The Unification of the Phoenix and the Dragon E-Book

Ellias Aghili Dehnavi

• Herausgeber: tredition
• Kategorie: Geisteswissenschaft
• Sprache: Englisch

Seitenzahl: 217

Veröffentlichungsjahr: 2021

Beschreibung

The reform and open-door policy of China began with the adoption of a new economic development strategy at the Third Plenary Session of the 11th Central Committee of the Chinese Communist Party (CCPCC) in late 1978. Under the leadership of Deng Xiaoping, who had returned to the political arena after his three previous defeats, the Chinese government began to pursue an open-door policy, in which it adopted a stance to achieve economic growth through the active introduction of foreign capital and technology while maintaining its commitment to socialism.

Leseprobe

The Unification of the Phoenix and the Dragon

© 2021 Dr. Ellias Aghili Dehnavi, Mojdeh Savoj

Typesetting & Layout: © 2021 Mahmoud Mohammadi

ISBN Softcover: 978-3-347-51438-6

ISBN E-Book: 978-3-347-51439-3

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tredition GmbH, Halenreie 40-44, 22359 Hamburg, Germany

The work, including its parts, is protected by copyright. The author is responsible for the contents. Any exploitation is prohibited without his approval. Publication and distribution are carried out on behalf of the author, to be reached at: tredition GmbH, department "Imprint service", Halenreie 40-44, 22359 Hamburg, Germany.

The Unification of the Phoenix and the Dragon

China, Iran, Middle East

Ellias Aghili Dehnavi, Mojdeh Savoj

To Our Parents

Our friends

And those who believe in humanity, to Johannes, Regina, Roland

and Anna who have always stayed true to their words.

Specially dedicated to Mrs. Anderson, For she has been such a shining lantern in the depth of my darkness.

Table of Contents

1. The Chinese Economy since the Start of the Reform and Open-door Policy

2. The Rapid Growth of the Dragon

3. Assessing Iran's Role in China's Energy Market

4. Study of the European Union Economic Policies towards Iran in Post-JCPOA

5. The Eagle flees away

References

1. The Chinese Economy since the Start of the Reform and Open-door Policy

The reform and open-door policy of China began with the adoption of a new economic development strategy at the Third Plenary Session of the 11th Central Committee of the Chinese Communist Party (CCPCC) in late 1978. Under the leadership of Deng Xiaoping, who had returned to the political arena after his three previous defeats, the Chinese government began to pursue an open-door policy, in which it adopted a stance to achieve economic growth through the active introduction of foreign capital and technology while maintaining its commitment to socialism.

The obvious aim of this policy shift was to rebuild its economy and society that were devastated by the Cultural Revolution. The policy shift also appears to have been prompted by recognition that the incomes of ordinary Chinese were so low, in comparison with incomes in other Asian economies that the future of the Chinese state and the communist regime would be in jeopardy unless something was done to raise living standards of its people through economic growth.

The government subsequently established a number of areas for foreign investment, including the special economic zones, open coastal cities, the economic and technology development zones, the delta open zones, the peninsula open zones, the open border cities, and the high-tech industry development zones. The establishment of these zones provided the trigger for massive inflows of foreign investment, primarily from companies in Hong Kong and Taiwan. At the same time, China promoted its socialist market economy concept. The changes brought an entrepreneurial boom that resulted in the emergence of huge numbers of entrepreneurs and venture businesses within China.

Inflows of foreign capital, technology, and management knowhow enabled China to turn its vast labor resources and space to rapid economic growth. The shift to an open-door economic policy ushered in a period of high economic growth in the first half of the 1980s. The economy stagnated around the time of the Tiananmen Square Incident in 1989, but in the first half of the 1990s, China was again boasting high growth rates. Rapid economic growth was accompanied by a rise in per capita GDP (Fig. 1). In 1998, per capita income, though still only about US$770, was 14 times higher than in 1980. Therefore, it seems reasonable to conclude that Deng Xiaoping's first goal, which was to improve the economic status of the people, has been accomplished.

Key words: Iran, China, energy, export, import, : The European Union, Iran, Energy Supply, JCPOA, USA, development, economical rivalry, regional power

2. Emerging Conflicts

The positive consequences of the reform and open-door policy have been economic development and rising national incomes. Naturally, there have also been negative effects, and these have become increasingly obvious over the years. The problems outlined below are closely linked to the living standards of people in China.

