Regulatory innovation by leninist means: Communist party supervision in China's financial industry

China Quarterly

Volumn , Issue 181, 2005, Pages 1-21

  Heilmann, Sebastian ^a  

^a NONE

Author keywords

[No Author keywords available]

Indexed keywords

COMMUNISM; FINANCIAL SYSTEM; POLITICAL ECONOMY;

ASIA; CHINA; EASTERN HEMISPHERE; EURASIA; FAR EAST; WORLD;

EID: 17544382045     PISSN: 03057410     EISSN: None     Source Type: Journal    
DOI: 10.1017/S0305741005000019     Document Type: Article

References (74)

1. Cf. Susan Shirk, The Political Logic of Economic Reform in China (Berkeley: University of California Press, 1993), pp. 22, 348-49.
2. Yasheng Huang, Inflation and Investment Controls in China (New York: Cambridge University Press, 1996), pp. 322-24. In this article, Leninist institutions include the pervasive presence and elaborate hierarchy of Party organs in administrative bodies and state-controlled firms, rigid rules of cadre surveillance and recruitment as well as methods of extra-judicial disciplinary supervision.
3. Steven Solnick, Stealing the State: Control and Collapse in Soviet Institutions (Cambridge, MA: Harvard University Press, 1999), pp. 3, 29.
4. Mancur Olson, Power and Prosperity: Outgrowing Communist and Capitalist Dictatorships (New York: Basic Books, 2000), pp. 142-154.
5. Huang, Inflation and Investment Controls, pp. 324-25.
6. Victor Shih, "Authoritarian power imperatives and the Chinese banks," paper presented at the American Political Science Association's Annual Conference, San Francisco, August/September 2001, pp. 6, 13.
7. Cf. Sun Ming, "Jinrong dabianju de huali qianzou" ("Magnificent prelude to a comprehensive transformation of finance"), 21 shiji jingji baodao (21st-century Economic Report), 10 March 2003.
8. Victor Shih, "Not quite a miracle: factional conflict, inflationary cycles, and non-performing loans in China" (unpublished dissertation, Harvard University, 2003), passim, esp. pp. 28-29.
9. Cf. Peter Evans, "The eclipse of the state?" World Politics, Vol. 50, No. 1 (October 1997), pp. 62-87, esp. pp. 75-76, who raises powerful arguments against overstretching the concept "rent-seeking."
10. This breakdown is the main theme of Solnick's instructive book, Stealing the State, on Soviet disintegration.
11. The issue of policy decisiveness is treated by Andrew MacIntyre, "Political institutions and the economic crisis in Thailand and Indonesia," and Barry Naughton, "China: domestic restructuring and a new role in Asia," both in T.J. Pempel (ed.), The Politics of the Asian Economic Crisis (Ithaca: Cornell University Press, 1999 , pp. 145-146 and p. 206, respectively.
12. Olson, Power and Prosperity, pp. 111, 135, 143-153. Hereby, the Communist Party centre is not characterized as a "benign dictator." Olson explicitly points to Stalinist purges as a brutal, but effective method to strengthen centralized rule and control of economic resources without "benign" considerations for broad income growth etc.
13. For South Korea's efforts at financial re-regulation see Linda Weiss, "Guiding globalisation in East Asia: new roles for old developmental states," in Weiss (ed.), States in the Global Economy: Bringing Domestic Institutions Back In (Cambridge: Cambridge University Press, 2003), pp. 245-270.
14. Shirk, Political Logic, pp. 334 and 347.
15. Cf. Bruce J. Dickson, Democratization in China and Taiwan: The Adaptability of Leninist Parties (Oxford: Oxford University Press, 1997), pp. 1-33, who distinguishes between "efficient adaptation" initiated by technocrats for economic reasons and " responsive adaptation" driven by democratic reformers for achieving fundamental political reform. My study is clearly confined to issues of "efficient adaptation."
16. Cf. Shih, Not Quite a Miracle, ch. 8.
