Elite Chinese Politics and Political Economy

After some reflection and talking to a couple of people, it seems my earlier prediction of Zhou Xiaochuan or Bo Xilai serving as Huang's replacement contains one major flaw. It has to do with the likelihood of a two-step promotion in the Communist Party. Basically, if the Standing Committee wants a Standing Committee member as Huang's replacement, they would have to promote the likes of Zhou Xiaochuan two steps: from a central committee member direct into the Standing Committee, skipping the Politburo. Although such a promotion is not without precedent (Zhu Rongji at the 14th Party Congress), it is highly unlikely these days. Even someone's favorite would probably need a pro forma one-year term as a Politburo member before being inducted into the Standing Committee.

If they want someone like Zhou or Bo, or even Dai Xianglong, they would have to settle with a relatively weaker vice-Premier with a Politburo rank. That is not advisable for important portfolios like finance and state assets since several provincial party secretaries are themselves Politburo members. A Vice-Premier with only a Politburo rank would have a hard time ordering say Guangdong what to do since Zhang Dejiang is also a Politburo member.

Speaking of Zhang Dejiang, one option that remains is to appoint a current Politburo member as the vice-premier, with the understanding that this person would be promoted into the Standing Committee at the 17th Party Congress. So let's see. Hui Liangyu, Wu Yi, Zeng Peiyan, Cao Gangchuan and Zhou Yongkang are already Vice-Premiers and State Councilor with heavy portfolios. Of the remaining, Liu Yunshan, He Guoqiang, Guo Boxiong, and Wang Gang are all specialists of the military or party affairs and would make unlikely candidates (well, look at Wen....). If they are promoting someone from the Politburo, it is likely to be one of the provincial party secretaries: Wang Lequan, Liu Qi, Zhang Lichang, Zhang Dejiang, Chen Liangyu, and Yu Zhengsheng. Of these, Zhang Lichang is probably too old at 67, especially given that his patron Li Ruihuan now retains little influence. If Jiang's power remains very robust, it is possible that Chen Liangyu would follow Huang Ju's footstep and become Vice-Premier and Standing Committee member. I think Chen is more controversial than Huang was, and Jiang's power is probably not what it was when Huang was appointed. Therefore, I do not place high odds on a Chen appointment. I certainly hope that the Chinese government has enough sense not to appoint Wang Lequan and Zhang Dejiang. While Wang has done a fine job running Xinjiang's natural resource-based economy, some might see him as inexperienced in managing a manufacturing based economy. As for Zhang Dejiang, it would alarm foreign investors if a graduate of the Kim Il-sung University in North Korea were to take over China's financial sector.

Among the Politburo members, I would place the highest odds on Yu Zhengsheng and Liu Qi. Yu Zhengsheng is a well-known princeling with close ties to Deng's family and is on good terms with Jiang. Moreover, he has served both in central ministries (Electronics, Construction) and in provincial governments, making him a well-rounded candidate for the job. Liu Qi was appointed by Jiang, and also has a well-rounded CV with experience both in central ministries (steel) and local government. In terms of technical expertise, Liu Qi probably has much more experience managing SOEs, one of Huang's portfolios. However, Yu's connections in Chinese officialdom cannot be underestimated.

What about Wang Zhaoguo? He is supposedly a close ally of Hu Jintao, and the only Politburo level supporter of Hu. Although Hu would probably like to maneuver him into Huang's position, I think he has too little experience in economic affairs, and Wen might even reject his candidacy. Hu can try to promote one of his provincial followers (Li Yuanchao of Jiangsu or Lu Zhangong of Fujian) to the vice-Premier position. But the problem again is the two-step promotion. For the sake of promoting one of them, Hu might choose to have a Politburo-level Vice-Premier instead of a Standing Committee level one. Let's hope he doesn't do that because it would greatly diminish the reform impetus in the financial sector.

Dear readers, we have a confirmation! This is going to make things very interesting, and pancreatic cancer, if true, is much more serious business than prostate cancer. The odds are not good: "4% of white people survive 5 years for pancreatic cancer in the US 1992-99 (Cancer Facts and Figures, American Cancer Society, 2004)." Granted, he is not Caucasian, but the odds are likely not much better for Asians.

