Chinese premier faces clash with local crime gangs; ‘In each of the other five provinces we studied, we found crime syndicates and underworld networks acting in a sort of symbiosis with local states’

Chinese premier faces clash with local crime gangs

May 24, 2013

John Garnaut

The good news for China, and economies such as Australia that rely on it, is that the new Chinese Premier has been conditioning his troops for a bracing round of market-oriented reforms.

”Reforming is about curbing government power, it is a self-imposed revolution, it will require real sacrifice, and it will be painful,” said Li Keqiang, setting the tone with his first comments as Premier on March 17. ”We need to leave to the market and society what they can do well.”

The bad news is that it was easier for Li’s predecessors to give power and resources away than it will be for him to take them back. The post-financial crisis mutation of the China model – rivers of credit, unfettered administrative power and appropriated household land – may have saved the economy in 2009 but it also entrenched a resource-extracting monster that will not easily be constrained.As with most Chinese revolutions, this one will be won or lost in the battle over land.

The dimensions of this phenomenon can be glimpsed in police data that show the number of loosely defined ”mass incidents” doubled to more than 180,000 in the five years to 2010. Well-placed security sources have told me that more than half of those incidents were generated by conflict over farmers and households defending their land.

A team of remarkable scholars has now illuminated the texture and underlying logic of the problem. Their survey of 120 villages across six provinces, supported by more than a hundred in-depth interviews, shows some regions have withstood the vicious cycle.

The successes were confined to a corner of Fujian province, on the south-east coast, where retired cadres had been able to leverage their status and prestige to form ”old people’s groups” that could mediated conflict between citizens and the state.

”The old people’s association fostered and sustained, but also contained, collective action that eventually succeeded in disciplining corrupt local officials without triggering repression or a breakdown of social order,” says a paper by William Hurst, of the University of Texas, and Chinese scholars.

But conflict, distrust and violence had taken place elsewhere in the country. The further the party-state has pressed itself into the fabric of society, the less it has been able to control it. In these areas, despite the well-reported rise in domestic security spending, local officials have had to bring in outside groups to enforce the peace.

”In each of the other five provinces we studied, we found crime syndicates and underworld networks acting in a sort of symbiosis with local states,” the researchers say in their paper, Reassessing Collective Petitioning in Rural China, which will be published in Comparative Politics.

”Village cadres channelled development contracts, money or other resources to organised crime networks in return for a pledge to keep residents too intimidated to seek redress of grievances related to such issues as land requisition, fiscal extraction, and enforcement of the birth control policy,” it says.

This model of outsourced violence has taken root in little over a decade. It grew hand-in-hand with the centralisation of political power and resources that took place from the mid-1990s. Predictably, the new breed of officially-sanctioned thugs have come to demand a share of government power in return for the ”stability preservation” services they render.

Li, who earned his economics degree at Peking University in the more liberal and optimistic climate of the early 1980s, must now press his authority over hundreds of counties and thousands of townships that are sharing power, to varying degrees, with criminal gangs. How far up the system does the cancer grow? The cases of the fallen minister for railways, Liu Zhijun, and the deputy director of the People’s Liberation Army Logistics Department, Gu Junshan, are instructive.

Li has been reaching out to independent and market-minded economists as he prepares a seven-point reform agenda to be endorsed at the Communist Party’s key plenum meeting later this year.

Zhou Qiren, formerly a member of the monetary policy advisory board at the People’s Bank of China, has been tapped to provide advice on land reform.

The Peking University professor is working through a program of protecting household property rights and reducing government influence. He readily acknowledges the challenges ahead but also corrects my terminology: ”mafia” should not be used to describe criminal syndicates that are created by the state itself. Zhou will not predict whether Li will succeed but he makes a convincing case that he will try. ”There’s nowhere out: China has to do serious reforms,” Zhou says. ”We’ve almost got to the end of the road.”

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (, the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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