First, there is now regional disparities in income levels, and the gap between rich and poor is now extremely wide. Under the socialist controlled economy, living standards were relatively low, but there was no big gap between rich and poor. The idea, taken from the writings of Mencius, that inequality is more lamentable than poverty, has applied throughout society. With the shift to the open-door policy, however, Deng Xiaoping indicated that it was acceptable for some regions to become wealthy before others. The result was a huge wealth disparity between coastal and inland regions, and between the cities and rural areas. Fig. 2 shows the per capita annual incomes of urban households in municipalities and provinces where incomes are relatively high, and those of peasant households in relatively poor provinces. Incomes in Guangdong Province are about eight times higher than incomes in Gansu Province.

Apart from a massive influx of foreign investment, entrepreneurial activity within China was also encouraged. This led to the formation of countless foreign-owned companies, private enterprises, individual enterprises, and other types of business, in addition to the existing state-owned enterprises and township enterprises. These newly established enterprises are classified as "enterprises under other ownership structures." Many of them operate more efficiently and pay their employees more than state-owned or township enterprises (Fig. 3). This has been reflected in a growing income gap between the owners, directors, and executives of these enterprises and the employees of state-owned enterprises.

There are also clear gaps among urban office workers. At one extreme of this polarization are workers who can afford to own imported cars, while at the other are those who can afford only a bicycle. Some parents can easily afford to pay annual fees worth three million yen per child to send their children to the private boarding schools that have appeared in Beijing. Yet, on the other hand, there are aging employees of state-owned enterprises, laid off after decades of service and basically living on the street with a monthly benefit of around 3,000 yen. These are the realities of contemporary China.

The existence of this income disparity under a socialist regime is inevitably causing a variety of alarming social phenomena. Worship of money has spread among the people. Huge numbers of rural people have flooded into the cities in search of higher incomes, leaving many rural communities deserted and exposing China to the danger of future food shortages. There has been a breakdown of law and order in the cities, and corruption is rife among party officials and government bureaucrats. Government organizations are involved in tax evasion and smuggling, while army, police, and court are operating businesses on the side. None of these phenomena are compatible with a socialist system, and they are indicative of inner contradiction in the political system.

China has maintained a one-party socialist dictatorship on the political level, while moving to a market system on the economic level. This conflict has exposed inadequacies in the legal system, and with each passing year, it has become increasingly apparent that there is no system of checks to prevent the arbitrary exercise of power by the Communist Party. The government has accelerated the shift to a market economic system, but it has so far failed to provide a clear definition of what is meant by a "socialist market economy." For this reason, Party and government agencies no longer function as monitors and arbiters of the market. Instead, these agencies have been given leeway to participate in business activities as direct players in the market. This situation has led them to involve in monopolistic trading and insider trading. The accepted wisdom among modern Chinese is that "those in authority (quan) will be able to acquire money (qian)."

An extreme example of this problem relates to the export rebate system for value-added taxes. Since its implementation in 1994, the rebate rates have been lowered frequently, and the range of prices covered by the tax has also been changed. The fundamental reason for this is the fact that export rebates were greater than the amount of revenue generated by the value-added tax. Behind the scenes, exporters, customs officials, tax officials, and central and regional Party officials were conspiring to obtain massive rebates by means of fraudulent export documents.

The economic development gap between coastal cities and other regions has engendered a sense of grievance on the part of regional government officials, who have misappropriated government money to create hastily planned development zones in an attempt to attract foreign investment. The resulting shortage of public money has frequently meant that residents have not received payments to which they were entitled.

According to a Chinese newspaper, 158,000 senior Communist Party officials were punished for violating the Chinese Communist Party Constitution in 1998. Public prosecutors are currently investigating 35,000 cases of corruption involving 1,820 government agency officials with ranks of section manager or above. Still, those prosecuted represent only a small minority of the total number of people engaged in corrupt activities.

China is frequently criticized for delays in updating its legal system. Despite the enactment of numerous new laws, in step with the open-door policy, China has still not established the rule of law. The collapse of the Guangdong International Trust and Investment Corporation (GITIC) in October 1998 had focused attention on the proliferation of trust and investment companies and their financial problems. At the height of the boom in the 1980s, there were almost 1,000 of these companies. Yet, China has still not established a trust and investment company law.

The declining competitiveness of the state-owned enterprises, which are the actual and ideological pillars of the socialist economy, is a problem with serious implications for China's economic and industrial structures. In essence, the state-owned enterprises were social microcosms created to feed the people and realize the ideals of socialism.

