Decentralization in China: Lessons from Gu Kailai

Gu Kailai, wife of Bo Xilai, a former rising star of the Chinese Communist Party, was sentenced to death with a two-year delay last Monday. After the announcement, the focus of the media was on how it was a foregone conclusion and speculations arose about when Bo himself will be charged and if so, what his likely sentence will be.

What’s interesting to me is that no one actually bothered to analyze something that is very much the norm in most countries but is different in China, especially when it comes to court cases; that is the location where Gu was charged. Generally, the accused is charged by the court in the jurisdiction where the alleged crime took place. But here, we have someone who allegedly committed the crime in Chongqing, but charged by the court in Hefei, Anhui, which is a totally different city and province altogether. Why is this so?

When I read the book entitled “The Party” by Richard McGregor, I found that this action has precedent in the case of Chen Liangyu, the former Party Secretary of Shanghai who was charged in 2008. Chen was charged in Changchun, Jilin, also a totally different city and province from the alleged crime. The explanation given in the book was that Changchun was far away from Shanghai and that Shanghai judges could not be trusted to follow Beijing’s order. If this is indeed true, then Beijing has valid reasons for assigning the court in Hefei to charge Gu.

However, I have not brought up this observation simply to explain Beijing’s decision. Rather, what I want to say is that decentralization in China has reached a level where the perception that Beijing still has a strong grip on whatever that is going on in the country is no longer true. The system has been structured in such a way that the highest position in a specific region has a say in almost everything that goes on that he/she is effectively the “ruler” of that fiefdom, up to the point that it is beyond the control of Beijing. Isn’t it ironic for a Government who likes to portray that it has everything under control?

More on Asia and Decoupling

About a year ago, when US and Europe were down, Asia had rebounded and many people were saying that it was a sign Asia had successfully decoupled itself, I cautioned against such a view in a post “Have We Arrived?”

Just about a month ago, China reported that its growth has slumped to a three-year low of 7.6 percent in the second quarter and one main reason was the continuing bad news coming out from Europe amid a slow US recovery. If my argument then was not convincing enough, surely the arrival of these statistics would add substance to it now. It is however not the intention of this post to do just that. Rather, I would like to speculate on why the data a year ago would have misled many people into thinking that Asia had decoupled from the West when it didn’t.

Central to my speculation is the concept of expectations. Few people in China would have expected the crisis in US and Europe to drag for so long considering all the actions taken by the respective governments. They had continued to produce and stockpile their products ready to be exported when the West demanded them. This act of production and stockpiling could have contributed to the rebound observed a year ago. Obviously, this expected demand never materialized. Since the existing stock had not been cleared, there was no need for new production and hence the observed current slowdown.

If domestic consumption had increased substantially over the same period, it would have cleared at least some of the existing stock but this was not the case. Apparently, domestic consumption either remained stagnant or did not increase sufficiently to replace the demand from the West. In fact, if manufacturers were to factor in expected increase in domestic consumption into their production decision a year ago, their existing uncleared stock would have been even higher than if they did not do so. In other words, both the expected increase in demand from the West plus domestic consumption that never materialized has resulted in the current slowdown.

Right about now, people who disagree with this speculation would say that it depends on which part of Asia you are looking at and would point to an Asian country further south of China to make their point: Indonesia. Growth of domestic consumption in Indonesia has been phenomenal, an excellent example of one way a country could decouple itself from the West. Perhaps, China could learn a thing or two from Indonesia about boosting domestic consumption. Is it?

Well, I would again warn against jumping straight to an unsubstantiated conclusion. Indonesia tomorrow could be China today. Indonesia as part of Factory Asia is a supplier of parts and components to China, the final assembler. The current increase in domestic consumption could have been driven by expectations that China will continue to demand parts and components, which is highly unlikely if recent statistics can serve as reliable indicators of how things will evolve.

Growth With Redistribution

I read a book on UN ideas recently and one idea that caught my eye is “growth with redistribution.” I think it is an appropriate idea in light of current instability and push towards a more sustainable growth. The book has it that if we are to continue with the current system of growth where everyone is pretty much doing things for themselves, no doubt the rich will continue to experience impressive growth in the size of their wealth, but the poor also has to reach a certain minimum level of growth in their wealth or earnings in order for them to be able to afford their basic needs.

This inter-connectedness between the rich and the poor can be explained by their demands for goods and services. The fact that much of the world now run on market economy means that prices of goods and service will adjust based on demands and supplies. The rich with their wealth will surely be willing to pay more for a certain good and if many of them do so, it will push the price of the good up if supply is limited. If the poor also demand the same good, then there would be a chance whereby the poor may not be able to obtain this good. And if the good turns out to be a basic necessity, then you have a situation whereby the poor cannot afford their basic needs.

Is this really true? Well, surely you have read about the increasing food and fuel prices lately. In some cases, governments indeed step in to subsidize these goods for the poor but is this sufficient? Perhaps not and with fiscal austerity in their minds, how long will this last?

The concept of “growth with redistribution” is about meeting basic needs for everyone. The rich with their resources can certainly grow more but with basic needs in mind, they perhaps do not need to grow their wealth at the current rate. The poor need to grow their wealth but with redistribution from the rich in mind, they perhaps do not need to slog so hard to the point that it affects their health. It is all about not overspending and using excesses for the benefits if those who are lacking.

It is a beautiful idea in an utopian society and certainly is worth trying in our society but in such a “real” society, is this another idea that is destined for the bookshelves?

Empty Seats in The 2012 London Olympics

The 2012 London Olympics started with much fanfare last week. But as the cameras rolled through the competition venues, many picked up something unexpected: empty seats for matches that were supposed to be sold-out. Why is this so? Jeremy Hunt, UK Minister of Culture, had mentioned that an investigation would be carried out. The outcome will probably not appear anytime soon but below could be some of the potential reasons:

1)    The system may not have been right when it indicates that a match is a sold-out one and it is not surprising considering that ticket allocations were done via some complex mechanisms.

2)    Many of the original buyers could have been people who hoped to make quick bucks and are unfortunately unable to find buyers.

3)    Everything is working fine but the hiccups with security, immigration, etc have scared the spectators away.