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Monday, August 30, 2004

A quick vent: although I appreciate Premier Wen's effort to introduce more equality to Chinese society, he, like Zhu, has given in to the temptation of using state capacities left over from the planned economy to accomplish current policy goals, thereby delaying reform. Recently, the PBOC and the CBRC ordered banks to provide student loans to students from poor families. While that is commendable, why is the Chinese government still ordering commercial banks to do its bidding. Why not set up a special fund in the MOF to do this? Why not ask the State Development Bank to do this? True, the reach of the Big Four is still the widest in China, but the MOF can still hire the Big Four banks to manage this special student loan fund. I think a lot of NPL will come out of this...sigh.....

SCMP
Tuesday, August 31, 2004Banks told to make student loans a priorityLenders threatened with punishment if they don't take step 'central to stability'
JANE CAI
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Parents wait outside a Beijing school as their children take university entrance exams. Only 5 per cent of students have taken out loans. Reuters photoMainland banks have been urged to offer education loans to poor students starting university next month, with authorities saying the issue is central to the social stability and training requirements of the nation.
China's central bank and the China Banking Regulatory Commission told lenders at the weekend they were to treat student loans as "an important task to guarantee the smooth entry of poor students into universities".
Central bank branches and commission bureaus at all levels were told to recognise the importance of the loans policy, while commercial bank headquarters were urged to encourage provincial branches to extend the credit.
"Commercial banks should not set any restrictions on state education loans," the notice said. "Those failing to make timely student loans in line with state policies and regulations will be investigated and dealt with strictly according to law."
The notice was apparently prompted by recent media reports that several parents who could not afford school fees and were denied loans had resorted to dramatic measures.
Earlier this month, a mother in Jilin province hanged herself after her son was told he had been accepted into a university. It is understood the mother - 48-year-old Zhao Liqin , who suffered from a chronic disease - killed herself because the family could not afford to pay both her medical bills and her son's tuition.
Zhou Hongling , head of the Beijing New People's Education Research Centre - a non-governmental research group - questioned whether the central bank and the commission could make such a demand.
"The authorities have no legal right to order commercial banks to do this - they are not the administrative superiors of commercial banks," Mr Zhou said. "So it is not known whether the notice will work."
Subsidised loans for university students were introduced in 1999, when the government ended full college subsidies and higher education costs started to soar. Tuition fees shot from several hundred yuan a year in the 1980s to as high as 8,000 yuan at some top universities.
Most banks suspended loans at the end of last year because of defaults on more than 20 per cent of borrowings.
Three years ago, the central bank blamed the defaults on an unsound social credit-rating system, students relocating after graduation, and the banks' poor ability to trace loans.
But demand for financial support is huge. A survey of 20 universities carried out last year by the China Foundation for Poverty Alleviation found that about 20 per cent of university students needed financial support.
The mainland has 16 million university students, but by the end of March, only 5 per cent had taken loans.



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Tuesday, August 24, 2004

There is a very interesting SCMP article on the D'Long saga. According to the account, we see Zhu's technocratic team stepping in to fix the whole mess. Wu Xiaoling, still just the deputy governor of the PBOC, and Xie Ping, newly appointed to the head of risk department at the PBOC, are taking charge of the bailout. Sigh......sometimes I do miss the good ol'days with Zhu. We certainly would be hearing colorful stories of Zhu screaming at the CBRC or PBOC for failing to catch such a major scandal by now.


Tuesday, August 24, 2004RESTRUCTURINGD'Long officials placed under house arrest Founder returns to help regulators save the technically bankrupt conglomerate
MARK O'NEIL in Shanghai
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The president of troubled D'Long group and several of his top managers have been placed under house arrest and the authorities are preparing the biggest debt-restructuring package since the 1998 collapse of Guangdong International Trust & Investment Corp.
Tang Wanxin, the president of D'Long Strategic Investment, and other directors of the firm are being held at home in Beijing, according to banking sources and Caijing magazine.

They can hold meetings, including those of the company board, but only with approval and under official supervision.
Other D'Long group officials arrested included He Guipin, the chairman of Jinxin Trust in Urumqi; Li Qiang, a vice-president of the group; and Wang Haiqin, a manager at Kunming Commercial Bank, the sources said.
D'Long executives could not be reached for comment.
"Their office is closed and no one is coming to work. There used to be 200 to 300 people working here. The office has been disbanded," said a man who claimed to be a security guard.
"Court officials have come here to investigate but we have not had investors coming here to demand the return of their investments."
The debts of D'Long Strategic, a private company set up by Tang and his three brothers in 1986, run into billions of yuan, owed to thousands of individual and corporate clients of the 21 financial institutions it owns and creditors of hundreds of other companies.
The D'Long crisis broke in April when creditor banks demanded repayment of loans.
As the most important of the four brothers, Tang was put on a police wanted list to prevent him fleeing the country. But Wang escaped to Burma in May, and many thought he would not return.
However, he flew back to Beijing on July 18 and was met at the airport by Xie Ping, a director of the stabilisation bureau of the central bank.
It is not clear what persuaded Tang to return but the official explanation is that the authorities told him that he was the only person who could unravel the company's complex organisational structure and debts.
Another possibility is that, as a close ally of Beijing, Burma helped to track down Tang and left him no alternative but to return.
Since then, he has met officials of the central bank, China Banking Regulatory Commission and China Securities Regulatory Commission to help form a rescue package.
In June, the government set up a committee to deal with D'Long's debt, headed by Wu Xiaoling, a deputy governor of the central bank, Mr Xie and representatives of the 15 major creditor banks.
Bankers say that D'Long is technically bankrupt, with liabilities far exceeding its assets, but the government dares not let it enter bankruptcy due to the effect on other firms and the anger this would provoke among individual investors.
A rescue could take the form of new loans from the central bank or creditor banks, to keep the group afloat and allow the sale of its assets to raise money. Another proposal is to hand over D'Long to Huarong Asset Management Corp and give it the job of selling its assets. Huarong is one of four asset management firms set up to take over bad debts of the Big Four state banks.
In the past, it has been policy to give priority to individual investors, especially of financial institutions.
Bankers estimate that since the end of 2002, mainland financial institutions lent up to 30 billion yuan to D'Long firms.

