Monday 5 March 2007

Property Rights in China - Wen Jiabao speaks

In his speech at the annual session of the country's legislature Wen Jiaboa called for more sustainable economic growth. Such promises have been made before to little effect.

What is more interesting, and related to the recent "corruption in China" posts is the issue of Property Rights. Here is the BBC take on the speech:

China's Wen pledges fairer growth

Private property rights

He [Wen] also acknowledged that ordinary people, especially in poorer rural areas, were being sacrificed in the rush for riches.

"We must... safeguard social fairness and justice, and ensure that all of the people share in the fruits of reform and development."

Mr Wen said a law ending preferential tax rates for foreign companies would also be passed.

Foreign companies have up until now paid an income tax rate of 15%, compared with 33% for local businesses. Under the new legislation, a tax rate of 25% will apply to all companies.

Another law expected to be passed, but not mentioned in Mr Wen's speech, would give unprecedented protection for private property rights - an important step in the Communist Party's transition to a market economy.

Despite the fact that no actual policies are decided at the 12-day NPC meeting, analysts say it does offer a rare chance to hear about the issues at the top of the government's agenda.

This year's meeting will also be followed closely because it comes before a major Communist Party gathering later in the year, when President Hu Jintao is expected to carry out a reshuffle to further strengthen his position.

This policy change needs to be looked at very carefully. One issue is the problem of land grab. Far from helping the poor in rural China enforcing Property Rights will give legality to any land grab that has previously occured by Chinese Party Officials. This in a sense is setting in stone previous corrupt behaviour making a small number of individuals very rich.

It will be interesting to see how this plays out.

Here is a quote from PlanetArk:

China's Wen Puts Emphasis on Green Growth
In past years, protests and riots have flared across China's countryside as aggrieved farmers protested corrupt land grabs, lawless officials and stagnating incomes.

The Finanical Times also has its take on events. Interestingly the FT touches on the relative toothlessness of the National People's Congress. Perhaps nothing changes after all (see bold print).

New laws but no democracy for China
While China’s economy and its financial markets are in the throes of a sometimes chaotic modernisation – amply demonstrated by last week’s equity market turmoil in Shanghai and around the world – the country’s political system steadfastly resists reform.

Today and for the next two weeks, nearly 3,000 delegates to the National People’s Congress, the Chinese parliament, will attend their annual meeting in Beijing. They will debate some big issues – the budget, the gap between rich and poor, energy security, pollution and what to do with foreign exchange reserves in excess of $1,000bn – but in the end they will do the bidding of the ruling Communist party.

They are also expected to pass some important laws. One, on corporate tax, is a prudent measure to end discrimination against domestic companies. At present, Chinese companies pay 33 per cent tax, while foreign investors pay as little as 15 per cent; after a transition period, all companies will probably be taxed at about 25 per cent.

This makes sense because China no longer needs much foreign capital, the existing system discourages local private enterprise, and many of the supposedly foreign investors profiting from tax concessions are in any case Chinese investors “round-tripping” their money via the British Virgin Islands and other tax havens.

Another important law to be passed will formally protect private property rights for the first time since the communists took power in 1949. Delayed by opposition from the old guard, the law is of practical as well as symbolic significance in China’s increasingly capitalist economy. Gongchandang, the Chinese translation of “Communist party”, suggests – even more than the English words – that public ownership of property is an ideological necessity.

The Communist party, however, is not going soft. Where it cannot be sure in advance of NPC compliance, it has simply put legislation on ice. That is the case with draft laws on competition policy, patents and labour contracts.

In some ways, the NPC is a less lively forum than it was in the 1980s. When Wen Jiabao, the premier, gives a closing news conference about the session on March 16, the questions from the media will have been carefully vetted. Mr Wen – like Hu Jintao, the Chinese president, and Wu Bangguo, the NPC chairman, who are his two superiors in the hierarchy – has yet to grasp that China’s economic modernisation and the resulting liberalisation of society will inevitably lead to political reform.

Only last week, Mr Wen tried to damp any hopes of such reform by declaring, in traditional Communist party language, that China was still in the early stages of socialism and would stay there for 100 years. Translation: we may have a parliament called the NPC, but if the party has anything to do with it you can forget about real democracy in China any time soon.

The issue of "round-tripping" is an interesting one and will be posted on at a later date.

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