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The 19-month U.S.–China trade dispute has led to a realignment of global supply chain and exacerbated China’s economic woes. But as a side effect, senior Chinese officials have taken a break from fighting corruption and Chinese Communist Party (CCP) leader Xi Jinping has finally changed his idealistic “zero tolerance for corruption” to a more moderate “tolerance for errors.”
This “tolerance for errors” policy is not only aimed at private entrepreneurs whose past transgressions have not yet been investigated but also a tolerance for officials who are “less” corrupt. Xi has changed from imposing heavy-handed penalties to imposing heavy-handed demands by using the discipline inspection and supervision system to force local officials to search for economic growth strategies.
A Task Force to Grow the Economy
Let’s start with the news.
An article in DuoWei News published on Dec. 9, 2019, wrote, “On Dec. 6, the Chinese Communist Party General Secretary Xi Jinping chaired a meeting of the Politburo of the CCP Central Committee… Compared to the previous pure economic analysis, the CCP emphasized the responsibilities of officials and incentive mechanism, as well as the role of discipline inspection and supervision in promoting the implementation of the reform. In 2020, at the same time when Xi issued China’s economic ‘mobilization order,’ a task force comprised of the CCP disciplinary inspection and supervision department will adopt a ‘carrot and stick’ policy to supervise the implementation of reforms through mechanisms of tolerance for errors, incentive, and punishment.”
This “tolerance for errors” policy in essence is Xi allowing regional officials to redeem themselves.
DuoWei News analyzed that “According to Xi Jinping’s speech at the meeting of the political bureau, the main problems of China’s economy neither come from the external pressure of the U.S.–China trade war, nor from basic economic problems such as decreasing returns and population aging as suggested by some so-called economists. The CCP knows very well that the problem behind the so-called economy is still its personnel. In China specifically, it is the issue of local officials.”
Traditional economists theorized a lot last year about the difficulty of restructuring China’s economy, and earlier this year about the scourge of African swine fever. They thought these are the root cause of China’s economic difficulties. Even the mouthpiece Xinhua highlighted “zero tolerance for corruption of inaction” some time ago, now the “emperor” found the root cause himself: the so-called economic problem is the problem of local officials putting their thoughts and interests above the country’s.
The prescription to solve these issues has also been proposed. In Xi’s “carrot and stick” strategy, the so-called “carrot” is the promotion of certain officials. The “stick,” which is the discipline inspection commission and the supervision department, is naturally prior evidence of corruption, violations of the law, and other transgressions.
The CCP central committee is currently tolerating these officials. If they behave well and carry out Xi’s orders, they will be promoted to a higher rank and excused. Zhou Bo, an executive vice mayor of Shanghai who received a stern warning from the CCP for violating the Party’s rules, has been appointed Deputy Party Secretary of Liaoning Province instead due to his ability to run turn around the economy.
This is superficially similar to former CCP leader Deng Xiaoping’s thinking when he famously said: “It doesn’t matter whether the cat is black or white, as long as it catches mice.”
During Deng’s time, corruption was more behind the scenes. During former CCP leader Jiang Zemin’s regime things had changed. Jiang permitted cats to catch mice as well as steal food, finally evolving into the situation that many big and small cats hide billions of dollars in cash, and cats with social connections even opened accounts in offshore financial centers. After Xi came to power, his anti-corruption campaign has made it impossible for cats to cheat publicly. Most of the surface grafts were banned, and the “cats have lost their enthusiasm to catch mice” or carry out their official duties. The CCP Central Committee has bemoaned for years about the inactions of some local officials. Today, Xi has finally figured out that the “stick” must be accompanied by a few carrots or incentives, and the main incentive is to waive past corruption.
Economic Management of Local Officials
However, this is the art of governing officials, not that of managing the economy. It should be said that Chinese government officials at all levels know very well how to “develop the economy” within China’s institutional environment and are good at learning. Guangdong Province and coastal areas developed through introducing foreign investment, and the entire country immediately began to attract outside investments. Yet foreign investors do not have the same affinity for China’s central and western regions, so poorer provinces can only gaze at, for example Guangdong’s foreign capital, and sigh. Some provinces, prefectures, and cities used real estate development to drive the economy, and soon the whole country became popular with real asset finance.