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Monday, August 23, 2004

Okay, back to some financial matters. A reporter called to ask me about the PBOC bailout of D'Long Group. I ended up having quite a few things to say. Here are the basic facts of the D'Long affair. First, D'Long is a private holding company started by the Tang family in Xinjiang. It began acquiring controlling shares in privatized dairy and food SOEs. In recent years, it expanded into financial services with the acquisition of minority shares in several city commercial banks and joint-stock banks. It also owns its own trust and investment company. Through a complex web of loan guarantees, loans, and shell companies, the group as a whole came to owe various banks some 20 to 30 billion RMB. In recent months, the Central Banking Regulatory Commission stepped up its investigation of D'Long, and after protestors blamed Bank of Communication for helping D'Long subsidiaries sell bad investment vehicles, D'Long became the focus of several central investigations. So, yesterday, instead of announcing the bankruptcy of D'Long, a fate that should befall on this Enronisque company, the PBOC announced a 15 billion bailout of the company. In this bailout, the Huarong Asset Management Company, originally set up to bailout state banks, would take over controlling shares of D'Long. Huarong would receive 15 billion in "relending" from the PBOC to help restructure the company. In the long-run, Huarong is expected to sell D'Long to private investors. Why?

I strongly suspect that the real motivation behind this bailout is, as always, to avoid a sudden surge in NPL ratio and to prevent a potential financial crisis from breaking out. Without knowing what would have happened had the PBOC not bailed out D'Long, it is difficult to say whether the PBOC did the right thing. On the one hand, the D'Long bankruptcy would mean at least 30 billion in new NPLs and perhaps more. Its complicated web of loan guarantees and triangular debt could destabilize the balance sheets of many of companies and banks, perhaps triggering a financial crisis that results in even more NPL. Most alarmingly, real deposit interest rates are currently negative, meaning that depositors are already a bit dissatisfied with leaving their money in the banking sector. A major financial scandal accompanied by illiquidity problems in several of China's smaller banks can trigger a local, if not national, bank-run. A PBOC bailout means that D'Long will continue paying interest to all of its creditors, and no new NPL will appear on their books. A potential financial crisis is thus prevented. On the eve of the 4th plenum, the last thing that Wen and Hu need is a major financial crisis.

On the other hand, this bailout sets a really bad precedence for other dubious private groups. the message basically reads: feel free to rack up a lot of bad debt; as long as your bad debt threatens the national economy, we will bail you out. True, the CEO of D'Long will likely go to jail, but investors in other private companies might encourage the management to take higher risks.

Some side commentaries: 1. The fate of the D'Long group shows the remaining problems with privatization. Because of D'Long's numerous connections and lax regulatory enviornment, the private firm still essentially faced soft-budget constraint. Even though it bought a lot of privatized SOEs, it is unclear whether the profit generated by these SOEs is "real."

I think this case on balance makes the CBRC looks bad. It had been aware of the D'Long problem since its formation in late 2002. Yet, little was done until the BOCO protests. Meanwhile, D'Long was allowed to set up more shell companies, raise more money, and get more loans. I fear more of this to come.

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Thursday, August 19, 2004

In the newest issue of Qiu Shi, the central committee's flagship magazine, former premier Li Peng penned a memorial for Deng Xiaoping. Needless to say, it is politically charged. Several China scholars have already pointed out that the article tried to shift the blame for the Tiananmen Square Massacre to Deng and "veteran comrades in the party." However, there is also another politically poignant point made in the article. He writes: "现在中国的许多地区又出现了缺电现象,成为发展经济和保证人民生活的制约因素。我坚信只要遵照当年小平同志加快电力建设的思想去做,电力一定会进一步搞上去,缺电现象一定能尽早得到克服." This translates to "currently, there is energy shortage in many places, which constrains the development of the economy and the livelihood of the people. I firmly believe that if we strictly follow Deng's wishes to accelerate the construction of electric capacity, we will improve the situation in electricity and will soon conquer the phenomenon of electricity shortage." Of course, as the former energy czar of China, he has a great interest on the issue. But perhaps this comment also implicitly criticizes the current Premier and Zhu Rongji for failing to pursue electricity policy according to the wishes of Deng.

