SinoInsight 1
Aug. 12
The PRC State Council issued a decision on canceling and adjusting administrative fines (關於取消和調整一批罰款事項的決定). To promote reforms to “decentralize powers, enhance supervision, optimize public services” (放管服; henceforth referred to as “DEO”) and “optimize the business environment,” local governments are required to cancel 29 fines in the fields of public security, transportation, and market supervision, as well as adjust 24 fines in the fields of transportation and market supervision.
Aug. 17
The General Office of the State Council issued an opinion on further standardizing the formulation and management of administrative discretionary benchmarks (關於進一步規範行政裁量權基準制定和管理工作的意見). The opinion called on local governments to deepen “DEO” reform, optimize the business environment, and standardize administrative penalties; prevent the formation of industry monopolies, local protectionism, and market segmentation; and eliminate “hidden barriers” affecting investment, entrepreneurship, and the flow of factors of production.
The opinion made the following requirements:
- Issuing arbitrary fines should be resolutely avoided, using fines to generate income should be strictly prohibited, and using fine amounts to gauge performance ranking or as an indicator of performance in appraisals should be strictly prohibited.
- Fine amounts should be clearly defined and specific, and strictly limited to the statutory range. This is to prevent punishment from being arbitrarily set high or low.
- The abuse of administrative discretion should be prevented, law enforcement should be prevented from harassing the people, and law enforcement should be prevented from being simple, brutish, and “one-size-fits-all,” so as to provide convenience to market entities and the people to the greatest extent.
- In approving administrative licenses, no additional licensing conditions, steps, supporting materials, or unfair terms such as discriminatory or geographical restrictions, should be imposed on the applicant in overt or covert forms, so as to prevent the formation of industry monopolies, local protectionism, and market segmentation.
- Approval of administrative licenses should not be rejected on grounds of quantity control when laws, regulations, rules, and regulations do not provide quantitative restrictions. Also, administrative organs shall not designate intermediary service agencies.
Aug. 22
Xiao Jie, secretary-general of the State Council and a state councilor, attended the ninth mobilization and deployment meeting of the State Council’s accountability inspections team.
In a speech at the meeting, Xiao began by calling for the “deep study and implementation of General Secretary Xi Jinping’s [instructions and spirit] on epidemic prevention, stabilizing the economy, and securing development.” He also said to implement Li Keqiang’s requirements to “stabilize the macroeconomic market” and allow the State Council’s accountability inspections to fulfill its role so as to promote the implementation of Party Central and the State Council’s major decisions and policy measures.
Xiao Jie said that the accountability inspections team should improve its “political stance” and fully recognize the “special significance” of conducting major inspections this year. He then proposed the following key tasks:
- Stabilize the economy and the main tasks of reform and development.
- Stabilize growth, market entities, and employment, as well as safeguard people’s livelihood and ensure the stability of industrial and supply chains.
- Deepen DEO reform and optimize the business environment.
- All localities are urged to effectively take up their responsibilities.
OUR TAKE
1. The central government’s measures listed above appear to be part of its ongoing effort to revive the economy and preserve the regime by protecting China’s more than 160 million market entities (according to figures cited by Li Keqiang in July) from the abuses of local governments. In particular, Beijing does not want local governments to replenish their coffers by imposing arbitrary fines on businesses, many of which are already struggling greatly under current economic conditions and policies like “zero-COVID.” The reckless imposition of fines and other administrative penalties on market entities by local governments would effectively “kill the goose that lays the golden egg,” upending the central government’s economic rescue measures and endangering regime security.
Ideally, the central government would simply transfer funds to support needy local governments, reducing the latter’s inclination to improve their financial situation by targeting market entities with fines. The central government, however, has indicated on several occasions this year that it is short on funds. According to a leaked transcript of Li Keqiang’s speech to 100,000 officials during a State Council teleconference on stabilizing the economy on May 25, Li obliquely stated that local governments should not be expecting financial support from the central government this year. “If there is a catastrophic natural disaster, there is the premier’s reserve fund. But the rest of the money is dependent on you” the local governments, he said.
Li again indirectly hinted at the central government’s financial shortages in his video meeting with senior officials of six “economically strong provinces” on Aug. 16. Li said that the local governments of those provinces need to “complete the task of making financial contributions [to the central government],” persevere with belt-tightening, and “safeguard the ‘three guarantees’ [wages, operations, basic livelihood] at the grassroots, especially protecting the people’s basic livelihood expenditure and payment of wages at the grassroots level.” If the central government were doing well financially, Li would not need to explicitly remind the six local governments to “complete the task” of sending money to the central government. And if local governments were financially secure, Li would not have to instruct the six local governments to “persevere with belt-tightening” and ensure that the people can get by.