I don't think they will split his portfolio up as the article suggests since they are major portfolios that demand a lot of attention (finance and state assets). The NPC Standing Committee might elect a stand-in Vice-Premier, who will be elevated to the Standing Committee or just the Politburo in the 17th PC. I still stick to my original predictions about who these people might be.

SCMP
Wednesday, February 22, 2006

Cancer diagnosis may force leader off Politburo

STAFF REPORTER


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Huang Ju
Executive Vice-Premier Huang Ju , the sixth-highest-ranking Chinese leader, is expected soon to quit politics after being diagnosed with cancer, sources said.

Mr Huang, 68, has remained absent from important public functions since late last month, triggering intense speculation about his health.

Sources said he was diagnosed with pancreatic cancer during a routine medical check-up before the Lunar New Year and has been in hospital since.

Although not immediately life-threatening, his medical condition is believed to be serious, making it almost impossible for him to resume his hectic work schedule in the near future.

His illness could add uncertainty to the party congress in autumn next year, at which President Hu Jintao is expected to reshuffle the leadership and promote his supporters to the highest echelons of power when current standing committee members retire. Mr Huang's admission to hospital means that supporters of former president Jiang Zemin could lose a powerful voice in the intense jockeying ahead of the congress.

Mr Huang, who was the party secretary of Shanghai from 1995 to 2002, has long been considered as one of the political leaders closest to Mr Jiang and as his strongest ally on the Standing Committee of the Politburo - the country's highest decision-making body.

The disease, though very common, is very difficult to detect and also extremely difficult to treat - meaning Mr Huang is very likely to be forced out of politics.

It remains unclear whether Mr Huang, who ranks sixth on the nine-member standing committee, will be replaced. According to the party constitution, election of a standing committee member would have to be decided by a full plenary session of the party's Central Committee.

As the executive vice-premier, Mr Huang is in charge of financial and economic policymaking. In the near future, his portfolio is expected to be shared among the other three vice-premiers, Wu Yi , Zeng Peiyan and Hui Liangyu .

Analysts said Mr Huang's admission to hospital was unlikely to have any immediate impact on the direction and thrust of China's economic development because the standing committee's major decisions were reached through consensus.

Re Huang Ju. The word on the street: prostate cancer. It doesn't strike me as fatal, but it really depends. I welcome other rumors that readers have heard.

Okay, it has been well over a month since Huang Ju's last appearance in public. I double-checked. His last public appearance was the CBRC Work meeting on January 16th. There was a State Asset Conference on January 23rd, but he did not attend, just merely "listened to report before-hand and provided important instructions." He remains the only Standing Committee member who did not attend the new year celebrations. He is still MIA. I attach a picture of him dated January 11th, 06. Unless he is on a very successful diet program, he looks a bit sickly. I apologize for this Kremlinology.

After the last post, a reader astutely notes that VP Huang Ju has not been seen in public since the January 16th CBRC National Conference. Is he sick? Or just taking an extended lunar holiday. At this point, I think both are possible. On the one hand, his absence was especially conspicuous during the annual Central Committee-State Council New Year Celebration, which is traditionally attended by all Standing Committee members who are not abroad. He was absent from that celebration. On the other hand, the CCP might have finally learned that it isn't such a great idea to have all Standing Committee members attend the same public functions. What if something happens? Moreover, he authored an article on social security and employment for the People's Daily on January 26th. Of course, it was likely written by his scretary and might have served as filler to make his absence less conspicuous. We will just have to wait and see.

What if he is really ill, such that he is unable to return to his official capacity? I think then it will be a scramble between Zhou Xiaochuan and Bo Xilai for the VP position. Both are clearly vying for the position anyway for after the 17th PC. Dai Xianglong and Wang Qishan are also dark-horse candidates. The problem with Huang's portfolio is that it involves finance and SOEs, so the position would require someone either with extensive experience in the central bureaucracy or experience governing a major metropolitan area, or ideally both types of experience. In theory, Bo Xilai and Dai Xianglong would make perfect candidates since both have both qualifications, but Dai has relatively weak factional backing. Meanwhile, Zhou is a connected princelings with support from both Jiang's camp and from Wen's mentor Zhu Rongji. Wang Qishan is cursed by the fact that he does a fairly good job running the capital, and the leadership probably does not want to rock the boat before the Olympics.

