The Party: The Secret World of China's Communist Rulers

by Richard McGregor

The Red Army, later renamed the People’s Liberation Army, was founded in 1927 as the military wing of a revolutionary party. Since taking power, the Party has worked overtime to ensure it stayed that way.

They were the first civilian leaders with control over both the country’s political and military hierarchies in nearly 100 years. The advice Deng gave Jiang when he came to office is not surprising. ‘Out of five working days,’ Deng told Jiang, ‘spend four with the top brass.’ From all appearances, Deng’s successors took his words to heart. Jiang in the two years alone after he took over the military made personal visits to more than 100 military installations.

In Chinese staff colleges, up-and-coming military officers have it drummed into them that the failure of Soviet communists to keep control of the military rendered the state defenceless against ideological subversion from the west.

China’s swelling defence budget has thrilled a vocal throng of the neo-nationalist intelligentsia and a part of the populace alike, who see a strong military and even the prospect of war as something to savour, whether the PLA is ready for battle or not. The clash of civilizations, with China finally coming out on top after a century of humiliation, is an ennobling prospect for the country in the eyes of this crowd.

Few reforms have been as fraught for the Party as the modernization of the military. The more the Party pushes the PLA to develop into a modern fighting force, the greater the risk the military establishment will drift away from its traditional moorings and develop its own autonomous instincts at odds with its political masters. The trend is already well entrenched, according to Chinese officers and scholars. ‘This army has become a more professional army and therefore more of a national army than the Party’s army,’ said a prominent international relations professor in Beijing. ‘It is just that we cannot say that out aloud.’

At the time China discovered oil in the late fifties, the country had no resource giants like Standard Oil or ExxonMobil the government could rely on to get the resource out of the ground. Instead, Mao looked to a man known as the one-armed general, and tens of thousands of his fellow military men, to drain the gushers in the country’s north-east. Yu Qiuli, born in 1914 and a member of the Party by the time he was a teenager, had risen through the PLA ranks as a political officer during the anti-Japanese war and the subsequent internal conflict against the Nationalists. He had lost his left arm in battle on the long march in 1936 in an act of heroism that would be on daily display for the rest of his life. After the Party took power, Yu held positions in the central military command before being appointed in 1958 as Minister for the Petroleum Industry, a job which would turn him into one of China’s most famous communist industrialists.

Yu was only one year into his new job when China found oil, big time, in Daqing, in a corner of Manchuria that was a mosquito-infested marshland in summer and frozen over by sub-zero temperatures every winter.

By its peak in the late eighties, the PLA’s commercial empire had nearly 20,000 companies. On top of oil services, a business spun out of the Daqing oil fields, the military had their hands in everything from five-star hotels, pharmaceuticals and light manufacturing, to trading and smuggling commodities and making weapons for export. The profits were meant to fund improved living conditions for ordinary soldiers. In reality, much of the money went into the pockets of venal generals and their relatives and cronies.

Slowly but surely since the early nineties, the Party has deliberately pushed the PLA back into barracks. The Politburo has not selected a military man for the Standing Committee, the leadership’s inner circle, since the 1992 congress. Only fifteen years previously, at the end of the Cultural Revolution, a period during which the military held the country together, more than half of the Politburo were military officers.

‘The party leaders realize that they don’t have a dominant ideology they can use to run the country any more. For them, there is no core social value. At this moment, the sole, dominant ideology shared by the government and the people is money worship.’

About 20 million square metres of land were developed in the city between 2000 and 2005 alone, equal to one-third the size of Manhattan. Literally hundreds of new skyscrapers and apartment blocks went up in a few short years, on top of an already massive building programme in the previous decade. On the east bank of the Huangpu river opposite the main metropolis, an entire, ready-made financial district had been constructed where there had once been a small village.

The jobs in government which attracted the most applicants in 2008 were not elite positions in the mandarinate in the Foreign Affairs and Finance ministries in Beijing and the like. Of the top ten government bodies which received the most expressions of interest for positions, eight were provincial tax bureaux, topped by Guangdong, all of them along the prosperous coast; and two were the customs bureaux of Shanghai and Shenzhen. The bottom ten, which attracted the least interest, were all provincial statistics bureaux.

It took a scholar from Taiwan to nail the logic of the positions taken by the mainland scholars. If the Party had followed the pair’s recommendations for an independent anti-corruption body, the Taiwanese academic noted, then it ‘would have achieved the “separation of powers” proposed by Montesquieu that has long been rejected by the CCP as an idea belonging to the decadent bourgeoisie’.