If so, Jiang might be using Li to deal a blow on Wen Jiabao, probably in an attempt to stop the "anti-corruption storm" still brewing in China. According to several press accounts, Li Peng has been trying to publish a book to clear his name of Tiananmen for some time now, but the Politburo has rejected Li every time. Although this is not a full account, Li is at least allowed to whitewash his name somewhat. The tradeoff might be to include some criticism of Wen's electricity policy. As a relatively new Premier, electricity problem clearly isn't the fault of Wen alone, so implicityly, Zhu is also to blame.

Some readers have suggested that I am too speculative, but well, that's what you get in a blog. This is not Reuters.

纪念邓小平同志

李鹏

今年是我们敬爱的邓小平同志诞辰一百周年。我和大家一样,以无比崇敬的心情,缅怀这位中华民族的伟人,中华人民共和国的开国元勋,中国社会主义改革开放和现代化建设的总设计师,伟大的马克思主义者,指引中国人民走建设中国特色社会主义道路的邓小平理论的创立者。

我最早相识邓小平同志是在1945年,他从前线回到延安,参加党的七届一中全会。他满怀深情地对我说,我和你父亲很熟,在上海一起做地下工作,后来他在海南岛牺牲了,很可惜。1958年9月邓小平同志到吉林丰满水电厂视察。在大坝上,小平同志指着因超出力大发电水位消落过度的水库说,今后你们要学会按经济规律办事。1981年7月2日邓小平在中央召开的各省市区书记座谈会上,发表了题为《老干部第一位的任务是选拔中青年干部》的讲话。他说:“今天讲到一个刘澜波同志(时任电力部部长——引者注),我建议大家向他学习。他亲自出来讲话,推荐一位比较年轻的同志当部长。”1983年我到中央工作以后,接触小平同志,聆听他的指示和教诲的机会就更多了。每次都使我受益匪浅。邓小平同志永远是我最尊敬的前辈和师长。

1977年8月我参加了党的十一次全国代表大会。这次大会是在粉碎“四人帮”以后的背景下召开的,理应从理论到实践上对文化大革命“左”的错误作出纠正,但大会仍然坚持“抓纲治国”的错误路线。当时“两个凡是”盛行,已经成为从思想上拨乱反正的桎梏,阻碍党的前进。在这次大会上,我们有机会全面了解和系统学习了邓小平同志对于“两个凡是”这一错误观点的批评。其实,他早在1977年5月就提出“两个凡是”不符合马克思主义;当年7月21日在党的十届三中全会上,邓小平同志又提出要“完整地准确地理解毛泽东思想”,“不能够只从个别词句来理解毛泽东思想,而必须从毛泽东思想的整个体系去获得正确的理解”。小平同志这些讲话,不但使与会的代表的思想认识有了极大提高,而且为以后真理标准的大讨论,为全党的解放思想,破除迷信奠定了厚实的理论基础。

1981年6月我以电力部长的身份,列席了党的十一届六中全会。当时党的十一届三中全会已于两年半前召开过,全党的工作重点已转移到以经济建设为中心的方针上来。此次全会的任务就是要讨论通过《关于建国以来党的若干历史问题的决议》。在讨论中,争论的重点是如何评价毛泽东主席。一些同志发言相当尖锐。小平同志从历史唯物主义的观点出发,考虑到国家前途命运的大局,既根本否定了文化大革命的错误实践和理论,又坚定地维护毛泽东同志的历史地位,科学地评价毛泽东思想的科学体系。他说:毛泽东同志“终究是中国共产党、中华人民共和国的主要缔造者。拿他的功和过来说,错误毕竟是第二位的”。毛主席最伟大的功绩是把马克思主义的基本原理同中国革命的具体实践结合起来,指出了中国夺取革命胜利的正确道路。邓小平同志从理论和实践的高度,作出毛泽东主席功大于过的结论,具有很大的说服力,使全会顺利通过了《决议》。小平同志在处理毛主席的功过评价问题时,不计较个人恩怨,表现了一位伟大的无产阶级政治家大公无私的宽阔胸怀。

在粉碎“四人帮”以来,特别是十一届三中全会以来,在党内和社会上存在两种错误的思想倾向:一部分人深受极左思潮的毒害,怀疑甚至反对三中全会所制定的以经济建设为中心的方针;另一部分人怀疑社会主义,反对共产党领导,在西方反华势力的鼓惑下,国内一些自由化分子,沿袭“文革”那一套做法,利用大字报、小字报,鼓吹资产阶级自由化,妄图破坏来之不易的社会安定局面。

这两种思潮都危及来之不易的安定团结局面。邓小平同志审时度势,于1979年3月30日作了《坚持四项基本原则》的重要讲话。在党的全国代表大会上,把“一个中心,两个基本点”,即以经济建设为中心,坚持改革开放和坚持四项基本原则,确定为党的基本路线,后来又写入了宪法。在以后的一段时间内,我国的改革开放和经济建设都取得显著的成就。但是,由于党的个别领导人放松了坚持四项基本原则,使自由化思潮得以泛滥。小平同志及时发出了警告。1989年3月4日他在向中央负责同志谈话中指出:“我们搞四化,搞改革开放,关键是稳定。”“没有四个坚持,中国就乱了。”同年3月23日,小平同志在会见一位非洲国家的总统时说:“我们最近十年的发展是很好的。我们最大的失误是在教育方面,思想政治工作薄弱了,教育发展不够。”1989年春夏之交在中国发生了一场严重的政治风波,邓小平同志以一个伟大的革命家和政治家的气魄,和其他老同志一道坚决有力地及时支持党和政府采取果断措施,平息了那场政治风波,保证了国家的长期稳定,为以后中国的发展与进步提供了必不可少的条件。