Well, well, it seems MOF is determined to get a slice of the enormous SOE profit. There will be some hard bargaining ahead. The problem is that SASAC-run "holding companies" are reaping the fruits of the current profit, and SASAC officials will be hard-pressed to give it up. As I indicated in a previous post, there will be some compromise whereby SASAC gets even more control over SOEs while MOF gets more dividend either for the state budget or for the social security fund. Even though Wen is behind the MOF on this issue (for example, this money will really help with rural schooling), he will not order SASAC to give up the dividend. Wen's strength, and his weakness, is his ability to broker compromises. This stands in sharp contrast to his predecessor Zhu Rongji. There will likely be a compromise, brokered by Huang Ju, who is the vice-premier in charge of SOEs.


Cashed-up state firms told to pay dividends Beijing plans to collect payments as SOEs post 600b yuan in net earnings
610 words
14 February 2006
South China Morning Post
1
English
(c) 2006 South China Morning Post Publishers Limited, Hong Kong. All rights reserved.
The central government is planning to force large state-owned enterprises to pay dividends to the state after companies overseen by State-owned Assets Supervision and Administration Commission (Sasac) posted more than 600 billion yuan in net profit last year.

"The Ministry of Finance has already completed a plan for state-owned profit allocation and Sasac is in the process of preparing a similar plan for the companies under its control," said Su Guifeng, a spokesman for Sasac.

"I cannot give an exact timetable, but once we have completed the plan, state enterprises must pay dividends to the state."

Central bank governor Zhou Xiaochuan voiced support for the scheme in a speech late last year.

The World Bank, in its just-released quarterly update, also recommended that large profitable state enterprises pay dividends to the Ministry of Finance, which can use the money to pay for reforms in education, health and social welfare.

Since tax reforms were implemented in 1994, no government entity has received any dividends from the 169 large state enterprises under Sasac. The same is mostly true for state firms administered by local governments.

"SOEs always come to the government asking for help when they lose money, so, when they make good profits, they should allow their shareholder [the state] to benefit. It's as simple as that," said Qu Hongbin, an HSBC economist.

Bumper profits at state-held firms last year came mostly from natural resource companies benefiting from strong prices of oil and other basic materials.

Without requiring them to return profits to the state, state enterprises are prone to excessive investment and pro-cyclical investment behaviour that exacerbate China's boom and bust cycles.

Large state enterprises also have very high levels of corporate savings, a major contributor to the mainland's unnaturally high domestic savings rate.

"Dividend payouts to the state will help to lower the high savings rate and rebalance the economy," Mr Qu said. "The government can use the money for health and education and shift economic growth more towards consumption."

The World Bank recommends the payment of dividends back to the state as a way of improving corporate governance at state enterprises through the greater government scrutiny that it will involve.

Despite high-level agreement on the need for reform, an internal debate is raging over which agency will be responsible for collecting and allocating the dividends, according to William Mako, a specialist at the World Bank.

"In terms of theory and international best practice, the dividends should go to the Ministry of Finance but there are all sorts of institutional issues and Sasac has a claim on them as well," Mr Mako said.

He pointed out that many listed state enterprises already paid dividends to a parent holding company, which is not required to pass these on to the state.

"The parent enterprise groups may use the money to pay for pension liabilities but they can also use it to invest in commercial property," Mr Mako said.

Management at large state firms and their parent companies are expected to resist having to transfer profits to whichever government department is eventually named.

"If you are the chief of an SOE and if there is some way the corporate governance structure will allow you to not pay dividends to shareholders, then of course you will be happy," Mr Qu said.

The profits of Sasac-administered state enterprises last year accounted for 3.3 per cent of gross domestic product, equal to 20 per cent of fiscal revenue.

It turns out that half a billion deal was related to the Kaiping case from 1998, which is old news. I am sure the money by now has been written off by BOC using central subsidies from the foreign exchange reserve. Though bad for publicity, this should not be a big deal for the IPO. What these guys did sounds interesting though, someone should make a movie of it.

