Keywords:

Stock market turbulence; Wang Qishan; Party discipline; Tianjin’s explosion; Human Rights activists; Guo Yushan; Asia Television; Chief Executive of Hong Kong; Basic Law; judicial independence; rule of law; constitutionalism

CHINA – ECONOMY

1. Prospect of China’s economy after stock market turbulences

• Background: At The World Economic Forum’s Annual Meeting of the New Champions held between September 9 and 11 in the northeast Chinese city of Dalian, Professor Huang Yiping (黄益平) who is from National School of Development at Peking University and a current member of the Monetary Policy Committee of People’s Bank of China, argued that the lesson of stock market rout in August should be learnt to improve the currency exchange mechanism but not to focus on the ups and downs of the exchange rate in the road of marketization. He further argued that now is a good moment to implement such reform, as market regulators would put extra caution against risks in designing the mechanism.

• //当前最重要的工作应该是真正落实政府在2005年重启汇改时明确的“参照一揽子货币”的“有管理的浮动汇率”体系，“真正落实的是让人民币与美元脱钩，转而盯住一揽子货币才会使人民币更稳定，这更符合长远利益，对世界和中国经济产生更健康的影响。[…]“历史经验告诉我们，亚太新兴经济体开放资本账户后，吸引了大量资本流入，导致资产价格上涨、投资加快、经济加速。此时政府决策者往往放松了警惕，但当资本突然撤出，他们往往措不及防。” 而他认为，目前中国经济面临下行压力，中国决策者相对于金融风险相对谨慎，其实不失为一个进一步开放资本账户的合适时机，对于风险的防范和处置可能更周全一些。//Source: Caixin, 2015-09-10

• Referring to the turbulences in the stock market, Hu Jiye (胡继晔), professor at China University of Political Sciences and Law (中国政法大学) warned that the real threat to China’s economy is the ‘systemic risks’ associated with the leveraged capital flowing into the stock market without proper regulations. // 杠杆资金流入股市的主要通道是通过第三方配资平台，这些平台的资金来源是银行的表外业务，大都为银行理财产品。虽然配资平台各异，但一般情况的流程是：储户将银行存款转投收益较高的理财产品，可获得年化收益率5%以上的回报。银行则将理财产品融到的资金打包卖给信托公司，年化收益率8%以上。当信托公司拿到资金后，将其投放到第三方平台，由第三方平台对借款人的股票交易进行配资，收取年化12%以上的利率。资金这样经过几道手之后，就由银行存款变成了股市投资者手中可以购买股票的资金。可以看出，经过上述银行、信托公司、第三方配资平台的转手之后，目前我国“分业经营、分业监管”的原则已经被改变，资本市场和银行之间的“防火墙”已经很大程度上被突破，风险在股市和银行间传递障碍不大，这对我国金融业系统性风险防范带来了新的挑战。[…] 我国银行业总资产占整个金融业的90%以上，银行业一旦出了问题很可能就会引发系统性金融风险。// Source: Caixin, 2015-09-07

• In the shadow of the stock market turbulences in China and the widespread perception of China’s economic downturning, analysts put forward different views of China’s economic situation in the future when looking at the service sector, the unemployment rate, and the local debt issue. //while the damage to Chinese officials’ previously sterling reputation is real enough, Evans-Pritchard and others point out that there’s little evidence that top leaders have abandoned rebalancing altogether, and recent months have witnessed real reforms – like lifting a ceiling on interest rates for long-term deposits – alongside easing measures. Rather than justified apprehension, the current instability may be the result of misplaced market expectations that align less and less with reality as China moves forward with its economic transition away from credit and toward greater reliance on consumption. […] The ramifications of these changed perceptions will play out atop the bedrock of China’s real economy—the sectors outside of finance, where real goods and services get bought and sold. Employment provides one of multiple cross-checks against the ongoing tumult in equities and exchange rates, provided one ignores the headline figure produced by China’s National Bureau of Statistics. Official unemployment rates in China are notoriously low and stable, holding steady at around 4%. […] In February, the McKinsey Global Institute published a report suggesting China’s overall debt ratio appeared manageable, “although it is now higher in proportion to GDP than than of the United States, Germany, or Canada.” Of an estimated US$28.2 trillion owed, the report estimated that 40-45% of loans were linked to real estate while about 30% were from the shadow banking sector// Source: China Economic Review, 2015-09-07

