SinoInsight 1
On Feb. 26, mainland media reported a bank run on Huaxi Group, the village collective enterprise of the famous Huaxi Village in the eastern province of Jiangsu. Mainland media reports say that large numbers of villagers had begun lining up outside Huaxi Group’s headquarters starting Feb. 24 to redeem their investment principal and equity interest.Chinese observers speculate that the bank run was triggered by Huaxi Group paying out drastically less “dividends” to village “shareholders” than originally promised. Huaxi residents say that Huaxi Group offered a 10 percent “dividend” rate (actually bond interest rate) on a 150,000 yuan, three-year “investment” (actually a type of bond). Some villagers lined up in the bank run queue claimed that they were promised a 30 percent “dividend” on their “investment,” and produced “investment” receipts as proof. However, Huaxi Group only paid out 2,252 yuan in “dividends” to those whose “investments” had matured, or a “dividend” rate of 0.5 percent; a 10 percent “dividend” should have yielded 45,000 yuan.
News of the Huaxi Group bank run circulated widely in Chinese circles given Huaxi Village’s reputation of being China’s richest village (“number one village under heaven” or “天下第一村”).
In 1987, Huaxi Village established Jiangyin Huaxi Industrial Supply and Marketing Co, a village collective enterprise. Jiangyin Huaxi would be renamed Huaxi Group in December 1993. In 1999, Huaxi Holdings Ltd would become the first village collective enterprise to be listed on the Shenzhen Stock Exchange.
Huaxi Holding was previously in manufacturing, producing traditional industry goods like chemical fiber, textiles, and steel. After its listing and business restructuring, Huaxi Holding became a financial holding company involved in banking, securities, futures, funds, leasing, and other financial services. Today, Huaxi Holding has equity holdings in 11 companies listed on Chinese stock markets and 10 companies who offer shares on the National Equities Exchange and Quotations (“New Third Board,” or 新三板).
In 2019, Huaxi Group ranked 345th out of 500 top Chinese enterprises. It is very likely that Huaxi Group’s ranking has slipped since then; according to Huaxi Group’s 2020 performance forecast issued on Jan. 26, 2021, the village collective enterprise is expected to see net losses of 3890 million yuan to 435 million yuan for the year, or a year-on-year decline of 169 percent to 177 percent.
The CCP likes to promote Huaxi Village as a sort of “model village” and a vision of the “new socialist village” (社會主義新農村):
- Villagers and workers in Huaxi have to work on Saturdays and Sundays, and get almost no official days off. Villagers have to apply for a leave of absence from work if they wish to take time off; whether the company grants leave is another matter. During the Lunar New Year, Huaxi villagers and workers only have two days of holiday as opposed to a week, which is the norm throughout the rest of China.
- Huaxi Group boasts that every family in the village is entitled to a slice of the over 1 million yuan “deposit” fund composed of mandatory payment contributions held by the collective enterprise. However, villagers must make a “withdrawal” application from the village Party Committee and obtain an approval before they can access their “deposits.” “Deposits” are paid out in vouchers, which can only be redeemed inside Huaxi Village.
- Housing and vehicles are “uniformly” distributed to villagers, and costs are directly deducted from a villager’s “shareholder” account with Huaxi Group.
- Huaxi Group will take back all property, vehicles, and “shares” it previously distributed to villagers who leave Huaxi permanently.
- Public funds are used to pay pensions, medical fees, and school fees (kindergarten to college). Villagers who study abroad are required to return to the village for work. Villagers who wish to leave permanently are required to pay back all public funds spent on them.
Despite being a “model communist village,” there is obvious class stratification in Huaxi. The wealthiest people live in the center of the village, followed by those living in the outskirts of the center and its surroundings. At the bottom of class hierarchy in Huaxi are migrant workers. Also, despite being a “village collective enterprise,” Huaxi Group is very much a one-family business. Wu Renbao, the original Party Secretary of Huaxi Village, saw to it that his clan managed Huaxi Group through personnel arrangements. Meanwhile, Wu Xie’en, the fourth son of Wu Renbao, took over from the Party Secretary position from the elder Wu in 2003, and is still Huaxi’s Party boss today.
In 2007, some Chinese scholars published a series of articles exposing Huaxi Village’s dirty secrets. Their revelations show that the supposedly utopian “model communist village” is really a microcosm of the CCP regime. Former village Party Secretary Wu Renbao used to drive around in a Mercedes-Benz 600 ultra-luxury car (license plate “蘇B-D0001,” with “0001” signaling that he was the local boss). Villagers were kept under strict surveillance and management, were forbidden from contacting outsiders, and had to gain approval from the local government before they could leave the village. Villagers were issued a limited allowance, and any expenses beyond their allowance had to be approved by the village government. The village Party Committee had to give consent to family members of villagers who wished to set up factories or businesses elsewhere. Those who operate outside the Huaxi Party Committee’s approval would be “persuaded” from withdrawing from their enterprise through the local government confiscating/withholding 10 years worth of welfare benefits (not including wages) from their family members inside Huaxi; this move is tantamount to a “death sentence” in Huaxi where villages are forced to rely on public funds to pay the bulk of their expenses given the village’s adherence to a more communistic form of government. Thus, Huaxi residents find themselves virtual prisoners of their village.
