Ryan Pyle Blog: The Unwritten Rule

Hello.

For years there has been an unwritten rule or agreement between the Communist Party in China, and the subjects that they watch over. That rule has been that, the government will maintain breakneck GDP growth, to keep employment high and wages rising, and the average people will stay out of politics and political debate. In a sense, as Yang Yao says below, that the ruling body in Beijing as been tied to a performance based legitimacy, instead of a classical democratic based legitimacy.

Well, that's all fun; but the real question is how is power transfered? In a democracy we for new representatives and that takes place every 2-4 years. Power is handed over peacefully and in a way that is in line with a constitution which sets out these rules. Decisions may be close, or down to the wire, but power is always relinquished and the process moves as smoothly as it possibly could.

But what happens when Beijing's "Performance Based Legitimacy" comes to an end? What happens when China has GDP growth rates of only 2% a year, and unemployment rates of over 20% a year? What happens then? As the performance decreases the government will begin to lack a power base. What happens when the government loses the ability to generate growth? It's a scary scenario, but one that needs to be talked about today, instead of tomorrow.

When the gap between rich and poor, or city dwellers and rural peasants, becomes too great; will there be social instability? Might that lead to some kind of political upheaval? To be honest I have more questions than answers. But the thought of the Communist Party potentially losing control is frightening. While the government can be big, nasty and ineffective, at least they are fairly stable and predictable. What replaces them could be potentially much nastier.

Please give Yang Yao's piece a look below. Raises a lot of interesting questions.

Copyright © 2002-2010 by the Council on Foreign Relations, Inc.
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The End of the Beijing Consensus

Can China's Model of Authoritarian Growth Survive?

Yang Yao
YANG YAO is Deputy Dean of the National School of Development and the Director of the China Center for Economic Research at Peking University.
Since China began undertaking economic reforms in 1978, its economy has grown at a rate of nearly ten percent a year, and its per-capita GDP is now twelve times greater than it was three decades ago. Many analysts attribute the country's economic success to its unconventional approach to economic policy -- a combination of mixed ownership, basic property rights, and heavy government intervention. Time magazine's former foreign editor, Joshua Cooper Ramo, has even given it a name: the Beijing consensus.

But, in fact, over the last 30 years, the Chinese economy has moved unmistakably toward the market doctrines of neoclassical economics, with an emphasis on prudent fiscal policy, economic openness, privatization, market liberalization, and the protection of private property. Beijing has been extremely cautious in maintaining a balanced budget and keeping inflation down. Purely redistributive programs have been kept to a minimum, and central government transfers have been primarily limited to infrastructure spending. The overall tax burden (measured by the ratio of tax revenue to GDP) is in the range of 20 to 25 percent. The country is the world's second-largest recipient of foreign direct investment, and domestically, more than 80 percent of its state-owned enterprises have been released to private hands or transformed into publicly listed companies. Since the Chinese Communist Party (CCP) lacks legitimacy in the classic democratic sense, it has been forced to seek performance-based legitimacy instead, by continuously improving the living standards of Chinese citizens. So far, this strategy has succeeded, but there are signs that it will not last because of the growing income inequality and the internal and external imbalances it has created.

The CCP's free-market policies have, predictably, led to major income disparities in China. The overall Gini coefficient -- a measure of economic inequality in which zero equals perfect equality and one absolute inequality -- reached 0.47 in 2008, the same level as in the United States. More disturbing, Chinese city dwellers are now earning three and a half times as much as their fellow citizens in the countryside, the highest urban-rural income gap in the world.

How, then, has the Chinese government been able to adopt the principles of neoclassical economics while still claiming Marxism as its ideological anchor? The answer is that China has for three decades been ruled by a disinterested government -- a detached, unbiased regime that takes a neutral stance when conflicts of interest arise among different social and political groups. This does not mean that Beijing has been devoid of self-interest. On the contrary, the state is often predatory toward citizens, but its predation is "identity-blind" in the sense that Beijing does not generally care about the social and political status of its chosen prey -- unlike many governments elsewhere that act to protect and enrich specific social or political groups. As a consequence, the Chinese government has been more likely than other authoritarian regimes to adopt growth-enhancing policies.