小平同志十分重视中国社会主义事业接班人的选择和培养,特别是领导核心的选择。这是关系党和国家命运的大事。小平同志经过长期的考察,在陈云和李先念同志的协助下,提出江泽民同志为党的第三代领导集体的核心。实践证明这一选择是正确的。在江泽民同志为核心的党中央领导下,十三年来,中国的现代化建设事业取得辉煌的成就,继承和发展了邓小平理论,提出“三个代表”重要思想,为中国现代化事业继续发展指明了方向。邓小平同志身体力行,为废除领导干部终身制做出了榜样,使中国政治体制改革走出重要的一步,使大批年轻有为的人才,经过实践的锻炼和考验脱颖而出。

邓小平同志是中国独立自主的和平外交政策的奠基人。他亲自主持中日和平友好条约的签订和实现中苏关系的正常化。他亲自访问过美国、西欧和日本等国,为增进中国和这些国家了解与合作做出了贡献。1988年我担任了国务院总理,不久又担任中央外事工作领导小组组长。我深感自己责任重大,能力和资历都难当此重任。1988年5月5日小平同志在家中亲切地接见了我。我重点请教他如何才能做好外交工作问题。他说,和平与发展是当今世界两大主题,世界大战一时还打不起来,要抓住这个有利的机遇,为我国四个现代化建设创造良好的外部条件。他还说,外交工作的重点是要处理好中国与重要国家的双边关系,同周边国家建立友好与合作。针对我的畏难情绪,小平同志说,我就担心你不敢大胆工作,要努力学习,在工作中锻炼自己,使自己成熟起来。他又对我说,周恩来总理是世界公认的外交家,你们在对外交往中,要学习他那种泱泱大国总理的风范。1989年政治风波后,西方国家对我国实行“制裁”,是我国外交工作最困难的时期之一。针对严峻的国际形势,小平同志及时提出韬光养晦,多做工作的外交工作方针。他亲自接见不少外宾,向他们阐述中国改革开放方针政策不会改变。对应对国际上出现的许多重大事件,如苏联解体、东欧剧变等,都做出正确的指导。在江泽民同志领导和具体策划下,经过十多年的努力,中国终于逐步打破了西方国家对我国的“制裁”,正常和友好合作关系得到恢复和加强。在这一个时期,我国还进一步加强和周边国家的关系,出现了一个良好的周边环境。我国一如既往加强与发展中国家的关系,在经济和国际事务中做到互相理解,互相支持。随着经济发展和国力的增强,中国的国际地位日益提高,在国际事务中发挥着越来越重要的作用。

党的十二届三中全会提出了经济体制改革和发展同世界各国经济合作的方针。在邓小平同志倡导下,早在1980年5月中央决定建立深圳、珠海、汕头和厦门四个经济特区,到1984年5月又决定进一步开放沿海十四个城市,在这些地区所实行的改革开放的政策,促进了人们观念的转变,积极引入外资、外国先进技术和管理经验,因而使这些地区特别是四个经济特区有了很快的发展。1990年邓小平同志又把注意力转向了上海。同年3月3日小平同志把江泽民同志和我约到他家里去,他在分析了上海在技术、工业、金融和人才方面的优势后说,上海是最有发展前途的地方,开发浦东的事你们要认真抓。为了贯彻好小平同志这一重要的嘱托,江泽民同志和我立即进行了具体安排。鉴于当时中国许多城市都要求建立经济特区,江泽民同志说,为了不引起攀比,上海浦东不叫经济特区,而叫浦东新区,但是享受特区的优惠政策。继而请姚依林同志去上海,解决了上海长期上缴中央财政比例过大的负担,为发展上海开发浦东创造了财政条件。我又于4月中旬,率领国务院有关部委的负责同志到达上海,进行调查研究,同上海市负责同志一起磋商。4月18日我在上海正式宣布党中央和国务院同意上海市加快浦东地区的开发和开放,在浦东实行经济特区的政策。