OUR TAKE
1. Huaxi Village is the epitome of Communist China—a tightly controlled, totalitarian territory under corrupt, one-family (one Party) rule. Very much like the animals described in George Orwell’s book “Animal Farm,” the villagers of Huaxi suffer unequitable distribution of wealth, Orwellian working and living conditions, and blatant class discrimination. The Wu clan enriches itself with wealth extracted from the labor of the villagers and uses the capital earned to invest in financial ventures to accumulate even more wealth for themselves; this is akin to the pigs in “Animal Farm” skimming nearly the entirety of the profit generated by the windmill built at great cost by the other animals.
Having built up the myth of a “new socialist village” that is “number one under heaven,” no one, and especially not local officials, dare to investigate and punish corruption in Huaxi. Political reform is also out of the question, lest the myth of a “successful” communist system in China is debunked.
2. After the implementation of “reform and opening up” and the CCP regime’s embrace of globalization, village collective enterprises along the east coast of China started to find financial success. These villages, however, did not implement a purer form of communism or implement authoritarianism as strictly as in Huaxi Village.
For instance, Xitang Village in Jiangsu Province had the first village collective enterprise that accrued over one hundred million yuan and is one of the top ten wealthiest villages in China today. A sign of Xitang’s wealth can be glimpsed from the 452 villas that were constructed in the village by the end of 2004. Unlike Huaxi Village, the Xitang local government does not restrict the freedoms of its residents or implement socialism as strictly. However, the Party Secretary of Xitang does not operate too differently from the Wu clan in Huaxi, behaving like a local bully and controlling the local collective enterprise’s assets. Despite repeated complaints and petitions by local villagers, the Xitang Party boss continues to lord over his “independent kingdom” (獨立王國) with impunity.
Another village worth mentioning is Hangmin in Zhejiang Province. In 2020, Hangmin’s village collective enterprise Hangmin Group reported a total industrial output of 10.265 billion yuan and 965 million yuan in revenue (“comprehensive economic benefits”). The average per capita income of local workers in Hangmin is 66,000 yuan a year, and 61,000 yuan per year for the average villager. According to mainland media reports, Hangmin Group issued to each villager one gold bar and one silver bar in 2019; the Hangmin collective enterprise counts precious metals trading among its many businesses. Hangmin Village does not implement the sort of Orwellian system seen in Huaxi, and appears to be embroiled in fewer scandals (or employs better censors).
The examples of Hangmin and Xitang show that Huaxi Village’s successes do not come from communism. Rather, Huaxi is a sort of modern-day Potemkin village that the CCP upholds to justify its continued embrace of a failed ideology. Grassroots governments and Party Committees operate like local mafia everywhere in the PRC, and differ only in the degree to which they oppress the masses. The entrenchment of grassroots political networks and Party culture means that efforts in recent years by Xi Jinping to crack down on so-called “protective umbrellas” and organized crime at the grassroots are unlikely to result in fundamental change.
3. To preserve the “new socialist village” myth and their political careers, local officials in Huaxi Village will find ways to resolve the bank run of Huaxi Group without causing additional drama. For instance, Huaxi Group could seek external funding (take a loan from the local State-owned Assets Supervision and Administration Commission, sell its holdings in listed companies for cash, etc.) to pay out its “dividends” to villagers. Huaxi Group could also compel villagers to “renegotiate” their three-year “investment” arrangement to something more favorable to the local government.
If the central government allows Huaxi Group to collapse, it is a sign that the CCP regime is either severely short on funds, or it does not want other debt-ridden, cash strapped grassroots governments to also come begging for bailouts. However, Beijing will likely do all it can to rescue Huaxi Village for the sake of propaganda and the regime’s image; the bankruptcy of the “model communist” Huaxi Village is a terrible omen for the CCP and its bankrupt ideology.
