 23 of them women. Yulin Mayor Wang Denji and Chief of Police Yang Yong led this operation.

This incident was the last in a series of events triggered by the Yulin municipal government’s March 2002 announcement, which stated that it would repossess 3,200 acres of woodland from farmers for the Yulin Economic Development Project. It promised to pay 500 yuan per acre as compensation to the farmers, but sold the land for more than 350,000 yuan per acre to development companies. Around 15,000 farmers in the seven affected villages protested this decision by sending petitions to Beijing. After many such petitions yielded no result, the 3,600 residents of San Cha Wan, who were affected the most since they lost 1,600 acres of land, decided to hold a sit-in on their land and resisted four attempts by the municipal government to take over the land. Each of these attempts involved hundreds of police, peaking at 3,000 police at one point, and a total of over 100 farmers were arrested. To date, the government has repossessed over 80% of the land and 40% of the woodland has been cleared for development.

The municipal government believes that the land is government owned, based on an administrative decision made in 1951 by the People’s Liberation Army’s Northwest Political Commission. On the other hand, the farmers believe that the land belongs to the community because the village has a government-issued document, recognizing their ownership of the land since before 1949 and stating that the land still belonged to the village after the revolution. During the past 50 years, the villagers had put in vast resources and manpower to transform the desert into a wooded area, and are now refusing to turn these woodlands over to the municipal government.

After the incident on October 4, in an open letter to the Chairman of the Communist Party Hu Jintao, the people of San Cha Wan, as well as 15,000 farmers from the surrounding villages, requested the Central Committee of the Communist Party to investigate the ownership of the land and the use of force by the local authorities.

Based on a report from the Protecting Citizens’ Rights website:
http://www.gmwq.org/web/news_view.asp?newsid=124

Homeless and dressed in shabby clothing not unlike that of a beggar, Mr. Su, a 67-year-old man from Liaoyang, stands in one of the several long lines in front of the offices of the National Appeals Bureau in Beijing. He has been waiting for six years, and each day he hopes to be admitted so that his story can be heard.

He is not alone. Each day, thousands of petitioners gather in front of the State Council, the Supreme Court, and the Prosecutor’s Office of Appeals in Beijing. Among them, there are retired Army officials, factory workers, miners, and farmers. Last year, the Supreme Court alone registered over 120,000 visits by petitioners. The Office of Appeals in the Ministry of Construction revealed that the number of visits from January to June this year exceeds the total number of visits from all of last year. The total number of visits to all the appeals offices at the Central Government level is estimated to be over one million in the past year. Many of these petitioners must wait years before they are heard, if they are heard at all. During this long wait, occasionally they are chased out of Beijing to their home provinces, or they may be put in temporary detention centers because they "adversely affect Beijing’s image," according to the Beijing City Government.

The Central Government is ill-equipped to deal with this situation. The National Appeals Bureau was designed to keep the communication channels open between the people and the Central Government, so that the masses have a place to be heard when injustices are done to them by local authorities. The bureau is required to "report to the leaders in the Party Central Committee Administrative Office, as well as leaders in the State Council Administrative Office, about any important suggestions, complaints, and problems reflected in the appeals letters and visits." However, the system is badly overloaded and largely ineffective.

Recently, some of the more desperate petitioners have made headlines, drawing attention from the media, Beijing’s residents, as well as the Central Government.

On August 19, 2004, six women from Liaoning province, who were in Beijing to accuse their local police departments, prosecutors, and courts of corruption, climbed on top of a six-story residential building about 500 ft away from Zhongnanhai, the central leadership compound in Beijing. They unfolded a banner that read, "If no one pays attention to us, we’ll jump." It took the authorities several hours to end the standoff, and police took those women into custody.

Fifty-nine-year-old Wang Yuanshun from Gansu province heard his name called while waiting in front of the Appeals Office of the People’s Supreme Court on August 17, 2004. He entered the office for his long awaited interview. But a few minutes later, he was grabbed by the neck and shoved out of the Appeals Office by the police. He fell to the ground outside of the door and died several hours later. The reason given for his ejection was that he entered the office without being called. Mr. Wang and his wife had come to Beijing to seek justice for their son’s wrongful death.
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Most of these petitioners came from other cities or provinces. Recently, Beijing residents joined the petitioners as their homes were demolished for real estate development projects. The compensation is not enough for a new home, and many of them ended up among the petitioners in front of the government buildings.