邓小平同志十分关心并亲自过问对外合作重大项目的建设。1984年4月29日小平同志亲自接见美国企业家哈默博士,我参加了会见。哈默是当时世界上仅存的见过列宁的人。哈默谈到中美合作山西平朔露天煤矿已达成合作协定之事,小平同志很高兴地说,这是我们合作的开始。山西平朔安太堡煤矿是一座大型露天煤矿,年产煤1200万吨。通过这个煤矿的建设,使中国掌握了当时世界上最先进的采矿技术和洗精煤设备的制造能力。邓小平同志还十分关心和平利用核能事业的发展。早在1978年12月4日邓小平同志在法国访问就与法方签订了经济合作的长期协定,决定中国向法国购买两座核电站。1985年1月19日邓小平同志非常高兴地会见香港中华电力公司董事局主席嘉道理先生,对建立大亚湾核电合营公司表示祝贺。他说,我国的对外开放,吸引外资的政策,是一项长期持久的政策。广东和香港合营的广东核电站,对保持香港的繁荣稳定有特别重要的意义。1986年4月26日在前苏联切尔诺贝利石墨堆核电站发生了严重的火灾事故,放射性物质泄漏,危及周围居民的安全。香港有些人利用不明真相居民的恐核心理,发动要求停建或迁建大亚湾核电站的签名活动,一时闹得沸沸扬扬,借此对中国政府施加压力。在这紧要关头,邓小平同志发出明确指示,中央对建设大亚湾核电站的决心没有改变,才使大亚湾核电站建设得以按进度继续进行。1994年2月9日,正值农历除夕之日,上午邓小平同志得知大亚湾核电站一号机组顺利投产的消息后很高兴,请我转达他的祝贺,并对大亚湾核电站的建设者、科学技术人员表示感谢。

小平同志对基础设施特别是水利电力事业的建设十分关心,给了许多帮助和做了具体的指导。众所周知,他是三峡工程建设的主要决策者。他对电力工业的发展特别关注,对长期存在的电力供应紧缺情况感到焦虑,多次提出要加快电力建设。1985年1月小平同志在与我的一次谈话中问到:“到本世纪末电要搞到多少,才能保证经济翻两番的需要?”我回答说:“至少要与国民经济同步发展,搞到2亿千瓦以上,办法就是大家办电,不是一家办电。”我又说:“只要政策对头,把电搞上去还是很有希望的”。小平同志高兴地说:“这我就放心了。”“看来电有希望,翻两番有希望。”现在中国的许多地区又出现了缺电现象,成为发展经济和保证人民生活的制约因素。我坚信只要遵照当年小平同志加快电力建设的思想去做,电力一定会进一步搞上去,缺电现象一定能尽早得到克服。

以上这些具体情节,都是我亲身经历过的事,但每件事都表明了小平同志对中国改革开放和现代化事业付出的心血和作出的巨大贡献。

邓小平同志的伟大功绩在于把马克思列宁主义、毛泽东思想与现今中国四个现代化建设实践相结合,形成了建设有中国特色的社会主义的邓小平理论。邓小平同志认为中国是一个发展中的国家,处在社会主义初级阶段,要达到世界中等发达国家的水平,还要经过长期的艰苦奋斗。他提出了中国实现现代化分三步走的战略目标,为中国人民开创了奋斗的道路。他提出,社会主义就是要解放和发展生产力,科学技术是第一生产力,发展是硬道理的论断,从理论上阐明了什么是社会主义的大课题,增强了广大人民对建设社会主义的信心。他支持建立社会主义市场经济体制,但同时指出计划和市场都是发展经济的手段。他发出抓住时机、加快发展的号召,极大地调动了中国人民投身改革开放和现代化建设的积极性。同时他又强调,不鼓励不切实际的高速度,要扎扎实实,讲求实效,稳定协调地发展,这就表明了邓小平同志的科学发展观。邓小平同志总是用发展的眼光,运用唯物辩证法来观察和处理问题。邓小平同志是解放思想、实事求是的楷模,是我们学习的榜样。

邓小平同志给我们留下了宝贵的理论和精神财富,鼓舞我们继续前进。我相信,在以胡锦涛同志为总书记的党中央领导下,以邓小平理论和“三个代表”重要思想为指导,全国人民一定能够实现本世纪头20年的战略目标,全面建成小康社会!

(原载《求是》2004年第16期)


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Tuesday, August 17, 2004

A reader recently wrote a very interesting note to me. He first questioned whether Zhu still has any influence. My response was:

I think Zhu still has more pull than his lack of public appearances would suggest. The anti-inflation drive in April, especially the way that it was carried out, has Zhu's stamp all over it. At the very least, Wen clamped down tightly on inflation only with the expectation that Zhu would support him.

The reader further points out that Wu Guangzheng, the head of the CDIC, was touring Fujian between August 13th and August 17th! Wow! What an amazing coincidence. Huang's editorial came out on the 13th.

My excited response: Your observation about Wu Guangzheng is right on spot. I think you are right that Wu's visit might have directly or indirectly prompted Huang to write the letter. If it is the former, then Huang is indeed trapped in web of elite politics.

Further thoughts: I was going to look up the RMRB for the official press release of Wu's visit. Guess what? The title of the article is there, but when I clicked on it, the article has been removed!! What's the deal. Okay, so according to unofficial sources, Wu Guangzheng is now in Fuzhou looking into things, but so is the private secretary of former Fujian party secretary Jia Qinglin (Kong Xuewen)!! What a mess!

Comments:
Zhu would appear to be enjoying retirement with grace.

The "anti-inflation drive" is a mis labelling. It was a cooling down of the hot sectors, steel, aluminium smelting, cement and real estate. These contribute zero to inflation.

Inflation of around 5% was driven by high grain prices, which will come crashing down when the bumper harvests come in in the next month, which will be the real driver of reduction in CPI.

Wu Guangzheng and Jia Qinglin are closely aligned and do not deviate from the Hu/Wen line; there were strong differences regarding the cooling measures, but the attacks came from outside the politbureau.
 
