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The Australia-China Chamber of Commerce
and Industry of New South Wales Newsletter No. 15 25 February 2000 |
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 CONTENTS |
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ACCCI ELECTRONIC NEWSLETTER NO. 15 This issue of the Chamber's E-Letter has no
specific focus. We mentioned in E-Letter No. 14 that conditions in China are
changing rapidly. News releases that appeared shortly after we compiled the
information for that E-Letter indicated that conditions are changing even
more rapidly than we thought. Part of this issue is devoted to a brief
summary of these changes. Some of our earlier comments are already "out
of date". We continue to add opinions and analysis to the
news items, mainly because all major Internet information services are
providing summaries. Daily and weekly summaries by ChinaOnline are
particularly useful. We also draw your attention to several informative
commentaries that appeared recently in ChinaOnline. Those who are interested
should read the complete commentaries before they are archived. We give
information below to stimulate that interest. |
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THURSDAY 16 MARCH 2000 6.30 TO 9.30 p.m. Guest speaker is Mr Kyle Wilson, formerly Head of
Economics Section, Australian Embassy, Beijing. His topic is "CHINA IN
THE YEAR OF THE DRAGON: A DIPLOMAT'S EXPECTATION". Kyle has recently completed a four-year posting as
Counsellor (Economic) for Australia in China where he travelled extensively
and was responsible for economic analysis and advice to the Australian
Government and private companies. In early April he takes the post as Head of
the China Section, Department of Foreign Affairs and Trade, Canberra. Previous postings overseas included Poland from
1981 to 1983, where he followed the rise of the Solidarity Movement, and then
subsequently the Soviet Union from 1988 to 1993, where he reported on the
rise of Yeltsin as President of Russia. THE THAI CONNECTION RESTAURANT 12 Fitzroy Street, Kirribilli
(telephone: 9955 6088) $35 per head for food only Seating is limited. For reservations: ACCCI Dinner,
GPO Box 3671, Sydney NSW 1044. Telephone: 9451 3130; fax: 9451 3575. |
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TRADE SECTOR China's exports rose by 47.8 per cent in January
compared to the same period in 1999. This rise is substantially more than was
expected a few weeks ago. Perhaps of greater importance, the rise was
attributed to general exports, rather than to processed exports. As we noted
previously, processed exports generally have a high import content and
therefore add less to GDP per export dollar. A second trend is also of interest. State-owned
enterprises (SOEs) overtook foreign companies in terms of China's January
exports. SOE exports increased by 53.5 per cent (on an annual basis) and
accounted for more than half of total exports in January. January exports were valued at RMB 138.94 billion
(US$16.8 billion), while imports increased to RMB 126.53 billion (US$15.3
billion). Although the resulting trade surplus was slightly below
expectations, it nevertheless amounted to RMB 12.41 billion (US$1.5 billion),
and therefore remains substantial. [China Foreign Trade Up 50% in January, ChinaOnline,
21 February 2000.] China's interbank foreign exchange turnover
increased by 57 per cent in January compared to the same period in 1999. This
is largest monthly figure since September 1998. The increase in foreign trade
was the principal causal influence. [China's For-ex Interbank Turnover Surges
In January, ChinaOnline, 21 February 2000.] DOMESTIC ECONOMY China's industrial growth in January rose to 8.9
per cent compared with the first month of 1999, which is above the average
for 1999. In line with SOE's rise in exports, their contribution to GDP was
greater than that of share-holding enterprises and foreign-funded
enterprises. [Industrial Growth Rate Accelerates, China Daily, 22
February 2000.] Data for one month are of course not sufficient to
establish a trend. Moreover, SOE's may have been in a better position to make
use of the recent increases in export tax rebates, in which case the surge in
export activity for those enterprises may be a once-only phenomenon. Trading
activities of SOE's should nevertheless be monitored this year. If their
export expansion continues, it will reduce the fiscal burden and lower the
strain on the financial sector that those enterprises created in the past. During January, retail prices moved upward in 12 regions
including Beijing, Shanghai and Guangdong. [Consumer Price Index Moves
Upward, China Daily, 22 February 2000.] The increase is apparently due to a boost in consumer
spending on non-food items, and not to increases in import prices as we
foreshadowed in E-Letter No. 14. Oversupply of food and certain commodities
