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1 Briefing Series Issue 33 CHINA S POLITICS IN 2007: POWER CONSOLIDATION, PERSONNEL CHANGE AND POLICY REORIENTATION Gang CHEN Liang Fook LYE Dali YANG Zhengxu WANG Copyright China Policy Institute January 2008 China House University of Nottingham University Park Nottingham NG7 2RD United Kingdom Tel: +44 (0) Fax: +44 (0) Website: The China Policy Institute was set up to analyse critical policy challenges faced by China in its rapid development. Its goals are to help expand the knowledge and understanding of contemporary China in Britain, Europe and worldwide, to help build a more informed dialogue between China and the UK and Europe, and to contribute to government and business strategies. 1

2 Summary 1. The year 2007 witnessed the convening of the 17 th National Congress of the Chinese Communist Party (CCP). General Secretary Hu Jintao further consolidated his power by bringing his trusted officials into the Political Bureau and having his Scientific Development concept enshrined in the Party Constitution. 2. Nevertheless, the Party Congress was not a landslide victory for Hu, who reportedly made a compromise with the Shanghai Clique and the Princelings Group by making Xi Jinping the frontrunner to succeed him in five year s time. 3. Li Keqiang, two years younger than Xi and favored by Hu, joined the Standing Political Bureau Committee. He is to become vice premier in March 2008 and expected to succeed Wen Jiabao as premier five years later. 4. Besides Xi and Li, several new Political Bureau members in their 50s, including Li Yuanchao, Wang Yang, Bo Xilai and Wang Qishan, have the potential to stay in the core leadership for another ten years and may even stand a chance to become General Secretary or Premier. 5. Cabinet changes in 2007 included the appointments of Foreign Minister Yang Jiechi, Finance Minister Xie Xuren, and Minister of Public Security Meng Jianzhu. 6. As part of a strategy of political co optation, the Chinese leadership also appointed non CCP members Wan Gang and Chen Zhu as Minister for Science and Technology and Minister of Health respectively. 7. China continued its high profile fight against corruption by executing Zheng Xiaoyu, the former chief of the State Food and Drug Administration. Worsening pollution and a scandal over slave labour drove the government to pay closer attention to environmental and labour issues, impose stricter green standards and formulate a new labour contract law. 8. Last year also saw another major effort by the Party to maintain its legitimacy. It promised to introduce more elements of democracy into the way it runs the country, in line with its overarching goal of building political civilization that is to be achieved through building a system of socialist democracy. 9. Maintaining social stability remained of paramount importance in With inflation at a 10 year high and all eyes on the Beijing Olympic Games, the Chinese leadership is likely to step up vigilance toward any potential threats to stability in the coming months. 10. Rising prices of food items (pork, cooking oil, and rice) and energy have increased public dissatisfaction and generated complaints especially among the lower income groups. Meanwhile, uneasiness is growing over steep gains in domestic property and stock markets. 11. The Party is trying to revamp its initial mindset which focused on increasing GDP to one based on a scientific outlook of development. Changes made to 2

3 the cadre evaluation system included the addition of environmental indicators to the assessment criteria of local officials. 12. Another significant political event in 2007 was the passage of a controversial law guaranteeing private property rights. Social conflicts and protests triggered by forced land requisitions continued to attract attention, reflected by the particularly prominent Nailhouse case in Chongqing in early China had a strong year in foreign relations. It gained the support of the United States to maintain the status quo on the Taiwan issue, improved its relationship with Japan led by new Prime Minister Yasuo Fukuda and worked with the Association of Southeast Asian Nations (ASEAN) to establish a Free Trade Area by However, pressure from the EU increased as it raised the tone of its complaints about Chinese trade and currency behavior. Chinese German relations grew especially frosty as Chancellor Angela Merkel put the issues of Tibet and human rights on centre stage. Beijing will also be watching the US election campaigns closely for signs of China bashing. 15. China s political agenda in 2008 will probably be dominated by the Olympic Games. Maintaining social stability will be top priority for the Chinese leaders. 3

4 China s Politics in 2007: Power Consolidation, Personnel Change and Policy Reorientation Gang Chen, Liang Fook Lye, Dali Yang, & Zhengxu Wang 1 Hu s Power Enhanced in the 17 th Party Congress 1.1 The 17 th Party Congress dominated the political scene in China in Although the Congress convened in October for only one week, cadres had been jockeying intensely for positions and stiffly contesting the Party s policy lines in the months leading up to it. The much awaited Congress started on 15 th October in Beijing and closed on the 22 nd as the newly selected Political Bureau Standing Committee made its press debut. In summary, the Congress saw a further consolidation of Hu Jintao s power. Hu, leader of the Party and the country, was able to appoint his trusted lieutenants to important positions. The Congress also incorporated his brainchild Scientific Development concept in the Party Constitution, making it a major ideological guideline Still, not all the outcomes of the Party Congress were satisfactory to Hu, as he was only able to promote one of his protégés, Li Keqiang, to the Political Bureau Standing Committee the most powerful decision making body in China. Li, the 52 year old Party Secretary of Liaoning Province, had been seen as Hu s favorite potential successor, but ultimately, Xi Jinping, the 54 year old Party Secretary of Shanghai, was promoted to a position above Li s in the Political Bureau Standing Committee, becoming the front runner to succeed Hu as general secretary. 1.3 Xi was believed to be preferred by the Taizidang, also known as the Princelings, which is a wide political network made up by the offsprings of veteran revolutionaries, as well as the Shanghai Clique. Both groups are currently led by the outgoing Vice President Zeng Qinghong. The choice of Xi as Hu s potential successor suggested that Hu had to make a compromise with Zeng and his associated factions. While this development indicates the increasingly pluralistic nature of Chinese politics, such compromises do not necessarily mean Hu, who is halfway through his term, failed to consolidate his power halfway through his tenure. 1.4 Since Deng Xiaoping, the revolutionary leader and chief architect of China s reform, passed away in 1997, China has lacked a charismatic leader who is able to achieve any political outcome unconditionally. Succession now 1 Gang Chen and Liang Fook Lye are Research Fellow and Senior Research Officer respectively, while Dali Yang is Professor and Director of the East Asian Institute, Singapore; and Zhengxu Wang is Senior Research Fellow at China Policy Institute, University of Nottingham. The authors would like to thank Professors John Wong and Yongnian Zheng for their valuable contributions throughout the preparation of this work. 2 For details of the 17 th Party Congress, please refer to The Key Policy Outcomes of China's 17th Party Congress by Zhengxu Wang and Yongnian Zheng, published 8 November 2007 by China Policy Institute. 4