2. Corruption and China’s economy

• It was reported that the central government has seized a significant amount of unspent funds (estimates range from 107.9 billion, 250 billion to 1 trillion yuan), which was previously allocated in the budget, from the local governments. Some hinted at the relationship between public spending and corruption crackdown. //The huge underspend, linked to officials’ reluctance to spend on big-ticket projects while authorities crack down on corruption, supports the argument of some economists that state investment has grown too slowly this year. “In the past, local governments had asked for the money. Money was given, but no one acted,” said one of two sources, both of whom are close to the government.// Source: SCMP, 2015-09-14

• Analyst Paolo Mauro, a senior fellow at the Peterson Institute for International Economics, also pointed out the possibility of public investment and corruption. While previously official corruption may have proven positive to economic development, the greater reliance on private investment as the driver of China’s economy will change the circumstances. //Most economists who have analyzed the effects of corruption have found it to be detrimental to growth. In the first cross-country empirical study to examine this question, published 20 years ago, I showed that higher perceived corruption (based on surveys of investors) led to slower economic growth, in large part through lower rates of private investment. There was no link, however, in the cross-country data between corruption and declining public investment, perhaps because large infrastructure projects create ample opportunities for bribes. […] Two distinguishing features of the Chinese economy help to explain why it has seemed able to swim successfully against the current. First, China’s rapid economic growth has been fueled by unusually large public investment, which, consistent with my own research, does not seem to be adversely affected by corruption. Second, China’s strictly controlled society has given rise to well-organized corruption, which – as economists Andrei Shleifer and Robert Vishny argued in the early 1990s – is surely less harmful than the chaotic corruption experienced by, for example, the ex-Soviet countries during their early years of transition. […] But, as China has grown into a more internationally integrated, modern economy, pervasive corruption has become more harmful than beneficial. The leadership may have come to the conclusion that, from the standpoint of political sustainability (and discounting the possibility of internecine power struggles), too many government officials among the “haves” would alienate “have-not” ordinary citizens. From an economic standpoint, with China increasingly exposed to the discipline of international trade and facing an economic slowdown, the argument for reining in corruption is as strong as ever. As my colleague Nicholas Lardy’s convincing analysis has shown, China’s economic performance has been increasingly market-driven, rather than state-driven, and private firms will provide the major source of growth in the years ahead. But this requires that the private sector be unimpeded by corruption.// Source: Project Syndicate, 2015-09-15

CHINA – POLITICS

Conference on party discipline with overseas specialists

• Background: A conference (2015中国共产党与世界对话会) was held from September 8 to 10, 2015 organized by the Central Commission for Discipline Inspection and the China Centre for Contemporary World Studies. It was attended by 80 specialists from China and overseas. In the conference, the theme of ‘disciplining the party with strong measures’ (从严治党) was highlighted, which is in line with President Xi Jinping sweeping campaign against graft since assuming the party leadership in 2012 and presidency in 2013. For a more detail background about the anti-graft campaign, please see CEFC’s previous News Analysis by Samson Yuen.

• New plan to regulate behavior of senior party leaders: The former vice-president of the Central Party School Li Junru (李君如) revealed that party leaders are now considering a code of conducts for senior party cadres including the members of Politburo. //The leaders were also considering whether to introduce a code of conduct for senior cadres, the Southern Metropolis News on Wednesday quoted Li Junru, a retired vice-president of the Central Party School, as saying. “Since the launch of the [administration’s] anti-corruption campaign, problems have been found with senior leaders including Zhou Yongkang, Bo Xilai, Xu Caihou, Ling Jihua and Su Rong,” Li said. “It prompted the party’s Central Committee to start thinking about how to manage party cadres holding top office in the party and country.” […]The result of that reflection was a plan to draft a code of conduct for 2,000-plus senior officials, including the 25 Politburo members, Li said on the conference’s sidelines. “Senior cadres are also party members and they should also be subject to party discipline and the law,” he said.// Source: SCMP, 2015-09-09

