1 ‘Deep-sea fishing,’ local protectionism on the rise amid local fiscal pressures
Local gov’ts tackle profit-driven law enforcement
Nov. 14
The Qian County public security bureau in Shaanxi Province issued an announcement on the collection of clues regarding internal corruption crimes in micro and small private enterprises (關於徵集中小微民營企業內部貪腐犯罪行為線索的通告), including job-related offenses, embezzlement of funds, and bribery.
After the announcement garnered widespread public attention, the Qian County PSB retracted it the next day and deactivated the reporting hotline.
The Qian County PSB said in response to inquiries that its call for clues remains valid and would be accepting submissions over the next one to two months, according to mainland media reports. However, the Qian County PSB did not directly address concerns about the potential impact of the announcement on the survival of private enterprises.
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Procuratorial and law enforcement authorities in multiple regions had previously issued similar announcements soliciting clues about corruption inside private enterprises. Some examples include:
July 31, 2023: The Supreme People’s Procuratorate (SPP) issued an opinion on “lawfully punishing and preventing crimes by internal personnel of private enterprises that infringe upon the legitimate rights and interests of private enterprise and create a favorable legal environment for the development of the private economy” (關於依法懲治及預防民營企業內部人員侵害民營企業合法權益犯罪、為民營經濟發展營造良好法治環境的意見).
The opinion said that crimes committed by internal personnel of private companies — especially senior executives, financial staff, procurement staff, sales staff, and technical staff — severely damage the legitimate rights and interests of private enterprises, undermine their core competitiveness and innovative development, disrupt the fair market order, and harm their growth environment.
Oct. 23, 2023: Zhang Xiaojin, the director of the SPP’s fourth procuratorial office, said during a press conference that the prosecutorial authorities focus on balancing criminal intervention with the enterprises’ self-regulation in handling cases of infringement on the legitimate rights and interests of private enterprises.
Zhang added that the authorities aim to avoid unnecessary or excessive interference when the risks associated with internal personnel crimes have not spilled over so as to ensure that normal business operations are not disrupted or halted and the lawful interests of private enterprises are protected.
Aug. 6, 2024: The SPP released its key case-handling data from January to June 2024. The data showed that the procuratorial authorities had charged 5,827 key personnel at private enterprises during the aforementioned period, including those involved in embezzlement, misappropriation of funds, and bribery. This represented a 41.1 percent increase in personnel charged compared to the same period in 2023.
Nov. 20
The Zhejiang provincial procuratorate held a press conference to report on the progress of its “Procuratorial Protection for Enterprises” campaign launched this year and highlighted 13 typical cases. The Zhejiang procuratorate said it had addressed issues related to profit-driven law enforcement, helped 123 enterprises unfreeze over 70 million yuan in account funds, unseal six properties, and release 20 impounded vehicles.
The Zhejiang procuratorate gave one notable example of profit-driven law enforcement. In late May 2023, a police officer and an auxiliary police officer from a county-level public security bureau from another province drove to Zhejiang, Jiangsu, and other places in an attempt to extort money from local businesses under the pretext of helping to resolve cases. The pair privately brought along with them police uniforms, handcuffs, law enforcement recorders, and other relevant equipment.
On June 11, 2023, the police officer and auxiliary police officer forcibly abducted an entrepreneur surnamed Shen from his home in Wujiang City, Jiangsu Province on the pretext of seeking his cooperation with an investigation. During the car ride, the officers hinted to Shen that they could “help” with the case in exchange for a bribe. Shen, however, eventually jumped out of their vehicle in Zhejiang’s Deqing County and reported the incident to the local police. The two officers were later convicted of abusing power and sentenced to eight months and seven months in jail respectively.
The profit-driven law enforcement case highlighted by The Paper was later widely reposted by other mainland media. Some Chinese netizens later analyzed that the guilty officers in question likely came from Jiangxi Province, adjacent to Zhejiang.
Our take
The above developments suggest local officials are stepping up so-called “disorderly conduct” (亂作為) and local protectionism as they struggle with fiscal shortages amid China’s ongoing economic downturn. Such actions will likely contribute to the worsening economic situation and undermine public confidence in the CCP’s governance.
1. At a glance, the effort by Qian County public security bureau and other local public security authorities to collect clues about internal corruption in micro and small private enterprises appears to be aligned with the Supreme People’s Procuratorate’s opinion on the topic from July 2023. However, the essence of what is being carried out in the localities is likely very different from what the central government wants.
The SPP’s opinion focuses on punishing and preventing crimes at private enterprises to benefit the private economy. Zhang Xiaojin, director of the SPP’s fourth procuratorial office, later indicated that the authorities should step in upon the request of private enterprises (“balancing criminal intervention with the enterprises’ self-regulation”). Also, the handling of such cases should avoid unnecessary or excessive interference so that normal business operations are not hindered while the lawful interests of private enterprises are protected. All in all, the move appears to be part of the Xi leadership’s initiative to boost and protect the private sector without impeding their operations as part of a broader economic rescue effort.