The biggest beneficiaries of the requirement for the commission to get political clearance from above to proceed with investigations are the country’s most senior leaders. Short of civil war, there is no mechanism by which the commission can get approval to investigate any of the nine members of the Politburo’s inner circle, unless they effectively hand themselves in. As the son of a former senior leader told me: ‘It is sort of a given that they are beyond the law.’ By extension, their seniority protects their immediate family members as well, and reinforces strict taboos prohibiting public discussion of the private and business lives of top leaders and their kin.

Shanghai had been fêted in colonial times as the Pearl of the Orient, a mercantilist and mercenary trading hub where it was ‘hard to know where the government ended and gangsterism began’.

Mao and his third wife, Jiang Qing, had used a clutch of radicals from Shanghai to launch the Cultural Revolution in 1966, their putsch against their chairman’s party rivals in Beijing. The ‘Gang of Four’, as Jiang Qing and her three cronies from the city came to be known, radicalized the economy and the arts.

Streams of foreign visitors have been dazzled by the view of Pudong, usually while clinking glasses on the terraces of the upmarket eateries housed in the colonial-era buildings that line the riverfront strip opposite, known as the Bund. The image this view conveyed–that Shanghai had returned to its entrepreneurial heyday–was far from reality. Unlike southern China and the Yangtze delta region, where Deng’s policies had bred a risk-taking, private economy, Shanghai was developed as a socialist showcase. Few visitors admiring the skyscrapers realized that most of them had been built by city government companies. Far from being the free-wheeling market place that many visitors believed, Shanghai represented the Party’s ideal, a kind of Singapore-on-steroids, a combination of commercial prosperity and state control.

‘Shanghai has built a model for our country’s socialist market economy. Shanghai has not practised capitalism. For Shanghai to wear that hat on its head would be unsuitable. It wouldn’t fit.’

In a remarkable research finding, Yasheng Huang, an MIT economist, established that Shanghai had the lowest number of private businesses relative to the city’s size and its number of households in 2004, bar two other places in China. Only Beijing and Tibet, where government and the military are, respectively, the main businesses, had lower shares of private commerce.

The result was that most of the money generated in Shanghai went to the government itself, to pay for infrastructure, its own pet business projects, and, of course, to be siphoned off in corrupt payments. ‘Shanghai is rich,’ said Huang, ‘but the Shanghainese are not.’

For officials, the property deals were sweet. One arm of the Jing’an government responsible for approving real-estate projects would be given cheap shares in developments in the district. Another arm of the same government, the Housing and Land Bureau, would be paid to evict residents, and arrange compensation at rates far lower than the going market value

After writing about the Jing’an scandals, I began to receive regular visits from the district’s own plain-clothes security police, pressing for information about future stories.

When excoriating fallen officials, the propaganda department is always happy to publicize their sexual indiscretions. That way, corruption is presented as a form of individual moral degeneracy rather than as the systemic problem it really is.

The scope of the anti-corruption campaign in Shanghai, as happens everywhere in the country, eventually ran up against the Party itself and its monopoly on power, and the investigation was brought to a close. The Party catches and kills–and protects–its own for good political reasons. Exposing its members to investigation by outside bodies would be intolerable, as it would be akin to ceding the Party’s monopoly on power. As officials freely acknowledge in private, an independent anti-corruption campaign, following up leads beyond the Party’s control, could bring the whole edifice tumbling down.

‘The anti-corruption campaign makes a lot of thunder these days and quite a bit of rain,’ the official says. ‘But rainstorms always come to an end. Once we are past the dangerous part of the storm, there will still be a lot of thunder, but less rain. And then after a while, you won’t hear any thunder at all. Anti-corruption work cannot be done thoroughly, because more than just a few people are involved.’

After mentioning a number of well-known corruption cases, the official continues: Can we allow the era of opening and reform to remove us from power and replace us with the capitalist classes? That absolutely won’t work. We can’t push the anti-corruption campaign indefinitely. For who else can the regime depend on for support but the great masses of middle-level cadres? If they are not given some advantages, why should they dedicate themselves to the regime? They give their unwavering support to the regime because they get benefits from the system. Corruption makes our political system more stable.

How can Chinese officials compare with Hong Kong officials? Can they compare with Taiwan officials? Or with officials in developed countries? The salaries of public officials in foreign countries are dozens or even more than a hundred times higher than the salaries of Chinese officials. Moreover, a long anti-corruption campaign would expose the dark side of the Communist Party. If many of these things were to be exposed, the masses w...