• Open Discussion on the CCP’s Legitimacy of ruling: At the Conference, the Secretary of the Central Commission for Discipline Inspection, Wang Qishan (王岐山), openly talked about the foundation of CCP’s legitimacy to rule. Zhang Lifan, a Beijing-based commentator, regarded Wang Qishan’s remarks as a response to the slowdown of economic growth. // “The legitimacy of the Communist Party of China derives from history, and depends on whether it is supported by the will of the people; it is the people’s choice,” Wang said when meeting some 60 overseas attendants of the Party and World Dialogue 2015 in Beijing on Wednesday. […] Zhang Lifan, a Beijing-based commentator, said Wang’s remarks reflected a shift of attitude in the party as a result of intensified social conflicts and increasing pressure from an underperforming economy. […] “Its legitimacy was maintained by relying on economic growth, but now economic growth is facing problems. In the past people thought [the party] could continue governing and did not have strong opposition to it because they still had money in their pocket. Now the size of their pockets have shrunk,” he said. // Source: SCMP, 2015-09-09

• After the Conference, the professor at Central Party School of the Communist Party of China Wang Changjiang (王长江) concurred Wang’s remarks on CCP’s legitimacy of ruling by emphasizing the importance of party discipline. // 9月14日，中央党校主办的《学习时报》头版刊登中央党校党建教研部主任王长江的文章《全面从严治党事关中华民族的前途和命运》。[…] 王长江在14日刊出的文章中指，中共执政以来，特别是改革开放以来，治党不严的问题确实存在，而且随着改革的深入，日显突出，引人关注，诸多原因中，最根本的一条，还是对政党执政规律把握不够。// Source: SCMP Chinese Version, 2015-09-15

CHINA – SOCIETY

Further Analysis of the Tianjin’s explosion

• Professor Willy Lam analyzed that the factional struggle within the Chinese Communist Party is intensified by the Tianjin’s explosion and the handling of the incident reflects the politics at play. //Three Chinese sources with the rank of head of government departments or above told the author that Xi suspected the horrendous blasts were a “political conspiracy” aimed at dealing a body blow to the zhongyang (central party authorities) led by the President himself. […] Xi’s subordinates are also investigating the political protection of Ruihai, one of the few private companies to secure a license to work with dangerous chemicals. Ruihai certainly had powerful political backing. Li Liang (李亮), a major shareholder of Ruihai, is the son of Li Ruihai(李瑞海), businessman and brother of former Politburo Standing Committee (PBSC) member Li Ruihuan (李瑞环). Often called “The King of Tianjin” due to his stints as mayor and party secretary of Tianjin, Li, 81, was a PBSC member from 1989 to 2002. In a matter of a few days, however, both Li Ruihai and Li Ruihuan were able to satisfy the Party authorities that they had nothing to do with Li Liang’s business. (Oriental Daily News, August 17; Apple Daily, August 15; Radio Free Asia [Chinese Service], August 15). Given that Li Ruihuan was a bitter political foe of Jiang Zemin’s, there are good reasons to believe that Xi needs Li’s help in his on-going campaign to curtail the Jiang’s political influence.// Source: China Brief, 2015-09-03

CHINA – ENVIRONMENT

Better environmental protection plan approved by Politburo

• Background: The Politburo passed a master plan for environmental protection in China (《生态文明体制改革总体方案》), which outlined the framework for deeper reform. The master plan insisted on public ownership of natural resources, unification of city-rural areas in environmental governance, the combination of incentives and controls, collaboration with international community, and encouragement to pilot test and collective coordination. In addition, it emphasizes the role of multi-party in environmental protection.

• //9月11日召开的中共中央政治局会议，审议通过了《生态文明体制改革总体方案》。专家表示，这个方案是生态文明领域改革的顶层设计和部署，改革要遵循“六个坚持”，搭建好基础性制度框架，全面提高我国生态文明建设水平。中央政治局会议强调，推进生态文明体制改革要坚持正确方向，坚持自然资源资产的公有性质，坚持城乡环境治理体系统一，坚持激励和约束并举，坚持主动作为和国际合作相结合，坚持鼓励试点先行和整体协调推进相结合。// Source: Sina, 2015-09-11

