Monday, April 12, 2010

国进民退: Is China Re-nationalizing? (III)

Please note this is the final post in a series. Previous posts can be found (in order) here, here and here.

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This is going to be a long post, so I apologize to those of you who will have to scroll to reach the end of this in your Google Readers.

I ended my post of March 27 by mentioning this article from China Economic Weekly that was recommended to me by a friend. The article summarizes a rich debate going on in China right now about whether the company is backsliding in its economic reforms by, in effect, re-nationalizing its economy which had ostensibly been on a path of increasing privatization since the late 1990s.

What follows is a somewhat abbreviated translation of this article with a little of my own commentary.


According to the article a relatively small number of people from academic circles began last year to raise this question of whether the state was reversing course on privatization reforms, and the concept of guo jin min tui “theory” and 与民争利论 (yu min zheng li lun – theory of officials profiting at the people’s expense) just took off from there. This “sensitive and emotional concept” of guo jin min tui “theory” has drawn attention from outside China and generated much debate.

(The term “theory” may also be a mistranslation. In this case, I think the term “theory” may be better translated as “idea” or “concept” -- words that don’t carry the assumption of having been subject to rigorous scientific inquiry.)

Prior to last month’s National People’s Congress (NPC), Professor Hu Xingdou of Beijing Institute of Technology penned an article criticizing the apparent reversal saying, “China never actually had the intention of establishing a real market economy. Rather, the intention was to establish a so-called state-led socialist market economy. In fact, (what we have is) a bureaucrat- and government official-led economy.” (The word used for “bureaucrat” is 官僚 which has negative connotations of an unproductive government employee who doesn’t do any work.)

(http://www.huxingdou.com.cn/2010suggestion.htm Article headlines in English.)

Far from being a theoretical piece, Prof. Hu’s article begins with anecdotal evidence that the state’s share of assets has been growing at the expense of private capital in the following industries: steel, chemicals, coal, petroleum, mining, electricity generation, civil aviation, highways, water, finance, brokerage, insurance, real estate, posts, etc.

On the other side of the debate are people who question the concept calling it “hype” created by academics “in support of special interest groups”. (Yes, China has special interest groups too. Who knew?) They point out 民 of 国退民进 and 与民争利 do not have the same meaning.

One change the article does point to is that, in the past, the arguments of academics were rather weak, and had little influence on economic policy. That is no longer the case, they say. In the first half of 2009, academics and journalists used the term guo jin min tui to refer to the phenomenon of “local industry and regional emergence of guo jin min tui”. In the second half of the year, people began to use the term “guo jin min tui da chao” (the tidal wave of guo jin mi tui) to describe the trend.

And the people who have noticed this trend are not only academics and journalists. The assistant director of the Enterprise Institute within the State Council’s Development Research Council (a government-owned think tank) says that the “problem of guo jin min tui has become especially critical in certain local regions and certain industries.”

In April of 2009 China Entrepreneur magazine conducted a survey among senior enterprise managers, and one of the findings was that over 72 percent believed the trend toward guo jin min tui was increasing, and that China’s four trillion yuan stimulus was disproportionately benefiting state owned enterprises.

By the end of 2009, the discourse had changed from “finding a win-win for state-owned and private enterprises to calling on (the state) to give private enterprises a just and fair market environment.” People even began to worry aloud that reforms were being reversed, and call for resumption of the original guo tui min jin reforms.

In September of 2009 a professor from the China Europe International Business School said that the trend of guo jin min tui ran counter to China’s reform and opening (改革开放), and that it was causing social inequality and crony capitalism (权贵资本主义). In November of 2009, a professor from Beijing Institute of Economics told media that state takeovers of private coal mines in Shanxi Province represented a reversal of reforms.

In the face of such overwhelming criticism, official circles began to fight back.