The Shanghai case had been one of the most highly charged corruption investigations in the history of the people’s republic. By April 2008, about thirty officials and businessmen in all had been jailed. The size of the case and the ruthlessness with which it was executed was directly related to the politics that were at stake. Shanghai officials were surely right to say that their city was no more corrupt...

But the attempted cover-up by a city-owned dairy company of the poisoning of tens of thousands of babies had something in common with Shanghai. In both cases, local officials were able to wield extraordinary, unrestrained power, only being pulled up by the centre when it was too late. The decentralized nature of the party and government system has been fundamental to the Chinese economic miracle. When it gets out of control, however, the consequences can be fatal.

‘For reasons that everybody knows, we were not able to investigate the Sanlu case, because harmony was needed everywhere. I was deeply concerned because I sensed that this was going to be a huge public health catastrophe, but I could not send reporters to investigate.’ (Fu Jianfeng, Southern Weekend newspaper)

When it comes to the economy, however, these same powers make the local party secretary a lethal competitor for any rival business centre in the world, especially the one right next door. In the words of Cheung: You want a business licence? The locality will assign someone to do the walking and talking for you. Want a building permit? They will give you one with money-back guarantees. Unhappy about that dirty creek passing through the site? They may offer to build a small lake for you. They will help you find architects and builders and, at the production phase, recruit workers for a reasonable fee. They sell their cheap electricity, sell their parks and entertainment, sell their easy transportation, sell their water supply, sell their glorious history and even sell how good-looking their girls are–no exaggeration!

Cheung’s joke about good-looking girls was a reference to the county in Anhui province which held a beauty contest in 2005 to select the most beautiful local women to head teams to travel the country seeking investment for the area.

Criticized all over the country for his gimmick, the area’s party secretary replied: ‘Beauty is an asset. Why not use it?’ A locality with 300,000 residents, according to Cheung, often employs as many as...

The pivotal role of local governments in promoting their own economies means that each locality operates in a way like a stand-alone company. Localities promote investment, strong-arm banks for finance and often hold shares in the businesses themselves. In other words, they operate much like a company might. At the same time, the local party’s overwhelming powers within its own borders effectively make each district its own separate jurisdiction, with direct control over the courts and over local regulations governing business activities. According to this formulation, every jurisdiction is a company, and every company a jurisdiction–all of them with powerful incentives to compete against each other.

The golden age of decentralization under communist rule–the period from 1978 to 1993–was also the apogee of private sector growth and wealth generation. China’s GDP increased by 280 per cent in these fifteen years; absolute poverty was cut by 50 per cent in the first half of the eighties alone and real incomes rose rapidly.

This era ended in one of the central government’s periodic panics about its waning authority in the provinces. The policy cycles follow a familiar pattern, the Chinese economists say: ‘Decentralization leads to disorder; disorder leads to centralization; centralization leads to stagnation and stagnation leads to decentralization.’ The turning point in the current cycle in the early nineties was Beijing’s alarm at the collapse in its share of national tax revenues, to just over 20 per cent, about half the level of fifteen years earlier. The introduction of a new tax policy that year ensured that a much larger share of the revenues now goes straight to Beijing.

Rather than reinforcing Beijing’s writ in the provinces, Hu and Wen discovered that the radical recentralization of tax collection paradoxically only encouraged more economic freelancing outside of the capital. To raise money for the programmes they were still required to deliver, but no longer had the direct taxing power to fund, especially in education and health, localities were propelled into business more than ever. In the words of commentator Liang Jing, the new tax rules ‘forced good girls to become whores’. To make up the budget shortfall, local governments ‘bullied the peasantry, exploited the workers and destroyed the environment, while the central government turned a blind eye, concerned only for GDP and tax revenue, regardless of the process’. Some of the grassroots revenue-raising programmes deployed by local governments desperate for funds are hair-raising. In May 2009, Gongan county in Hubei province ordered state employees collectively to smoke at least 23,000 packs of cigarettes a year, to protect, it said, ‘tax revenues and consumers’ rights’. The more the officials smoked, the plan envisaged, the more money the local authority would collect in taxes. The policy was rescinded after a public outcry.

Most local governments have turned to real estate for cash, selling land at often inflated prices to make up budget shortfalls. ‘The reform of the tax system means that local governments have no other source of revenue, so they concentrate on land,’ said Yu Jianrong, an academic specializing in tracking farmers’ grievances. Yu says his surveys have found that as much as 30 per cent of the fiscal budgets of the government in Hebei are raised through the sale of land, a finite resource.