17. Whereas the CFWC was a specialized body assigned to take charge of Communist Party affairs in one economic sector, CFELG includes the central government's most senior decision-makers. CFELG itself is convened only two to four times a year but its permanent office serves as the key body in the Party centre for co-ordinating and guiding overall economic policy-making by requesting research reports, organizing consultations, formulating policy papers and drafting comprehensive development plans. Information based on interviews. See also Zou Ximing, Zhonggong zhongyang jigou yange shilu (A Chronicle of the Evolution of CCP Central Organs) (Beijing: Zhongguo dang'an chubanshe, 1998), pp. 206-207.
18. Tian Junrong, "Zengjia huobi gongying, fangfan jinrong fengxian" ("Increasing money supply, preventing financial risk"), Renmin ribao (People's Daily), 13 January 1999.
19. Interviews with regulatory officials in Beijing, November 2000 and October 2002.
20. "Chen Yaoxian tichu nuli kaichuang zhengguan xitong dang jian xin jumian" ("Chen Yaoxian demands to work hard for initiating a new phase of Party construction in the securities regulatory system" , Shangshi gongsi, No 110 (April 1999).
21. Central Financial Work Commission, Organization Department (ed.), Dang de zuzhi gongzuo shiyong shouce (A Practical Handbook for CCP Organizational work) (Beijing: Zhonggong zhongyang dangxiao, 1999), pp. 2-4. For an inside account of the Central Bank's reorganization,
22. see Kong Zhangshen, "Yanghang kua sheng she fenhang de qianqian houhou" ("Prelude and aftermath of establishing cross-provincial Central Bank branches"), Dadi (Publicly Listed Company), No.2 (1999).
23. Key documents on the tasks of the CFWC can be found in CCP Central Financial Work Commission, A Practical Handbook. The most comprehensive source on the reorganization of financial supervision is: CCP Central Financial Discipline Inspection Work Commission (ed.), Jinrong xitong zhifa zhiji wenjian huibian (A Collection of Documents on Law and Discipline Enforcement in the Financial System), Vols. 4-7 (Beijing: Zhongguo jinrong chubanshe, 2000). The CFWC also edited a number of handbooks for Party work such as Chuizhi lingdao tizhi xia jinrong xitong dangwei shuji gongzuo quanshu (Compendium on the Work of Party Committee Secretaries in the Financial System under the Vertical Leadership Structure) (Beijing: Dangdai Zhongguo chubanshe, 1999).
24. See Central Financial Work Commission, A Practical Handbook, p. 200.
25. Interview with regulatory official, Beijing, December 2003;
26. Ling Huawei, "Yinjianhui fuzhong qibu" ("The CBRC starts with a heavy burden"), Caijing (Finance), 5 April 2003.
27. The building is said to have cost 300 million yuan. It was taken over by the Banking Regulatory Commission after the dissolution of the CFWC as one of two office addresses of the banking regulator.
28. Interview with regulatory official, Beijing, January 2002. For general information on central leading groups, see Carol Lee Hamrin, "The Party leadership system," in Kenneth Lieberthal and David Lampton (eds.), Bureaucracy, Politics, and Decision Making in Post-Mao China (Berkeley: University of California Press, 1992), pp. 95-124;
29. Zou Ximing, A Chronicle of the Evolution of CCP Central Organs. For the key co-ordinating role of mishuzhang 1994).
30. see Li Wei, The Chinese Staff System (Berkeley: Institute of East Asian Studies, 1994).
31. Bruce Gilley and David Murphy, "Why China needs a real central bank," Far Eastern Economic Review, 24 May 2001. The authors' key point - that the CFWC usurped all major Central Bank functions - was rejected as a heavy exaggeration by all financial system insiders interviewed for this study. Yet ironically, the article by Gilley and Murphy was rather influential in China's policy-making circles: shortly after it appeared, apparently so as to boost the political standing of the Central Bank's governor, Dai Xianglong was appointed deputy secretary of the CFWC. And CFWC executive deputy secretary Yan Haiwang and the CFWC itself took a considerably lower profile thereafter. Two interviewees with a thorough knowledge of the CFWC's inner workings saw a direct correlation between the Far Eastern Economic Review article and this institutional rearrangement. The quick official response shows how sensitive Chinese politicians have become to external criticism that affects the credibility of China's financial market institutions.