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Monday, August 16, 2004

So, finally, we have a sad, but expected, ending to the Huang Jingao affair. As many of you know, Huang Jingao, a county chief from Fujian, wrote a letter to the People's Daily on the 13th detailing the corruption and, more important, the official tolerance of it in Fujian. After the letter was posted for one day, the Central Propaganda Department ordered the RMRB to remove it. So, what's going on here? Does this have to do with the Jiang-Hu-Wen struggle? Of course, I would say yes, but I am biased.

Let's look at the evidence here. It seems that this is a perfect example of a provincial level struggle festering up to the central level. Song Defu, a long-time Hu Jintao protege from their days in the CYL, was party secretary of the Fujian government between 2001 and 2003. During the period under discussion, from 2002 to 2003, Song Defu served as provincial party secretary, but Huang's immediate superior, the party secretary of Fuzhou city, was (is) He Lifeng, who has close ties with Fujian's previous party secretary, Xi Jinping. Several unofficial sources also suggest that He Lifeng is extremely corrupt, with a vast network of supporters in the region. This might be behind the "resistance" faced by Huang all along. In the letter, Huang recounts an event on 12/02 when a special investigation committee organized by the Fuzhou City Committee determined that there was only 3 million in questionable funds, where as Huang estimates that the amount to be hundreds of millions. Despite likely resistance from He Lifeng, other "city leaders" supported Huang's effort. Those others might be the relatively clean element in Fuzhou and/or those who are closer to Song Defu, the serving party secretary at the time.

But according to the letter, at the end of 2003, the party secretary of Fuzhou, still He Lifeng, suddently gave Huang permission to further pursue the case. Why? A quick google search reveals that in mid-2003 a huge corruption case broke out in Fuzhou, which threatened to topple the city government. An infamous drug dealer and money launderer in the city named Chen Kai was arrested earlier in the year. By June, 8 senior officials in the city government were arrested for receiving bribes from Chen. Obviously, since He Lifeng was party secretary of the city all along, there is little chance that he was not a part of the Chen ring. Under pressure from the provincial government and possibly the central government, He might have made a show of pursuing the highway case (which Huang was investigating) to take the heat off himself on the Chen Kai case. The Chen Kai case was far more serious than the highway case. His tactic worked. He saved his job, and Chen Kai was rumored to have "committed suicide due to a guilty conscience."

So, what does this have to do with national politics? If He Lifeng was indeed a protege of former party secretary Xi Jinping, then He is probably protected by Jiang himself, since Xi is a loyal follower of Jiang. The Chen Kai case is at the level of the Yuanhua case and likely attracted the attention of officials at the highest level. Unfortunately, Song Defu, who had been party secretary, was demoted to the head of the provincial NPC position in January 2003, replaced by Lu Zhangong, who is much less loyal to Hu Jintao. (I am not sure which faction he is in. According to Lam, he is in Wu Guanzheng's faction, but he is a long-time official in Zhejiang, which is traditionally a Jiang stronghold). In comes Huang Jingao's letter, which might have been written on his own initiative or with the prodding of Song's faction. In any event, the RMRB decided to publish it, probably with Hu Jintao's blessing. In the letter, there is also a slight dig on Jiang's Three Represents theory: "if the communist party speaks of "three represent," then we must respond to the cries of the people.... otherwise, how are we 'representing?' what are we 'representing'." This might have hinted at the hypocrisy of Jiang followers Xi Jinping and He Lifeng. The Propaganda Department, under the control of Jiang loyalist Liu Yunshan, soon take action to ban the letter from all media. In this contest of power, Jiang is still showing the upper hand.



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Friday, August 13, 2004

More on the Jiang vs. Hu-Wen struggle. Waldron and Tkacik penned an article in the WSJ stating that Jiang is currently winning the factional struggle. Based on available evidence, I would say they are right. Most recently, when Hu went to unveil a bronze statue of Deng to commemorate his 100th birthday. The headline read "Hu Jintao unveils the statue in Guang'an; Jiang Zemin signed it." Clearly, signing it was more important than merely unveiling it. It is by no means conclusive, but it seems Hu and Wen have played their most serious cards--corruption investigations-- to little effect. As my earlier posting suggests, the reason why the recent "audit storm" has done little might have to do with "problems" with Wen's son, who might have taken advantage of his father's status in the business world. If Wen doesn't take a strong stance, then Hu cannot do anything against Jiang on his own. It is curious that Wu Guangzheng, head of CDIC and supposed Hu ally, has not done anything much recently. The audits were spearheaded by the NAO rather than the CDIC. The CDIC followed up on a few cases after the audits, but nothing serious has surfaced. In the most recent speech Wu made to a group of local leaders, he made no mention of the cases that the audit had turned up, at least not in the public account. Perhaps he is switching to wait-and-see mode. If so, Hu is in trouble.

Economic implications: I think inflationary tendency will make a come-back later this year and almost definitely by next spring. With Hu-Wen on the defensive, coastal provinces will once again clamor for more credit. Jiang will support Jiangsu, Shanghai, and Zhejiang's call for looser credit, and Wen will comply. The looser monetary environment, in combination with continual raw material shortage, will generate further inflationary pressure.

