Asia Centre

This autumn issue of China Analysis comes one month before the opening of the 17th Congress of the Chinese Communist Party. This event is however ritualized and fades in comparison with the whirlwind of the Chinese economy which is experiencing an annual growth rate of over 11% and will undoubtedly leave China with a trade surplus of more than $300 billion in 2007. Nonetheless, it is giving rise not only to speculation but also, through positions taken, sheds light on the debates and the issues of concern to the Chinese leadership. It is fascinating to see how every hesitation points to a reminder that the final decision is in the hands of Hu Jintao. Thus, the man who restored the principle of collective leadership, and who set up, nominally at least, a system of transparency is more than ever the yibashou, or Number One, and a veritable black box when it comes to assessing Chinese intentions.

This issue of China Analysis focuses on several aspects related to the restrained but centrally important debate over political democracy. As we go to press, Xuexi (Study) published more praise for democratic change - an unavoidable complement to the market economy, Red Flag stated its opposition to the matter, and the People's Daily sounded a note of caution. Admittedly there is still a considerable gap between the reactivity and accountability championed by the Hu-Wen team and democratic institutions. Corruption, as well as the highly publicized scandals, works just as much to justify the Party's authority and need for control as it does to support the reformists' demands for a greater balance of powers. The mere publication of the list of delegates to the 17th Party Congress months before the event is a quite considerable feat for those concerned, as the risks of denunciation and public condemnation are great.  Fortresses can fall: after the Shanghai Party it was the turn of Sinopec, currently one of the ten leading global corporations, whose powerful boss was nonetheless dumped in a few days, along with the Finance Minister who had rubbed shoulders with leading world financiers. Hu Jintao's grip is impressive in combining stability with decisive moves.

The current issue also deals with the question of central authority in several different aspects. Why must the management of social security funds be centralized? Why is the army not to be liberalized in the name of its ongoing modernization? How are Chinese brand names to be promoted?

The other China - Taiwan - has not been overlooked. China Analysis has not commented on the two proposals for a referendum on UN membership (now that President Chen Shui-bian and the Kuomintang each have one). The sharply worded opinion recently expressed by the former President Lee Teng-hui, to the effect that it is shattering the island's political life, is itself comment enough. We have chosen instead to examine the constantly diminishing international space accorded to Taiwan, while also considering the possibility of de facto association of Taiwan in the alliances being forged by Japan in the Asia-Pacific, as well as in regional integration mechanisms.

One of President Hu Jintao's closest aides is tipped for promotion, while an ally who was sacked as Beijing mayor during the 2003 SARS crisis has made a political comeback, signs of the leader's growing strength.

The changes were part of a reshuffle ahead of the party's 17th congress, which opens on October 15 with Hu expected to promote more of his men to key posts and further consolidate power.

Ling Jihua, 50, deputy director of the General Office of the Communist Party's Central Committee, is expected to replace Wang Gang, 64, as director in the near future, two sources with ties to the leadership said.

"It's a very important job," one source said, adding it was an indication Hu was politically stronger.

The general office is the party's nerve center, handling classified documents and administrative and logistical affairs of the party's 23-member, decision-making Politburo.

Previous directors of the general office were concurrently alternate members of the Politburo, including Wen Jiabao, who is now premier, and Zeng Qinghong, the vice president.

State media said former Beijing mayor Meng Xuenong, 58, had been appointed deputy party boss of the coal- rich northern province of Shanxi.

"Hu does not have a lot of people he can trust," a second source said, referring to Meng's comeback.

On Thursday, parliament approved the appointments of new ministers of state security, personnel and supervision.

Analysts said the changes meant more emphasis on Hu's policy of "scientific development" to correct China's path from that of the previous administration, which featured growth at the expense of the environment.

Meng is expected eventually to replace Yu Youjun, 54, as Shanxi governor after the provincial people's congress rubber-stamps his promotion.

A vice minister of the party's organizational department, which is responsible for personnel appointments, said Yu would be given an unspecified "important" job because the party "approves of and trusts" him.

Yu would be named a Cabinet minister, the sources said.

Months after Hu took the top job in the Communist Party in November 2002, China was gripped by SARS, which swept through Guangdong and Hong Kong before spreading globally in 2003. It infected some 8,000 people and killed around 800.

Hu sacked Meng, an ally of Hu's predecessor Jiang Zemin, from the posts of Beijing mayor and health minister for a cover-up and ordered the government to come clean on the epidemic.

Meng was a one-time Beijing deputy secretary of the Communist Youth League, which is Hu's power base and is known as the Communist Party's "helping hand and reserve army" and boasts 71.9 million members.