32. Interview with regulatory official, Shanghai, October 2002.
33. See "Wen Jiabao zai Zhongyang jinrong gongwei juxing quanwei kuoda huiyi shang jianghua" ("Wen Jiabao gives a speech at an enlarged plenary conference held by the CFWC"), Jingji ribao (Economics Daily), 25 July 2000.
34. Zhongguo jinrong nianjian 2002 (China Financial Yearbook) (Beijing: Zhongguo jinrong chubanshe, 2003), pp. 14-16.
35. Interviews with regulatory officials in Beijing and Shanghai, January and October 2002.
36. For a major reshuffle see "Woguo bufen jinrong jigou zhuyao lingdao ganbu jiaoliu tiaozheng" ("Reshuffles and adjustments among major leadership cadres in some financial institutions of our country"), Renmin ribao, 24 February 2000.
37. Interviews with regulatory officials, Beijing, January 2002 and December 2003; see also Yi Qing, "Yanghang jigou gaige neimu" (" The inside story of the Central Bank's organizational reform"), Caijing, 1 December 1998.
38. See Central Financial Work Commission, A Practical Handbook, pp. 292-94.
39. Shih, Not Quite a Miracle, p. 82.
40. Interview with regulatory official, Beijing, December 2003; see also the corresponding figure for senior financial cadres who were subject to CFWC discipline inspections in China Financial Yearbook 2001, p. 12.
41. Ibid. pp. 11-13.
42. See speech given by Zeng Qinghong at a national conference of CCP organization department heads, reprinted in Renmin ribao, 10 January 2000.
43. Central Financial Work Commission, A Practical Handbook, p. 202.
44. "Si da guoyou yinhang rezhao 'haiguipai' jiameng" ("The four big state-owned banks intensively recruit returnees from overseas to join forces"), Xinhua ribao (New China Daily), Nanjing, 9 October 2002.
45. Central Financial Work Commission, A Practical Handbook, p. 200.
46. The most important cases were Zhongjingkai Trust and Investment, Galaxy Securities and, for a brief period, CITIC Holding. For CITIC's case see "Wang Jun jiedu zhongxin konggu" ("Wang Jun explains CITIC Holding"), Zhonghua gongshang shibao (China Business Times), 10 March 2003.
47. Actually, the CFWC sent its supervisory boards to 19 financial institutions, since only one supervisory board supervised two commercial financial institutions in the cases of CITIC and Everbright Trust and Investment, People's Insurance and China Reinsurance, China Import & Export Bank and China Export & Credit Insurance. Cf. Wang Shuo, "Jigou gaige daibian" ("Organizational reforms have yet to be refined"), Caijing, 5 March 2003; Ling Huawei, " The CBRC starts with a heavy burden."
48. Cf. for instance, Stephen Green, China's Stockmarket: A Guide to its Progress, Players and Prospects (London: Economist Books, 2003), pp. 82-83.
49. My case studies on the frictions and consultations in connection with CCP executive appointments in non-state corporations can be found in China Analysis, No. 38 (June 2004) (http://www.chinapolitik.de/ studien/china_analysis/no_38.pdf), pp. 11-14.
50. "Zhu Rongji: jin yi bu wanshan guoqi he guoyou zichan jiandu guanli" ("Zhu Rongji: go further with perfecting the supervision and regulation of state enterprises and state-owned assets"), Xinhua News Agency, 23 February 2003.
51. Centralized leadership through a hierarchy of Party Committees, set up by the CFWC, proved to be more effective for establishing central control than the Central Bank redistricting in nine large super-regions. The creation of these super-regions led to major confusion in bank monitoring as was made clear by many interviewees. The difficulties in establishing effective banking supervisory bodies on the local level persisted after the formation of the CBRC. See Wu Yushan, "Dishi yinjian fenju luxu dengchang" ("Banking supervision branch offices in district-level cities are coming on stage one after another"), 21 shiji jingji baodao, 15 December 2003.
52. Cf. Financial Times, 16 January 2002 and 10 December 2003.