WSJ:

By ARTHUR WALDRON and JOHN TKACIK JR.August 13, 2004
At a meeting of the Chinese Politburo late last month, President Hu Jintao informed the comrades around the table that, "if national defense construction is not done well, a secure environment for economic construction can hardly be assured." Economic reform, it seems, is no longer the "central task" of the party.
Some of those assembled may have noted that this sentiment hardly gibed with Mr. Hu's stated belief that China's "peaceful rise" is anchored on economic progress, but there was a good reason for the turnabout. The president had been compelled to read this statement by his predecessor, Jiang Zemin, who can't abide the slogan "peaceful rise."
Instead, Mr. Hu was made to mouth such sentences as: "from beginning to end, we must place national sovereignty and security in first place, resolutely defend fundamental national interests, and resolutely defend national sovereignty and territorial integrity." From here on, the late leader Deng Xiaoping's dictum that economic construction is "the central task," which has guided China's development for two decades, will be relegated second to militarization.
The humiliation was but the latest sign that China's leadership is going through a power struggle, one that brings a danger of escalation beyond China's borders. Alas, Mr. Jiang seems to be winning the day, and if Mr. Hu isn't able to halt the increasingly assertive military policies, serious problems lie ahead. One early victim could be a U.S. foreign policy predicated on China's emergence as a "status quo" power, the favorite phrase of many sinologists. But Mr. Jiang, in his new incarnation, is not a status quo leader.
Chinese who know all these players believe that President Hu and his Prime Minister Wen Jiabao, while not exactly democrats, are chiefly concerned with internal issues such as poverty, corruption, internal unrest, and the like -- and had hoped to turn to them after Mr. Jiang's "retirement." Our own decade of watching the careers of Messrs. Hu and Wen convinces us that they see their country's massive economic and social problems -- and not military modernization -- as the top priority. Both men grew up in modest petit bourgeois homes, both came from families that suffered during the Cultural Revolution, and both were sent to dirt-poor Gansu province for a decade of "work in the countryside" in the 1970s.
By contrast, Mr. Jiang and his closest prot間?in the present standing committee of the Politburo, Zeng Qinghong, are from privileged party clans. The former president, who passed his title to Mr. Hu not two years ago, is calling the shots from the Central Military Commission, trumping Messrs. Hu and Wen's domestic agenda with the nationalism card. To do that, Mr. Jiang is whipping up yet another pointless and dangerous confrontation with Taiwan -- and succeeding in nobbling his ostensible successors.
This seems to follow a script that Mr. Jiang hinted at in the mid-1990s when he told Japan's Asahi Shimbun that, "without the threat of force, peaceful reunification [with Taiwan] cannot be accomplished." Evidently Mr. Jiang thought that if he built up his army sufficiently, Taiwan and the United States would be intimidated. But a bucket of water has been poured over his plans by the firm words from U.S. National Security Adviser Condoleezza Rice and Admiral Thomas Fargo, commander in chief of the U.S. Pacific Command, during recent visits to Beijing. Both made it clear that U.S. arms sales to Taiwan would continue in order to correct the imbalance caused by China's missile buildup. This puts Mr. Jiang in a dilemma. If he pushes ahead, he risks war. But if he doesn't, he must abandon his entire political strategy.
To be sure, the official media still sometimes touts the line that China has embarked on a "peaceful rise" and will not present any dangers to her neighbors. Authored by Hu acolyte and former Central Party School vice president Zheng Bijian, the slogan "Peaceful Rise" was to be the bumper-sticker for Mr. Hu's kinder, gentler foreign policy.
But while the line may sooth the nerves of China's neighbors, it does not describe what Mr. Jiang and the People's Liberation Army have in mind. Just in case Mr. Hu was in any doubt about this, or about who is in charge, at the July 24 Politburo session Mr. Jiang humiliatingly had his successor personally instruct those assembled on the chairman's new military guidelines. Apparently, it was below Mr. Jiang's dignity to take the mike himself.
For the moment, no powerful opposition to Mr. Jiang exists. He and his hard-line faction have been in charge ever since the Communist Party's 16th Congress in November 2002, and Mr. Jiang's support from the Chinese Army is bolstered by his staunch advocacy of military modernization.
This explains why China is now demanding that the U.S. cease arms sales to Taiwan, although U.S. military sales to Taiwan was a condition of normalization in 1979. Japan is getting a taste of China's naval power as Chinese military and commercial vessels conduct seabed surveys in waters that have been in Japan's jurisdiction for over a century.
What is important to understand is that this dangerous approach does not represent a consensus in the Chinese leadership. It is a policy choice adopted chiefly for domestic political reasons, by Mr. Jiang's faction, and should not be imputed to Mr. Hu or Mr. Wen, whatever lip service they may be forced to give it for the moment.
It is essential the United States and democratic Asia work to see that Mr. Jiang's policies fail and that Mr. Hu and Mr. Wen are able to return China to Deng Xiaoping's theory that "economic construction is the central task." And this means they must start pushing back on Mr. Jiang's "Army First Policy."
Mr. Jiang is deeply unpopular for his vanity and selfishness. Even PLA generals are uneasy about the "two centers" of power in the Chinese Communist Party. China has no institutional mechanism for deciding who will be in charge. The army and secret police are strong. But they are divided. The risk is that the split moves downward into society, pervading and dividing every institution.
The best way for America and its Asian allies to push back would be by quietly, but firmly, flexing their muscle around the region. This, for one, might dispel Mr. Jiang's fantasy of an easy conquest of Taiwan. Cooperation on radar and missile defense, closer cooperation with Japan, returning the Seventh Fleet to the Taiwan Strait on a more regular basis, joint air exercises with the Japanese and others and increasing naval sorties and discreet coordination with Japanese and Taiwan naval forces would do the trick -- provided they are backed up by absolutely unequivocal and authoritative statements from Washington that no wiggle room exists here. Peace in Asia and specifically with Taiwan is the indispensable precondition of the Beijing-Washington relationship.
The Chinese leadership, civilian and military alike, must be made to clearly see that provocative military moves -- like the German reoccupation of the Rhineland in 1936 -- will not go unanswered. Only then will Mr. Jiang's fallacies be exposed and a more reasonable leadership take his place, one that understands that belligerence and displays of force gain nothing, while a prosperous, unthreatening, and democratic China would be warmly welcomed into Asia, not least by Taiwan.