• //The masterplan envisages involving “multiple parties” in protecting the environment, as well as taking a more proactive approach to international partnerships on environmental issues. “Multiple parties include the government, companies, the public and community groups,” said Wang Jinnan, deputy director of the Chinese Academy for Environmental Planning, under the Ministry of Environmental Protection.// Source: SCMP, 2015-09-11

CHINA – DIPLOMACY

Release of activists prior to President Xi Jinping’s visit to the United States

• Background: The Chinese activists including Guo Yushan (郭玉闪) who helped another lawyer Chen Guangcheng (陈光诚) fleeing to the United States and He Zhenjun (何正军) who served as the administrative director of the Transition Institute, an independent think tank founded by Guo that was raided and closed by authorities in 2013, were released from prison on bail just before President Xi’s first state visit to the US. Some analysts interpreted the timing as an attempt by Beijing to blunt potential criticism in Washington of China’s human rights record. For a detail background of the recent crackdown on activists in China, please see CEFC’s previous News Analysis by Samson Yuen.

• // Hu Jia, a prominent Chinese dissident and a friend of Mr. Guo’s, described his release as a “diplomatic card” that the government hoped would ease criticism of Beijing’s crackdown on independent journalists, rights lawyers and advocates for political reform. “They release 1 percent of the jailed political dissidents, but are relieved of 80 percent of the pressure they face,” he said by phone. […] William Nee, Amnesty International’s China researcher, said Mr. Guo’s release should not distract the White House from a string of troubling abuses by the Chinese government, including a campaign against Christian churches in coastal Zhejiang Province that has led to the removal of hundreds of crosses from church buildings. […] Sophie Richardson, the China director at Human Rights Watch, said Guo’s release appeared to be part of an attempt by Beijing to prevent criticism of the country’s human rights record overshadowing Xi’s visit. […] “We have seen the Chinese government make what appear to be a series of small concessions presumably as a way of trying to keep human rights issues out of the summit. That shouldn’t happen,” said Richardson. “Letting people out of jail and letting certain kinds of people visit are good things but that should not get Xi Jinping off the hook.”// China Digital Times, 2015-09-15

• NGO practitioners in China pointed out that the space for NGOs to maneuver was narrowed recently, even those organizations that had previously succeeded in gaining approval from the authorities were now also subject to crackdown. The U.S. said it would likely to raise the issue of human rights conditions in China during Xi’s visit. // It comes as the driving force behind the Communist Party’s legitimacy in recent decades—economic growth—has begun to flag. Ballooning debt, a plunging stock market and capital flight have raised questions about Beijing’s ability to shore up growth, increasing the chances of social discord and making Chinese President Xi Jinping more eager to clamp down on critics. While government suppression of activism isn’t new in China, the current campaign has expanded beyond overt critics of the state to target those, like Mr. Lu and his organization Yirenping, who have succeeded by working within the rules set by authorities. “It’s a realignment of society. They want all of these social interactions to be filtered through the party,” said the Beijing-based director of a foreign nonprofit that has worked with Yirenping, who didn’t want to be identified because of the political danger of speaking out. The crackdown is heightening U.S. concerns over China’s human rights conditions, about which U.S. officials say President Barack Obama is likely to confront Mr. Xi during a Washington summit this month. The State Department is also considering whether to boycott a United Nations meeting on women’s rights later in the month that China is co-hosting and where Mr. Xi is expected to speak, say the officials. // Source: Wall Street Journal, 2015-09-06

HONG KONG – MEDIA

New development for the free-to-air broadcaster with a license revoked soon

• Background: Hong Kong-based broadcaster Asia TV was reported to successfully secure new investment from China Culture Media International (中国文化传媒国际控股) which was co-owned by one Hongkonger and a man from Mainland China Si Rongbin (司荣彬). An amount of 10 billion would be injected over the years to come. Not much information has been disclosed about the new investor, but it is known that its parent company, Sino Finance International Investment (中金集团), is a state-owned enterprise. This has raised concern about the editorial independence of its news division.