However, China began to move toward a market economic system under the reform and open-door policy. One result was an influx of foreign companies with resources that made them powerful competitors in the international marketplace. The changes also triggered an upsurge of entrepreneurial activity within China. Private and individual enterprises staked their survival on business efforts that enhanced their competitiveness. Meanwhile, the state-owned enterprises were unable to modify their corporate cultures that had evolved in China's controlled economy. In the face of this onslaught, many lost their advantage in such areas as manufacturing production, domestic sales channels, and exports.

Inextricably linked to this problem is the state of the financial system. China's main financial institutions are state-owned banks. Under the controlled economy, state-owned banks tended to see lending to state-owned enterprises as a mechanism for distributing fiscal funds. The state-owned enterprises that received these loans similarly regarded them less as loans than as allocations of public money.

When the economy was opened up, however, there was a massive inflow of foreign investment. The government was forced to establish financial policies and exercise macro-level controls, while state-owned banks were required to provide support to leading enterprises under the government's financial policies, and to improve their credit assessment capabilities. Unfortunately, credit assessment capabilities of state-owned banks have not been developed, and there was a tendency to provide continuing credit to state-owned enterprises in an environment influenced by guidance or interference from the Communist Party and the government. Now that state-owned enterprises are experiencing financial problems, state-owned banks are inevitably being left with a growing mountain of non-performing loans. Most state-owned enterprises are in need of reform, and urgent steps are needed to reform a financial system that is still based on state-owned banks.

3. The Necessity of Reform

While China has achieved economic development and improvements in the living standards of its people, there is confusion about the direction of the state and the people under a single-party dictatorship that continues to claim that the revolution is not yet complete. Bureaucratic organizations and systems are out of step with contemporary needs, while state-owned enterprises and banks have fallen far behind the world-class technology and management skills of foreign-owned and private enterprises.

The reform of organizations such as these has become an urgent priority. To become a modern state and superpower, China will need to develop a legal system that reflects contemporary needs and to establish highly efficient administrative organizations. It will also have to create a fair and objective judicial system. In other words, China must build a just society in which the existence of companies and individuals is guaranteed by law, in which administrative organizations are streamlined and orderly, in which there is no smuggling or insider trading involving the Party, the army, or government organizations, and in which both urban and rural people can experience the joy of working and dreaming of their future.

4. The Reasons for taking up the "Three Reforms"

A wide range of reforms are needed in contemporary China. The tasks given highest priority and urgency are the reform of state-owned enterprises, the reform of the financial system, and the reform of administrative organizations. This report explores the current situation of these "Three Reforms," and considers the future outlook.

The "Three Reforms" are more important than the many other reform programs in China. This is because the state-owned enterprises, the financial system, and the administrative organizations are the three pillars of state administration; all these areas are closely interwoven; and successful reform in one of these areas brings progress in the others. Moreover, the Communist Party has been able to start work on the reform process, for it still has the power to lead the state. As China shifts further toward a market economic system, the people will inevitably adopt values that do not depend on traditional ideology, and society will begin to demand political freedom.

If the "Three Reforms" fail in this environment, China is certain to experience a major social upheaval. But the Communist Party still has the power to keep these pressures under control for a few more years. If the "Three Reforms" succeed, the result will be streamlined and efficient administrative organizations, internationally competitive state-owned enterprises with healthy financial structures, and a flexible financial system that is able to foster leading enterprises in line with financial policy. Moreover, the secondary result of this process will be an orderly society in which the people can enjoy lifestyles that let them dream.

Such a society is consistent with the ideal party-state system claimed by the Chinese Communist Party. There is concern about the declining power of the Chinese Communist Party. It is fair to say that the Party has staked its survival on the "Three Reforms."

What is certain is that, regardless of how the reforms proceed, the outcome of the "Three Reforms" will vary from the expectations of people in democratic capitalist nations. In a situation where one party has absolute power, administrative reform will inevitably lack thoroughness in such areas as enforcing discipline within the party. To quote Lord Acton, "absolute power corrupts absolutely." This is a serious issue for China. The reform of the state-owned enterprises will involve a number of difficult tasks. In March 1999, the National People's Congress (NPC) granted a degree of respectability to the private ownership economy, but socialist public ownership is still the norm in China.

The state-owned enterprises may be corporatized or privatized, but there is a danger that the process will remain incomplete if the state is the shareholder, that is, if only the mode of ownership is changed.

The same applies to financial system reform. Since executives of state-owned banks are also senior Party officials, it is still not clear whether the banks will be able to totally eliminate Party interference.