Throughout China, about 60 per cent of protests are related to anger over local g...

Beijing has cannily leveraged a modern tool to keep the sesame officials in line, allowing Chinese journalists and bloggers to expose local abuses of power in a way they would never tolerate with senior leaders in Beijing. In 2009, a flurry of regional officials were brought down by what the Chinese call ‘human flesh search engines’.

Late in 2007, the government sent as clear a signal as the state could muster on the issue. It executed the head of the State Food and Drug Administration, Zheng Xiaoyu, after he was convicted of taking bribes from pharmaceutical companies seeking government approval to market their products.

China!’ It wasn’t until 9 September that someone blew the whistle loud enough for the central government to hear it. After a delay of weeks while Fonterra agonized over what it should do, the New Zealand government directed its ambassador in Beijing to inform the Chinese government of the tainted milk. The full product recall, and the massive fallout, began immediately.

When Xinhua announced a few days later that Ms Tian had been sacked, the official news agency made no bones about who had taken the decision. The large headline said her sacking was ‘an organizational matter’ for the Hebei provincial party committee. Almost as an afterthought, at the end of the 500-character dispatch, Xinhua noted that Ms Tian had also been removed by the company’s board in ‘accordance with regulations and procedures’. The board had in fact had no role in her removal. After the party body had sacked Ms Tian and announced her removal, company executives said the board had been hastily convened in a late-night telephone hook-up to rubber-stamp the decision. One Fonterra executive commented later: ‘They were always making decisions, but then asking themselves: “How do we make this legal?”’

The larger point, however, of an unprecedented partnership between a communist party and capitalist business, holds. It remains an uneasy, unstable and unholy alliance, but an alliance nonetheless that, in the short term, has turned more than a century of conventional wisdom on its head.

The status of Haier was symbolic of the central problem surrounding business in China. There is little dispute that the private sector in China has grown from an almost negligible part of the economy in the late seventies–so small that official statistics were not kept on it–to the prime engine of new job creation, if not economic output, thirty years later. But nobody knows, or at least can agree on, the true size of the private sector, because of the difficulty of defining who owns what in the first place.

A week later, a rival and equally respected China research unit at UBS, the Swiss bank, put out a rejoinder, saying the private sector ‘accounts for no more than 30 per cent of the economy, whichever indicator you use’. The report said: ‘In China, the following big sectors are either 100 per cent or majority controlled by the state: oil, petrochemicals, mining, banks, insurance, telcos, steel, aluminium, electricity, aviation, airports, railways, ports, highways, autos, health care, education and the civil service.’

Yasheng Huang, at MIT, who has spent years poring through official Chinese data and documents on this issue, said when asked for his estimate of the size of the private sector: ‘The honest answer is that I do not know and I think many people do not know. This lack of knowledge itself is telling, and due to the fact that the private sector is still considered somewhat illegitimate.’ Although he did not arrive at an exact figure, Huang did reach one conclusion–the pure private sector in China at the end of the twentieth century, companies with no government ties or involvement at all, was ‘minuscule’, equal to about 20 per cent of all industrial output.

The confusion about what is public and what is private is a deliberate result of the system’s lingering wariness about clarifying ownership. Ask any genuine entrepreneur whether their company is private, or ‘siying’, literally, ‘privately run’, it is striking how many still resist the description in favour of the more politically correct tag ‘minying’, which means ‘run by the people’. In a people’s republic founded on a commitment to abolish private wealth, an enterprise which is ‘run by the people’, even if it is owned by an individual, is more favoured than a company that parad...

However grey the definitions may have once been surrounding the ownership of Haier, they were soon clarified. With no prior warning, the Qingdao agency in charge of government enterprises announced in April 2004 that Haier was owned by the state. The Hong Kong deal was killed. Haier and its managers, for the moment, were not going anywhere. The Haier case was a signal reminder that a company could be privately run one day and find itself claimed as a state asset the next.

In April 2007, with a click of the mouse, the city quietly removed Haier from the list posted on the government website of state-owned enterprises in Qingdao. Haier returned to being a privately run collective. As if to celebrate the turn-around in their fortunes, Haier soon reintroduced a share incentive scheme for its senior managers. Zhang Ruimin was left out, though, because it was not appropriate to give share options to a member of the Central Committee.