At an economic conference in November of 2009, the Director of China’s National Bureau of Statistics said the statistics from 2005 to 2008 do not support people’s claims of guo jin min tui. The statistics he cited were total number of enterprises, industrial output, asset values, total profits, taxes paid and numbers of employees. (This particular article did not repeat his statistics, but I will give him the benefit of the doubt for the moment. I will, however, point out that the discussion trend of guo jin min tui began to gather momentum toward the end of 2009, a period that would not have been covered in his statistics.)

One month later, this same official admitted that while, yes, the phenomenon of guo jin min tui did exist, it was only in some specific areas, but not in the economy as a whole. And he expressed his wish that people’s discussion of the phenomenon would be “vigorous and meaningful.”

While here was a central government official who had changed his mind about the existence of this phenomenon, most local officials were adamant that guo jin min tui was not an accurate description of what had been happening.

Local officials in Shanxi Province (where private coal mines had been nationalized) were at pains to describe what had happened, not as guo jin min tui but as “you jin lie tui” (优进劣退) or “the excellent enter; the inferior withdraw”. Another defense of these moves (and a far more plausible one in my view) was that it was an attempt to improve safety conditions in these mines.

The Chairman of China National Building Material Group Corporation, an SOE, explained at a press conference that the phenomenon of guo jin min tui has not happened in China. And the primary reason he gave is that, because so many formerly wholly state-owned enterprises launched public offerings, their ownership had become diversified; the people were now part owners of these enterprises.

The Bureau Chief of China’s Civil Aviation Administration said, the fact that there had been mergers and acquisitions in the aviation sector was a testament to “market behavior”. The mergers that had happened were in the best interest of the industry as a whole. (He failed to recognize, however, that most of China’s private startup airlines were acquired by state-owned airlines.) And anyway, he said, because the airlines are publicly listed, they have diversified ownership. (In other words, people were welcome to buy minority positions in publicly traded shares -- an issue I also addressed in a previous post.)

Regardless of whether people believe in the existence of guo jin min tui, the debate has served to highlight the question of its existence as an issue. The news spokesperson of the CPPCC had no choice but to face this issue when asked about it at a press conference. His response was a curt denial: “guo jin min tui does not exist in China.”

At the NPC meetings that took place last month, several local government officials were asked by journalists about the phenomenon of guo jin min tui. The governor of Shanxi Province responded to a question about nationalization of coal mines in his province with prepared statistics: the ratio of state-owned to private to mixed ownership mines in Shanxi is 2:3:5. (He apparently did not address the trend.)

(The Shanxi Governor might have also mentioned the abysmal safety record of Shanxi’s mines and that government control was considered the last straw at an attempt to reign in safety violations that have lead to thousands of needless deaths in recent years.)

The Mayor of Chongqing said that guo jin min tui is a "false concept. During the financial crisis, the government provided funds to...help enterprises during their difficulties. This is not guo jin min tui; this is a rescue. (People who are now calling our rescue) during the financial crisis guo jin min tui are Monday morning quarterbacks (事后诸葛亮).”

Also during the NPC, SASAC, the state shareholder of 127 of China’s largest central state-owned enterprises, weighed in on the issue by prominently posting on its website articles with titles such as “Analysis: Is guo jin min tui true or false?”, “Mergers and acquisitions (by SOEs) are qiang jin ruo tui (strong enter, weak withdraw) not guo jin min tui”, and “The Falsehood of SOE Monopoly Theory”.

(I found these articles on the SASAC website, and while I only took the time to skim them, what I did not see were the typically shrill name-calling and denunciations to which the state has resorted in the past. Rather, SASAC lays out a reasoned defense for the existence of a “state-led socialist market economy with Chinese characteristics” and it also addresses, point by point, every one of the arguments made by those who do believe in the reality of guo jin min tui. Whether one buys the logic or reasoning employed by either side, it is refreshing to see such a vigorous and well-mannered debate taking place regarding this issue.)

While the article does not really answer the question, it does a surprisingly good job of balancing views from both sides of the argument – for a Party-owned publication, that is. Those who would read to the end of this fairly long article would probably still find that the article’s sentiment seems to slightly favor the arguments of those who do not believe in the existence of this phenomenon. At least that is the view of this non-native speaker of Chinese.