How China Snares Tigers, Swats Flies on Path to Reform

Feb 27, 2014

How China Snares Tigers, Swats Flies on Path to Reform

China’s Communist Party chief Xi Jinping has spent much of his first year in office cracking down on “tigers and flies” in an anticorruption drive just as he pushes ahead with some serious economic reforms.

Those broad objectives may be two sides of the same coin, according to analystDamien Ma, a fellow at The Paulson Institute in Chicago and co-author with economist William Adams of “In Line Behind a Billion People,” a look at China’s long-term development challenges.

Reform means ruffling important feathers—often powerful officials and their friends at privileged state enterprises.

“How do you get rid of vested interests?” Mr. Ma asked, speaking to a group on journalists in Beijing on Wednesday. “You arrest them.”

So far the campaign against corruption has taken a heavy toll on senior officials in the oil industry, one of the more privileged parts of the state sector. Jiang Jiemin, the former head of China National Petroleum Corp. and the state–owned Assets Supervision and Administration Commission is one of the most senior officials to fall from grace.

CNPC’s chief accountant and officials with ties to onshore oilfields also have been tarred with the same investigative brush. And the targets of the probes have included figures close to the former security czar Zhou Yongkang, a now retired leader who had risen to the powerful Politburo Standing Committee.  Mr. Zhou hasn’t been accused of wrongdoing.

The broad outlines of a reform program were reached at the party’s Third Plenum policy-setting meeting in November. The gathering of party movers and shakers called for a “decisive role” for the market in determining prices of scarce resources, such as energy products. It also pledged more market access for nonstate interests, an objective that could bring more private capital into once-closed parts of the economy.

To accomplish this, power has increasingly been concentrated in the hands of the Communist Party chief. Mr. Xi now heads a newly formed National Security Committee as well as a top-level body that will decide how to go about the ambitious economic reforms on top of his other party, state and military-affairs duties.

Mr. Ma suggests the leaders had little choice in pushing ahead with what they call “top-down design” for reforms. They are trying to recentralize power partly because the leaders “don’t trust the local guys,” he said.

Anticorruption is a key weapon in this drive, he maintains.

So is it fair to conclude that more arrests mean more reforms?

Sort of.  “It depends on which sectors,” said Mr. Ma.

 

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 (www.heroinnovator.com), 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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