Why Nobody Invests in Japan
Tokyo’s Failure to Welcome Foreign Capital Is Hobbling Its Economy
On February 25, when the Chinese Communist Party revealed its plans for rare constitutional amendments, including the abolishment of presidential term limits, less noticed amid the growing concerns of dictatorship were shifts to further centralize President Xi Jinping’s control over China’s anti-corruption efforts. The crux of the change lies in the creation of a newly consolidated anti-corruption watchdog called the National Supervision Commission (NSC), which will be formally established at the annual National People’s Congress plenary session that opened on March 5.
This new party watchdog is the answer to a long debate in China over the need for a new anti-corruption agency. Key issues included unifying and simplifying the system within a single body, providing additional resources, and reducing manipulation by local officials. The NSC certainly addresses these concerns. But it fails to address one key weakness: who watches the watchdog? Although various models have been proposed to establish a degree of independence and more genuine accountability, the NSC, which came about relatively quickly, offers a wildly different approach: it is a more powerful institution, established in law but not greatly constrained by it, and it will supervise ideological and political discipline as well as corruption. In practice, it is accountable only to itself and the central party leadership. Ostensibly intended to institutionalize anti-corruption work, it will effectively be a tool of—and not a check on—Xi’s centralized power.
DOUBLING DOWN ON DISCIPLINE
The NSC is more an evolution of the system rather than a full-on revolution. It is a practical step forward in Xi’s attempt to centralize authority, to institutionalize anti-corruption, and to discipline officials to attain a better-run party, state, and economy. Its main component is the party’s internal disciplinary watchdog, the Central Commission for Discipline Inspection (CCDI), which was established in 1978 but has roots predating the party’s rise to power in 1949. Although theoretically elected by the party’s five-yearly national congress, the CCDI in practice has always answered to party leadership at the highest level—usually the Politburo Standing Committee (PSC). After Xi took power in 2012, the CCDI’s power and significance grew. Led by Xi’s close confidant Wang Qishan, the CCDI in 2012–17 carried out an unprecedented crackdown, subjecting more than 1.5 million officials to disciplinary action, ranging from dismissals and party expulsion to prosecution and imprisonment.
The NSC represents the next step in Xi’s weaponization of the disciplinary apparatus. The party first made an announcement of a new supervision commission system in November 2016, noting that it would be piloted in Beijing and in the provinces of Shanxi and Zhejiang. A number of other local-level supervision commissions have been established since. Based on the draft Supervision Law released in November 2017, which will be codified during the plenary session meeting and which establishes the new watchdog, the NSC will be technically responsible to the National People’s Congress, or the legislature. This means that, while other regulators, ministries, and commissions report to the State Council, China’s executive branch, which heads the government, the NSC will be a separate state-level entity, of equal rank to the State Council.
Xi Jinping's new party watchdog is the answer to a long debate in China over the need for a new anticorruption agency. But it fails to address one key weakness: who watches the watchdog?
On top of its newfound status, the NSC is a unified and better-resourced agency. It completes a shift in recent years toward vertical reporting lines in the disciplinary system—whereby, local branches are primarily controlled by the superior level within the NSC rather than by local CPC leaders in their own jurisdiction. Together with the “shock and awe” impact of the corruption crackdown that began in 2012, this streamlining reduces the likeliness of entrenched and extensive cliques surviving, which have been behind some of China’s more egregious, high-level scandals in recent years, such as those involving the “oil clique” and the “Shanxi clique.” Take, for example, the case surrounding Zhou Yongkang, a former Politburo Standing Committee member, who plotted to install former Politburo member Bo Xilai rather than Xi as party leader in the 2012 succession. Zhou was one of Xi’s first targets in his anti-graft campaign and Zhou was found to be entangled in a web of corruption centered on the oil industry. Dozens of senior officials were jailed, including the former heads of China National Petroleum Corp and Sinopec.
Xi has always been deadly serious about cleaning up the party, but his focus is not only on cleaning up the government, but also public entities such as state-owned enterprises, regulating bodies tasked with building a more efficient economy, and agencies delivering social services, such as healthcare, which are crucial to citizens’ perceptions of the regime. The NSC is designed to meet these goals. The regions that piloted local NSC chapters all reported an increased number of cases and punishments issued. This trend can be expected to continue on a national basis in 2018 under the NSC.
RULE OF THE CORE
The official narrative in China is that the NSC is a state institution with legislative oversight, making it consistent with the “rule of law,” noting, for example, that there will be more stringent requirements for justifying detention and collecting evidence. But the new structure and law certainly bear no resemblance to the “rule of law” as it is understood outside of China.
This is unsurprising. To Xi, the “rule of law” means better institutionalizing the legal and regulatory system as a tool for more effective governance, but with the party still above the system. Before Xi, there was debate within the CCP about tackling corruption by allowing for a greater balance between state and party power and giving the tame procuratorates and courts a stronger role. The establishment of the NSC, however, suggests Xi is moving in the opposite direction. The CCDI, which is the leading component of the NSC, will absorb the anti-corruption functions of the national-level Supreme People’s Procuratorate and various government agencies, not the other way around. The NSC is thus essentially a watchdog on steroids, a state as well as a party institution, not a semi-independent state agency.