If the "Three Reforms" are even marginally successful, there will be improvements in administrative efficiency and the international competitiveness of major state-owned enterprises, and China will make significant progress in its evolution into a modern superpower. However, the Communist Party will still need to establish an identity that will create China's new generation. That will depend on the extent to which it can reshape socialism and adapt it to suit contemporary needs. Unless it can make these changes, the benefits of the "Three Reforms" will be limited.

II. Reform of State-owned Enterprises -Progress and Outlook

1. Identification of Issues and Aims of Research

In China, a state-owned enterprise is a company whose assets are owned by the state (government). The State Council, which is China's equivalent of a cabinet, can exercise ownership rights over the state-owned enterprises at any time. For a long period after the establishment of the People's Republic of China, state-owned enterprises played a central role in economic development. However, a number of years have passed already since the first emergence of reports on the worsening financial problems that have affected many state-owned enterprises since China's transition from a planned economic system to a market economy. It is now almost a cliché to speak of the need for reform of the state-owned enterprises.

The reform of the state-owned enterprises began 21 years ago in December 1978. Unfortunately, the state-owned enterprises as a group are still in deficit. Even worse, China has not yet found the right way to solve this problem.

Chinese academics and policymakers have put forward a variety of arguments and proposals concerning the problem of deficit by the state-owned enterprises, and many measures have been tried. Particularly significant was the pledge made on March 19, 1998, by Premier Zhu Rongji, at a press conference held to mark his appointment. He said that his administration would eliminate the deficits of most large and medium-sized state-owned enterprises within three years, thereby taking the first step toward the conversion of the enterprises into modern (joint-stock) corporations by the end of this century.(1)

This statement pushed the state-owned enterprise reform back into the spotlight, in China and internationally. Structural reform policies were actually adopted, however, at the 1997 Chinese Communist Party (CCP) National Congress. Among the policies introduced were the reform of ownership structures, including the introduction of a joint-stock system, and the reform of industrial structures including the disposal of excess facilities and the restructuring of loss-making enterprises. In his political address, General Secretary Jiang Zemin set down specific targets, saying that by the turn of the century, the majority of large and medium-sized state-owned enterprises would be out of their present difficulties (deficits), and that the first steps toward the establishment of a modern corporate system would have been taken. He also indicated that the process would begin with reform of the textile industry.(2)

While the policy of restructuring state-owned enterprises through the introduction of a joint-stock system is not especially new, it is significant that the government has pledged itself to put the enterprises into the black over a three-year period. The media refer to this target as "Zhu Rongji's three-year SOE (state-owned enterprise) reform plan." The same nomenclature is used in this paper.

Why does the Zhu Rongji cabinet place such importance on the losses of state-owned enterprises?

What are the targets and scope of "Zhu Rongji's three-year SOE reform plan," and what progress has been made?

In chapter II, we will examine and analyze the process of state-owned enterprise reform from the above perspectives. The main aim is to clarify the progress that has been made, and the problems that have arisen, by examining the background and objectives of "Zhu Rongji's three-year SOE reform plan" and how it is being implemented.

Chapter II will consist of an overview of the background and history of the state-owned enterprise reform in II.2; an examination of the aims of "Zhu Rongji's three-year SOE reform plan" and the state of progress in II.3; and, in II.4, an interim assessment of the state-owned enterprise reform and an examination of the future outlook based on the results of this consideration and analysis.

2. Background and History of the State-owned Enterprise Reform in China

(1) Current Status of State-owned Enterprises in China

In 1952, state-owned enterprises accounted for 41.5% of China's gross industrial production (Fig. 4). This figure may seem surprisingly high to some readers. Most of this output came from enterprises and factories in China that were previously owned by the nations defeated in the World War II, notably Japan, Germany, and Italy. These were nationalized by the Kuomintang administration after the war, and confiscated by the communist regime after the revolution.

In 1952, individual enterprises accounted for 20.6% of production, and enterprises under other ownership structures for 34.7%. The high percentage for these enterprises reflects the fact that most were owned by so-called "ethnic capitalists." While regarded as an "exploiter class," these people were tolerated as long as they contributed to the revolution. However, this situation continued only until 1957 when these businesses were singled out for "conversion to a socialist structure," which meant public ownership. Thereafter, they were progressively transformed into state-owned enterprises or collective enterprises.

The drive for conversion to public ownership also encompassed individual capitalists, who could not be classed as "exploiters." Individual capital, as well as ethnic capital, were absorbed into people's communes in the rural sector, and into state-owned enterprises or collective enterprises in the cities.