5 operates under an institutionalized framework where gains are usually achieved through compromises made among different forces within the Party. 1.5 During the 17 th Party Congress, Hu successfully got the upper hand over his rivals by engineering the promotion of some of his colleagues from the Youth League to the Political Bureau and other important positions. Most of them will still be young enough to be elevated to higher level posts by the time the selection for a new cohort of leaders starts in five years. Another of Hu s political achievement came in the form of a recent amendment to the Party Constitution, which incorporated his brainchild concept of Scientific Development into the core guidelines of the CCP. Nevertheless, Hu had to give up his other brainchild concept Harmonious Society and stick to the phrase of Well Off Society which embodied the Party s policy goal. 1.6 In 2007, the CCP continued its struggle against corruption so as to safeguard its legitimacy. A National Corruption Prevention Bureau was established and a ministerial official, former chief of the State Food and Drug Administration Zheng Xiaoyu, was executed on corruption charges. The saga concerning former Shanghai Party Chief Chen Liangyu continued to unfold as other implicated officials were persecuted, while several ministerial officials, including former Minister of Finance Jin Renqing, were sacked on alleged charges of corruption. 1.7 Amidst the CCP s efforts to achieve development in a scientific and harmonious way, the year 2007 witnessed a continued imbalanced expansion of the Chinese economy. While China s GDP is expected to have expanded by 11.6 percent, awareness is growing of environmental degradation and the worsening income inequality in the country. Frequent reports of coal mine accidents as well as the revelation of a slave labour scandal highlighted the costs of hyper growth. In the meantime, the Chinese leaders started to push for a comprehensive welfare, educational and healthcare system that will cover all Chinese nationals. The Party is striving to build an effective government in response to challenges to its rule. 1.8 One of the ways in which the State has responded to such challenges brought about by the country s rapid social and economic transformations is to put in place laws to manage and regulate the economy and society. Especially worth noting was the passage of a controversial law guaranteeing private property rights in early The Property Law marks an important step in the country's slow metamorphosis from a Leninist monolith into a unique Chinese amalgam of socialist ideology and capitalist economy. 1.9 China had a fruitful year in terms of external relations. It gained support from the United States to maintain the status quo on the Taiwan issue, improved its relationship with Japan as leadership changes in Japan brought about a shift in the country s foreign policy approach, and continued to work with ASEAN toward regional cooperation. The Asian neighbours are on track to establish a Free Trade Area (FTA) by However, product safety became an issue that dented China s international image and soft power in China also faced increasing international pressures in areas including fair trade, foreign exchange rate policies, as well as global responsibility towards issues such as climate change and human rights. 5

6 New Faces and New Policies 2.1 The 17 th Party Congress, which convened between 17 th and 22 nd October, was a major platform for the Party to announce its policy agenda, deliberate its policy options, and enhance its unity and strength. In terms of personnel changes, the Congress saw a reshuffling of the Political Bureau and its Standing Committee, as well as changes to the Party s Central Committee and the Central Discipline Inspection Commission in charge of anti corruption. 2.2 The foreign media were more interested in the reshuffle of the top leaders. Two younger officials (in their early 50s) Xi Jinping and Li Keqiang advanced to the Political Bureau Standing Committee, poised to assume top leadership positions five years later. Meanwhile, He Guoqiang and Zhou Yongkang also joined the new Political Bureau Standing Committee to take charge of the crucial portfolios of law and order, and anti corruption campaign respectively. 2.3 Age became the major exit criteria for top positions, as those aged 68 and above retired at the Congress. Top officials who stepped down from the Political Bureau Standing Committee included Zeng Qinghong (68), Wu Guanzheng (69), and Luo Gan (72). Their portfolios were taken over respectively by Xi Jinping, He Guoqiang, and Zhou Yongkang. Among the Political Bureau members, Wu Yi (69) and Zeng Peiyan (69), the two vice premiers in charge of foreign trade and industrial policies, also retired. Wu had an impressive record as China s top trade negotiator and was recently classified by Time Magazine as one of the most powerful women in the world. 2.4 Besides Xi Jinping and Li Keqiang, the other newcomers to the Political Bureau who are in their 50s include Li Yuanchao, Wang Yang, Bo Xilai and Wang Qishan. All these officials have wide ranging experiences with both central and local affairs in the social, political, and economic areas. They are the future political stars of China and have the potential to stay in the core leadership for another ten years. Some of them may even stand to vie for the post of General Secretary or Premier in the years to come. 2.5 Of prominence is Li Yuanchao, the former Party Secretary of the country s economic powerhouse Jiangsu Province. Li is now Director of the Party s Organization Department, overseeing the performance of personnel as well as organizational reforms within the Party. Li used to be Hu s colleague in the Communist Youth League Central Committee in the 1980s. In his previous post as leader of Jiangsu, he was well known for being innovative when dealing with many difficult social policy issues. He was also bold by experimenting with reforms of the Party s personnel management system within the Province. 2.6 As for military leadership, Hu Jintao remained Chairman of the Central Military Commission (CMC) at the 17 th Party Congress. Xu Caihou replaced Cao Gangchuan to become CMC Vice Chairman while Guo Boxiong remained as the other Vice Chairman. Cao will likely retire from the post of Defense Minister at the National People s Congress that is set to take place in March There is currently no First Vice Chairman in the CMC and there is speculation that in due course, Xi Jinping will be inducted into this role to prepare him for succession to Hu s position. 6