After his stint as Beijing mayor, Meng was appointed deputy head of a multibillion-dollar project to divert water from China's flood-prone south to its parched north.

These articles from Zhongguo Jingji Zhoukan seek to explain this phenomenon. The first one picks up on the comment made by Al Ries, the international marketing expert. In the second article, this analysis is set against the points of view of various Chinese experts on the issue.

Al Ries: Chinese firms ought to concentrate on their reputation and develop their own particular speciality

Al Ries' observation is categorical: "As far as I know, there is no solid Chinese brand name on the world market". Even if a Chinese brand achieves good results in the domestic market, that does not mean that it will make it on the other world markets. Al Ries gives the example of a brand well known in China - Lenovo, which in his view sounds like "the name of an Italian pastry". His diagnosis is that China is currently faced with a choice: either it continues to manufacture products or it decides to manufacture brands. The solution is that Chinese businessmen and managers need to decide to spend time and energy in creating big brand names, and they should understand that the essential thing is not the production of low-cost merchandise. This is all the more so since the latest report from the United Nations shows that China is the third largest producer, after the United States and Japan. According to the same report, production costs are likely to rise with increasing wages, and that consequently the country must become more competitive.

In order to keep its competitive edge, China needs to move from being "a manufacturer of products to being a manufacturer of brands". At the present time, again according to Al Ries, Germany is the country with the highest production costs, and yet the Germans are very competitive in terms of brand names, as is proven by the reputation of companies like Mercedes or BMW. The German example illustrates Al Ries' reflections: a country's capacity for growth does not arise from its capacity to produce but from its capacity to manufacture brands.

Another problem is that so far China has not managed to get the name of one of its companies firmly linked to a particular product, like Dell, Intel, or Microsoft. Consequently, it is threatened by the "Japanese disease": a firm manufactures products for different sectors, and therefore cannot acquire a speciality in any particular line. The diversity at the production level stands in the way of establishing the brand internationally.

Al Ries has made the following recommendations to Lenovo: the company should bring its production lines together. Next, it should find a name for its exports which will sound agreeable to European and American markets, which already have successful brand names, like ThinkPad, for example. Finally, they need to link a particular quality to the brand name. The models here would be Volvo, with its reputation for reliability, or Mercedes, with its social cachet. If Lenovo laptop computers were able to last eight hours without recharging, it is this quality that should remain in the minds of potential customers.

Is China really lagging behind?

The Chinese are pondering on Ries' point of view. Some experts believe that there is no need to worry, that the development of a brand's reputation is a process which takes time. It is enough to look at the example of Korea. A few years ago that country's products were internationally known as cheap and of inferior quality. Nowadays some Korean multinationals have managed to get themselves recognised as solid brand names. In the same way, the main characteristic of Chinese products is their low price. But strategies evolve, and in future low costs will no longer be the main characteristic of Chinese goods.

Moreover, this trend has already started. China cannot yet boast any famous brands but the successes of Haier, Lenovo, or even Mengniu are proof of Chinese determination, confidence, and ability. These firms show, above all, that China is only at the first stage in launching her brand names. Jin Zhanming, from Tsinghua University, goes further in arguing that right now China already has internationally recognised brands, such as China International Containers (a world leader in that sector), Tsinghua Tongfang, Huawei, ZTE, as well as Lenovo.

However, China is currently going through a risky phase; production costs are continually rising while the returns are not very large. The Chinese are putting their trust in long term improvements.

Meanwhile, they must take advantage of present opportunities. They need to launch an initiative aimed at getting recognition for the "Brand By China" instead of the "OEM" label (i.e. the "Original Equipment Manufacturer" which identifies them as manufacturers for other companies). China must become a "country of origin" and a "strategic base". In addition they need to make plans for product innovations. They should also seize the opportunity presented by the Beijing Olympics to promote Chinese products.

Environmental improvements as the way to gain recognition

They believe that there are two problems facing the companies:

1. Their average life is two or three years, but in order to become famous, a company must last much longer;

2. They need to make long-term investments if they wish to become famous brand names.

In addition China needs better market conditions for successfully promoting Chinese brands. Moreover, Chinese brands will suffer if domestic consumption remains weak, as this will tend to block the companies' development.

Finally, another factor should be noted. Leading Chinese brands are facing large setbacks from the many scandals that have broken out recently, particularly in the United States. These brands are not helped by the sight of the thousands of dead cats and dogs last March, followed by the scandal of the Chinese anti-gel toothpaste. A company in the state of Utah even went so far as to advertise its produce as "China Free"… Negative events such as these can only undermine popular acceptance of Chinese brands overseas.