Mr. Ye Guoqiang protested against the Beijing municipal government, who evicted him from his home and demolished his house, in front of Tiananmen Square. The Beijing Municipal Court sentenced him to two years in prison. His older brother Mr. Ye Guozhu told the reporter, "My brother is a handicapped person. When his house was demolished for a new housing project, he was not compensated fairly, and he cannot afford to find another home. He does not have a job because of his disability, and there is nowhere for him to appeal."

Mr. Ye Guozhu owned a small restaurant with a commercial license issued by the city and county governments. However, his restaurant was in an area designated for the 2008 Olympic Stadium. In August 2003, his restaurant was labeled as "operating without proper permits" and torn down without compensation. When he pulled out the government-issued license, he was told that "the license was issued by the previous government" and did not count.

These cases only represent a tip of the iceberg. In 2003, over 24,000 homes were torn down in the city of Chengdu, and over 900,000 people were forced to relocate in Shanghai since 1991. Many people came to Beijing and became petitioners. They were abused by the policemen and arrested without warrants, according to reports from Voice of America and Epoch Times. According to Tang Boqiao, a Radio Free Asia commentator, Ms. Feng Yongji came to Beijing to appeal for justice after wrongful treatment by the local government. She was arrested nine times on the charge of "unreasonable petitioning." Apart from these spontaneous individual and small group actions, several attempted demonstrations gave indications of the scale and intensity of the problem.

In June of this year, two Beijing residents sent a request to the Beijing Police Department on behalf of the petitioners for a large-scale demonstration be held on July 1. The estimated number of participants was over 10,000. The request was turned down, and the two key organizers – Mr. Ye Guozhu, whose story was mentioned in this article, and Ms. Ni Yulan, who is an attorney in Beijing – were tailed and harassed by police.

It was reported by Radio Free Asia that a month later, Mr. Li Xiaocheng and Ms. Li Chunyin printed 2,000 posters to call on petitioners in Beijing to join a march on August 7 at Tiananmen Square. The participants numbered over 10,000. Mr. Li sent in an application requesting a permit for the march on July 30, and he was subsequently detained at the police station for over 72 hours. The application was ignored. Policemen arrested the organizers at 3:00 am on August 7, but thousands of petitioners still joined the march in Beijing, according to a report by Epoch Times. Mr. Li is a 57-year-old retired army officer who has been petitioning for the past seven years to protest wrongful treatment at the hands of the local government in Xinjiang.
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Another attempt for a large-scale demonstration took place in late August during the Athens Olympics. Over 60 people representing petitioners from Beijing, Tianjin, and other northeast areas filed an application for a 10,000-person march on September 18, a significant date that marked Manchuria being taken by Japan in 1936. At the time, hundreds of thousands Northerners fled their homes in Manchuria.

The Beijing government took harsher measures this time. At 4:00 am on September 17, 37 police cars, including three buses for transporting prisoners, surrounded the areas where petitioners live. Over 50 policemen went house by house and arrested over one thousand petitioners who were going to join the march on the day. The story was told by a petitioner who escaped the search.

Before the Chinese National Day, October 1, Beijing policemen stepped up arrests. On September 28, several buses took petitioners away before the Supreme Court in Beijing to the Shijingshan Sports Center, where they would be temporarily detained and later sent back to their home provinces. It has been reported that more than 10,000 petitioners have been detained at once at this center.

Although these petitioners can be taken away and demonstrations can be suppressed, the root cause remains unsolved. Who are these petitioners? What brought them to Beijing and led them to settle in the "petitioners’ village"? A report written by students from the Science and Technology University in Beijing discussed these problems and challenges faced by the petitioners:

"Upon arrival at the petitioners’ village, we were escorted into an extremely narrow hallway. The floor was dark, slippery and piled with cooking wares. We turned and squeezed into a room. Inside, it was even darker. There were twenty people living in less than 20 square meters of space. The beds were covered with ragged mats, sheets or quilts. The smell in the room almost suffocated us."

The university students were shocked to see the conditions there. Later they learned that only those who can afford to pay 2 Chinese yuan for rent can stay in the rooms, while those who cannot pay stay under bridges or in the streets. An older man told the students that last year when it snowed, he saw seven people die. The students later solicited donations when they went back to their university and sent some clothes to the petitioners’ village.

