The Party: The Secret World of China's Communist Rulers

by Richard Mcgregor

  The fiction that the Party is not involved in such decisions is carefully nurtured, by ensuring that public announcements of new appointments are made by formal government bodies, such as the State Council, the government body which regulates state enterprises, known as SASAC, the ministries themselves or the parent company. The announcements are invariably heralded in newspaper headlines as ‘job changes’, masking a subtle but fundamental difference in how the appointments are portrayed inside the system itself. From a party perspective, the officials moving between enterprises or in and out of government are not so much changing jobs. They are being shuffled within the same system.

  In the first few years of this century, the chairman of China’s offshore oil company, CNOOC, was made the governor of Hainan province; the head of PetroChina joined the chief economic planning agency as a vice-minister; the chairman of Huaneng Power was appointed deputy-governor of Shanxi province; the vice-governor of the central bank was appointed to head the China Construction Bank and the chairman of Chinalco was elevated to a cabinet advisory post. Even the head of the country’s only nominally private bank, Minsheng Bank, the subject of many fawning media articles for being an entrepreneurial upstart in a state financial monopoly, is cleared through the party process.

  Edward Tian, the founding CEO of China Netcom, is one of the few people who has been able to view the system from both sides, first as an outsider, and then later, when the Party ushered him into the nomenklatura ranks, as an insider as well. Tian was already a wealthy and successful private businessman when he was approached in the late nineties to run Netcom, then a fledgling telco state start-up. His Chinese colleagues at AsiaInfo, a private company he had co-founded and ushered through a listing on the Nasdaq exchange in New York, thought he was crazy to contemplate working in a government enterprise. For a while, Tian found himself agreeing with them.

  By Chinese government standards, Netcom was an enlightened project, an attempt by four state investors to deregulate the local telco sector, then dominated by the giant China Telecom and its ministerial patron. The new Netcom aimed to bring broadband to China, shake up the industry and at the same time allow investors, such as the Railways Ministry, an entrée into the then hottest sector in the global economy. The recruitment of the US-educated Tian from the private sector showed the system, including heavyweight backers like Jiang Mianheng, the son of Jiang Zemin, thinking outside of the box as well. But when Tian insisted that as CEO he should join the board of the new company, he was told no. The other directors were all vice-ministers, whereas he was just an entrepreneur. The club was not ready to admit someone without the requisite rank. ‘I was very disappointed and thought about quitting,’ he said. ‘They said calm down, work at it for a year and see how we go.’

  A year later, Netcom was showing promise. Hundreds of managers had been hired. Thirteen cities had been linked up to its broadband network. Revenues were rising. Finally, the investors agreed to have their CEO on the board. ‘This was a big moment. I felt that the system recognized me,’ Tian said. Real recognition did not come until about two to three years later, though, when the once small state start-up company took over the operations of ten provinces from China Telecom. For Tian to stay as CEO of the expanded Netcom, he now had to pass muster not with his board, but with the Party, in the form of the organization department. For both sides it was a novel experience.

  Tian wanted the job, but not some of the privileges and restrictions that came with the position, which had the rank of vice-minister. He didn’t want a ‘red machine’ on his desk. And he didn’t want an official passport, because that would have restricted him to two overseas trips a year, the limit at that time for people with a vice-ministerial ranking. Any trips above this number required an elevated level of approval. ‘I didn’t want to join the political system,’ Tian said. ‘It would impinge on my freedom.’ The organization department, because of his foreign education, agreed to make an exception for him. Once he had passed his internal review and revived his membership of the Party–his membership from his university days had lapsed while he was overseas–the department was satisfied. It confirmed him as the CEO and allowed him to join the inner sanctum of the party committee.

  However, the night of the long knives in the telco industry, when the department reshuffled the industry leadership, still rankled with Tian and his chairman and party secretary, Zhang Chunjiang, who also sat through the embarrassing London roadshow. When the pair returned from overseas, they wrote to the Party and the government to register their concerns about the game of executive musical chairs. After the Netcom listing, Zhang went even further in an effort to prise open the Party’s control over the company. He recruited John Thornton, the former president of Goldman Sachs, then teaching in China, to sit on the board, and McKinsey & Co., the management consultancy, to advise him about how the internal processes should be run.

  For Thornton, who already had experience of taking Chinese state companies to international stock markets, Zhang’s introductory lecture on the role of the party committee was an ‘eye-opening’ moment. ‘There are six functions for which the party committee was responsible,’ Thornton said, ‘and they were the ones that mattered.’ The project laboured for months over how to run the company in a more transparent and accountable fashion. Should the evaluation and appointment of senior executives be the direct responsibility of the board, as Netcom had promised in its overseas listing documents and as Chinese law stipulated? Or should the power over personnel remain with the party committee? Netcom eventually agreed that the board would approve senior executive appointments. But there was a catch. The committee which recommended the appointments to the board had to have a majority of its members appointed by the Party. The board’s role in evaluating and appointing was strengthened in theory, but in practice the directors only saw candidates cleared through the party system. The efforts to open up the company’s personnel system, after much work, ended in a whimper. ‘It looked all shiny and glossy on the surface,’ said an adviser, ‘but if you poked around, it was very traditional underneath.’