For the last 30 years, the CCP has intentionally adopted policies favoring specific groups or regions to promote reform and economic growth. It has helped that the disinterested CCP government was not permanently beholden to certain groups or regions. China's integration into the world economy is a case in point. At the end of the 1970s, the United States was eager to bring China into its camp as a buffer against Soviet hegemony, and China quickly grasped the opportunity. Yet that early adoption of an "open-door" policy gave rise to domestic resistance: special economic zones, such as Shenzhen, enjoyed an abundance of preferential treatments that other parts of the country envied. Moreover, the CCP's export-led growth model required that Beijing embrace an unbalanced development strategy that encouraged rapid growth on the country's east coast while neglecting the interior; today, nearly 90 percent of China's exports still come from the nine coastal provinces.

China's accession to the World Trade Organization in 2001 was also a calculated move. Before accession, it was widely believed that China would have to endure painful structural adjustment policies in many sectors in order to join the WTO. Even so, the central government actually accelerated negotiations with the organization's members. Despite the burdens it placed on the agriculture and retailing sectors, accession boosted China's exports, proving wrong those who worried about its effects. Between 2002 and 2007, Chinese exports grew by an annual rate of 29 percent, double the average rate during the 1990s.

China's astronomic growth has left it in a precarious situation, however. Other developing countries have suffered from the so-called middle-income trap -- a situation that often arises when a country's per-capita GDP reaches the range of $3,000 to $8,000, the economy stops growing, income inequality increases, and social conflicts erupt. China has entered this range, and the warning signs of a trap loom large.

In the last several years, government involvement in the economy has increased -- most notably with the current four-trillion-yuan ($586 billion) stimulus plan. Government investment helped China reach a GDP growth rate of nearly nine percent in 2009, which many applaud; but in the long run, it could suffocate the Chinese economy by reducing efficiency and crowding out more vibrant private investment.

The economy currently depends heavily on external demand, creating friction among major trading partners. Savings account for 52 percent of GDP, and consumption has dropped to a historic low. Whereas governments in most advanced democracies spend less than eight percent of government revenue on capital investment, this figure is close to 50 percent in China. And residential income as a share of national income is declining, making the average citizen feel poorer while the economy expands. As the Chinese people demand more than economic gains as their income increases, it will become increasingly difficult for the CCP to contain or discourage social discontent by administering the medicine of economic growth alone.

Despite its absolute power and recent track record of delivering economic growth, the CCP has still periodically faced resistance from citizens. The Tiananmen incident of April 5, 1976, the first spontaneous democratic movement in PRC history, the June 4 movement of 1989, and numerous subsequent protests proved that the Chinese people are quite willing to stage organized resistance when their needs are not met by the state. International monitoring of China's domestic affairs has also played an important role; now that it has emerged as a major global power, China is suddenly concerned about its legitimacy on the international stage.

The Chinese government generally tries to manage such popular discontent by providing various "pain relievers," including programs that quickly address early signs of unrest in the population, such as reemployment centers for unemployed workers, migration programs aimed at lowering regional disparities, and the recent "new countryside movement" to improve infrastructure, health care, and education in rural areas.

Those measures, however, may be too weak to discourage the emergence of powerful interest groups seeking to influence the government. Although private businesses have long recognized the importance of cultivating the government for larger profits, they are not alone. The government itself, its cronies, and state-controlled enterprises are quickly forming strong and exclusive interest groups. In a sense, local governments in China behave like corporations: unlike in advanced democracies, where one of the key mandates of the government is to redistribute income to improve the average citizen's welfare, local governments in China simply pursue economic gain.

More important, Beijing's ongoing efforts to promote GDP growth will inevitably result in infringements on people's economic and political rights. For example, arbitrary land acquisitions are still prevalent in some cities, the government closely monitors the Internet, labor unions are suppressed, and workers have to endure long hours and unsafe conditions. Chinese citizens will not remain silent in the face of these infringements, and their discontent will inevitably lead to periodic resistance. Before long, some form of explicit political transition that allows ordinary citizens to take part in the political process will be necessary.

The reforms carried out over the last 30 years have mostly been responses to imminent crises. Popular resistance and economic imbalances are now moving China toward another major crisis. Strong and privileged interest groups and commercialized local governments are blocking equal distribution of the benefits of economic growth throughout society, thereby rendering futile the CCP's strategy of trading economic growth for people's consent to its absolute rule.