• //China Culture Media International’s parent company is Sino Finance International Investment. Both are unfamiliar names in Hong Kong and without much in terms of corporate records on the mainland. Ip would only say the investors would run ATV through a management fund.// Source: SCMP, 2015-09-10

• //由于中金集团为中国国有企业，其董事长为青岛商人司荣彬，有传媒质疑会否影响亚视编采独立。叶家宝响应称资金来源是中金国际发起的管理基金，并由基金运作亚视，因此「绝对不会有影响」，强调新闻部会「继续中立」、「自己采编独立自主」// Source: The Initium Media, 2015-09-10

• The new investor was also reported that he had never involved in media industry and it was unknown where the huge sum of money for ATV came from in light of the size of his companies. //从公开资料，司荣彬过往的资产规模看去并不很庞大。根据全国企业信用信息公示系统资料，司荣彬目前是青岛中金投资管理有限公司以及青岛中金实业股份有限公司的法人，两间公司的注册资金分别为10亿元及1200万元。根据香港注册处资料，司荣彬目前还担任两间香港公司的董事，除亚视外，他还是天力国际投资集团（香港）有限公司的董事。 同时，在中金集团网站里展示的六个项目，全部为在青岛或滨州的房地产开发项目，在网站的合作伙伴一栏中，也全部是能源及铁矿公司。 不过，在最新一篇的新闻稿中，该公司宣布发起100亿的清洁能源和100亿的文化传媒产业股权并购基金，颇显“隐型富豪”的惊人之举。// Source: Caixin, 2015-09-10

HONG KONG – POLITICS

Debate on the power of Chief Executive in the Basic Law

• Background: On September 12, the Chief of the Central Government’s Liaison Office Zhang Xiaoming (张晓明) made an interpretation of the role of Chief Executive in Hong Kong which emphasized its role as the figurehead of Hong Kong SAR above the executive branch, legislative branch and the judiciary. He also insisted that the concept of the separation of powers was not applicable to Hong Kong, nor was it intended in the Basic Law. Zhang’s statement raised concerns among the Hong Kong community.

• // The concept of the separation of powers was applicable only to sovereign states, Zhang said at a function to mark the 25th anniversary of the Basic Law, Hong Kong’s mini-constitution. […] “The chief executive’s dual responsibility [to both Hong Kong and Beijing] means he has a special legal position which is above the executive, legislative and judicial institutions,” Zhang said during his 26-minute speech in the morning, in his latest politically sensitive comments. The Basic Law is Hong Kong’s mini-constitution. […] Zhang also says Hong Kong is a jurisdiction directly under the central government, with the appointed chief executive as the core, in an “executive-led, judicially independent political system”.// Source: SCMP, 2015-09-12

• The Bar Association showed concerns and urged clarification from Beijing. // “The [Bar Association] firmly believes that the common law principle of ‘separation of powers’ will continue to be implemented within the constitutional framework of the Basic Law,” it said in a statement. […]The association said it would be “regrettable” should this view be taken as meaning that the chief executive was superior to the three institutions. […]The association called on Zhang and Yuen to “clarify the position as soon as possible” to rectify misconceptions and eliminate unnecessary doubts among Hongkongers and the international community.// Source: SCMP, 2015-09-14

• Chief Executive of Hong Kong C.Y. Leung emphasized that Hong Kong had judicial independence. // Zhang was only referring to the system but not a particular person, said Leung. The city’s chief also agreed with the Beijing official that Hong Kong had always enjoyed judicial independence, which he respected as a crucial part of the rule of law. He hit out at those people, apparently referring to pan-democrats, whom he said had heavily criticised Zhang’s remarks before the full script of his speech was published.// Source: SCMP, 2015-09-15

• Jiang Shigong (强世功), The Professor at the Law School of Peking University, disagreed and argued that Hong Kong’s political system is actually ‘executive-led’ as shown by the reports passed by the National People’s Congress and the drafting process of the Basic Law.

