[Vacets-local-dc] [Chinese cadres must give up corporate posts]

[Hai Tran]

http://www.atimes.com     China 
Chinese cadres must give up corporate posts
By Peter Morris 

As of May, Chinese Communist Party (CCP) cadres will no longer to be allowed to work at state-owned enterprises (SOEs), according to a notice released by the CCP Central Committee. If the new policy is carried out in full, it will mark a new chapter in China's economic development and a victory for President Hu Jintao's campaign against corruption. 

China Central Television revealed this week that the CCP Central Commission for Discipline Inspection and the organization department of the CCP Central Committee had released a circular calling for an end to the time-honored practice of cadres playing dual roles in government and business by the end of April. 

Besides being ostensively geared toward fighting corruption, the ordinance is part of Beijing's efforts to improve transparency at SOEs so as to attract foreign buyers. China has been trying to solve the problem of ailing, unprofitable companies in the state sector by selling them off, hoping that foreign buyers will be able to turn them around. Beijing has commissioned several official government organs to handle the problem, and has even established a "market" for SOEs in Tianjin. In addition, Beijing has been pushing firms in strategic sectors and profitable SOEs - companies that will not be sold - to clean up their acts so that they can raise capital on overseas stock markets. 

Cadres fly the coop
For years, Communist Party officials holding management positions at SOEs or serving on the boards of state-owned firms have used their official standing to secure advantages not only for their companies, but also to enrich themselves. And as China gets richer, the central government has been increasingly concerned about cadres fleeing the country after absconding with millions of dollars from SOEs. 

In an article published this week, Xinhua News Agency reported that the Beijing Municipal People's Procuratorate handled more than 120 cases relating to fugitive corrupt officials in 2001. And up to 70 percent of these cases involved former general managers, deputy managers or financial-affairs staff of state-owned companies.

Typically, the dubious cadre will first apply to take part in an "overseas work investigation", which many SOEs have been encouraged to undertake as part of China's new "go out" strategy aimed at raising the profile of Chinese brand names abroad and exploiting new markets. The cadre will then send relatives to the preferred country before transferring large sums of money to overseas banks. Finally, using fake passports, he flies the coop. 

Official figures indicate that at least 4,000 suspected corrupt officials have fled China so far, taking with them more than 5 billion yuan (US$600 million) in illicit money. In response to the growing trend, China has stepped up its crackdown on errant officials recently, and is even spreading its dragnet across the Pacific. Early this year, the administration of President George W Bush issued a statement promising to bar fugitive party officials from entering the United States. 

Loopholes abound
Under China's new policy, cadres currently working at SOEs will be required to resign from their corporate posts, while corporate chieftains will also be compelled to resign from the CCP. As is often the case in China, however, there are some loopholes in the new law. 

According to the circular, enterprise leaders can still hold their corporate posts if they are elected to the National People's Congress (NPC) or the Chinese People's Political Consultative Conference (CPPCC) and do not need to be stationed at the NPC or the CPPCC. 

In addition, exceptions will be made for cities that were "set up based on local enterprises and where enterprise leaders have been holding party and government posts to lubricate government-enterprise relations". In other words, the new law will not apply to many of the cities built around town-village enterprises (TVEs) that sprang up all over China's countryside during the late 1980s and early 1990s. 

The rise and fall of TVEs
The TVE system was China's solution to the dilemma facing moribund communist work units set up in all of China's towns and cities during the reign of Mao Zedong as part of his vision to create a communist paradise in the countryside. The work units were designed to increased agricultural productivity by forcing all villagers to work the fields around the clock in shifts. Deng Xiaoping's ascendence to Communist Party leadership in 1978 ushered in an era of economic reforms. The first phase of the reform program was to give households the opportunity to grow crops, raise fish and rear livestock on their own property, otherwise known as the "household responsibility system". 

The next major phase of Deng's economic reforms was two-pronged. First, special economic zones were established in selected coastal cities, which quickly realized huge economic gains through tax incentives and foreign investment. Second, the TVE system was launched, whereby former work units from towns and villages - working in conjunction with the local government - would invest in a small factory. TVEs soon sprang up all over the countryside, producing goods that filled shelves in China and abroad. Many small towns eventually became dependent on income derived from their local factories, which yielded profits that could be given back to the community. 

The TVE system floundered in the 1990s, however, when Beijing decided that local party bosses were getting too powerful. The factories were yielding hefty profits, and cadres were using their wealth to gain leverage vis-a-vis the central government, especially in southern China. In addition, Chinese leaders realized that larger business operations were needed to compete with foreign companies that had the advantage of economies of scale. 

As a result, Beijing began pouring more resources into SOEs, the bedrock of China's urban communist economy. Beijing also switched gears in terms of geographical development priorities by focusing on the booming coastal provinces and the impoverished western regions instead of the rural heartland where most of the TVEs were located. Consequently, many TVEs began to flounder, as workers fled to coastal cities in search of work and banks began lending more capital to large SOEs. 

As China's economy took off during the 1990s, banks began lending outrageous sums of capital to SOEs, despite the fact that many companies were defaulting on their loans. And party cadres were quick to take advantage of their positions and cash in on China's newfound wealth. Indeed, the party has always been the most convenient way to amass wealth and power in China, a phenomenon that has become even more pronounced in the post-Mao era, as cadres use their connections to open companies or assume important positions at SOEs. 

Hu's embarrassed?
Corruption and the siphoning off of state funds - which has gotten out of hand in past decade - are vexing problems for China's new leadership, and President Hu has made the battle against corruption one of his top priorities. Hu, along with his trusty premier, Wen Jiabao, are determined to rein in corruption, and have been embarrassed by reports of cadres fleeing the country in droves with illegally obtained funds. Furthermore, China's leaders know that a crackdown on corruption will yield higher tax revenues in the long run. 

At this point, it is still unclear what effect this new initiative will have on China's economy and the problem of official corruption, especially in light of the loophole allowing TVEs to continue being run by local party chiefs. In the case of cities that are exempt from the new ordinance, the China Daily has reported that "the situation will be under strict supervision and management and must get the approval of the organization departments of superior party committees". Just how strict that supervision and management will be, however, is anyone's guess. 




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