An open and inclusive political process has generally checked the power of interest groups in advanced democracies such as the United States. Indeed, this is precisely the mandate of a disinterested government -- to balance the demands of different social groups. A more open Chinese government could still remain disinterested if the right democratic institutions were put in place to keep the most powerful groups at bay. But ultimately, there is no alternative to greater democratization if the CCP wishes to encourage economic growth and maintain social stability.

Copyright © 2002-2010 by the Council on Foreign Relations, Inc.
All rights reserved.
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Ryan Pyle
Photographer
ryan@ryanpyle.com
Website: www.ryanpyle.com
Archive: http://archive.ryanpyle.com
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Ryan Pyle Blog: Taking Back the Golf Courses

Hello.

I wanted to direct you all to a new bit of work I've completed with writer Dan Washburn. The piece is about the government taking back land from illlegal golf courses. Interesting times in the development of China. Please take a look at Dan's article, wild stuff.

LINK: http://www.slate.com/id/2246914/pagenum/2

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The Forbidden Game
China's on-again, off-again war against golf.

By Dan Washburn

Posted Tuesday, March 9, 2010, at 10:04 AM ET

JIANSHAN VILLAGE, Zhejiang, China—Last November, when the Chinese government held a press conference to announce its most recent crackdown on illegal land use, it highlighted five investigations. Three involved heavy industry: a coking plant, a plastics factory, and a rare-earth metals mine. The other two were about golf courses, and they were the ones that made the headlines. "Golf defies rules to gain ground," screamed China Daily.

While the announcement raised a few eyebrows in China's golf industry, it was easy to brush it off as another toothless threat from Beijing. Almost all of the nation's 600 or so completed golf courses are illegal in some way. In order to operate as a golf business in China, you need to have an official license. Since 2004, however, there's been a moratorium on course construction in the country, making the acquisition of such a license impossible. Nevertheless, about 400 new golf facilities have opened their gates in the past six years.

The most generous estimates put the number of golfers in China at a few million—statistically zero percent of the population. While the game is growing in popularity, in many developers' eyes golf courses exist primarily as a means to sell the million-dollar homes that get built around them. On a recent trip to China, a representative of an American course design firm compared the goings-on here to the Oklahoma land run combined with the California gold rush. China, the nation that banned golf development, had somehow emerged as the only country in the world still in the midst of a golf boom.

That was before the government started digging up fairways. The bulldozers arrived at dawn in early December. There were more than a dozen lined up outside the gate of the Anji King Valley Country Club, 140 miles southwest of Shanghai. The convoy drove past the fountain, the bronze knight, and the Tudor-style clubhouse, and arrived at the multimillion-dollar 18-hole course that had been open for little more than a year and was scheduled to play host to a Ladies European Tour event this October. For 10 days, the excavators ripped up turf and snapped irrigation pipes in the soil below.

King Valley's punishment is the harshest thus far, but some in the industry believe government inspectors (the "Beijing golf police," as they have become known on the ground) could make their way throughout the country, one province at a time. Since the beginning of the year, the golf police have been frisking finished and unfinished golf courses throughout central China's Sichuan province, a hotbed of construction activity. Several projects there have been put on hold pending further review.

It makes sense that the "rich man's game" would get special scrutiny. While the Communists lifted their ban on the sport in 1984, golf still suffers an image problem in China, where a weekend round costs $160 on average. Critics have contended that such a high-consumption pastime runs counter to several of President Hu Jintao's primary concerns—among them, rural land rights and the widening gap between rich and poor. Farm land is a precious commodity in a country that must feed 21 percent of the world's population with less than 8 percent of its arable land. China has lost more than 30,000 square miles of agricultural land since 1996, and its current total of about 470,000 square miles is getting dangerously close to the 463,323-square-mile baseline the government believes necessary to sustain its massive population. As such, while golf-related construction accounted for a tiny fraction of the reported 42,000 cases of illegal land usage in China last year, it's good PR for the Communist government to say it's tackling such an elitist activity.