中国银行两前管理者在美被控盗窃巨款和洗黑钱
2006-02-02 00:47:05
　　美国司法部今天发布的声明说，中国银行两名前管理者许超凡、许国俊及其同伙共五人被指控盗窃了超过四点八五亿美元的资金，并通过拉斯维加斯赌场洗黑钱。
　　
　　许超凡、余振东、许国俊是中国银行广东开平支行先后三任行长，他们三人制造了盗窃、贪污、挪用七亿多美元的中国金融界惊天大案，且都潜逃到了美国。
　　
　　他们中的第二任行长余振东已于二○○四年四月从美国递解回国。
　　
　　美国司法部说，许超凡、许国俊二人伙同他们的妻子以及一个亲戚等五人在潜逃到美国之前，通过香港、加拿大和美国等地的管道偷盗了的巨额的资金。美国拉斯维加斯的一个联邦大陪审团指控他们犯有诈骗、洗钱、欺骗等罪名。这个团伙于二○○四年九十月间在美国被拘捕。
　　
　　美国司法部门的声明指出，这个团伙把偷盗来的钱通过一个在香港的壳公司转移到其他国家，随后又通过拉斯维加斯赌场的账号洗了为数不少的钱，这个过程从一九九八年开始，一直持续到二○○四年十月。
　　
　　据报道，许超凡一九九四年至一九九八年任中国银行开平支行行长期间，利用职务之便，通过各种方式窃取银行数亿美元的资金，并通过运作，让余振东、许国俊先后就任开平分行的行长，继续和掩盖罪行。
　　
　　余振东、许超凡和许国俊早年前获得伪造的香港护照。此后，他们以假香港护照申请美国签证，二○○一年五月，三人在香港与美国公民假结婚。许超凡和许国俊二 ○○一年潜逃至北美并在偏远地方隐姓埋名。二○○四年九月下旬，许国俊在美国堪萨斯州一个小镇上被捕。十月初，首嫌许超凡在俄克拉荷马州的一个小镇被捕。
　　
　　来源：中国新闻网/刘小青

Very quickly, a half billion dollar scandal just broke out Bank of China, which is planning to list in Hong Kong in the next few months. Granted, half a billion is not a small sum, and I applaud these bankers for going for such a large amount. Basically, if you are going to run away, you'd better make sure you have a few tens of millions. The life of a fugitive can be expensive.

Will this affect the IPO? It depends on when it happened and who else is implicated. If it happened a few years ago, and it was only these guys, it should not be such a big deal. Most likely, the money has been written off by the bank. It's still not great news though.....we'll keep track of it.


New charges in $485M theft from Bank of China
Former bank managers alleged to have funneled money internationally through front companies.
January 31, 2006: 7:28 PM EST


WASHINGTON (CNN) - Two former Chinese bankers and their wives were indicted in Las Vegas in connection with a massive scheme to steal and launder nearly half a billion dollars from the Bank of China, Justice Department officials announced Tuesday.

The former managers of the state-owned Bank of China are alleged to have been engaged in an elaborate plot in which they stole $485 million by running funds through front companies and financial institutions in Hong Kong, Vancouver and Las Vegas, officials said. They allegedly planned to immigrate to the United States with their wives and gain citizenship through schemes involving phony documents and sham marriages.

A federal grand jury in Las Vegas brought the new charges against the defendants, who were first jailed in September 2004 on charges of violating immigration laws for trying to illegally gain U.S. citizenship.

A third Chinese banker involved in the alleged conspiracy has pleaded guilty in Las Vegas and returned to China, where he is being prosecuted for embezzlement and bribery.

In Washington, Assistant Attorney General Alice Fisher issued a statement commending prosecutors for untangling what she called a "complex scheme of racketeering, money laundering and fraud".

"We will continue to work closely with our international partners to make sure that the United States is never seen as a haven for criminals to launder the proceeds of their illegal conduct," Fisher said.

Documents identified those indicted as former bankers Xu Chaofan and Xu Guojun and their wives, Kuang Wan Fang and Yu Ying Yi, who prosecutors claim actively assisted their husbands in the scheme.