Political Order and Political Decay (61 page)

At a lower level, the CCP has granted subordinate levels of the government a high degree of autonomy to carry out its mandates. This is evident in the first instance in the large delegations of authority to China's provinces and municipalities to implement policies in a manner that suits local conditions. This authority often clashes with, and frequently trumps, the interests of the line ministries headquartered in Beijing.

Most Western observers focus on the reform's creation of market incentives through the household responsibility system, which decollectivized agriculture and allowed peasants to keep a much larger proportion of their output. They also point to the creation of four special economic zones open to foreign investment. These were indeed critical: agricultural output doubled in the first four years following the reform as private incentives kicked in, and export industries were seeded in southern cities like Shenzhen. But equally important were changes in the governance structure that created a fiscal responsibility system for local governments. As political scientist Jean Oi has documented, the early gains were accomplished not by the private sector but by so-called township and village enterprises (TVEs), in which local governments essentially turned themselves into profit-making businesses.
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One of the fundamental tenets of Western public administration is that public-sector agencies are not allowed to retain earnings and thus have no incentive to control costs or perform more efficiently. This explains why there is a big effort to push money out the door whenever an agency ends the fiscal year with a surplus.
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The Chinese party-state upended this verity by in effect permitting local governments to keep surplus revenues and use them for their own purposes. Localities were put under a hard budget constraint, given the authority to extract certain types of taxes, and allowed to start profit-making businesses to supplement their tax revenues. Seventy percent of such retained earnings had to be plowed back into new investment, but the remainder constituted a surplus that could be used at the discretion of the TVE. Some of this surplus was spent on public purposes, but a certain amount ended up in the pockets of local government officials. Many outside observers interpreted this phenomenon as outright corruption, but it was in fact a profit-sharing system designed to incentivize local governments to spur economic growth. And it succeeded spectacularly: much of China's industrial output in the early reform years came not from the new private sector but from TVE-sponsored businesses.
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In a sense, the Chinese independently discovered the principles of what in the West has gone under the label of New Public Management, an approach that sought to extend marketlike incentives to the public sector.

The TVE was not an institution that any orthodox U.S.-based economist would ever have recommended. Operating behind a veil of ignorance in which outside observers knew the characteristics of the system but not the actual country in question, most would have predicted that it would become a sink of corruption and self-dealing. Had Nigeria or Pakistan tried to implement such a system, one can imagine all sorts of ways the TVEs would have been abused. The central governments would likely have failed to impose hard budget constraints or reinvestment targets, allowing local governments to impose more predatory levels of taxation and appropriate the entire surplus. Or more likely, the higher levels of government would have colluded with the lower ones to split the surplus, while using their rule-setting powers to favor the state-owned businesses.

But China is not Nigeria or Pakistan. The central government was able to impose strict discipline on the TVEs in a way that focused their attention on promoting long-term growth, in a manner similar to the industrial policies set by other states in East Asia. When conditions changed, the policy changed as well. The TVEs by the early 1990s had gotten rich, and the profit-sharing system was plagued by high levels of outright corruption. Many of the complaints of the student protesters in Tiananmen Square were against corruption on the part of government and party officials. The 1994 tax reform took away many of those revenues and forced local governments into a different type of fiscal discipline that encouraged them to promote a more market-friendly form of industrial development. The emerging Chinese middle class that had provided the social basis for the Tiananmen protests was thus increasingly co-opted into supporting the continuation of Communist Party rule.
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Dingxin Zhao and Hongxing Yang argue that the 1994 tax reform was a good illustration of the autonomy of the Chinese state. They claim that the specific content of the policies involved is less interesting than the fact that the Chinese government could shift gears so quickly when it became clear that an earlier initiative was producing unanticipated consequences, and then could successfully implement the new course in the face of large vested interests. Deng and the Communist Party recognized that their legitimacy rested on continuing strong performance, and they were not trapped by ideology or past practice in making dramatic and rapid course corrections.
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These reforms were followed by others during the Jiang Zemin years which, as documented by Dali Yang, cracked down on smuggling perpetrated by government agencies, stripped the People's Liberation Army of many of its profit-making businesses, and imposed a more transparent set of rules with regard to government procurement.
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This system of incentivizing local governments represented an approach remarkably different from the old ideology-driven cadre system of the Maoist era, one that violated many basic principles that underlie any Marxist-Leninist regime. Just as striking was the state's focus on promoting long-term growth rather than on maximizing short-term rents. One could say that the senior leadership of the Communist Party was acting in its own self-interest by promoting growth and hence its own legitimacy and grip on power. But this long-term understanding of self-interest and focus on legitimacy does not come automatically to many governments. It has eluded a very large number of developing country governments outside of East Asia. (Recall the story of Robert in Nigeria at the beginning of chapter 14.) It is here that China's millennia-long Confucian tradition of government probably had an important impact.