"Right after we entered the room, we were surrounded by the petitioners, who handed us piles of complaints. Some were accumulated for years, even for a decade. We didn’t have time to read the materials; we were listening to them…"
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"We did not expect to receive the complaints, as we knew that we could not help them with their cases. But they kept on giving the papers to us. They were telling us to take the materials because the Appeals Office had refused to take them. They knew we could not help, but they still wanted us to have them."

"Most of the cases are not that complicated. It is easy to see who is to blame. But the local government many times took bribes and covered up the crimes or simply made a mistake but did not want to admit it. This has led to the escalation of the conflicts."

The Chinese Constitution stipulates the protection of private property and human rights, but the local and the central governments have failed miserably on both counts. In fact, government officials are the biggest violators of these two items.

Nevertheless, there is still hope. Mr. Ye Guozhu told a newspaper correspondent that many citizens in China who wanted to appeal for the issues of forced demolition and eviction have contacted him. He is in the process of setting up a non-government organization called "The Association for Protection of Citizens’ Basic Rights in China." This may become a platform for some petitioners to voice their opinions and a vehicle for protecting human rights in China.

So far, none of the organized demonstrations have been successful. However, the attempts marked the beginning of an emerging civil disobedience movement that leverages rights protected by the Chinese Constitution, as well as large-scale coordination among the thousands of petitioners in Beijing.

The Chinese government has recognized the problem’s seriousness, but the leadership has yet to take discernible action. In its recent document "Decision on Strengthening the Ruling Party’s Governing Ability," the Central Committee under Hu Jintao stated that reform is in a critical state, and warned that it’s a matter of survival for the Party to improve its governance ability. However, recent actions by the government seemed to point towards even tougher treatment of peaceful protestors. For example, Mr. Ye Guozhu was formally arrested on September 17, and news of police brutality against peaceful petitioners just kept coming. Another indicator is that Falun Gong, the largest religious group in China under persecution, still reports torture and killings of its practitioners more than 5 years after the persecution against it started.

The trouble for Beijing is that once the people can no longer tolerate the corruption, suppression, and persecution, the government would lose its mandate and cannot hope to maintain control anymore. The long-waited political reform might be a solution, but it depends on the willingness of the top officials to leave behind the ways of dictatorship. It may prove to be medicine that’s too hard to swallow for the Party leaders.

Lee Ann is a correspondent for Chinasacope.

Finally handed the reins of China’s leadership, Hu Jintao has inherited a country with great potential but also with unprecedented problems. Just one month after he gained control over the military, a string of large-scale riots erupted in Central and Southwest China. Judging from government buildings in Chongqing being looted, ethnic clashes in Henan, and tens of thousands of farmers’ resistance to land seizures in Sichuan-social discontent, mainly towards corruption and suppression through the use of force, is seething and bubbling up to the surface. In each of the cases mentioned above, armed forces were called in to quell the riots.

These incidents pose a real threat to the Communist government, but the root causes behind them didn’t start overnight. In the recent years, Beijing has dealt with a record volume of petitioners coming to the appeals offices from all over the country, most of them with complaints against government officials that could not be resolved locally. In fact, at the local level most of them were suppressed and even retaliated against, serving to aggravate the problem. As the droplets of unrest and discontent gather up into a trickle, and then a stream, and finally a tsunami of petitioners, they threaten to engulf the nation in a maelstrom of turmoil. According to a report from Party magazine Outlook, there were more than 58,000 major incidents of social unrest in the country last year, about 160 per day on average.

We will delve into this important topic in this issue, as well as other topics of interest.

Doing business in China is not all about numbers. The "Do’s and Don’ts" is an entertaining piece anyone concerned about Chinese etiquette should read. If you are thinking about investing in China, this is a good read before your first trip.

When was the last time you came home from a shopping trip with a trunk free of merchandise not made in China? "Milking China for Products" is a revealing piece regarding the alarming quality control of Chinese products, some of which have been spotted on the streets of New York.

Is retail giant Gap Inc. setting a new trend by opting to shift the majority of its operations away from Mainland China? Perhaps the unique guide map to China in this edition will help you fill in the gaps.