7 2.7 Throughout 2007, the CCP and the government had been busy appointing new ministers, provincial party secretaries and governors (See Appendix). Newly appointed Foreign Minister Yang Jiechi, Finance Minister Xie Xuren (formerly the head of the State Administration of Taxation), and Minister of Public Security Meng Jianzhu (former Party Secretary of Jiangxi Province) were among those who attracted the most attention. These personnel changes were made in line with changes in the composition of the Party s Central Committee that subsequently took place at the 17 th Party Congress. Further personnel changes at the ministerial and gubernatorial levels will be announced at the annual session of the National People s Congress in March The appointments of non CCP member Wan Gang and Chen Zhu as Minister of Science and Technology and Minister of Health respectively were regarded by observers as a sign of the CCP s attempt to legitimize its rule and fend off criticism about its one party authoritarianism. Similarly, in recent years the Party has made it a policy to appoint non party officials to important positions in local governments, including vice governorships. Within provincial governments, some portfolios have been allocated to non party officials. 2.9 In terms of policy change, the CCP raised its economic target to take into account population growth. The new target set by the 17 th Party Congress is to quadruple per capita GDP by 2020 from The Party s new thinking revolves around Hu s Scientific Development concept, which aims to reduce regional and social inequalities, eliminate environmental pollution and upgrade the technological level of the Chinese economy. The Party also aimed to shift the mode of economic growth from one led by investment to one generated more by consumption, and to ensure a more equitable access to the wealth resulting from China s rapid economic growth There are signs that the Party is genuinely interested in reforming components of its governing system to allow for more political participation, transparency, and accountability. The political report given by Hu to the Party Congress guaranteed the people s right to know about important information, to participate in government decision making, to be heard, and to oversee the work of the government. This marked the first time a key document of the CCP Central Committee has ever elaborated on such citizens rights, indicating the government s top echelon is gradually adopting a more liberal political mindset. Such policy statements are certainly welcomed by the public, although those rights are only likely to actualize gradually. Maintaining the Party s Legitimacy 3.1 China has kept up efforts on various fronts to maintain the legitimacy of the Party, which is constitutionally the only ruling party of the country. Since the end of the Maoist ideological frenzy in the 1970s, the Party has looked toward economic development as its main source of legitimacy. In recent years, while keeping the emphasis on the economy, the Party has also turned to the social and political domains. In particular, it has stepped up its fight against corruption, which has often undermined public confidence in the Party and 7

8 government. The Party is also revising political discourse so as to furbish the regime s legitimacy with populist, or democratic, elements. 3.2 While preparing for the Party Congress, Hu Jintao made a high profile speech at the Central Party School on 25th June 2007, in which he urged cadres, inter alia, to improve their leadership and lifestyles, oppose extravagance, and recognize that the fight against corruption was a long and arduous process. The Party s image has been tarnished in recent years by the perception that it only targeted perpetrators of corruption selectively while conveniently leaving out those who are politically influential or well connected. To address this lingering impression, the Party has taken a more concerted action against corrupt officials, regardless of their seniorities or ranks, in order to prove its resolve to clean house. 3.3 The opening salvo was the high profile ouster of Shanghai Party Secretary Chen Liangyu in September 2006 for abusing power and misusing Shanghai s pension fund. In addition, those implicated in the case were also brought to justice, indicating the Party s determination to ferret out the perpetrators. In September last year, six high ranking officials linked to the Shanghai pension fund scandal received imprisonment terms ranging from five years to life sentences. 3.4 Senior officials involved in other corruption cases have also been brought to justice. One of the more prominent cases involved Qiu Xiaohua, chief of the ministerial level National Statistical Bureau. Qiu was expelled from the Party in January 2007 for allegedly accepting bribes and for bigamy. Apparently, between 2004 and 2007, about 30 National People s Congress Deputies and Chinese People s Political Consultative Committee Members were expelled for graft and breaches of discipline. According to official statistics, the Supreme People s Procuratorate investigated 3,470 officials for alleged corruption and negligence in the first nine months of 2007, up 9.5 per cent compared with the same period in the previous year. 3.5 Similarly, the Party has also taken tough action against officials who disregarded the interests of the people by approving the sale of substandard products. The most prominent case involved Zheng Xiaoyu, the former chief of the State Food and Drug Administration, who took bribes (amounting to US$850,000) in return for approving substandard medicine, including an antibiotic that was believed to have caused at least 10 deaths. Zheng was executed in May Two months later, in July 2007, Cao Wenzhuang, a former registration director of the State Food and Drug Administration, was accused of accepting more than US$300,000 in bribes from two drug companies. He was given a death sentence with a two year reprieve. 3.6 To strengthen the fight against corruption at the institutional level, a new agency under the State Council known as the National Corruption Prevention Bureau was created in September The Bureau would focus on ways to stem corruption at its root, constantly improve corruption prevention systems, push for the sound operation of these systems and coordinate corruption prevention efforts among various departments. The legal framework is also constantly being improved to fight corruption. 8