continues to occur in China. FINANCIAL SECTOR We suggested earlier that perceived weaknesses in
China's financial sector could be a disincentive for foreign direct
investment. We also noted that Premier Zhu Rongji issued a directive to the
major trading banks in China to institute reforms quickly. This was motivated
mainly by the prospect of greater competition as a result of China's
negotiated concessions for entry into the World Trade Organisation. Recent announcements indicate that each of the Big
Four state banks (the Bank of China, Agricultural Bank of China, Industrial
and Commercial Bank, and China Construction Bank) will have a supervisory
committee appointed by the State Council. These committees will assume the
duties and responsibilities of boards of directors. [New Panels Will Keep
Tabs on Managers of Big Four, South China Morning Post, 22 February
2000]. Since the presidents of the Big Four state banks are
well connected politically, members of the supervisory committees must carry
equal standing in order to act as effective checks and balances. With the
strong backing of Zhu Rongji, whose personal standing within the Chinese
hierarchy appears to be rising with the prospects of entry into the WTO this
year, it is likely that the requirements for effective banking boards can be
met. This is one more thing to watch during 2000. The Industrial and Commercial Bank of China
announced early this year that they intended to increase the proportion of
loans to foreign-funded enterprises and private enterprises "in areas
where these enterprises are developing soundly". [ICBC Looks Beyond
State Sector, China Daily, 30 January 2000. We noted earlier that large state-owned enterprises
in critical industries received the lion's share of the bank credit in China.
This is likely to continue, but new loans to SOEs in traditional Industries
that are not performing well will be reduced, thus allowing more scope for
loans to the non-state sector. |
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An Election With
Chinese Characteristics. By James A. Robinson, University of West Florida. The author observed recent elections in Hebei
Province as part of a team from the Carter Centre. The opinions he expressed
in the commentary are therefore based upon "on the ground"
experience. The relevance of the commentary arises from the
belief, held by many Westerners, that economic and social reforms in China
will stall soon unless there are counterpart reforms to the political system.
China's strategy has been to initiate political reform from the bottom up,
that is, to start at the village level. This differs from the more "top
down" reform in the former Soviet Union. Remember that villages in China are (generally) not
incorporated. That is, they are not legal entities, they cannot incur debt
and their revenue comes principally from grants from the county-level
governments. Nevertheless, village committees are acquiring greater
responsibility in allocating those funds and in influencing the quality and
quantity of services that are provided by the county-level governments. Some of Robinson's observations are as follows: ·
Millions of peasants in more than 800,000 villages
can now go to the polls to elect the members of their local committees. These
elections have been held since 1987, with some provinces having had as many
as five rounds of voting, and a few even six. According to Zhan Chengfu, the
co-ordinator of basic rural governance for the Ministry of Civil Affairs, all
but a handful of villages have held at least one election. ·
Each
voter has the same voting power as all others, casting one vote for chair and
one for vice chair and as many votes as there are committee seats to be
filled. Proxy votes are accepted in some villages, but the number of proxies
held by any one individual is limited. ·
In
many villages, the interaction between the electorate and the elected
officials is minimal. The "town meeting" spirit of engagement is
missing. ·
The
Chinese Communist Party no longer has a monopoly in relation to the system of
nominating candidates for the village committees. In most cases, any resident
of the village may be nominated, and the ones with the most nominating votes
are placed on the ballot. ·
Links with the Party continue, however, since the
committee chairperson (the unofficial village mayor) is normally elected as
Party Secretary and half of his salary is paid from Party funds. How significant are these observations? It is not
surprising that most villagers in China take a relatively passive stance
toward the electoral process. Traditions based upon more than 2000 years
without "grass roots" democracy will probably not be changed within
one generation. An important element seems to be the willingness to
allow the "bottom up" political reform to proceed at a pace that is
set at the bottom rather than at the top. The Chinese law courts have allowed