Mainland media also previously reported that the central government had allocated 9.8 trillion yuan from its budget this year for transfer payments to local governments. As we analyzed, however, the local government fiscal balance in all provinces was at negative 8.2 trillion yuan in the first half of the year. With the Chinese economy showing signs of greater worsening in July and the second half of 2022, the central government’s 9.8 trillion yuan budgeted for transfer payments to local governments will unlikely be sufficient, especially when the latter is tasked with “safeguarding the ‘three guarantees,’” “protecting the people’s basic livelihood expenditure and payment of wages at the grassroots level,” and covering “unforeseen” epidemic prevention and control costs. Already, some local governments have slashed civil servant wages and had them return benefits paid out earlier in the year; if not checked by the central government, local civil servants could resort to hitting businesses with arbitrary fines and administrative penalties to make up for local fiscal shortages and even their lost income through corruption.
We can get an idea of how severe local government financial shortages are by examining local government administrative fine data and various efforts to auction off franchise operating rights (經營權) to increase revenue.
Administrative fines
Mainland media Southern Weekly compiled some local government administrative fine data in 2021 in a July 17 report. Of the 111 prefecture-level cities that published administrative fine data, 80 reported an increase in fine revenue in 2021, accounting for about 72 percent of the total. Of the 80 cities that reported an increase in fine revenue in 2021, 15 cities saw increases of more than 100 percent from a year ago, 29 cities reported declines from the previous year, and two cities collected the same amount in fines year-on-year.
The data showed that the cities of Nanchang (up 151 percent, 1.976 billion yuan), Qingdao (up 127 percent, 2.451 billion yuan), and Harbin (up 96 percent, 1.536 billion yuan) saw the biggest increases in fine revenue in 2021. Qingdao also collected the most fine revenue in 2021 at 4.377 billion yuan, or the equivalent of how much Tongren City in Guizhou City collected in tax revenue in a year. The Qingdao municipal finance bureau claimed that it collected more fine revenue in 2021 because the city had cracked down on major pyramid schemes and false invoicing cases, which yielded 2.245 billion yuan in fines. This year, the Qingdao local government revised its estimated revenue generated from fines to 2.548 billion yuan, up from 1.812 billion yuan in 2021.
The Southern Weekly report noted that none of the 111 cities that published administrative fine data gave a breakdown of what they were composed of. Some cities like Shanghai even listed their fine revenue under “other income,” which made it impossible for external observers to know specifically how much they collected in fines.
Other mainland media outlets reported in July that seven of the top 14 prefecture-level cities by “value added” fine revenue in 2021 were located in Jiangsu Province. Of those cities, Yancheng ranked first and Changzhou third, followed by Nantong, Zhenjiang, Xuzhou, Suzhou, and Taizhou. The local governments of Yancheng and Changzhou cited “major economic cases” as the main reason for their large increase in fine revenue.
Local governments who do not have “major economic cases” on hand to source fine revenue have turned to traffic fines as an important revenue stream. Southern Weekly cited a Dr. Liu from the Shenzhen Municipal People’s Congress’s budget committee as saying that traffic fines can make up to 80 percent of the city’s total fine revenue.
Meanwhile, the transportation department of Chengwu County in Shandong Province introduced a “monthly ticket” for fines in mid-July, according to mainland media reports. Cargo drivers who pay around 1,000 yuan to 2,000 yuan for a “monthly ticket” will be allowed to travel on roads unmolested by the authorities for a month even if their vehicle is overloaded or in excess of height limits. The Chengwu transportation department also has a “buy 10, get two free” offer on “monthly tickets.”
Mainland media reported in 2021 cases of local governments imposing arbitrary fines to make up for declining land sales and tax revenue. For instance, more than 2,500 local businesses in Hebei’s Bazhou County were fined 67 million yuan in the month of October alone in 2021 (compared with 6 million yuan in the first nine months of the year) after the local government ordered officials to secure 300 million yuan in new revenue. In November 2021, officials collected fines from 13 townships in Bazhou that amounted to 80 times the average monthly fines between January to September that year. Mainland media said the central government later “supervised and rectified” the phenomenon of arbitrary fines by local governments.