On July 15th and 16th, the Central Military Commission (CMC) held an enlarged meeting, attended by the directors of the four general departments[1], the army leaders and political commissars from the seven military regions, the directors of the leading establishments directly responsible to the CMC, and their political commissars. In total more than eighty leading figures attended the meeting, including nineteen generals who were former members of the two previous Central Military Commissions.

On this occasion, Hu Jintao, as chairman of the CMC, gave a speech entitled "On strengthening and improving political instruction, organisation, discipline, and modern technology in the army". The vice-chairman of the Commission, Guo Boxiong followed up this address with a contribution entitled "Let us maintain the absolute control of the Communist Party over the army; let us strengthen the armed forces' esprit de corps; and let us speed up the modernisation programmes". These two speeches reflect Hu Jintao's determination to reinforce his power within the army. At the same time they show a real anxiety over the "liberalising" trends in the thinking of the military. These are felt to be a negative phenomenon since in the medium term they could discredit the idea that the army belongs to the Communist Party in favour of seeing it as belonging to the nation. The theme of the need to reinforce army discipline was particularly emphasised. This had already been the theme of Hu Jintao's address to the military delegates attending the session of the National People Congress in March 2007. At that time, his insistence had been interpreted as a wish to clarify his categorical opposition to the views of certain younger officers who wanted the PLA to become a professional army with its allegiance to the State, and not to the Party[2].

In his speech, Hu Jintao stated that in this period of peace the army faced eight challenges, going even so far as to say that the PLA was experiencing a crisis. 1) The troops' consciousness of their mission is weaker and less clear. 2) The political consciousness of the army and its organisation of the troops is in disarray. 3) The principle of absolute Party control over the army being more and more frequently questioned. 4) The PLA's ability to resist Western influence, corruption, and division is being undermined. 5) Internal discipline leaves much to be desired. 6) Relations between officers and other ranks are deteriorating[3]. 7) There is no guarantee that the army would be victorious in a hi-tech war. 8) The relations between the army and local administrations and populations are getting worse.

In view of all this, Guo Boxing insisted on the need to strengthen the work of political education in the PLA, with the following four priorities: 1) Reinforce the awareness of the need to fight against tendencies towards westernisation and splitting the army 2) Firmly reject anything which weakens the control of the Party over the army … in favour of national control, and at undermining its political education 3) Prevent the army from being "contaminated" by all the sorts of negative thinking which are already pervasive in Chinese society 4) Work to improve the army's sense of its mission and responsibilities.

Two weeks later, on August 1st, the People's Liberation Army celebrated its 80th anniversary. But, according to Luo Bing, 2007 is already a time of transition in which Hu Jintao is struggling to strengthen his power within the armed forces. His principal weapons are the fight against corruption, the strengthening of political education, and the tactics of appointing and promoting personnel, and restructuring units[4]. This wish to increase control over the forces is the main factor behind the unusual number of letters carrying instructions sent to different sections of the government and the PLA shortly before the 80th anniversary celebrations. Hu Jintao also ordered 80 teams of inspectors to be sent to oversee the operations of the military regions, army groups, and various units.

The first letter was addressed to the State Council and the Central Military Commission. It deals with strengthening the Party's control over the army, which must be absolute. It calls for the links between the Party and the PLA to be made more visible, to retain at all costs the Party's role in initiating all political activities and in selecting the composition of army units, and to actively oppose any trend capable of damaging the leadership of the Party.

The second letter is addressed to the disciplinary inspectorate of the PLA and to the general political department. It is aimed at speeding up the implementation of the disciplinary committee's directive entitled "Some rules concerning the formal prohibition of the abuse of position in order to gain illegal advantages". It gives corrupt officers one month to denounce themselves and write a precise account of their illegal gains in exchange for lighter penalties. It calls upon the political commissars and party cells in the army to inform the army and the armed police about these measures, and to warn them that heavy sentence will be handed down by the inspection teams when the grace period is over, after August 20th.

The third letter is addressed to the four general departments, enjoining them to see to strengthening discipline among the troops. The fourth, addressed to the State Council and CMC, calls for better control over the PLA to prevent it from engaging secretly in lucrative economic and financial activities. Despite the prohibition issued to the army in 1998 against investing in the economic life of the country, following a survey conducted in 2000, the government believes that its assets amount to over 160 billion yuan (15.5 billion euros) managed indirectly through various civil organisations, often local governments, which funnel back its returns.