This shift to public ownership reached its peak in 1965. By then, state-owned enterprises accounted for 90.1% of gross industrial production. It appeared that the goal of public ownership of all industrial enterprises had been virtually achieved. Mao Zedong stated in his The Notes of Political Economy that this ratio was an indicator to show the "completeness" of socialism. Under the Maoist line, which went beyond the development of production capacity and called for the total reform of production relationships, industrial output stagnated and economic activity was disrupted. The leadership was forced to modify those policies, and industrial enterprises that were not suitable for the state-owned sector were denationalized.

However, denationalization simply downgraded the enterprises to collective enterprises, and conversion to individual or private enterprises was strictly prohibited. In 1978, when the shift to the reform and open-door policy began, state-owned enterprises still accounted for 77.03% of gross industrial production. By 1992-93, however, this share had fallen to less than 50%, and by 1996, it was below 30%. As of 1997, state-owned enterprises were contributing to only one-quarter (25.52%) of gross industrial production.

If we accept the view that the state-owned enterprises are the cornerstone of the socialist economy, then we can conclude that contemporary China has already lost its socialist mainstay. Juxtaposed with the state-owned enterprises are individual enterprises and enterprises under other ownership structures. In the 1950s, enterprises under other ownership structures belonged to ethnic capitalists. In the 1980s and 1990s, however, they mainly consisted of private enterprises (with eight or more employees), foreign-owned companies, and joint-stock companies.

Private enterprises have expanded their market share at an extremely rapid pace since the shift to the reform and open-door policy. Foreign-owned companies have also increased their market share, due to their strong competitiveness in the market. From just 10% in 1992, their market share has risen to almost 20% (as of 1997). Most joint-stock companies are privatized state-owned enterprises. By the end of 1996, there were reportedly 9,600 joint-stock companies. (3)

The decline of state-owned enterprises has thus been paralleled by the rise of individual enterprises and enterprises under other ownership structures. The status of the collective enterprises, however, is less clear. In 1975, before the adoption of the reform and open-door policy, these enterprises accounted for 18.90% of gross industrial production. They consisted mainly of manufacturing cooperative-owned enterprises in the rural sector, and of collective ward-owned enterprises in the cities. After the shift to the reform and open-door policy, collective enterprises has maintained over 30% of gross industrial production. The share has gradually expanded and is now the largest.

Economic reforms over the past two decades have brought a transition from a production structure dominated by a single public ownership structure in the form of state-owned enterprises and collective enterprises, to one consisting of enterprises under various ownership structures.

In 1997, there were a total of 7,922,900 enterprises in China's industrial sector. Of these, 98,600, or just 1.25%, were state-owned enterprises. The remainder included collective enterprises, individual enterprises, private enterprises, foreign-owned companies, and joint-stock companies. The state-owned enterprises, while far fewer in number than the enterprises under other ownership structures, still account for 25.52% of gross industrial production, 63.52% of the net fixed assets of all industrial enterprises, and 65.0% of all employees (Table 1).

Despite the rapid diversification of ownership structures since China's shift to the reform and open-door policy, the state-owned enterprises remain an important part of the Chinese economy in terms of their economic status, their contribution to state revenues (Fig. 5), and their role in maintaining economic and social stability. Given the extremely important role played by the state-owned enterprises, one cannot over-emphasize the crucial importance of the state-owned enterprise reform.

(2) The Problem of Losses

As stated above, the state-owned enterprises continue to occupy a crucial position in the Chinese economy. However, the state-owned enterprises lack autonomy in management, and are also required to carry out government administration functions, party political functions, and various social functions. As a result, their business efficiency is poor. This problem has been responsible for increasingly serious losses of state-owned enterprises, and it has come to the point where it can no longer be ignored.

Table 2 shows changes in the number of loss-making state-owned industrial enterprises as a percentage of the total number of state-owned industrial enterprises over the 20-year period from

1978 to 1997, together with their total losses and total surpluses (profits). In 1978, just 23.9% of state-owned industrial enterprises made a loss. By 1997, this ratio had risen to 43.9%. Similarly, total losses by state-owned industrial enterprises rose from 9.6% of total profits in 1978 to 126.6% in 1991. By 1997, the ratio had reached 205.3%.

The Chinese government recognizes the seriousness of this problem and has made its solution a priority for two reasons. First, as discussed earlier in this report, the state-owned enterprises have long been the principal source of revenue for the government. Second, the percentage of loss-making state-owned enterprises and the extent of their losses have both increased over the years, with the result that losses now exceed surpluses (profits) every year. In other words, surpluses from profitable state-owned enterprises are being offset by the deficits of loss-making enterprises.

(3) History of State-owned Enterprise Reform