Franchise operating rights
Mainland media have spotlighted in the past year or so efforts by local governments to auction off various franchise operating rights, or a contract that permits the holder the right to operate state-owned businesses for a set number of years. Some mainland media note that local governments had been auctioning those rights under various pretexts to generate revenue and address fiscal shortages.
Some examples include:
January 2021
The local government of Dujiangyan City in Sichuan Province auctioned off 500 truck urban road driving (i.e. city entry permits) franchise operating rights for the year 2021.
November 2021
The local government of Leshan City in Sichuan auctioned off 30-year franchise rights to operate sightseeing buses and stalls at the Leshan Giant Buddha Scenic Spot for over 1.7 billion yuan.
May 2022
The local government of Nanchuan District in Chongqing City sold 7,876 28-year franchise rights to operate street parking spaces.
June 2022
The local government of Xishui County in Guizhou Province sold some 20-year franchise operating rights for advertising spaces for more than 100 million yuan.
July 2022
The local government of Shifang City in Sichuan sold the franchise rights to operate more than 10,000 parking spaces for more than 380 million yuan.
July 2022
The local government of Langzhong City in Sichuan announced that it was auctioning 30-year franchise operation rights for the unified distribution of canteen ingredients for all public schools, state-owned enterprises, state institutions, and administrative agencies in the county for 180 million yuan. Public scrutiny and criticism of the arrangement later led the Langzhong local government to cancel the auction.
August 2022
The local government of Rongjiang County in Guizhou Province auctioned off 20-year franchise rights to operate funeral homes in the county for 126 million yuan.
The auctioning of long-term franchise operating rights by local governments is a manifestation of Party culture in the CCP officialdom. For one, the measure is at best a stop-gap solution to generating revenue and will likely end up doing more harm than good by breeding corruption and creating local monopolies. The measure also affects the next batch of officials who will replace those currently in office; leading officials of an area are usually transferred after serving three to five years in their position. The incoming batch of leading officials may or may not recognize the franchise operating rights issued by their predecessors. Those officials will also struggle to generate revenue through auctioning franchise operating rights if their predecessors issue too many long-term franchise rights in the interim.
2. Xiao Jie’s remarks at the State Council accountability inspections team’s ninth mobilization and deployment meeting suggest that the Xi leadership is still struggling to get officials to properly implement Beijing’s various policies, particularly those aimed at improving the economy.
The accountability inspections team was formed in 2018 to ensure that the State Council’s policies are being implemented, including reform to “decentralize powers, enhance supervision, and optimize public services” (DEO) that was proposed by Li Keqiang in 2015 and re-emphasized over the years. Xiao harping on deepening DEO reform and optimizing the business environment show that the regime has not made much progress in those areas.
Meanwhile, Xiao’s emphasis on the “special significance” of conducting major inspections this year and the key tasks he mentioned suggest that the Chinese economy has significantly worsened to the point where regime security is threatened. To turn things around, the State Council is pushing measures that fit with the Xi leadership’s “unified national market” agenda, including curbing monopolies, local protectionism, and market segmentation, as well as removing “hidden barriers” to investment and production. However, Beijing is unlikely to succeed in overcoming the CCP system’s deficiencies (i.e. Party culture; officials adopting “prefer left rather than right” and “one-size-fits-all” approaches; passive resistance and “laying flatism,” etc.) overnight when it has mostly failed to do so during Xi’s decade in charge. Xi Jinping will still find himself struggling to overcome the many crises facing the regime even if he successfully extends his tenure at the 20th Party Congress.
SinoInsight 2
In the afternoon of Aug. 20, Beijing time, Weibo, WeChat, Bilibili, and Douyin (TikTok in China) announced in notices on their respective platforms that Sima Nan (real name Yu Li) was being blocked from posting over “violation of relevant laws and regulations.” Sima Nan, who is nicknamed “the anti-U.S. fighter” for his nationalistic rhetoric, had 44 million followers across all mainland social media platforms at the time of his banning. There were also no updates on his YouTube channel from Aug. 20.
Chinese netizens also discovered that Kong Qingdong, a radical left Peking University professor with over 4 million followers on Weibo, and Li Su, the president of Hejun Vanguard Group, were banned from their mainland social media accounts. The social media accounts of those radical left bloggers are associated with several media companies that specialize in so-called “patriotic traffic” (愛國流量); in particular, the accounts of Sima Nan and Li Su are part of “Blue Coast Think Tank” (藍岸智庫), which belongs to a network of companies (饒謹系) under notorious wumao (“50-cent army”) commentator Rao Jin.