  By a year or so later, Tian had left, to go back to the private sector. Zhang had been moved on to chair another telco, China Mobile. In 2008, China Netcom disappeared altogether, subsumed by another state company in the latest industry reshuffle. In late 2009, Zhang was detained by the party’s anti-graft unit on unspecified corruption allegations, bringing to a rather ironic end the career of an official once heralded as a champion of Chinese-style corporate governance. Still, Tian left the system with a more favourable view than he had had when he joined. ‘I feel I could justify this system now and understand how it has worked for 1,000 years,’ he said. ‘Ten years ago, I would not have had a similar feeling.’ Tian compared his time at Netcom to his experience on boards in western companies, where he said CEOs were chosen by busy directors in consultation with headhunters. However political the process in China might have been, he maintained the vetting of CEOs was generally more thorough in his homeland. As an insider, Tian had even come to rationalize the industry reshuffles. ‘The competition was very furious. It’s like three brothers fighting each other for no clear objective,’ he said. ‘The parents say: “Let’s change your seats. You will see each other from another angle. You had better behave yourself from now on.”’

  The organization department hasn’t stopped disciplining errant state business executives in the meantime. In early 2009, the heads of the three state airlines were all rotated overnight into rival firms to keep competition in check. The telco heads were switched a couple more times as well.

  The organization department’s responsibility for choosing the bosses of about fifty of the largest state enterprises makes it relatively easy for it to play stern parent with these companies. But the lower the level of government, and the further they are from Beijing, the harder it is for the centre to instil discipline into the ranks. The experience of Li Yuanchao prior to his elevation to head the Central Organi
zation Department in the capital was proof of that.

  About six months ahead of the 2007 party congress, the Tai lake (Taihu) in Jiangsu turned green. A crucial source of water for tens of millions of people and the heart of ancient China’s fertile ‘land of fish and rice’, the Taihu had been blanketed by an algae bloom created from the discharge of raw pollutants from chemical plants around its edge. The algae had been a recurring phenomenon for some years on the lake. This time, the pollution was so bad the lake was smothered altogether by a thick green growth. The event galvanized the leadership in Beijing, which used it to demand, as they had many times before, that local governments more strictly enforce longstanding environmental laws. The desecration of an iconic waterway also raised sharp political questions closer to home, questions about its impact on Li Yuanchao, at the time the up-and-coming Jiangsu provincial party secretary.

  Li’s prospects for promotion to the Politburo at the congress scheduled for later in the year were already well known. The local media had never been allowed to report that he, along with a few other rising stars, was slated to be elevated into the Party’s ruling council. But in the strange way such news seeps out in China until it becomes common knowledge, as if it had been carried on the front page of the newspaper all along, everyone somehow seemed aware Li had been anointed for higher office, although to exactly which position and at which level was not clear. The provincial staff accompanying Li during an interview in March 2007, only months before the Taihu incident, joked about his potential promotion when their boss wasn’t present. Li himself was less relaxed, pleading at the end of the discussion for any mention of his future to be left out of any article whatsoever.

  Li had another message to deliver that day, talking at length about the performance benchmarks he was enforcing as party secretary in Jiangsu to grade officials. These days, he emphasized, the environment was ranked as highly as the economy. Li compared the excessive focus on economic growth at the expense of the quality of air and water to a child who over-indulges on lollies. ‘If a child has too many sweets, he will have rotten teeth. GDP is the same. [Sweets are] a good thing but you can’t go to excess.’ A few months later, Li found himself responsible for handling the fallout from exactly the kind of untrammelled growth he had been complaining about. The response of the authorities in Jiangsu to the algae-covered Taihu, however, was much more traditional than the modern benchmarking system that Li had been advocating beforehand.

  In public, Li railed against the waterway’s polluters, saying he would sacrifice ‘15 per cent’ of economic growth in the province to clean up the lake, and ordered the closure of more than 2,000 small chemical factories. It was an attention-grabbing response in a country obsessed with economic growth, but it also ignored the fact that the disaster had happened on his watch in the first place. In the county where most of the polluters were based, the grassroots authorities had other ideas about how to handle the issue. They did not include throttling the output of chemical factories which were big local taxpayers, nor pandering to critics who wanted the area’s money-spinning businesses to be closed down. Rather than sacrificing economic growth, the local authorities focused their attention elsewhere, on a local activist, Wu Lihong.

  Wu had been agitating for years for the polluters around the Taihu to be brought to account. His efforts had already won praise in Beijing, with his recognition in 2005 as one of China’s leading environmentalists. Along the way, he had amassed a mountain of evidence about the condition of the Taihu, in photos and physical samples, and made countless representations about the lake’s condition to the local, provincial and central governments. His worst fears had now been borne out by the algae spread thickly across the waterway. But far from being lauded for his pioneering work, which coincided with Beijing’s urgent policy emphasis on the environment, Wu was arrested. His conviction soon after, on charges of extorting funds from local companies by threatening to expose their pollution problems, was based on a confession which he said he signed after being deprived of food and kept awake for five days and nights in succession.