One of the biggest questions hanging over the future of China is the degree to which the top levels of government can remain as autonomous as in the past. Minxin Pei argues that the quality of government services has declined over time, in large measure because subordinate units of the state have become too autonomous, or rather, autonomous in the wrong way. That is, they are able to protect their own political and economic positions regardless of performance, and resist discipline from higher levels of the state and party. These subunits include powerful state-owned enterprises like China Telecom and the China National Offshore Oil Corporation, which now rank among the world's largest corporations. These SOEs during the 2000s gained in relative power over their private-sector rivals and foreign investors, and have been able to use their political clout to avoid competitive threats to their positions.
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In addition, bureaucracies like the Ministry of Railways have become fiefdoms that the Communist Party has had difficulty controlling. This ministry is a gigantic organization, presiding over some fifty-seven thousand miles of track and employing 2.5 million people across China.
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The central government has been trying, without success, to get control of the money-losing ministry for many years. Following the highly publicized crash of a new high-speed rail train near Wenzhou in mid-2011, the ministry tried to hide evidence of malfeasance by burying the cars involved, until discussions on China's microblogs forced it to unbury them. The central government used this as an opportunity to sack railway minister Liu Zhijun on charges of corruption, and announced that it intended to break the agency apart into two separate organizations. Like many of the government reorganizations that the central government has announced, the breakup never came about, presumably because the powerful and secretive ministry had enough political clout to protect its position.
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Any administrative system that relies so heavily on monetary incentives will invite corruption. The Western economists predicting that it would lead to rent seeking and corruption were not entirely wrong; they simply would not be able to predict the degree of corruption, or the level of real services the government was able to provide in return. There continues to be a great deal of patronage, nepotism, factionalism, political influence, and outright corruption pervading the Chinese political system. Minxin Pei argues that China's gradual political transition has resulted in a system of “decentralized predation,” in which locally empowered officials throughout an enormous government system take advantage of the opportunities provided by their political control to extract a host of rents and bribes. Higher levels of the party understand that pervasive corruption is strongly resented by ordinary people and that the legitimacy of the party's continued rule depends heavily on its ability to control itself. The party has made numerous public commitments to control and punish corruption. This happened most recently following the 18th Party Congress in 2012 in the early pronouncements of the new leadership of General Secretary Xi Jinping and Wang Qishan, head of the Central Discipline Inspection Commission responsible for rooting out corruption. But Pei argues that the monitoring capacity of the party has been declining over time, as the government becomes larger and more complex, and officials have more resources and more ways of hiding them.
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THE ACCOUNTABILITY OF THE CHINESE STATE

The People's Republic of China is an authoritarian state whose constitution grants a leading role to the Communist Party. The party has no intention of permitting free and fair multiparty elections, and is careful to suppress any open discussion of democracy.

All authoritarian regimes encounter resistance to their rule in one form or another, and all respond with a mixture of repression and co-optation. When compared to a totalitarian state like North Korea, or the Arab dictatorships of Hosni Mubarak in Egypt or Muammar Qaddafi in Libya, the Chinese balance has tended to lean much more in the direction of co-optation. Thus while there are no formal mechanisms of accountability, the party and the state can be said to be responsive to the demands of various actors in Chinese society.

There are several mechanisms by which this happens. The Chinese government has permitted village elections in rural areas since 1989 to elect village committees and village leaders with certain limited local powers. They are part of a larger electoral system stretching up to the National People's Congress, in which delegates have started to act with a certain degree of independence.
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In addition to these formal mechanisms, as political scientist Lily Tsai describes, Chinese peasant communities provide informal feedback mechanisms for informing local officials of complaints and ideas for better delivery of government services. There are also formal complaint channels created by both government and party organizations through which citizens can register their views. The government of course is under no legal obligation to respond, but local officials are nonetheless frequently incentivized by higher-level authorities to head off social instability by preempting problems.
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The most important feedback mechanism, however, is public protest. When coupled with the government's almost paranoid concern for social stability and “harmony,” protests lead not simply to repression but also to significant accommodation. In 2010 there were estimated to be some 180,000 officially reported acts of social protest—peasants angry at land requisitions, parents worried about pollutants from a nearby factory, migrant workers feeling mistreated by local officials.
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Under Hu Jintao's leadership, the party changed the relative priority of economic growth versus promoting stability in its evaluations of official performance, elevating the latter to the point where a single incident of disorder could mean the end of an official's career. Many local officials find it easier to buy off protesters through various concessions, subsidies, or rule changes, and have come under severe pressure to meet these conflicting goals.
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There is a very strong popular belief in China that the higher levels of government are more responsive and less corrupt than lower levels.
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Confidence in the good intentions of the higher levels is critical to the legitimacy of the government as a whole, which is why the government tries to be responsive. But it is not really clear whether the higher levels are in fact less corrupt than the lower ones. The revelations coming out of the 2012 Bo Xilai case suggest that senior leaders have reached rather shocking levels of malfeasance as well.

With regard to policy and politics, lower levels of the government are supposedly subject to strong discipline by higher levels. But in a centralized system they have to be granted considerable autonomy with regard to implementation. In dynastic China, emperors faced huge problems of information, trying to monitor the behavior of the bureaucracy they supposedly controlled. They attempted to solve this problem by piling more centralized monitoring institutions on top of one another. Household eunuchs, for example, were more trusted than the bureaucracy and were used to monitor the bureaucrats. But then the corps of eunuchs themselves became unreliable, so emperors in the Ming Dynasty had to create a “Eunuch Rectification Office” to monitor the behavior of the eunuchs. So too in contemporary China: higher levels watch over the behavior of lower levels; the party's Organization Bureau monitors the behavior of the government; and special offices within the party, like the Central Discipline Inspection Commission, watch over the rest of the party. In this sort of atmosphere, many of the actors have strong incentives to cover up bad behavior and prevent the upward flow of information. In the end, the only solution is a system of downward accountability, in which the state is monitored by a free press and a genuinely empowered citizenry.