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Monday, August 09, 2004

Since I can't vent elsewhere, I will vent on my own blog. I attach a SCMP article below about how Wen is still calling for local officials to stick with retrenchment policies, despite rising opposition to it. I strongly suspect that Zhu is behind this firm stance against possible inflation. I personally don't think Wen is so determined to stamp out inflation. He might be doing this in order to get Zhu's continual support in the difficult time of factional conflict with Jiang's people. The last thing he needs is to have Zhu angry with him also. Hu Jintao is going along with Wen's policy presumably for the same reason. They need Zhu's support in order to do battle with the other "immortal" Jiang Zemin. There is a great irony in that Wen is giving these remarks in Deng's hometown. Deng was a fierce opponent of central administrative measures throughout the 80s and 90s. However, Wen's statement in Guangan might also have been a dig at Jiang, Deng's successor.

SCMP
Monday, August 9, 2004Premier urges provinces to tighten economic controls
REUTERS in Beijing and STAFF REPORTER
Prev. Story Next Story


Wen Jiabao visits Guangan, birthplace of Deng Xiaoping Premier Wen Jiabao has urged provincial leaders to strengthen macroeconomic control measures, in the latest sign that Beijing is not yet confident the overheating economy has sufficiently cooled.
Mr Wen made the comments on a visit to Sichuan province as debate among economists is growing over further measures the government might adopt after initial steps led to a sharp slowdown in economic expansion.
"Strengthening and perfecting macroeconomic controls is still the economic focal point," Xinhua quoted Mr Wen saying when he met provincial leaders in Chengdu on Saturday. The leaders were summoned from Sichuan, Guangxi , Guizhou and Yunnan and Chongqing municipality .
"All regions and departments will continue to implement all policies and measures of macroeconomic control, and consolidate the controls' results," he said.
Mr Wen's remarks came ahead of the release of July economic data this week.
Economists believe the data will show a further slowdown in growth as the effects of credit curbs and administrative restrictions take hold. "The macroeconomic controls are still in a critical phase. The results gained are initial and partial," Mr Wen was quoted as saying.
"If [we] are not careful and lapse, [the problems] will rebound and what we have achieved will be wasted. Leaders at all levels must recognise the difficulty and complexity of our macroeconomic controls and press ahead."
Mr Wen highlighted five priorities: more support for agriculture; further control over investment growth; resolving bottlenecks in industries such as coal, electricity and oil; promotion of the private economy; and public welfare reforms, Xinhua reported.
Mr Wen made a similar call last month when he chaired a State Council meeting in Beijing. In that meeting, he stressed that austerity measures introduced by the central government had achieved "obvious results" but warned against "blind optimism". Similarly when President Hu Jintao toured Shanghai late last month, he echoed Mr Wen's call to stay firm with the "macroeconomic controls".
The remarks by Mr Hu and Mr Wen indicate the top leadership is concerned about the strong reactions from the provinces, which have complained that the austerity measures were excessive and choked off growth.
According to the Xinhua report, Mr Wen emphasised in his talks with the provincial leaders that western provinces - including those relatively poor ones - must follow the principles laid down by the central government in achieving economic development and not just blindly follow the unrestricted growth once commonly pursued by coastal provinces.

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Tuesday, August 03, 2004

As we near the 4th plenum in September, factional fights seem to intensify. Taking a cue from the Chen Yun play book, both Wen and Jiang are now pointing fingers at each others' children for allegedly corrupt behavior. There is little doubt that children from both families have abused their connections in various ways. The manifestation of this fight has been a wave of audits on government units headed by Jiang cronies and most recently, a report from the 21st Century Herald insinuating corrupt dealings by Wen's son. 21st Century Herald, which is operated by the Guangdong government (where Jiang crony Zhang Dejiang is party secretary) published a strange story inquiring the mysterious investor who bought over 7 billion HKD worth of Ping'an Insurance shares. The article did not name Wen Yunsong's name, but the profile is very similar to Wen's businessman son. Incidentally, Wen Yunsong is a graduate of our Kellogg Scool at NU. I should see if alumni relations can dig up more. Anyway, as I pointed out before, the NAO was auditing Netcom, but I don't think the audit will "discover" anything now. The score is 1 to 1.

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