Mainland news portals and self-media have been reporting on the banning of Sima Nan and other nationalist bloggers, as well as exposing the “patriotic traffic” operations behind them. These reports have not been censored by the CCP authorities.
More on Sima Nan case
According to viral information circulating on the Chinese internet, Sima Nan was reportedly stopped by customs agents from boarding a plane with a U.S. green card at Terminal 3 of the Beijing Capital International Airport in the morning of Aug. 21. The information added that Sima Nan is suspected of having engaged in insider trading involving a media company that he is affiliated with.
Chinese netizens had been angrily exposing Sima Nan for being a fraudulent “anti-U.S. fighter” some time before he was suspended from mainland social media. In particular, netizens found that he has a house in California under the names of his wife and children that was bought for about $257,000 in 2010 and is now worth about $580,000. Some nationalistic netizens denounced Sima Nan for being “two-faced” and “saying one thing and doing another,” adding that “anyone can buy [a home in America], but not Sima Nan.”
On Aug. 14, Sima Nan released three back-to-back videos on his social media accounts to address his “American home scandal.” He admitted to owning a house in the United States, but denied that his family members ever lived there or have green cards. Sima Nan also claimed that the house had been handed to someone else “to take care of.” He said, “It is with great sorrow that I make this self-criticism to everyone. Having committed such a serious and unforgivable crime, I feel remorseful for having failed netizens’ expectations of me.”
Sima Nan’s mea culpa did not stop his detractors. Some accused him of having no confidence in the “modernization of the motherland” and being “optimistic about the United States,” to which Sima Nan meekly replied that he “did not know the hooligan nature of imperialism” too well in 2010 and that he needed to be “deeply aware” of the “major crime of mine.” Other netizens wondered how Sima Nan was able to smuggle the equivalent of 2 million yuan out of China to make the purchase.
Hu Xijin, the nationalistic former editor-in-chief of Global Times, tried to defend Sima Nan when he was being condemned by the public. Hu argued that “the logic does not stand” that one cannot criticize the U.S. if one has a house and investments there. Hu added, “The fight against American public opinion, I think, requires the participation of China’s intellectual community and the internet community as a whole. How is it that having bought a house in the U.S. makes you ineligible?”
About five hours before he was banned on mainland social media platforms on Aug. 20, Sima Nan had accused Lenovo Group of spending money on media and self-media to manipulate public opinion against him, providing screenshots of social media messages as proof. Sima Nan said he should report Lenovo to the public security ministry and the Cyberspace Administration of China. Last year, Sima Nan started accusing Lenovo of selling state assets for less than they were worth, running the risk of going insolvent, paying top executives high salaries despite subpar performances, and having many foreigners in its top management, among other issues. Sima Nan’s allegations against Lenovo swelled his fan base by millions and led to heated discussions.
OUR TAKE
There are several likely reasons why the aforementioned high-profile, “big wumao” (大五毛) nationalist bloggers were banned from mainland social media.
First, the Xi leadership could be determined to control speech and public discourse in China to the greatest possible extent ahead of the 20th Party Congress to ensure that nothing will ruin the so-called “victorious opening” of the major political conclave. Nationalist bloggers can potentially upset Beijing’s propaganda narrative and prevent national sentiment from staying on an even keel as tensions between the PRC and other countries ratchet up in the wake of House Speaker Nancy Pelosi’s visit to Taiwan in early August. Xi Jinping is currently focused on holding the 20th Party Congress without incident and securing another term in office (see our earlier analysis), and does not want conflict with the United States or wish to escalate matters with Washington and its allies over Taiwan and other incidents until at least after Xi has achieved his political objectives at the 20th Party Congress.
However, nationalist bloggers could keep riling up the public with their anti-U.S. and anti-West rhetoric while expressing hope that Beijing would retaliate strongly in dealing with foreign “provocations” against China. Worse, these bloggers are associated with media companies that profit from so-called “patriotic traffic,” which gives them financial incentives whip up nationalistic sentiments (resorting to unscrupulous rhetoric and measures if necessary) beyond what the CCP is willing to tolerate and channel. Because the Xi leadership does not want to be compelled by popular will into taking more aggressive actions in responding to moves by the U.S. and its allies over Taiwan and other sensitive matters, it makes sense that they would deplatform influential nationalist bloggers now to dial back bellicose sentiments in the public.