Housing prices soon became some of the most expensive in the world; Shanghai and Beijing even entered the list of world’s top ten expensive cities. When it comes to building subways, more than 30 Chinese cities have spent more than 600 billion yuan ($88 billion) to build urban rail transit, including subways, but only a few have broken even on their rail projects. There are several so-called “grey rhinos” (known asset bubbles) in the Chinese economy, one of which is acknowledged to be the huge debt incurred by the government’s investment in infrastructure construction. As for finance, thanks to the central government’s failure to delegate power to local governments, P2P and other personal finance products won’t be the only ones to explode across the country.
As a result officials have been less active in recent years, developing less real estate, investing less in so-called infrastructure to reduce bad debts in the financial system. This structural problem of China’s economy could have been adjusted a decade ago, but the global financial crisis of 2008 was a turning point.
I wrote at the time that if they missed the final window of adjustment in 2008, there would be no hope to change it in the future. During the U.S.–China trade war, the United States wants China to make structural changes and stop subsidizing exports by state-owned enterprises. China can’t say yes to this requirement, because to do that would be suicide.
Believing that the current problem can be solved with carrots and sticks as long as the discipline inspection commission and the supervisory system are in charge traces itself from former CCP leader Mao Zedong, who is still missed by some in China.
Mao has always believed that “man can conquer nature” and that the will to power is superior to the laws of economy. The “Great Leap Forward” during the 1950s epitomizes Mao’s “economic theory.”
Xi has changed Mao’s constitution to assume that all party officials are corrupt to some extent. The officials are allowed to redeem themselves by good service. If the economy catches up, their previous crimes will be atoned. If the economy fails to catch up, discipline inspection commissions and supervisory bodies may come to the door. Speaking of this, it is a tragedy that no official in China is free from corruption.
‘Original Sin’ of Private Companies
Private entrepreneurs also atone for their “sins” by doing good deeds, according to Zhang Jun, the top procurator, who attended the Open Day of Supreme People’s Procuratorate on Dec. 3, 2019. “Be lenient to people in charge of private enterprises who are suspected of committing crimes,” Zhang said, who also cited data to prove the government’s “leniency.”
“In the first 10 months of this year, the non-arrest rate for non-state-owned enterprises staff was 29 percent, 6.9 percentage points higher than the overall criminal offense.”
Those who are surprised by this may have forgotten a guidance document issued by the State Council on Sept. 12, 2019 which stipulated that whistleblowers should be set up in companies and other institutions to encourage insiders to expose violations by their institutions.
The government is doing this because China’s private companies are guilty of the “original sin” of wandering through grey areas to accumulate wealth. This fact is due to China’s extremely adverse institutional environment.
When government officials treat all public functions as rent-seeking tools, if private enterprises want to survive and grow, they have to form political and business alliances with bigwigs and obtain industry licenses, land, bank loans, etc. through bribery. Tax evasion is almost a commonplace phenomenon.
Building the whistleblower system, regulating businesses from bribery, illegal operation, and tax evasion is a smart plan for the Chinese government. Use the management and marketing expertise of private entrepreneurs and let them keep making money and hiring staff, thus the government can slowly raise more taxes, increase employment, and naturally elevate economic growth.
This policy shows that Chinese authorities are self-aware and know that private enterprises in non-monopoly industries will not survive long if they are taken into the public sector. However, the government could risk losing entrepreneurs or innovation if it demonizes private industry too much.
At a time when the entire world is struggling to prop up the local economy, it would be a huge coup if China can keep its economy growing by leveraging the “sinners” among its government and industry.
Views expressed in this article are the opinions of the author and do not necessarily reflect the views of The Epoch Times.
This article is from the Internet:He Qinglian: Xi’s Plan to Grow Economy Through ‘Redemption’