suits to be brought against officials who acted against the best interests of
villagers, and have upheld the villagers' right to nominate candidates of
their choice. These actions were initiated at the village level,
indicating that greater participation in the political process is possible,
within limits, if villagers choose to do so. We could speculate that if
village-level democracy proceeds in this way -- with increased participation
in a stable and consistent way -- then elections for the next higher
administrative level could be put on the agenda. It is not possible, however,
to know when that will occur. ---------------------------------------- Guanxi and the PRC
Legal System: From Contradiction to Complementarity. By Pitman B. Potter, University
of British Columbia The contradictory elements with quanxi and the
legal system arise from the belief that personal relationships and networks,
cultivated over a period of time, are sustained through lack of faith in the
legal system. According to that view, the continuation of guanxi is evidence
of a weakness (and may perpetuate it) in the institutions for managing
social, economic and political relations and for allocating resources. The complementary elements involve the possibility
of mutual support for the traditional guanxi system and the
"increasingly formal set of largely imported rules and processes made
necessary by the increased complexity of social, economic and political
relations. Thus, guanxi can be viewed as an asset that can be banked or
deployed as needed to serve the interests of the holder in the context of a
larger institutional system." The author considers these views on the basis of
research on legal culture in Chinese urban communities, as well through
analysis of case reporting on disputes between foreign and Chinese companies.
Finally, a series of informal conversations held with Chinese lawyers and
arbitrators during 1997-1999 and the review of documents related to business
negotiations and dispute resolution over the same period are used to form an
opinion. He concludes that there is a close interplay of
mutual support between guanxi relations and the role of formal institutions.
He expects this complementary relationship to continue. One of the most convincing reasons for a
complementary relationship is the apparent need to adopt formal law and legal
institutions in China to local conditions, and the use of a mediating
mechanism to "prevent rigid application of rules to the detriment of
substantive fairness." To add an additional comment that did not fall directly
into Potter's objectives: To the extent that guanxi dynamics exists because
of the current limits in the formal structure of rules and procedures in
China, further development of that formal structure will broaden those limits
and, presumably, render guanxi dynamics less valuable. Thus, while
complementarity between quanxi dynamics and formal rules and institutions may
continue for the foreseeable future, the importance of quanxi in that
relationship may be reduced over time. ---------------------------------------- Foreign Investment in
China's Internet Business: Forbidden, Forgiven, Forced Open? By Xing Fan, Centre for Strategic
and International Studies Considerable confusion has persisted in relation to
China's intended regulation (post WTO discussions) of its Internet
activities. The overall policy appears to be maintained, despite announced
concessions that would appear to be inconsistent with the policy. New
regulations added to the confusion. The commentary by Xing Fan serves mainly to
identify where the confusion exists. It traces recent developments in
relation to China's policy and comments from Minister Wu. It is impossible to summarise the commentary in a
few paragraphs. One thought that emerged, however, is that China's current
regulatory stance is not likely to comply either with WTO entry agreements or
with the desire to update China's IT industry. One statement, in particular,
is worth noting: Some Chinese policy makers and Internet executives
have argued that in the high technology area, capital itself is no longer a
controlling power. Instead, knowledge, expertise, human resources, and the
prevailing legal and economic systems matter more. Foreign investment not
only brings in capital, but also provides Internet players in China with access
to these crucial elements. Increased foreign investment or greater scope for
strategic alliances would therefore seem to be necessary to satisfy China's
IT objectives. |
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ChinaOnline: http://www.chinaonline.com/ China Daily and China Business Weekly: http://chinadaily.com.cn.net South China Morning Post: http://www.scmp.com The commentaries in ChinaOnline can be obtained by
clicking the "commentary" panel in their home page. Send comments about this E-Letter to: j.zerby@unsw.edu.au |
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