9 3.7 Transparency International, the global anti graft watchdog, commended China for stepping up efforts against corruption in its 2007 Corruption Perceptions Index report. China s ranking improved compared to the previous year. To some extent, the result indicated that the Party s fight against corruption was bearing fruit. However, the battle is far from over. The challenge for the Party would be to combine and sustain efforts in fighting and preventing corruption. This would require not only harsh punishments, but also the implementation of effective institutions, systematic enforcement and proper incentives. 3.8 Besides economic development, a new focus on social justice through reducing income inequalities, and the anti corruption campaign, the Party is also attempting to maintain its legitimacy through political reform. In recent years, the Party has demonstrated a genuine interest in introducing democratic elements into its governing system in a bid to build the democratic legitimacy of the Party. The Party has defined its goal of political reform in terms of building political civilization through the introduction of limited elections, expansion of political participation, and the building of a country based on the rule of law. 3.9 The Party s catch phrase for political reform, termed as building political civilization, is to build socialist democracy, which seemingly comprises three elements: intra party democracy, people s democracy, and grass root democracy. People s democracy refers to increasing articulation of interests and representation under the China s People s Congress system, which used to be a rubber stamp, but has been gaining political weight in the areas of legislation, policy formulation, and government supervision. Grass root democracy is aimed at introducing local elections, such as in villages and townships, and self governance in urban neighborhood communities The most significant progress is in the Party s effort to build intra party democracy. Such efforts aim to institutionalize Party politics, optimize personnel selection as well as policy making. For example, the Party is experimenting with some forms of intra party voting system in selected parts of the country. When it comes to appointing important government officials and deciding on major policies, the relevant Party Committee will use vote casting. The Party will also establish a system under which the Political Bureau regularly reports its work to plenary sessions of the Central Committee, subject to their oversight. The standing committees of local Party committees at all levels are to do likewise to plenary sessions of local Party committees As for political reform or building political civilization, the Party s stated goal is to use intra party democracy to lead to the development of people s democracy. The Party is unlikely to relinquish its power in favour of open electoral contests. Hence, while building its version of socialist democracy, it will continue to retain its unchallengeable position as the ruling party of the country. Nevertheless, as intra party contests become the norm, the larger 3 The Party s rhetoric on political civilization aimed to guarantee the democratic rights of citizens in electing officials, making government decisions, implementing government policies, and supervising government work. 9

10 public will gradually aspire for open competition and electoral contestation. Over time, the Party would have to concede its sole control of political power and agree to open electoral competitions. In this manner, the Party s rhetoric of using intra party democracy to develop people s democracy may indeed pave the way for China s political evolution. Growing Pains and the Effort for Better Governance 4.1 The Party put forward the Harmonious Society doctrine as a response to the numerous social economic problems faced by the nation amid sizzling economic growth. By reiterating the goal of a Comprehensive Well Off Society at the 17 th Party Congress, the Party promised the population a Chinese society of affluence, justice, and social harmony. The occurrences in 2007 of numerous environmental crises, fatal industrial accidents and public protests, in addition to growing concerns over the widening income inequality, however, point to the immense challenges the Party faces. 4.2 Year 2007 witnessed some very serious environmental incidents in China, as the country came under increasingly close international scrutiny for increasing greenhouse gas emissions and harming ecological systems. Water crises, air pollution, climate change as well as growing environmental protests are testing the Party s government as it struggles to balance economic growth with environmental protection. 4.3 In May and June 2007, a severe algae outbreak in the Taihu Lake, China's third largest freshwater lake, rendered tap water in neighboring cities undrinkable over the course of a week. This worst ever water crisis immediately sent local residents on a panic buying of bottled water in supermarkets and even caused classes to be suspended among some local colleges. 4 High levels of nitrogen and phosphorus are believed to be the major cause of algae blooms, which develop in nutrient rich water. Apart from Taihu Lake, blue green algae outbreaks have been reported in Chaohu Lake and southwestern Dianchi Lake since May as they threaten the local tap water supply. 4.4 The blue green algae outbreaks in large lakes are only one of the signs of the rapidly deteriorating environment and eco systems in recent years, as China becomes a world workshop and its economy expands at double digit growth rates. In May and June, several hundred people staged a peaceful demonstration against a planned chemical plant named Tenglong Aromatic PX Co., in the southern Chinese city of Xiamen. The project was suspended by the government after residents sent about 1 million mobile phone short messages in protest against possible health dangers. 5 Similar protests had occurred in other places across the country, which resulted in delays or cancellations of planned construction or industrial projects. 4 China Daily, 31 May, 2007, Algae outbreak sparks water panic 5 AP News, 1 June, 2007, Protests against Xiamen chemical plant continue despite decision to suspend 10