53. Interview with investment banker, Shanghai, October 2002. See also my study "Policy-making and political supervision in Shanghai's financial industry," forthcoming in The Journal of Contemporary China, Vol. 14, No. 45 (November 2005).
54. "Woguo jinrong san da jianguan bumen jianli jianguan lianxi huiyi zhidu" ("The three big financial regulatory agencies of our country establish a system of joint conferences on regulatory issues"), Xinhua News Agency, 4 September 2000.
55. In the debates about the draft laws on banking supervision and the Central Bank, the need for more effective co-ordination triggered individual demands for re-establishing the Central Bank as a "super supervisory body." Cf. Wu Xiaoliang, "San da yinhang fa 'kunbang shangshi' " ("The three big banking laws are 'brought to the market as a bundle'"), Caijing, 20 December 2003.
56. Cf. Ning Nan, "Zhongguo jinrong gaoceng zouma huanjiang de taiqian muhou" ("Before and behind the scenes of the high-level reshuffle in China's financial sector"), Shangwu zhoukan (Business Weekly), 1 February 2003.
57. This judgement was given by several financial regulators interviewed for this study.
58. See Qian Xiaoan, "Jianli zhongguo tongyi de jinrong jianguan tizhi de gouxiang" ("A blueprint for establishing a unified structure for financial supervision and regulation in China"), Caijing kexue (Financial Science), No. 1 (2002).
59. Interviews with regulatory officials, Beijing, December 2003. For a similar argumentation see Ning Nan, "Before and behind the scenes."
60. Hu Shuli, "Jinrong zichan guanli, yinjianhui yu shencengci gaige" ("The management of financial assets, the CBRC and profound reforms"), Caijing, 5 March 2003.
61. Already in November 2002, Wen Jiabao initiated the establishment of a new Central Leading Group on Financial Safety that was designed not as a substitute for the dissolved CFWC but as a supreme crisis management body. In contrast to the CFWC, this leading group is not in charge of cadre management or overall supervision in China's financial system but is supposed to serve as the key decision-making body in case of an acute financial crisis.
62. Sun Ming, "Guowuyuan ni 'tebie fangxing' yinhang hunyi jingying" ("The State Council plans 'special clearance' for mixed banking operations"), 21 shiji jingji baodao, 11 August 2003.
63. "Yinjianhui guanli jiagou fuxian" ("The CBRC's administrative set-up comes to light"), Zhongguo zhengquan bao (China Securities), 8 April 2003.
64. For discussions of this issue, see Sun Ming, "'Jinrong guoziwei' chuxing zhaxian?" ("Is an embryonic form of a 'commission for financial state-owned assets' suddenly appearing?"), 21 shiji jingii baodao, 12 January 2004.
65. Hu Shuli, "Jigou, renshi bianqian yu shenceng gaige" (" The transition of institutions and personnel affairs and the issue of profound reform"), Caijing, 20 January 2003.
66. Liu Caina, "Yinhang hangzhang gai you shei renming?" (" Who should be in charge of appointing the directors of banks?"), Zhonghua gongshang shibao (China Economic Information), 25 June 2003.
67. See "Guoziwei de guoqi xin buzhen" ("The State Assets Commission's new marshalling of state-owned enterprises"), Caijing, 5 August 2003;
68. "Li Yizhong zonglun guozi gaige" ("Li Yizhong elaborates on state assets reforms"), Caijing, 20 December 2003.
69. Barry Naughton, "The State Assets Commission: a powerful new government body," China Leadership Monitor, No. 8 (Fall 2003, http://www.chinaleadershipmonitor.org/20034/bn.pdf, p. 1.
70. Ibid. p. 8.
71. "Renda changweihui guanyu yinjianhui lüxing yuan yanghang jianguan zhize de jueding" ("Decision of the NPC's Standing Committee concerning the CBRC's exercise of supervisory duties originally exercised by the Central Bank"), Xinhua News Agency, 26 April 2003.
72. Sun Ming, "Quanguo renda tichu san da yidian" ("The NPC raises three big questionable points"), 21 shiji jingji baodao, 3 September 2003;
73. Zhang Yongtao, "Yinhang lifa hai xuyao geng jin yi bu" ("Banking legislation must go even further"), Caijing, 20 December 2003.
74. Solnick, Stealing the State, p. 243.