  After his initial headline-grabbing burst on sacrificing growth to protect the environment, Li remained silent throughout this period, acquiescing in Wu’s detention and conviction. It was soon clear why. In November, at around the time that Wu’s appeal against a three-year jail sentence was being rejected, Li was formally appointed to run the Central Organization Department in Beijing. If Li was reprimanded internally for the despoliation of the waterway and the loss of a vital source of potable water, according to his own high-profile performance benchmarks, it was never made public. The incident certainly did not impede his career. With his long-expected promotion, Li became the tenth ranked leader in the country, one position outside of the nine-member Politburo Standing Committee, a body he could now reasonably expect to ascend into at the next congress in 2012. Li showed a keen sense of what was what from the moment he arrived in the capital. One of the first senior appointments under his watch was the elevation of his provincial propaganda chief from Jiangsu into the Central Propaganda Department, as a vice-minister, giving Li a powerful ally at the heart of the state media. As a longtime supporter of Hu Jintao, Li’s broader role was to secure as many senior jobs as possible for his leader’s camp, to tighten his hold on the party apparatus.

  On the surface, Li’s elevation to the Politburo after presiding over an environmental catastrophe in the Taihu made him look like a hypocritical crony. But this criticism hid a larger reality about the political system and the way that power over the economy and personnel had been devolved down to grassroots administrators. Li could have sacked and disciplined the officials with on-the-ground responsibilities for the waterway’s pollution, but he would have created a political firestorm in the process that could have entirely devoured his career. The letter of the law was no help. There was no system of injunctions that he could have served on the recalcitrant polluters of the lake, let alone enforced. Local courts exist within the local party system and are not independent of it. In some ways, Li could do little until an emergency transformed the issue into a national crisis and galvanized the entire system, from Beijing down.

  The weakness of a seemingly mighty provincial party secretary like Li Yuanchao in dealing with cadres appointed several levels of government below him was vividly brought home to me by another shocking pollution case, in Hunan province, around the same time. The narrative was familiar–tonnes of poisonous metals had been discharged into the Xiang river, the source of drinking water for millions of people in one part of the province. In trying to get to the bottom of what had happened in the county where the pollutants had been dumped, the biggest obstacle was not the central and provincial authorities, which were quite open about the problem, and anxious to fix it, but their subordinates on the ground.

  The landscape around the Xiang river was littered with scores of large and small factories–China’s largest zinc factory, decades-old, was nearby–separated by pools of rancid water and vegetable patches. Local villagers joked sardonically that no one would buy their vegetables once they knew where they were grown. ‘We always offer tea, but no visitors will drink it when they come here,’ one villager told me. The most recent cause of damage to the river was discharges from fifty to sixty small indium factories in early 2006, built in just a few frenzied years of ramshackle construction to take advantage of the soaring global price of the metallic element used in the manufacture of semi-conductors and liquid-crystal display screens. Most indium had previously been produced by factories operating in Guangdong in southern China, but the entrepreneurs had decamped north to find greenfield sites after a spill had polluted a large waterway there.

  The most striking moment of a dismal trip, however, had come beforehand, en route to the Xiang, in the office of the provincial head of the State Environment Protection Administration, in Changsha. An accommodating, straightforward man, he had told me that he was shuttering the offending indium factories. ‘I am
signing the order to close them today!’ he declared. But when his office phoned the chief environmental officer near the epicentre of the problem, at the Xiang river, at my request, to take me around the area, he was instantly rebuffed. Permission for any such visit would have to come from the local township government, the province environmental chief was firmly told, and there was nothing he could do about it.

  The Hunan provincial head of the State Environment Protection Administration, a government entity, far outranked the local environment officer but that was not where the real power lay. The officer near the Xiang river looked to his own local party secretary, who was the person who would ultimately decide whether he kept his job. The local party committee had better things to do than facilitate publicity for their lax pollution controls at precisely the time that Beijing was demanding they clean up their act. The local officials in the area around the Xiang had another reason for refusing access. They had a direct interest in keeping the indium factories open because the entrepreneurs who had established the businesses had gifted them shares in the plants. The officials in charge of the Xiang and the Taihu alike were in business too.

  The officials brought a lot to the table in their dealings with business. They could open and close their factories at will at a time when the businesses were highly profitable. They could impose fines, or not, on polluters. They could calibrate the level of pollution allowed as well, and how and when it could be discharged. They controlled the police, who could keep any protesters at bay, or not. They were in charge of the judges in the local courts. They might even have been able to help arrange loans through the local bank. And with such largely unaccountable powers, they could, and did, demand a share in the businesses, for themselves or their relatives or cronies, in return for allowing a factory to stay open. This combination–of wide administrative discretion amidst unprecedented economic opportunity –means that on-the-ground officials can make or break businesses, especially in localities far from larger cities, where there is less scrutiny and accountability. The potential for corruption is obvious, but in China it takes a twist.