Ironically, it was the Chinese government's reluctance to embrace golf—or at least come up with a set of regulations intended to standardize its inevitable growth—that allowed things to get out of control. China doesn't even know how many golf courses exist within its borders. At the press conference in November, officials at the Ministry of Land and Resources said they were using satellite imagery to get a handle on the number. Back in 2004, when the moratorium was announced, state media reported that only 10 of China's then 176 known courses had received proper approvals from Beijing. One golf developer who wished to remain anonymous—this happens often when reporting on the legally nebulous word of golf construction in China—said the market remains "in chaos," with local governments continuing to approve golf projects despite not having the right to do so.

This was the case in Anji County, where King Valley Country Club is located. Anji had always been one of the poorer parts of Zhejiang province, with bamboo forests its lone claim to fame (some were featured in Crouching Tiger, Hidden Dragon). The area's top government official was fond of telling people he had two dreams for Anji: a university and a golf course. Ask anyone in Jianshan village, where that second dream came to fruition, and they'll tell you that King Valley was a pet project of the local government, designed to attract well-heeled patrons from nearby cities like Hangzhou and Shanghai to the impoverished countryside.

There is some evidence that this effort was successful. While Jianshan remains tied to the past—locals still refer to their "production teams," a holdover term from the pre-reform days of China's communal farming system—a walk through the village reveals many signs of growth: small factories manufacturing decorative bamboo wall-coverings, kitschy hotels and restaurants geared at tourists, and construction sites for new housing complexes. All of this followed the 2005 arrival of King Valley.

The official reason for King Valley's bulldozing is simple: The course's builders didn't have the proper approvals to develop the entirety of their 400-acre plot. (Nearly 35 acres of the tract were farmland.) Dig a little deeper, and things don't look that straightforward. A dirt path along a fence offers views of the golf course's back nine, where most fairways now look like freshly plowed fields awaiting planting season. But a closer inspection reveals peculiarities. All of the greens and tee boxes remain untouched, the cuts around them following neat lines. The greens, and what remains of the fairways, are watered and mowed daily. The cart paths are still there. So are the buildings and the landscaping. Smaller shrubs are wrapped in white plastic to protect them from the winter cold. (Click here for a companion photo essay on King Valley's bulldozing.)

"Don't worry—the course is not going to become farmland," one of several workers who remain at King Valley said reassuringly during a visit in January. He said they were repairing the irrigation system and, since the greens were not destroyed, the course could be rebuilt very quickly. How could this be possible? "The local government has certain guanxi with our company," he said.

That guanxi, or favorable relationship, would seem to be strained these days. When Beijing's focus turned to King Valley, local officials ran for the hills. Many denied knowledge that a golf course existed inside the "Anji China Ecotourism and Fitness Center," as King Valley is officially known. (To get around the 2004 moratorium on course construction, "golf" never appears in planning documents for golf facilities in China.) Their case was flimsy: King Valley played host to a stop on China's domestic pro golf tour last summer; it's the official training center of the provincial golf team; and the large sign the local government installed beside the highway included the stylized silhouette of a man swinging a golf club. "Government officials go there all the time," said a village shopkeeper. "Only a ghost would believe their claims."

Despite the workers' assertions at the course, sources familiar with the situation say the company behind the project—Hangzhou-based real estate firm Handnice Group—is in no hurry to pay for the necessary repairs. Many in Jianshan believe the course destruction was a calculated move by local officials, a grand display intended to shield them from punishment from Beijing. Without assurances that the project is fully legal, the existence of a course like King Valley will always be dependent upon the word of local bureaucrats.

The Handnice Group is no innocent bystander here. The risks associated with opening a golf course in China, though seemingly minimal in recent years, are no secret. And while official land designations in rural areas often change on the whims of those in power, it was obvious villagers were farming on a portion of the land that is now a golf course. In fact, the company paid close to $1.2 million in fines for illegal land use between 2006 and 2008. But after each fine, sources say, the local government urged them to carry on with construction. The fines were viewed as a cost of doing business.

As is often the case with major development projects in China, hundreds of villagers were relocated to make room for King Valley. This is typically presented to farmers as a choice, but more than one Jianshan resident admitted their departure from the land was "kind of enforced." Reports suggest this process got messy. The most heated disputes arose over compensation—they usually do—and the noise surrounding a few key blowups may have gotten the project on the central government's short list for investigation.