In order to restore army discipline, from the moment he became head of the Central Military Committee, from September 2004 until August 2007, Hu Jintao reorganised the composition of numerous military units. Seventeen of these were from those directly dependent on the military regions, nine from the army groups, fifty-five from those under the direct authority of the four general departments and the headquarters of the navy, air force, and second artillery group. In addition, under Hu Jintao troop numbers were reduced by 30,000, out of which 28,000 were forced into early retirement, and 1830 into a change in specialisation. According to statistics from Chengming, 80% of these measures were taken for economic infractions and 16% for exploiting their position to obtain various advantages. They form part of Hu Jintao's consistent efforts to display the central government's struggle against corruption and to gain greater legitimacy in the eyes of the population.

But the problems of discipline cannot be reduced to the question of material corruption. The Chinese leadership openly expresses its anxiety over changes in the army's mental attitudes and is seeking ways of forestalling the kind of spiritual corruption which would strike at the link between the Party and the army. In the past, most Chinese soldiers were recruited in the countryside, and the officers themselves were of peasant origin. They had risen up through the different ranks from the bottom. This sociological makeup worked in favour of disciple and unfailing loyalty to the Party and the hierarchy. Nowadays, when the army is introducing a modernisation process "in order to win conflicts in the context of high technology", it is recruiting from different social strata, urbanised and better educated. It is forced to put in place various projects aimed at improving the levels of technical training given to these recruits in the army's specialised institutions[5]. These recruits, and the new generation of officers, have mastered information technology, and it is difficult to conceal from them that having the armed forces in the service of the nation is the guarantee of their professionalism, and agency of their progress in the most modern societies. As Hu Jintao himself put it, the army would appear to be "destroying its great wall of iron and steel", referring to Deng Xiaoping's observation that the PLA was the wall of iron and steel which protected the Party. Accordingly, urgent action is needed to snuff out a tendency which step by step could favour "peaceful change", the time-honoured Party term for the slow democratisation of the political system through pervasive Western influences.

This theme of the struggle against "peaceful change" is at the heart of the fifth letter from Hu Jintao to the PLA disciplinary inspectorate and the general political department. It emphasises the need to fight against trends favouring the Westernisation, liberalisation, and nationalisation (subordination of the army to the state) of the PLA, by reaffirming constantly the leadership of the Party. It spells out twelve prohibitions for the military, including use of the internet, membership of religious organisations or associations, reading foreign publications with subversive contents which might demoralise the troops etc. According to Luo Bing, this is the most significant of these communications. In his view it reveals less a will to exercise political control over the military than a genuine anxiety over the changing attitudes in the PLA… but this will no doubt be utilised in order to reassert the control of Hu Jintao and of the Party at large over the army at the time of the 17th Congress.

The announcement of this declaration drew particular attention from the media and academics in Taiwan. Their analyses were dominated by two questions: Is this joint declaration intended to lead to security measures to contain China's expansion? Does it enable the reinforcement of Taiwan's security?

The terms of the declaration are that Japan and Australia will strengthen their co-operation over reforming the United Nations, fighting international terrorism and crime, and over military and defence issues. The text itself is divided into three parts. The preamble calls attention to their shared strategic interests, creating the need for a strategic partnership (zhanlue huoban guanxi), and in the first chapter, entitled "Reinforcing Co-operation", Australia declares her support for Japan's position in confronting North Korea (including the question of the Japanese abductees), for Japan's candidacy for a permanent seat on the UN Security Council, and for closer co-operation between their two Defence Ministries. In the chapter dealing with co-operation, the document lays out nine areas in which there will be an exchange of personnel and the organisation of joint exercises and manoeuvres. And the document also provides for a "strategic dialogue" to be held every year by the two Ministries of Defence and Foreign Affairs, with the aim of developing a "plan of action" along the lines of the Japanese-American Treaty.

The three writers agree that this is only a joint declaration and not a security pact, which puts a limit on its strategic importance. They are also unanimous in their view that this rapprochement between Japan and Australia is the outcome of American influence.

For Yu Li-zheng, scrutiny of the terms of the declaration leads to the conclusion that there is a deliberate vagueness aimed at reassuring China over the intentions of Japan and Australia, while it is obvious that the US is behind the initiative in its desire to build a defensive line from Japan to Okinawa, Australia, New Zealand, and the Philippines in order to contain China. Yang Yong-ming sees in it the emergence of a trilateral military alliance between the United States, Japan, and Australia. This means that American strategy in the region will be the key to future developments in the co-operation between Japan and Australia. According to him, taking into account the current direction being taken by Sino-US relations, Washington's priority is to preserve the status quo in Northeast Asia and to avoid being sidelined by any increase in regional integration brought about by China's economic growth. That is why Washington asked Australia, New Zealand, and India to join APEC before encouraging Japan and Australia to sign their joint declaration.

