Cadres turned capitalists

By Eva Cheng, Green Left Weekly, #290, 24 September 1997

Rampant corruption of Communist Party officials in China has been well known since 1949. But Deng Xiaoping's capitalist reforms since 1979 have given them new means of enrichment.

Lavish banquets, bigger villas, consumer durables and the like are no longer good enough. More officials have shifted to turning state firms' shares into their private holdings and engaged in the capitalist production process.

However, being open about such holdings and activities is still not considered politically sensible, partly because of residual opposition from diehard conservatives in the bureaucracy. Moreover, the best way to expand personal holdings lies in maintaining a strategic post within the Communist Party.

Because the state sector still controls certain key materials, a key to the success of private business lies in ensuring such supplies. Having the right connections can guarantee important supplies at low, or zero, cost. The dual price system introduced in the early 1980s not only provided a new way for corrupt officials to milk state property, but also gave well-connected entrepreneurs an edge over their competitors. Beijing has never revealed the extent to which cadres have gone into private business. But in March 1988 the official new agency Xinhua reported approval by Zhejiang, a province near Shanghai and one of China's richest, for cadres to engage in economic activity.

Wenzhou, in Zhejiang, was hailed as a national model in the mid-1980s for its capitalist achievements. In 1986, private firms accounted for 80% of the city's gross domestic product.

Beijing's repeated decrees banning party officials' capitalist activities are an indicator of widespread such activities are.

The Communist Party and the State Council issued a joint order in October 1988, banning cadres, including those who were retired, from engaging in any economic enterprises, in paid capacity or not.

In August 1993, the Central Commission for Discipline and Inspection ordered that cadres at or above county or division levels are forbidden to run enterprises, do business or hold posts in economic entities and trade shares.

Another boost to private business has been the release of private property to former members of the national bourgeoisie since the late 1970s. In October 1979, a Patriotic Housing Association was founded by 1100 former capitalists in Shanghai, with initial capital of US$33 million, increased to US$72 million as early as 1985. The group produces wristwatches and glass, and runs shipping, hotels and investment banking.

There are many similar private business groups formed by reinstated capitalists. The most well known of all is China International Trust and Investment Corporation (CITIC), which Beijing called on former capitalist Rong Yiren to form in 1979.

CITIC, with a majority stake held by the state, has been acting as China's international investment arm. It is run by Rong's son, Larry Yung Chi-kin, and other hired managers as a conglomerate engaged in a broad range of activities - infrastructure, telecommunications, aviation, cars and property - and armed with many privileges, wheeling and dealing inside and outside China.

Joining Rong are many of the sons and daughters, or their spouses, of senior Communist officials who filled many top positions in key state firms, including those backed by the army. Civilian products now account for 80%of the army's total output, China Daily Business Weekly said last month.

Many of them are overseas educated, armed with MBAs, and are a key force within the Communist Party pushing for a greater for the market in China.