China Attempting to Divorce Political and Business Leaders
Summary
Chinese Communist Party and government officials will no longer
be allowed to retain posts in state-owned enterprises starting in
May. Beijing's new willingness to divorce politics from business
demonstrates the failure of the Party to draw the country's
entrepreneurs into its ranks and a new desperation to crack down
on corruption and clean up state finances.
Analysis
In a monumental bid to stanch pervasive corruption, Beijing has
banned Chinese Communist Party (CCP) and government officials
from holding posts in businesses, and banned businessmen from
holding Party and government posts. The decision to separate
government and Party officials from state-owned enterprises (SOE)
was reportedly made after the Party's Central Commission for
Discipline Inspection and the organization department of the
Central Committee issued a circular asking for the elimination of
Party and government officials from state firms by the end of
April, People's Daily reported March 25.
This extreme effort to crack down on corruption and prevent the
creation of an oligarchy appears to be an admission of defeat for
former President Jiang Zemin's calls for entrepreneurs to join
the Party. The decision does not solve all problems, but it does
demonstrate that President Hu Jintao is willing to take drastic
steps to reshape the Chinese economic and political structure.
On July 1, 2001 -- the CCP's 80th anniversary -- Jiang called for
the Party to open its ranks to traditionally excluded groups,
including self-employed, non-state-sector workers and private
entrepreneurs. The Chinese leadership had two goals in mind when
it decided that the Party founded on the principles of Marx,
Lenin and Mao would be better off if allowed the disciples of
Rockefeller, Ford and Gates into its ranks. First, it wanted to
co-opt the country's increasingly wealthy and powerful
entrepreneurs before they formed their own political agenda;
second, it hoped to harness their capitalist skills in
rejuvenating China's failing SOEs.
Chinese leaders envision transforming the SOE system into
something similar to South Korea's chaebols and Japan's zaibatsus
-- large corporate structures in strategic industries strongly
affiliated with the government and supported by national banks.
Until the March 25 announcement, SOE executives were required to
be either Party members or government officials -- and were
frequently both.
Jiang's olive branch to the capitalists was an offer to
assimilate them into the Party so they could have the opportunity
to run China's largest corporations. China's business leaders did
not leap at the opportunity to join the Party; they are doing
well independently and don't need to join the Marxist club.
Failing to inject new blood into the system, the Party has opted
for dialysis. Officially dividing business leaders from political
responsibilities and political leaders from business
responsibilities introduces checks and balances to the system.
Beijing is overhauling the system because -- in addition to
becoming a major drain on state coffers after sucking up hundreds
of billions of dollars in nonperforming loans -- the SOEs are the
primary source of illicit revenue for corrupt officials. Managers
of state firms -- frequently in cooperation with local government
and bank officials -- embezzle funds and engage in profiteering
by selling subsidized state commodities and assets. Analysts
estimate the total loss of state assets to graft in the latter
half of the 1990s at approximately $41 billion; several billion
more probably have been lost since then.
As thousands of Party, government and SOE posts are restaffed,
now it will be far more difficult for corruption to be "business
as usual" -- difficult, but not impossible. The fine traditions
of nepotism and graft that characterize business in China and all
over Asia will continue, but the upcoming shake-up will take away
the virtual license to steal that officials are accustomed to.
The decision to separate political and corporate power poses an
interesting question for Beijing: Can it pull this off? It is
likely to be extremely unpopular among the rank and file of the
Party. After all, joining the CCP in post-Mao China has been a
fast track to wealth and power; now it is not necessarily either.
Hu and Premier Wen Jiabao appear secure enough in their positions
to attempt bolder reforms. Whether their willingness to take
drastic steps is a sign of strength -- or of desperation --
remains to be seen. The fact that China's leaders are willing to
divorce politics from business demonstrates how serious the
problem is. The policy could be too little, too late to keep the
Party and the state finances intact.
(c) 2004 Strategic Forecasting, Inc. All rights reserved.
