Logo

China Update 16/2017

METRIX

 

Around 1.34 million Chinese officials have been disciplined since 2013 as part of state and party leader Xi Jinping's anti-corruption campaign. The Central Commission for Discipline Inspection (CCDI) celebrated its success by announcing the figure at its final plenary session before next week's 19th Party Congress. 

TOPIC OF THE WEEK: 19TH PARTY CONGRESS

Pony Ma Huateng, Chairman and CEO of Tencent Holdings Ltd., attending the opening meeting for the Fifth session of the 12th National People's Congress (NPC) in Beijing, March 2017.
Source: ImagineChina

Loyalty to the Party becomes top duty for private entrepreneurs

Ahead of its 19th National Congress next week, China’s Communist Party has publicly increased its influence over the private sector. For the first time since the beginning of the reform period, a joint statement by the CCP Central Committee and the State Council defined the role of private enterprises in the national economy. The statement of September 25 stresses patriotism as a top duty for entrepreneurs and promises them respect for their rights and a favorable market environment in return for accepting stronger party guidance. 

The “patriotism edict,” as observers have called it, is in line with Xi Jinping’s model of state capitalism. The leadership aims to regain control over large parts of the Chinese economy that had been allowed to develop outside the Party’s oversight. Throughout this year, the CCP has taken steps to increase the influence of party committees within private companies to a level that was previously only seen in state-owned enterprises (SOEs). 

Foreign invested companies were included in these efforts, leading to complaints among the international business community in China. Company executives report that they are pressured to establish party structures, or, in one case quoted by Reuters, to revise the terms of its joint venture with a state-owned partner to give the Party final say in business decisions. 

China’s leading private businesses on the other hand are eager to demonstrate their cooperation with the state. Tech giants such as Sina and Baidu have established party cells in recent years, according to a report in the Financial Times

In the past, many kept quiet about the growing political influence for fear of alienating foreign investors. But when the bike-sharing start-up Ofo set up a party committee this year, it announced this news via party-state media – illustrating that protection by the party-state at home is worth more than keeping up the image of independence from political influence in international markets. 

“The determined advancement of a state capitalist model is discouraging news for those who had hoped that economic reforms in China would lead to greater market liberalization.” Max Zenglein, research associate at MERICS 

 

MERICS analysis: “Why economic reforms in China mean a bigger role for the state.” OpEd in South China Morning Post and MERICS blogpost by Max Zenglein 

CHINA AND THE WORLD

Xi Jinping wants to raise China’s profile within Interpol and strengthen global police cooperation

The 86th Session of the INTERPOL General Assembly opened in Beijing on 26 September 2017.
Source: INTERPOL 2017

MERICS analysis: “China's Global Law Enforcement Drive. The need for a European response.” China Monitor by Thomas Eder, Bertram Lang and Moritz Rudolf

“China’s Emergence as a Global Security Actor: Strategies for Europe.” MERICS Paper on China No 4, by Mikko Huotari, Jan Gaspers, Thomas Eder, Helena Legarda and Sabine Mokry

China wants to raise the profile of the global police cooperation agency Interpol and strengthen its leadership. At the opening of Interpol’s general assembly on September 26 in Beijing, Chinese president Xi Jinping pledged to support Interpol to play a bigger role in global security governance. He said the fight against terrorism, cybercrime and organized crime should be among Interpol’s priorities.

Xi announced plans to establish an international law enforcement institute in China under the Ministry of Public Security. The institute would train some 20,000 police officers from developing countries over the next five years and help some 100 countries to improve their communications systems and crime labs.

Beijing is trying to gain more influence in international organizations and help shape the international security agenda. Last year, Interpol’s 190 member countries elected a senior Chinese official, Vice Public Security Minister Meng Hongwei, as its president. International human rights groups have criticized the choice and have accused China of misusing Interpol’s procedures to target dissidents and exiles.

Chinese companies continue to invest in strategic overseas assets

Chinese companies continue to invest in strategic companies abroad in line with government guidelines that encourage some deals and make others more difficult. The latest takeovers target the financial sector and key industries highlighted in China’s industrial strategy “Made in China 2025.” 

In late September, British chipmaker Imagination Technologies was bought by the China-backed private equity firm Canyon Bridge, a company that had previously been blocked by the Trump administration from taking over a US semiconductor maker due to national security concerns. 

Also in the UK, Acro Aircraft Seating was bought by a technology firm from Zhejiang province. In Denmark, carmaker Geely bought a 50-percent stake in Saxo Bank. The deals are a further sign that in China it’s increasingly the state who decides which foreign investments are considered suitable for the country. 

Meanwhile in Switzerland, a China-linked deal came under scrutiny. The Swiss Takeover Board has asked China’s HNA Group to clarify its ownership structure after its takeover last year of aviation services company Gategroup. The commission pointed out that shareholdings listed in HNA’s prospectus for that acquisition differed from recent statements by the group’s top leadership.  

POLITICS, SOCIETY AND MEDIA

Xi Jinping’s words become gospel ahead of Party Congress

Ahead of the Party Congress next week, the party-state Xinhua news agency has announced the publication of a book with quotations by Xi Jinping about China’s future. ”Excerpts from Xi Jinping’s Statements on the Construction of a Socialist Society,” was compiled by the Documents Research Office of the Central Committee of the Chinese Communist Party (CCP). The publication will complement dozens of other Xi-themed tomes that are filling up the shelves in Chinese bookstores shortly before the 19th CCP National Congress. 

The “Excerpts” can be expected to play a major role in shaping China’s politics and economy in the next decade. The nine chapters focus on how to maintain social stability (for example by increasing income equality and strengthening the social security system), and they justify Party control with the aim to safeguard “national security.” In practice, this will mean a continuation of policies to strengthen the economy and a rejection of political reforms. 