11 4.5 The disclosure of a slave labour scandal in the middle of 2007 in the central Chinese province of Shanxi shocked the whole world as well as China itself. Hundreds of farmers, teenagers and even some children had been trapped or cheated into working in gruelling conditions in kilns, mines and foundries across Shanxi province, resulting in at least one death and several cases of serious injuries. Local officials had been responsible for overlooking or even assisting the trade in trapped workers. Such a scandal in 21 st century China revealed grave institutional failures within the country s governing system to prevent capital abuse and protection of basic human rights. The Provincial Governor eventually resigned and the nation learned a costly lesson that the goal of a Harmonious Society is still far from being met. 4.6 The State Administration of Workplace Safety continued to raise awareness of workplace safety issues, prevent the occurrences of safety incidents and deal with the aftermath of major accidents. In the coal mine sector, it continued to make headway in shutting small coal mines. Though the total number of reported deaths in coal mine accidents had declined, China continued to top the list of countries with the most number of deaths from coal mine accidents. Serious coal mine blasts continued to make the headlines throughout the year The widening rich poor income gap, rocketing housing prices as well as rising costs of medical care and education services for ordinary folks were seriously affecting people s livelihoods. In 2007, China experienced the most severe inflation in more than a decade. 7 The rising prices of food items (pork, cooking oil, and rice) and energy gave rise to growing public dissatisfaction and complaints especially among the lower income groups. Meanwhile, uneasiness increased over the steep gains in domestic property and stock markets. 4.8 The widening income gap, fast rising housing prices as well as high costs of health care and education continue to top the concerns of policy makers and ordinary people. The Ministry of Education won significant goodwill by eliminating tuition fees for rural school children. This measure would also be extended to urban areas. The debate on how China s healthcare system should be reformed continued to rage. 4.9 All these issues pose serious challenges to the Party led rule. In fact, social protests and riots, mostly caused by land expropriation, environmental pollution, corruption and judicial unfairness, continue to threaten the CCP s rule and social stability. According to a Hong Kong based report, in August 2007 alone, there were 7,719 unauthorized protests and demonstrations, leading to 1,207 deaths and injuries While seeking continued economic growth, the Chinese leadership had started to pay more attention to problems such as environmental pollution and social discontent. They understood that institutional changes and more balanced 6 The latest coal mine accident killed at least 105 workers in Hongdong County of Shanxi Province in December. 7 The Consumer Price Index (CPI), a main gauge of inflation, climbed 6.9 percent in November from a year earlier, according to China s National Bureau of Statistics. In November, food prices jumped 18.2%, while pork prices soared 56% from a year earlier, the bureau said. 8 Trend, Hong Kong, September 2007, p.12 11

12 policies were vital to better governance and social harmony. They also recognized however that local authorities, some government departments as well as other interest groups had tended to pursue their own objectives without considering the central government s effort to implement further reforms and balance development As such, actions by a determined leadership were called for. In 2007, the Chinese leadership paid unprecedented attention to environmental problems. Premier Wen Jiabao took up the directorship of a newly established national agency to address climate change and increasing emissions. China also responded actively to set up a proposed Eco City with Singapore, while supporting the green goals set by the APEC Summit in Australia In the first nine months of 2007, some leading indicators of environmental degradation showed signs of improvement. The two major pollutants, SO2 and COD (chemical oxygen demand), dropped for the first time by 1.81% and 0.28% percent respectively year on year. 9 Per unit GDP energy consumption decreased by 1.8%. 10 These figures, however, are still far from the goals set in China s 11 th Five Year Plan. According to this plan, major pollutants are to decrease by 10% and per unit GDP energy consumption to fall by 20% between 2006 and More importantly, the Chinese leadership is trying to shift the national GDPoriented mindset and looking to replace pure economic indicators with more complicated and balanced targets in the assessment of local officials performances The Standing Committee of the National People's Congress, the top legislature in China, adopted a new labour contract law (LCL) in June to better protect employees interests. The LCL, which came into effect on 1 Jan. 2008, effectively converts those who have worked for an employer for 10 consecutive years into "permanent" employees. Property Rights Guaranteed and the Emerging Super Riches 5.1 The target to build a Harmonious Society implies providing for and redistributing wealth to the underprivileged. It does not necessarily mean the wealthy will be neglected. Amid growing concerns about the rich poor gap and social conflicts, the Party has tried to consolidate its rule by co opting the rich. Legalizing private property acquisitions is a step in this direction. A significant political event in 2007 was the passage of a controversial law guaranteeing private property rights. In March, the annual two week session of the National People's Congress China's nominal parliament passed the new property law which for the first time enshrined the rights of private individuals to own property. 9 Major Pollutants Drop for the Time in First Three Quarters, website of State Environmental Protection Administration, 14 Nov t _ htm 10 The figure was provided by Chinese Premier Wen Jiabao during his speech at the National University of Singapore on 19 Nov

13 5.2 The Property Law marked an important step in the country's slow transition from a Leninist monolith into a unique Chinese amalgam of socialist ideology and capitalist economy. The travails required to secure passage of the new law underscored the difficulties the leaders of China face as they attempt to put in place a coherent legal and financial system for the country. It had taken 13 years and eight readings (only three are technically and in most cases, practically required) for the property bill to come into force. 11 The law was originally scheduled to pass in 2006, but was dropped after Party conservatives (die hard Maoists who felt that the old socialist ideals were being expunged in an unseemly stampede to make money) started a signature campaign against it, protesting that it would undermine the country's socialist system The right to own private property was actually first written into China s Constitution in The Property Law elaborated on the creation, transfer, and ownership of property in China. As an important part of an ongoing effort by the country to gradually develop a civil code, the Property Law does not change the system of land tenure which gives the state ownership of all land, but allows individuals to possess a land use right defined in terms of the civil law concept of usufruct. 5.4 Around the time when the Property Law was passed, the Nail House incident in Chongqing City in central China came to national attention. Nail house refers to a property whose owners refuse to move out to make way for redevelopment. After years of intermittent negotiations over compensation, the property was finally demolished, but the developer had to pay the owners about 2.6 million yuan (US$340,000). 5.5 By legitimizing private ownership, the Party is attempting to garner more support from the burgeoning wealthy class, which has emerged as a major component of the Chinese Communist Party itself. At the end of 2006, private business owners accounted for 5.1 percent of all CCP members, while white collar (including management personnel and engineers) party members made up 21.4 percent Thanks to the sharp rise in domestic stock and property values in 2007, upstarts became even richer than before. According to Forbes annual report of the richest people in China, Yang Huiyan topped the list with a net worth of US$16.2 billion, which was nearly seven times the $2.3 billion that retailer Wong Kwong Yu had in 2006 to rank No. 1 that year. 14 The individual wealth of all the 40 people on Forbes list exceeded US$1 billion. China now has more billionaires than any country in the world except the United States. 15 About half of these tycoons are engaged in real estate Simon Elegant: China Gets A Property Rights Law, Time, 16 March, 2007 Ibid. Bo Zhiyue: The Chinese Communist Party At Eighty Six, EAI Background Brief, No. 347 (16 Aug. 2007), p.2 3 Russell Flannery: China s 40 Richest, AFP News, 7 November 2007, Little Known Entrepreneurs Putting China Near Top of Billionaires List. 13