Summary
Chinese Communist Party and government officials will no longer
be allowed to retain posts in state-owned enterprises starting in
May. Beijing's new willingness to divorce politics from business
demonstrates the failure of the Party to draw the country's
entrepreneurs into its ranks and a new desperation to crack down
on corruption and clean up state finances.
Analysis
In a monumental bid to stanch pervasive corruption, Beijing has
banned Chinese Communist Party (CCP) and government officials
from holding posts in businesses, and banned businessmen from
holding Party and government posts. The decision to separate
government and Party officials from state-owned enterprises (SOE)
was reportedly made after the Party's Central Commission for
Discipline Inspection and the organization department of the
Central Committee issued a circular asking for the elimination of
Party and government officials from state firms by the end of
April, People's Daily reported March 25.
This extreme effort to crack down on corruption and prevent the
creation of an oligarchy appears to be an admission of defeat for
former President Jiang Zemin's calls for entrepreneurs to join
the Party. The decision does not solve all problems, but it does
demonstrate that President Hu Jintao is willing to take drastic
steps to reshape the Chinese economic and political structure.
On July 1, 2001 -- the CCP's 80th anniversary -- Jiang called for
the Party to open its ranks to traditionally excluded groups,
including self-employed, non-state-sector workers and private
entrepreneurs. The Chinese leadership had two goals in mind when
it decided that the Party founded on the principles of Marx,
Lenin and Mao would be better off if allowed the disciples of
Rockefeller, Ford and Gates into its ranks. First, it wanted to
co-opt the country's increasingly wealthy and powerful
entrepreneurs before they formed their own political agenda;
second, it hoped to harness their capitalist skills in
rejuvenating China's failing SOEs.
Chinese leaders envision transforming the SOE system into
something similar to South Korea's chaebols and Japan's zaibatsus
-- large corporate structures in strategic industries strongly
affiliated with the government and supported by national banks.
Until the March 25 announcement, SOE executives were required to
be either Party members or government officials -- and were
frequently both.
Jiang's olive branch to the capitalists was an offer to
assimilate them into the Party so they could have the opportunity
to run China's largest corporations. China's business leaders did
not leap at the opportunity to join the Party; they are doing
well independently and don't need to join the Marxist club.
Failing to inject new blood into the system, the Party has opted
for dialysis. Officially dividing business leaders from political
responsibilities and political leaders from business
responsibilities introduces checks and balances to the system.
Beijing is overhauling the system because -- in addition to
becoming a major drain on state coffers after sucking up hundreds
of billions of dollars in nonperforming loans -- the SOEs are the
primary source of illicit revenue for corrupt officials. Managers
of state firms -- frequently in cooperation with local government
and bank officials -- embezzle funds and engage in profiteering
by selling subsidized state commodities and assets. Analysts
estimate the total loss of state assets to graft in the latter
half of the 1990s at approximately $41 billion; several billion
more probably have been lost since then.
As thousands of Party, government and SOE posts are restaffed,
now it will be far more difficult for corruption to be "business
as usual" -- difficult, but not impossible. The fine traditions
of nepotism and graft that characterize business in China and all
over Asia will continue, but the upcoming shake-up will take away
the virtual license to steal that officials are accustomed to.
The decision to separate political and corporate power poses an
interesting question for Beijing: Can it pull this off? It is
likely to be extremely unpopular among the rank and file of the
Party. After all, joining the CCP in post-Mao China has been a
fast track to wealth and power; now it is not necessarily either.
Hu and Premier Wen Jiabao appear secure enough in their positions
to attempt bolder reforms. Whether their willingness to take
drastic steps is a sign of strength -- or of desperation --
remains to be seen. The fact that China's leaders are willing to
divorce politics from business demonstrates how serious the
problem is. The policy could be too little, too late to keep the
Party and the state finances intact.
(c) 2004 Strategic Forecasting, Inc. All rights reserved.