SinoInsight 2
Feb. 25
The CCP held a ceremony at the Great Hall of the People in Beijing to mark the PRC’s poverty alleviation accomplishments. A total of 3,000 representatives from the Party, government, military, and social groups from all over China attended the ceremony, which was presided over by premier Li Keqiang. All members of the Politburo Standing Committee and vice president Wang Qishan were also in attendance.Xi Jinping delivered a speech during the ceremony, of which highlights include:
- Xi declared “complete victory” in the CCP’s fight against poverty before the Party’s centennial celebrations in July. Using the CCP’s “current standards” in assessing poverty, the Party had “lifted” from poverty 98.99 million rural residents, 832 counties, and 128,000 villages. Xi boasted that the elimination of absolute poverty in China was a “miracle” that would “go down in history.”
- Xi said that the CCP led farmers in “smashing local tyrants and dividing up the fields” in the early days of the PRC, “winning the broad support of the majority of the people.” This “created the fundamental political conditions for eliminating poverty.”
- Xi said that he had presided over seven poverty alleviation work seminars, conducted over 50 poverty alleviation work investigations, and traveled to 14 areas of concentrated poverty during his eight years in office.
- Xi attributed the CCP’s “success” in poverty alleviation to the “Central Committee’s adherence to the centralized and unified leadership of Party” and the “political advantage of the socialist system in focusing efforts on major tasks.”
- Xi said that the experience and knowledge derived from the Party’s exercise in poverty alleviation will be elevated to “the latest achievement of Sinicized Marxist anti-poverty theory.”
Feb. 28
New China Research, the think-tank of PRC state mouthpiece Xinhua, released a report titled, “Chinese Poverty Alleviation Studies: A Political Economy Perspective.” Published in both Chinese and English, the report laid out so-called “anti-poverty theory with Chinese characteristics.”On the same day, the PRC National Bureau of Statistics issued the “2020 National Economic and Social Development Statistical Bulletin.” According to the Bulletin, the CCP had achieved “decisive victory” in “three major battles,” including poverty alleviation. Citing the current rural poverty line of 2,300 yuan per person per year (unchanged since 2010), the Bulletin noted that all 5.51 million impoverished rural people in China have been lifted out of poverty. Also, the annual disposable income of residents of rural areas was given as 12,588 yuan. The Bulletin also repeated other poverty alleviation-related propaganda figures and lines.
OUR TAKE
1. Poverty in China today is self-inflicted by the CCP. Behind the Party’s boast of lifting hundreds of millions out of poverty are Mao Zedong’s disastrous collectivization efforts (Great Leap Forward, etc.) that impoverished the Chinese people in the first place, as well as endemic corruption and the inefficiencies of the CCP’s authoritarian government. Likewise, Xi Jinping’s boast of “complete victory” over “absolute poverty” is a numbers game (see the next point) and the latest iteration of a longstanding propaganda effort to support the CCP’s so-called “authoritarian advantage,” glorify “socialism with Chinese characteristics,” and sustain its “Red Matrix”/“Great External Propaganda Plan” (大外宣) external influence operations.
2. Xi needs to hype up poverty alleviation “success” to boost his “quan wei” ahead of an attempt to secure a norm-breaking third term in office at the 20th Party Congress in 2022. Aside from the anti-corruption campaign, Xi has little political accomplishments to boast of during his eight years in office. Worse, Xi’s reign has seen many negatives like the coronavirus outbreak in 2019, the 2015 stock market turbulence, two mass pro-democracy movements in Hong Kong, a sharp worsening of Sino-U.S. relations, and growing hostility towards the CCP regime around the world.
By claiming a “miracle” in the fight to end absolute poverty, Xi is “spinning tragedy into cause for celebration” (喪事當喜事辦) and elevating his meagre personal accomplishments beyond that of his predecessors. Doing this helps Xi legitimize his continued leadership.
3. Per the CCP’s current rural poverty line of 2,300 yuan per person per year, the impoverished rural folk are surviving on only 6.3 yuan per day, or less than 1 US dollar. That is less than the international poverty line of $1.90 per day.
The World Bank classifies China as an upper-middle-income country, and the poverty line for such countries is $5.50 a day. According to the World Bank’s website, about 373 million Chinese, or a quarter of the country’s population, are living below the upper-middle-income poverty line.
Things look worse if we take CCP officials at their word. Last May, Li Keqiang said that 600 million people in China are living on a monthly income of 1,000 yuan, or less than $5.10 a day. That means nearly half of China’s population is living below the upper-middle-income country poverty line drawn by the World Bank.
Further, the rich-poor divide in China has only gotten worse. According to the “China National Balance Sheet 2020” published by the Chinese Academy of Social Sciences on Feb. 26, China’s net social wealth in 2019 totaled 675.5 trillion yuan, of which 512.6 trillion yuan (76 percent) belonged to the residential sector. Meanwhile, the per capita wealth of Chinese citizens was about 366,000 yuan, or 366 times that of the 600 million people who earn less than 1,000 yuan per month. This indicates that the bulk of the wealth in China is held by a very small number of powerful elites.