14 China s Pro active Diplomacy and International Relations 6.1 China s international and regional statures continued to rise. While this was chiefly due to the country s rising economic prowess, it was also a result of its more active diplomacy and greater involvement in issues affecting international peace and stability. On the international stage, a growing China also faced increasing pressure from other global parties to shoulder more responsibilities and commit itself to greater cooperation in resolving global issues. 6.2 China s relations with key states such as the US, EU, Russia, and Japan have been constructive despite the different dynamics and complexities of each relationship. Its ties with smaller powers, such as those in ASEAN and Africa, strengthened overall. While managing its relations with these countries, China has been keen to collaborate in areas of common interest and engage in discussions over issues where differences remain. 6.3 On the strategic level, Sino US relations have broadened and deepened despite intractable differences. The two countries had leveraged on the Strategic Dialogue and Strategic Economic Dialogue to build trust and discuss sensitive issues concerning China s trade deficit vis à vis the US and the overvalued Chinese currency. The US also acknowledged the constructive role China has played on three regional fronts, thus allowing the US to focus on its other priorities. These fronts included China s role in forging a six party joint document on a denuclearized Korean Peninsula; China s pressure on the Myanmese regime to opt for a peaceful resolution of its internal situation; and China s persuasion of the Sudanese government to accept a UN peacekeeping role in Darfur. 6.4 Yet, with trade imbalances growing, Beijing and Washington will need to work harder to calm growing protectionistic sentiments. Beijing will also be watching the US election campaigns closely for signs of China bashing. 6.5 China s relations with Japan improved under Shinzo Abe and are likely to continue strengthening under Yasuo Fukuda. In April 2007, Wen Jiabao made an ice thawing visit to Japan in reciprocation of Abe s ice breaking trip to China in October During his visit, Wen reached an agreement with Japanese leaders to forge a strategic, mutually beneficial partnership. The new Prime Minister Fukuda is well known for being more pro China compared with other Japanese leaders in recent times. During a spring greeting visit to China from 27 th to 29 th December 2007, Fukuda proposed the two sides work toward a creative partnership. President Hu Jintao is expected to visit Japan in 2008 to further resolve the issues that have posed obstacles to their complicated relationship. 6.6 Among the smaller neighboring countries, China strengthened its ties with ASEAN as part of its policy of building good neighborly relations and partnerships. It sought to extend its influence in Southeast Asia by pushing for regional economic integration and abiding by ASEAN s norms and principles. Both parties are working towards a China ASEAN FTA (CAFTA) by 2010 with the signing of a Trade in Services Agreement in January The 2nd Joint Statement on East Asia Cooperation was also signed in November 14

15 2007, which contained a working plan outlining priority areas of cooperation among ASEAN, China, Japan and South Korea. 6.7 While concerns lingered over the increasing clout of China in the region, each ASEAN member had worked with China in order to derive benefits from the larger economy s dynamic growth. China also promoted security and economic cooperation with Central Asian republics through the Shanghai Cooperation Organization (SCO) which China helped found about 10 years ago. 6.8 Pressure from the EU has however grown as the tone of its complaints about Chinese trade and currency behavior increased. 16 Chinese German relations grew frosty as Chancellor Angela Merkel placed Tibet and human rights issues on centre stage. 17 In 2007, China surpassed Germany as the world largest exporter, adding to a trade surplus against the EU that had been growing at 15 million Euros an hour. 18 The EU has a strong interest in engaging China in issues such as global warming and energy security, as well as human rights and rule of law. 6.9 On the African continent, China continued to buttress its leadership role in the developing world and to secure vital resources for its economic development. In February 2007, President Hu Jintao visited Cameroon, Liberia, Sudan, Zambia, Namibia, South Africa, Mozambique and the Seychelles. This was the third visit by the President to the African continent in three years, following Beijing s successful hosting of a summit for leaders of 48 African nations in November In September 2007, Foreign Minister Yang Jiechi vowed to fulfill China s pledge to write off debts, offer tax exemptions and step up development aid to the African continent when he met the foreign ministers of Africa on the sidelines of the UN General Assembly Besides focusing on strengthening foreign political ties, China has become much more attuned to international perceptions of the country while it actively shapes the image it wants to portray. In particular, China was quick to respond to worldwide concerns following negative publicity surrounding a spate of unsafe products made in the country. While the veracity of some of the unsafe product claims remained debatable, China acted decisively to limit the potential damage to its exports and, more importantly, its national standing and credibility. In August 2007, a national leading group headed by Vice Premier Wu Yi was established to address product quality and safety issues. Simultaneously, the government stepped up its supervision of locallymanufactured goods and products, especially those related to human safety and health Meanwhile, China displayed increasing maturity and confidence in handling the Taiwan issue, thus dampening the pro independence movement led by Taiwan President Chen Shui bian. This has been partly due to China s success in reaching out to the more moderate politicians on the island and its 16 China s yuan lost 6.5 percent against euro in 2007, squeezing European exports and increasing European imports of Chinese goods. The EU deficit with China likely rose nearly 30 percent to 170 billion euro (US$250 billion) in 2007 more than half the expected total bilateral trade of 300 billion euro. 17 Kate Connolly: Merkel angers China over Tibet, The Guardian, September 24, The 27 nation EU exports more to Switzerland than to China. 15