The 326 selections were extracted from among 140 of the President’s and CCP General Secretary’s remarks, reports, speeches and other sources dating from November 15, 2012 to September 19, 2017. 

Since Xi took power in 2012, the CCP’s propaganda machine has been tasked with crafting a new unifying ideology with the aim to provide a convincing justification for the CCP’s exclusive rule. While endorsing a market economy, the CCP ideology differs substantially from classical western political theories of democracy. 

new MERICS study shows that these efforts have only been partially successful: a comprehensive review of Chinese online debate and an accompanying survey illustrates the widely differing and even conflicting views in Chinese society on China’s development model and its global role. 

MERICS analysis: “Ideas and ideologies competing for China’s political future. How online pluralism challenges official orthodoxy.” By Kristin Shi-Kupfer, Mareike Ohlberg, Simon Lang and Bertram Lang

Number of worker protests in Dongguan declines sharply

The number of worker protests in the southern city of Dongguan in Guangdong province has dropped sharply this year according to the Hong Kong-based NGO China Labour Bulletin. Dongguan used to be a center of manufacturing and saw frequent protests by workers over factory closures, wage arrears and the non-payment of social insurance contributions. 

Strikes and protests peaked in 2014 and 2015. In the first nine months of 2015, 23 percent of all protests in Guangdong took place in Dongguan. In the same period this year, the city accounted for only eight percent of all protests in the province. Within China Guangdong is still the province with the highest number of worker protests. 

The Dongguan authorities attribute the sharp reduction in protests to a new early warning system to prevent the escalation of disputes through mediation and dialogue. Yet that seems to be just part of the story. Over the past decade, many small and medium-sized companies in low-cost and labor-intensive industries have already moved elsewhere. 

In the service sector and in logistics, the overall number of strikes has also dropped significantly. However, delivery drivers and package handlers regularly stage strikes over wages, working hours and delivery times. Data from CLB for the first half of 2017 show that 22 percent of all disputes where in the delivery and service sector followed by protests in manufacturing (21 percent). The highest numbers of strikes and protests is still registered in construction (40 percent). 

ECONOMY, FINANCE AND TECHNOLOGY

ZhongAn online insurance IPO illustrates buoyant fintech market

The hugely successful IPO of a Chinese online insurance company is likely to accelerate a trend: leveraging big data to offer customized financial services, in this case insurance premiums. 

The initial public offering (IPO) of China’s first online-only insurance company ZhongAn Online Property & Casualty Insurance in Hong Kong on September 28 was highly oversubscribed. The company’s shares rose by roughly half in the first two weeks of trading, from 59.7 to around 90 Hong Kong dollars. The listing, which has raised more than 1.5 million USD, was the second largest IPO in Hong Kong this year. 

The IPO is another signal that the fintech sector is heating up fueled by new business models that arise with Big Data technologies. Mining and processing data from China’s gigantic social media or digital payment platforms (assuming they have access to these data) would allow ZhongAn to calculate its premiums based on detailed assessments of their customers’ health and lifestyle. 

The backing of its well-known founders contributed to ZhongAn’s success. The start-up’s biggest shareholder is Alibaba affiliate Ant Financial, with 13.8 percent. The tech giant Tencent holds 10.4 percent, and China’s largest insurance company Ping An 10 percent. 

THE EUROPEAN VIEW

EU toughens anti-dumping rules against China

The European Union is charging ahead with a more robust trade and investment policy vis-à-vis China. The representatives of the 28 member states in the European Council approved the planned reform of the EU's anti-dumping and anti-subsidy rules on October 11. The European Parliament will have to vote on the revised rules in a next step. The reform introduces  a new methodology to determine whether imports from other WTO member countries constitute dumping. The rules will enter into force this year. 

With this reform, the EU is hoping to pre-empt an expected WTO ruling on a Chinese complaint against existing European anti-dumping instruments, which China views as incompatible with WTO law. 

The new rules no longer differentiate between economies that the EU views as market economies and those who do not have that status, such as China. In future, the evaluation will include factors such as state influence in the private economy, and it will for the first time include social and ecological standards. 

The new rules are the result of a compromise between countries like Germany, France and Italy, which took the lead in calling for a more decisive European stance, and countries like the Netherlands or Finland, which had been reluctant to introduce stricter rules for Chinese imports. China's commerce ministry has criticized the revised rules. At the same time, China is also upholding its WTO complaint against the EU’s current anti-dumping measures. 

MAD MERIX

When less can be more – half-naked thief challenges Chinese police

Thieves usually prefer inconspicuous clothing or veil themselves to avoid being identified. A man in the eastern Chinese province of Zhejiang however hoped for a better outcome by not giving away any hints on his personal taste in clothing. 

Over the past year, he repeatedly broke into hotel rooms to steal money. Surveillance cameras caught him and uncovered his simple camouflage: While wearing gloves, a mask and a cap in a typical burglar’s manner, his body was covered by only one garment – his underpants.

With his extraordinary tactics the half-naked thief presented the local police with great challenges

He was credited with exceptional climbing skills that allowed him to break even into those hotel rooms that were difficult to access. Furthermore, he could never be identified on a surveillance video. 

Finally, the police managed to catch him in the act. After his arrest he confessed his crimes. As a motive the middle-aged suspect claimed that he urgently needed money. He was suffering from a kidney condition that required expensive treatment. He also said that he was 380,000 yuan (roughly 58,000 US-dollar) in debt after a contractor had failed to pay him. 

The  Mercator Institute for China Studies (MERICS)is a Stiftung Mercatorinitiative. Established in 2013, MERICS is a Berlin-based institute for contemporary and practical research into China.

Top