• Joseph Chan (陳祖為）, Professor at the University of Hong Kong, argued that the principles of separation of powers is embedded in the Basic Law. // 就《基本法》的規定來看，特區政制是三權分立、互相制衡的體制。當然，《基本法》的第74條，給予行政長官一些專有的立法提案權（涉及公共開支或政治體制或政府運作的立法）及限制立法會提出法案的權力（涉及政府政策的立法提案需得行政長官同意）。但不能因此說這就是有別於三權分立的行政主導政體。有些三權分立的總統制國家（如巴西和智利），其總統都有相似的專有立法提案權。充其量，只能說在《基本法》的政制規定中，有些機制是為了強化行政主導的效果（即行政長官的施政效能）。// Source: Pentoy, 2004-06-30

• //根據香港政制體制，不是三權分立，而是行政主導。在全國人大通過基本法的政府報告裡講得很清楚，基本法起草的歷史也清楚顯示。香港的法學界可以做件簡單的 事，把香港行政長官的權力和立法會的權力，和美國總統的權力和美國國會的權力比較下，可以看到兩個根本的區別，美國國會有相當大的制約總統的權力。而香港最主要的權力都在行政長官，立法會的權力很小。對比《憲法》的條款，美國的總統和國會各占多少條款，可以看得很清楚。比如說，基本法第74條規定，涉及某些內容的議案必須經過行政長官的同意。// Source: The Initium, 2015-09-15

• Gary Cheung, a political commentator in Hong Kong, argued that Zhang’s statement is just a repetition of Beijing’s position. He also made a summary of the debate with quotations from various backgrounds. For his article, please see the source below. //Academics believe Zhang’s move is part of Beijing’s attempts to clear what the central government sees as the misunderstanding of some Hongkongers about the Basic Law and the relationship between the central government and Hong Kong. It is seen as part of the same tenor that Beijing has adopted since the release of the State Council’s white paper last year, which stresses the central government has “comprehensive jurisdiction” over Hong Kong. […] Zhang is not the first to stress that the status of the chief executive transcends that of the executive, legislature and the judiciary. In his book On Hong Kong Basic Law, published in 2003, Xiao Weiyun, a mainland drafter of the Basic Law, wrote that “the chief executive is the head of the Hong Kong special administrative region and his legal status is above the executive authorities, legislature and the judiciary. “The political system adopted by the Basic Law is not the model of the separation of powers although there is an element of check and balance between the executive and legislative branches in Hong Kong’s political structure. It is different from the separation of powers and what is being implemented is the system led by the chief executive,” he wrote. // Source: SCMP 2015-09-16

• Rogier Creemers, a scholar at the University of Oxford, when reviewing the constitutionalism debate in China in 2013, summarized that CCP under Presidentn Xi Jinping did not pursue constitutionalism as perceived in the western countries but advocate for socialist constitutionalism, which maintains the CCP’s dominant position under the banner of “ruling the country according to the constitution”, rejects universal values and foreign influence on Chinese politics, downplays the role of civil society while emphasizes unity between the government and the people, and the application of law is subjective and content-sensitive. For full text of the article, please find the source below. // Both the Party’s Document No. 9 of 2013 and Xi Jinping’s August speech reflected the basic elements of the anti-constitutionalist argument: rejection of universal norms and foreign influence on Chinese politics, a strong emphasis on nativist exceptionalism and a fundamental claim that only the Party has the ideological and theoretical and organizational means to achieve the lofty goals of modernization and development. […]The term xianzheng, constitutionalism, is not part of the carefully manicured Party-political lexicon; officials tend to use the phrase “ruling the country according to the Constitution” (yixian zhiguo 依宪治国). Xianzheng references an alternative, Republican path for Chinese modernization, which has returned to fashion in certain intellectual circles recently. […]Consequently, civil society, which might provide a means of external oversight, has been explicitly marked as harmful by the leadership and derided as inferior to a model in which “the government and the masses are unified”.62 The social media’s revelations of cases of abuse and venality are rapidly muzzled. Strong safeguards for civil rights are also anathema, as this would mean a considerable transfer of power away from the political discretion currently wielded by Party power-holders, something that has been assiduously avoided so far. […] As the continuing development of legal and regulatory structures in various areas of governance shows, this does not imply that law plays no role at all. Equally, this does not suggest that law might not be used to control agents of the state, as opposed to the state itself. It does mean, however, that the boundaries between state law, administrative regulations, Party rules and conventions remain fluid and fuzzy, while the application of law remains subjective and context-dependent. Law is considered as one among many political instruments that can be used to achieve desired outcomes and coordinate actors’ activities, while overall decision-making power remains firmly in the grasp of the Party.// Source: China Journal, No. 74, July 2015. (Subscription required)