16 discretion by not over reacting to provocative gestures made by the proindependence movement in Taiwan The United States also took a proactive stance in restraining the proindependence movement in return for China s support on a range of other issues. For example, Taiwan s intention to hold a referendum to join the UN under the name of Taiwan prompted US officials to publicly discourage such moves. With election campaigns heating up in Taiwan and approach of the Beijing Olympics and US presidential elections, it is likely that the Taiwan independence movement will stir up fresh controversies this year. Looking Ahead in Three major events will dominate China s political agenda in The first is the Olympic Games to be hosted by Beijing starting on 8 August, The second is the annual session of the National People s Congress in March, at which a new cabinet lineup is expected to be announced. The third is the quadrennial presidential election in Taiwan. 7.2 Beijing is expected to go all out to safeguard domestic social stability and secure a favorable international environment for the 2008 Olympic Games the showcase for China s rising international status. So far, preparations for the Games are on schedule though recent problems with ticket sales suggest that unexpected hiccups may still emerge. At the strategic level, an especially alarming scenario is one in which the authorities are forced to contend with mass protests amid accelerating inflation under the glare of the international media. 7.3 The government reshuffle in spring has been largely pre arranged by the 17 th Party Congress. Premier Wen Jiabao will continue to head the State Council although his macro control policy has been labelled ineffective by critics. Plans are currently underway to restructure and streamline the government. 7.4 Li Keqiang is expected to become Vice Premier, in preparation for his succession to Wen s position in five years time. The names of other vice premiers, state councillors and a batch of new ministers, along with the president of the Supreme People's Court and procurator general of the Supreme People's Procuratorate will be declared during the annual session of the National People s Congress in March. 7.5 A referendum on Taiwan s bid for UN membership, the first in the island s history, is scheduled to be held in March, in conjunction with Taiwan's presidential election. The CCP will probably remain restrained even if the outcome turns out unfavorable for Mainland China, due to the imminent Olympic Games and its focus on domestic issues. With the expected change in Taiwan s leadership, Beijing is likely to reach out to the new government to explore ways of reducing cross Strait tensions and build confidence. 7.6 Beijing s stance toward Hong Kong has also been changing. The HK government recently published a political reform blueprint, which suggested 16

17 the territory s Chief Executive should be directly elected in Beijing immediately responded to the proposal quite positively, suggesting the likelihood of such a general election. Towards the end of the year, the Standing Committee of the National People s Congress formally made a decision to allow direct elections of the Chief Executive in Beijing will continue to expand cooperation with various countries and blocs, in particular with the US, the EU, ASEAN, Russia and Africa. The challenge for China is how to be a responsible global power. Similarly for the EU, the US and the general global community, the challenge is how to constructively engage a rising China in the age of global interdependence. 17

18 APPENDIX I: LIST OF PROVINCIAL LEADERS (Party leaders in bold lettering were newly appointed or reappointed in 2007) Provincial Units Party Secretary Mayor/Governor Anhui Wang Jinshan ( 王 金 山 ) Wang Sanyun ( 王 三 运 )(Acting) Beijing Liu Qi ( 刘 淇 ) Guo Jinlong ( 郭 金 龙 )(Acting) Chongqing Bo Xilai( 薄 熙 来 ) Wang Hongju ( 王 鸿 举 ) Fujian Lu Zhangong ( 卢 展 工 ) Huang Xiaojing ( 黄 小 晶 ) Gansu Lu Hao ( 陆 浩 ) Xu Shousheng ( 徐 守 盛 ) Guangdong Wang Yang ( 汪 洋 ) Huang Huahua ( 黄 华 华 ) Guangxi Guo shengkun ( 郭 声 琨 ) Ma Biao ( 马 飙 ) (Acting) Guizhou Shi Zongyuan ( 石 宗 源 ) Lin Shusen ( 林 树 森 ) Hainan Wei Liucheng ( 卫 留 成 ) Luo Baoming ( 罗 保 铭 ) Hebei Zhang Yunchuan ( 张 云 川 ) Guo Genmao ( 郭 庚 茂 ) Heilongjiang Qian Yunlu ( 钱 运 录 ) Li Zhanshu ( 栗 战 书 ) Henan Xu Guangchun ( 徐 光 春 ) Li Chengyu ( 李 成 玉 ) Hubei Luo Qingquan ( 罗 清 泉 ) Li Hongzhong ( 李 鸿 忠 )(Acting) Hunan Zhang Chunxian ( 张 春 贤 ) Zhou Qiang ( 周 强 ) Inner Mongolia Chu Bo ( 储 波 ) Yang Jing ( 杨 晶 ) Jiangsu Liang Baohua ( 梁 保 华 ) Liang Baohua ( 梁 保 华 ) Jiangxi Su Rong ( 苏 荣 ) Wu Xinxiong ( 吴 新 雄 ) Jilin Wang Min ( 王 珉 ) Han Changfu ( 韩 长 赋 ) Liaoning Zhang Wenyue ( 张 文 岳 ) Zhang Wenyue ( 张 文 岳 ) Ningxia Chen Jianguo ( 陈 建 国 ) Wang Zhengwei ( 王 正 伟 )(Acting) Qinghai Qiang Wei ( 强 卫 ) Song Xiuyan ( 宋 秀 岩 ) Shaanxi Zhao Leji ( 赵 乐 际 ) Yuan Chunqing ( 袁 纯 清 ) Shanxi Zhang Baoshun ( 张 宝 顺 ) Meng Xuenong ( 孟 学 农 )(Acting) Shandong Li Jianguo ( 李 建 国 ) Jiang Daming ( 姜 大 明 )(Acting) Shanghai Yu Zhengsheng ( 俞 正 声 ) Han Zheng ( 韩 正 ) Sichuan Liu Qibao ( 刘 奇 葆 ) Jiang Jufeng ( 蒋 巨 峰 ) Tianjin Zhang Gaoli ( 张 高 丽 ) Huang Xingguo ( 黄 兴 国 ) (Acting) Tibet Zhang Qingli ( 张 庆 黎 ) Qiangba Puncog ( 向 巴 平 措 ) Xinjiang Wang Lequan ( 王 乐 泉 ) Nur Bekri ( 努 尔 白 克 力 ) (Acting) Yunnan Bai Enpei ( 白 恩 培 ) Qin Guangrong ( 秦 光 荣 ) Zhejiang Zhao Hongzhu ( 赵 洪 祝 ) Lu Zushan ( 吕 祖 善 ) 18