The National People’s Congress, and its local equivalents, are fully under party control, so their oversight of the new watchdog and local commissions will mean little in practice. On paper, the NSC, the procuratorates, and the courts are supposed to “mutually supervise” each other, but the draft Supervision Law’s often vague articles assign very broad powers to the NSC with little scope for other agencies to interfere, not least because those agencies are subject to NSC disciplinary oversight. Leaders have talked explicitly about “self-regulation” for the NSC, not external checks; official media have emphasized that 22 CCDI officials have themselves been investigated and disciplined since 2012. But despite the talk of institutionalization and law, the clear driving trends here are increasing party control over state and government affairs, and increasing the centralization of power within the party under Xi, who is designated the “core” of the CCP leadership.
As for the forthcoming Supervision Law, because it actually says very little about anti-corruption and deals more squarely with the workings of the supervision system, it does little to change the existing legal and regulatory framework governing corruption. This system remains messy in the absence of any single anti-corruption law, with most cases either falling under non-criminal disciplinary action by CCDI, criminal cases under China’s criminal law, or administrative cases of commercial corruption under the Anti-Unfair Competition Law. This vagueness and lack of clarity is probably retained by design in order to ensure party control, as it requires a considerable use of discretion and guidance on application. The Supervision Law leaves huge scope for discretion in whether and how to pursue investigations and in determining what punishments may result. Under the NSC, that discretion will lie, if anything even more than before, with the party.
STRENGTHENING INSTITUTIONS OR IDEOLOGY?
Like every other party leader since Mao, Xi has correctly identified endemic corruption, which frequently tops opinion polls ranking public grievances, as an “existential threat” to the party’s long-term future. But the NSC is more than just an anti-graft watchdog. It is a key tool in Xi’s fight against disloyalty and suspect ideological leanings, and even a means to enforce policy.
With its expanded remit, we can expect to see more examples of disciplinary supervision being used to exert central control in cases where regulators, state-owned enterprises, and sometimes even private companies are seen as not falling in line with Beijing’s directives. Recent developments in the insurance sector are a striking example of this trend: the head of the China Insurance Regulatory Commission, the industry regulator, was removed last year for corruption and replaced by the head of the CIRC’s internal CCDI branch. Then last month, the government took over the running of Anbang Insurance, one of China’s largest and most high-profile private firms, after the removal of its chairman last year amid corruption investigations. Although graft was central to both cases, the wider context was Xi’s frustration at a regulatory agency and a major company that were seen as defying Beijing’s efforts to rein in risky financial practices.
The NSC is more than just an anti-graft watchdog. It is a key tool in Xi’s fight against disloyalty and suspect ideological leanings, and even a means to enforce policy.
Although the bulk of the NSC’s work will focus on corrupt behavior, the draft Supervision Law includes vague references to “dereliction of duty,” which suggests a potentially much wider remit. Indeed, Xinhua stated in November that the NSC “is a political organ, rather than an administrative organ or a judicial organ...it should always give top priority to politics.” When Zhao Leji, the head of the CCDI, addressed a conference on disciplinary supervision in February, the first thing that he mentioned was to the need to “work harder to discover violations of political discipline and political rules.”
Some CCDI statements and some aspects of its inspections in recent years suggest that the role of the NSC may extend to judging how well officials are implementing central policies, and whether their “political thought” and actions are “correct.” Based on several official media commentaries and publicly reported summaries of CCDI inspection findings, it seems this could mean such things as holding enough study sessions on Xi’s latest speeches and demonstrating a constant awareness of party ideology.
Although Xi’s predecessors all issued their share of slogans and ideological rhetoric, the emphasis on them in assessing personnel performance has increased. This approach implies the continuation of strong anti-corruption efforts, but the NSC could also compound the repoliticization of China’s government under Xi, reversing the reform-era maxim that policy should be driven by practical, pragmatic priorities more than by politics and ideology.
TOO MUCH TALK, NOT ENOUGH ACTION?
The extent of NSC intrusion into the substantive work of officials remains to be seen. But even if the NSC does stick largely to its anti-corruption focus, increased disciplinary activity and the increased use of resources in state organization will reinforce an atmosphere in which officials face far more ideological and political pressure. This is true not only for party organs but for officials working in banks, state-owned enterprises, and the financial regulatory sector too. State employees, such as hospital management and academics, may also face similar scrutiny.
Such pressure can be positive insofar as it reduces corruption and the problem of central policies being ignored at the local level. But we are also likely to see serious negative effects: officials making politically safe decisions, an unwillingness to voice alternative views or present accurate information if it is negative, low morale, and a focus on appearing politically correct rather than on solving problems. This is the opposite effect to Xi’s expressed intention of attacking what he calls “formalism”—too much talk, not enough action. This trend could threaten a decline in the quality of policymaking and raises questions over how effective and resilient the new era party-state system will be.