The CCP often turns to nationalism to divert the public’s attention away from domestic troubles. Nationalism, however, backfired on Beijing when Pelosi was able to arrive in Taiwan without incident (Hu Xijin had declared that PLA jets would down her plane) and the CCP did not mount an invasion (a top “little pink” fantasy). The CCP lost face and credibility in the public view because its response to Pelosi’s visit did not appear commensurate with its harsh propaganda rhetoric in the weeks leading up to her trip, leaving many Chinese with the feeling that the regime was a paper tiger after all.
The recent deplatforming of nationalist bloggers suggests that the Xi leadership is looking to avoid another public perception debacle leading up to the 20th Party Congress. Critics of the fans of those nationalist bloggers note that they tend to be uncultured, less educated, and hail from the lower rungs of society; Sima Nan tacitly acknowledged this in an Aug. 20 YouTube video on the sort of people who are his fans. These nationalist blogger fans tend not to oppose the CCP’s tyranny due to a sense of powerlessness but instead establish their dignity on the Party’s ability to project strength. The fans, who number in the tens of millions, would become a formidable social force for the Xi leadership to contend with should their confidence in the CCP collapse when Beijing fails to fulfill their nationalistic fantasies and as their hardships grow due to the further worsening of the Chinese economy. Beijing deplaforming the “spiritual leaders” of those fans could anger them in the short-term, but would technically leave them rudderless and without nationalistic “opium” to carry out dangerous agitations at critical moments for the regime.
Second, the Xi leadership could have moved against the likes of Sima Nan and Kong Qingdong in preparation to take more significant action in the intra-CCP factional struggle prior to the 20th Party Congress. We previously analyzed Kong’s ties to Bo Xilai and the Jiang Zemin faction, as well as his sharp criticism of Xi Jinping at the beginning of the novel coronavirus outbreak, when Kong, a professor of Chinese studies, compared Xi’s situation to that of the Chongzhen Emperor (the last ruler of the Ming Dynasty, who hanged himself in 1644 as rebels stormed Beijing). Kong, Sima Nan, and several other “big wumaos” had once promoted Bo’s “singing red, striking black” (唱紅打黑) campaign and were known to have established close ties with Wang Lijun and other Jiang faction officials. After Bo Xilai and Zhou Yongkang’s coup attempt was exposed in 2012, rumors began circulating on the Chinese internet that Bo was looking to make Kong Qingdong minister of education and put Sima Nan in charge of the Central Propaganda Department had his coup succeeded.
The banning of Sima Nan, Kong Qingdong, and other nationalist bloggers associated with the Jiang faction could be the proverbial canary in the coal mine for a big move by the Xi camp against the Jiang faction. Xi Jinping could be thinking about condemning the “major political mistakes during the Jiang Zemin leadership” and Jiang’s “incorrect political line” around the 20th Party Congress period (including some time after the Congress) as he moves to more completely consolidate power. Targeting prominent but low-level Jiang faction cronies now sets the stage for the Xi camp to shift public opinion against Jiang Zemin and his allies. Xi could also be observing how the public reacts to the deplatforming of Sima Nan, Kong Qingdong, and others to gauge whether he should proceed further to decisively take out the Jiang faction, or spend more time waiting out the internecine conflict.
Third, Sima Nan could indeed have run afoul of the law as rumored and is being dealt with accordingly. The other nationaist bloggers could likewise be in some form of legal trouble. However, legal issues (even if valid) are unlikely to be the sole reason why those nationalist bloggers were deplatformed at roughly the same time, and are more likely to have come in conjunction with the other reasons mentioned above.
Fourth, the Xi leadership and Lenovo’s political backers could have decided to punish Sima Nan for making various allegations and criticisms about Lenovo in the past couple of months. Contrary to popular perception, Xi Jinping is not looking to go the route of Mao Zedong with regard to the economy, but is keen on ensuring that tech companies that contribute to China’s “real economy” like Lenovo can thrive. Sima Nan’s accusations, however, reinforce the perception that Xi is bent on the Marxist ideological goal of abolishing all capital. Targeting Sima Nan would somewhat assuage private entrepreneurs and investors regarding Beijing’s stance on the private sector, as well as deter other mainland influencers from mounting similar campaigns against state-supported enterprises.