19 APPENDIX II: LIST OF MINISTERS IN THE STATE COUNCIL (Ministers in bold letterings were newly appointed in 2007) Minister Yang Jiechi ( 杨 洁 篪 ) Cao Gangchuan ( 曹 刚 川 ) Ma Kai ( 马 凯 )* Zhou Ji ( 周 济 ) Wan Gang( 万 钢 ) Zhang Qingwei( 张 庆 伟 ) Li Dek Su ( 李 德 洙 ) Meng Jianzhu ( 孟 建 柱 ) Geng Huichang ( 耿 惠 昌 ) Ma Wen( 马 馼 ) Li Xueju( 李 学 举 ) Wu Aiying( 吴 爱 英 ) Xie Xuren( 谢 旭 人 ) Yin Weimin( 尹 蔚 民 ) Tian Chengping( 田 成 平 ) Xu Shaoshi( 徐 绍 史 ) Wang Guangtao( 汪 光 焘 ) Liu Zhijun( 刘 志 军 ) Li Shenglin( 李 盛 霖 ) Wang Xudong ( 王 旭 东 ) Chen Lei( 陈 雷 ) Sun Zhengcai( 孙 政 才 ) Chen Deming( 陈 德 铭 ) Sun Jiazheng( 孙 家 正 ) * Chen Zhu( 陈 竺 ) Zhang Weiqing ( 张 维 庆 ) Zhou Xiaochuan ( 周 小 川 ) * Li Jinhua ( 李 金 华 ) Ministry/Commission/Central Bank/Office Foreign Ministry Ministry of National Defense National Development and Reform Commission Ministry of Education Ministry of Science and Technology Commission of Science, Technology and Industry for National Defence State Ethnic Affairs Commission Ministry of Public Security Ministry of State Security Ministry of Supervision Ministry of Civil Affairs Ministry of Justice Ministry of Finance Ministry of Personnel Ministry of Labour and Social Security Minister of Land and Resources Ministry of Construction Ministry of Railways Ministry of Communications Ministry of Information Industry Ministry of Water Resources Ministry of Agriculture Ministry of Commerce Ministry of Culture Ministry of Health National Population and Family Planning Commission People's Bank of China National Audit Office * Expecting Changes at the National People s Congress in March

20 Appendix III: A Chronology of Domestic Events in China in 2007 Hu Jintao calls on cadres at the plenary session of the Central Commission for Discipline Inspection to create a healthy 9 Jan atmosphere through raising their standards comprehensively and ideologically in terms of work, leadership, lifestyle and study. At a study session of the Political Bureau, Hu Jintao exhorts government officials to promote and better regulate the rapidly 22 Jan developing Internet services in China. He urges officials to actively and creatively nurture a healthy online culture. Wen Jiabao orders a thorough investigation into allegations of 24 Jan corruption against Zheng Xiaoyu, former head of the State Food and Drug Administration at a State Council executive meeting. The Central Government Document No. 1 stresses the development of modern agriculture as the government s top priority in the 29 Jan process of building a new socialist countryside. This is the fourth consecutive year the No. 1 document has targeted agriculture and rural. Newly released high school history textbooks in Taiwan sanitize references to certain aspects of the Mainland s history. This is 29 Jan perceived by some quarters in China and Taiwan as yet another desinicization attempt by the ruling Democratic Progressive Party. Hu Jintao calls on the non communist parties in China to actively advise and supervise the governance of the ruling Chinese 14 Feb Communist Party as the task of building a form of socialism with Chinese characteristics require the joint efforts of everyone. On the eve of the Lunar New Year, Wen Jiabao visits farmers, Feb doctors, and college students in northeast China s Liaoning Province. On the eve and during the Lunar New Year, Hu Jintao visits residents, workers and farmers in northwestern Gansu Province Feb He urges the local governments to adhere to the scientific concept of development and grasp the opportunities brought about by the central government s strategy of developing the western regions Mar The 5 th Session of the 10 th CPPCC convenes in Beijing. The 5 th Session of the 10 th NPC convenes in Beijing. At the conclusion of the session, the NPC adopted the property law and 5 16 Mar corporate income tax law, signalling the State s confidence in operating under a market economy. Henan TV station telecasts news of under aged labor being forced to work at brick kilns in nearby Shanxi province. Following this, on 5 June, 400 fathers posted a letter on a Henan website lamenting 19 May the kidnapping and illegal sale of their under aged sons to brick kilns in Shanxi. This sparked off investigations leading to the release of hundreds of forced laborers. Taihu Lake is infested with blue algae, affecting freshwater supplies to more than 2 million residents nearby. The algae bloom is the result of the accumulation of waste and untreated sewage, Late May combined with hot weather and low water levels. Besides Taihu Lake, other lakes in China such as Chaohu Lake 20

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