Because the state owns all land in China, the developer pays the local government, which then distributes payouts to the villagers. Much of the money gets caught in the government filter—recent data suggests more than half of local government revenues come from land sales. One elderly man in Jianshan said the $15,000 settlement he received was not enough to cover the cost of his new home, and that the $200 he receives in "rent" each year from the golf course (where a round can cost $120) is "definitely not enough." He shrugged his shoulders and added, "But what can you do?"

It's unclear what's next for King Valley. When asked for a status update, a worker at the Anji land bureau said only "that's already been dealt with" before hanging up the phone. Another source said "a conclusion has been reached" but it has yet to be made public. Meanwhile, golf course construction in China continues to chug along. One industry veteran, who says his firm has survived "crackdowns" in the past, didn't sound too worried. The number of leads and new projects he discovers during his monthly trips to China remains "astronomical."

"I've been telling people if they shut down 50 percent, even 70 percent, of the projects there are still too many of them," he said. "A hell of a lot of golf courses are still going to be built."

Alice Liu contributed to this report.

Dan Washburn is a Shanghai-based writer. For more on the development of golf in China, visit his Par for China Web site.
Article URL: http://www.slate.com/id/2246914/

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Ryan Pyle
Photographer
ryan@ryanpyle.com
Website: www.ryanpyle.com
Archive: http://archive.ryanpyle.com
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Ryan Pyle Blog: New Complaint Policy

Hello,

It would appear, according to a domestic newspaper story, that senior party officials in provinces across China have been asked by the central government in Beijing to meet with petitioners about complains in an effort to help reduce social disputes and civil unrest, as well as help stem the flow of petitioners to Beijing from the provinces. See the Story Link Here.

Social unrest is, without a doubt, the number one concern in the eyes of government officials throughout the country. Some people out there might question my saying that, but every economic policy that comes out has the effect of quelling some possible protest somewhere.

Social unrest is common occurrence in China, even though protests or demonstrations are officially illegal. Therefore regular people have no outlet for their dissatisfaction of local government officials; close your eyes and image an old fashioned kettle boiling up and whistling away with steam pipping out. It is easy to see how people can see that aggressive, desperate action is the only action.

But in a year of the 60th anniversary of the People's Republic of China, the government is trying to show the people that while the party is unelected, they are responsible and they care. It's far fetched, but even a bit of dialog is better than the thuggish bullying, ignoring and imprisonment that has been the unofficial policy for the last two decades. You see most government officials get a report card at the end of every year and social unrest in a region under your watch is highly frowned upon, so everything is done to avoid the people taking to the streets.

In several extreme cases it is reported that people traveling with petitions, or official complaints, to Beijing from their province are often caught and jailed without trial; in an effort to keep Beijing officials in the dark about what is actually happening in the countryside. A nasty side effect of virtual independence, by local officials, to run their fiefdom as they see fit. In one banner case last year the New York Times wrote of a local official who was arresting petitioners, who were trying to out government officials on illegal land seizures and pollution, and sending them in to psychiatric hospitals. A page straight out of Stalin's book, the only problem is that this is 2009 and that kind of behavior shouldn't be acceptable for leading government officials in an emerging super power, and owner of the world's third largest economy. But as long as China continues to buy US treasury bills, mum's the word.

So in an effort to calm the extremes the party leadership in Beijing is trying to create a communications bridge between upset folks and their government officials, essentially this is the only option in a country that has a one party system that also dominates the legal system. Will it work? My guess is no. I don't think government officials have the right set of morals or characteristics to be sensitive to these cases; in most cases they'll be brushed off as impediments to progress and GDP growth. A painful and short sighted view, but as someone on the ground I just can't see things changing much.

An old political philosophy professor at the University of Toronto used to always tell me that "Power tends to corrupt, and absolute power corrupts absolutely...", a line from Lord Acton in his open letter to Bishop Creighton in 1887. And in the case of China this phrase nails it. Chinese officials operate in a world with no political competition, no media freedom, as well as control of the banks, police and courts. If that is not absolute power what is?

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Ryan Pyle
Photographer
ryan@ryanpyle.com
Website: www.ryanpyle.com
Archive: http://archive.ryanpyle.com
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