In this way the United Sates is seeking to preserve its hegemony in the Pacific, in both economic and security terms. Chen Yi-hsin also considers it obvious that the declaration is underpinned by the US-Japanese alliance and by the trilateral security forum held in 2006, whose purpose was to give better co-ordination to Japanese responses and to organise its increase in regional power so as to match the modernisation of the PLA.

But Chen also insists on the moderate degree of importance which the other Asian countries give to this strengthening of security relations, being perfectly aware of the relationship of military co-operation which the US is developing with China, like the other States in the region. This point leads Chen to believe that this declaration is the kind of flexible alliance that the democratic states have developed in order to fight terrorism. Consequently this is not a return to the classical American policy of encirclement which was deployed in the cold war. On this point Philip Yang seems to agree with Chen Yi-hsin, seeing in the joint declaration, supported by the US-Japanese alliance, an American admission of the importance of the security of Japan and Northeast Asia, and its willingness to give firm reassurances to the region, backed up by the US-Japan alliance and the Australia-Japan agreement.

Yang Yong-ming and Chen Yi-hsin both consider that it is in Japan's interest to strengthen such co-operation. Chen believes that Japan has a primary interest in developing a security posture modelled on that of the United States. Moreover, he thinks that Shinzo Abe's policies and the decisions taken over the past two years by the American and Japanese governments with regard to military co-operation, show that the two governments are pursuing a course towards rapprochement.

Yang Yong-ming believes that the joint declaration is of greater benefit to Japan than to Australia, since it allows Tokyo to deepen its security strategy in the Asia-Pacific region, drawing from it greater stability while strengthening the security arrangements with the United States. But Chen Yi-hsin is less positive than Philip Yang, giving consideration to a certain amount of opposition to US security policies in Japanese political circles, particularly since Washington tried to negotiate with North Korea on its own.

Chen Yi-hsin believes that in the long run Japan will wish to rid herself of American influence in order to act for herself in the region's diplomatic and military affairs. Fifty years of the security alliance have led to a degeneration in a relationship that is not as close as it may appear (shen he shen li). In his view such a development would give Australia food for thought about the future structures required by this military co-operation.

As for the Australian point of view, the three writers agree in emphasising that there are quite a lot of Australian politicians and specialists who are opposed to the declaration and question its usefulness to Canberra, with regard to the security issues in Northeast Asia. Moreover, in their view Australia will pay a considerable price for its co-operation with Japan in security matters, giving up some of its freedom of action and jeopardising its economic relations with its primary trading partner, China.

China's reaction is also considered by the three writers, who agree in detecting a new Chinese diplomatic style, which they call "cold management" (leng chuli). According to Yang Yong-ming, Beijing is not bothered by Australia's security measures, but it is eager to see the emergence of a tripartite alliance in Northeast Asia and to build up its influence over security matters, including the question of Taiwan, thus adjusting its moves and its strategies by relying alternately on coercion or counter measures. Chen Yi-hsin takes the opposite view, believing that Beijing is not so eager, given the inability of the Liberal Democrats in Japan to revise the pacifist constitution without the support of the opposition, and the degree of Australian opposition to American security policies in the region. But he gives a determining influence to Beijing's reliance on soft power, built on the basis of prospering economic relations and mutual benefits, and on the peaceful emergence of the Chinese presence in the world. In his view, these are all factors which have persuaded China to react positively to the joint declaration. For his part, Yang Yong-ming believes that Beijing will nonetheless attach increasing importance to economic interaction with Japan and Australia. This attitude will make them avoid any deterioration in such relations, whether for security reasons or for antiquated polemical reasons, and not to be the cause of a possible scenario in which Canberra and Tokyo would have reasons to oppose Beijing jointly.

Turning to Taiwan's point of view, the three writers all agree that, although the strengthened relations between Canberra and Tokyo are beneficial for Taiwan, the declaration itself will have very little impact on the island's security. Using the rhetoric of the Kuomintang, they say that this development ought to make Taiwan take a more responsible attitude, and to stop playing the role of a "trouble-maker" (mafan zhuangshizhe). Yang Yong-ming makes a more carefully worded appeal to Taiwan to rely on regional interdependence and co-operation in order to get involved in the region's development and economic integration. He notes that opposition in Australia to the joint declaration is partly linked to Taiwan's handling of its relations with China, and partly to the considerable development of Chinese military capabilities. He considers that this is yet another reason why Taiwan should reflect on the best ways of building up structures for peaceful interaction and behaving as a responsible partner in Northeast Asia.