In contrast, the Qian County PSB’s announcement calls for proactively targeting crime at private enterprises (i.e. soliciting “clues” of internal corruption crimes in micro and small private enterprises from the public) rather than reacting to the latter’s complaints as per the central government’s orders. The proactive approach means that the Qian County PSB will likely take actions that would be disruptive to business operations, including asset seizures, the freezing of funds, and detaining key personnel.
The Qian County PSB’s approach to “protecting” private enterprises also leaves open the possibility that the local government is planning to target local business operations in their jurisdiction (as opposed to cross-border, profit-driven “law enforcement”) to secure alternative sources of revenue.
Regardless of the motivations, the move by the Qian County PSB to proactively investigate internal corruption in micro and small private enterprises is likely to undermine the local business environment, killing the goose that lays the golden eggs. As the local business environment deteriorates and local fiscal difficulties deepen, local unemployment will rise and social instability will worsen.
2. The Zhejiang provincial procuratorate’s exposure of cross-border police extortion of private businesses suggests that the business environment in affluent regions in China is affected by the brazen “disorderly conduct” of local officials from fiscally challenged areas.
The Zhejiang procuratorate’s public disclosure of “deep-sea fishing” style law enforcement (遠洋捕撈式辦案) is the first case to gain the attention of national mainland media. It is possible that the central authorities are looking to “kill the chicken to scare the monkeys” with this move to deter public security authorities from other provinces from “plundering” affluent areas like Zhejiang. Meanwhile, the Zhejiang authorities and those from other affluent regions naturally want to preserve their local business environment to protect their revenue streams and secure the political achievements of local officials.
The Zhejiang procuratorate’s example of profit-driven law enforcement by a police officer and an auxiliary police officer offers clues that appear to indicate that the illegal action might not have been the work of rogue actors. For instance, the various pieces of professional police equipment that the two officers “privately” carried and the length of time that they were operating outside their jurisdiction suggest that their “deep-sea fishing” expedition could have been secretly “sanctioned” by their local authorities.
The two officers’ extortion of entrepreneurs in Zhejiang and Jiangsu suggests that local businesses in wealthier regions are the prime targets of “deep-sea fishing.” The officers’ attempt to kidnap an entrepreneur to provide leads for further “fishing expeditions” also hints at the lengths to which local public security officials are willing to go to find revenue.
The Zhejiang provincial procuratorate’s exposure of cross-border police extortion of private businesses suggests that things in China are partially trending towards our earlier analysis. We wrote in the Sept. 26, 2024 newsletter: “If the central government lacks the fiscal capacity to sustain local operations, localism could emerge as administrations in various regions begin to prioritize their own interests potentially in contravention of Beijing’s authority. Should such a trend emerge, it could signal the early stages of regional fragmentation, a deeply troubling development for Party Central and the PRC central government.”
3. The worsening misconduct of local public security officials could be one reason why the central authorities have abandoned (at least for the time being) its past practices of “adhering to the principle of no assistance from the central government” and “parents should carry their own children” (誰家的孩子誰抱) and instead allowed local governments to issue 10 trillion yuan in bonds over the next three years to restructure their debt.
Through debt restructuring, local governments could reduce financing costs by as much as 600 billion yuan. Concurrently, the improved credit rating of local bonds held by small and medium-sized local banks allows those banks to pledge more funds to support the issuance of local government bonds. This helps local governments temporarily alleviate local fiscal difficulties and helps to disincentivize local public security elements from embarking on “deep-sea fishing expeditions” in other regions.
2 CCP officials appear to pay lip service in ‘proactively alleviating the Party’s burdens’
Beijing promotes domestic services
Nov. 13
The PRC National Development and Reform Commission, Ministry of Education, Ministry of Finance, Ministry of Human Resources and Social Security, and Ministry of Commerce jointly issued an Opinion on “deepening the integration of production and education in the domestic services industry” (關於深化家事服務業產教融合的意見).
The Opinion called for the “vigorous development” of “urgently-needed” domestic services related programs in higher education, vocational education, continuing education, and general education. As a general principle, each province is expected to establish at least one high-level vocational education program cluster focused on modern domestic services, while more than two national-level high-level vocational education program clusters for modern domestic services should be developed nationwide.
The Opinion called for guiding domestic service enterprises to establish comprehensive training systems and advancing the formulation of national occupational standards for relevant domestic service professions. As part of national occupational standards, real-name authentication on the “Domestic Services Credit Check” platform would be enforced and online training will be conducted. Annual targets include conducting 600,000 training sessions for domestic service workers, 30,000 training sessions for domestic service trainers, and 10,000 training sessions for domestic service professional managers.
The Opinion proposed encouraging local governments to actively foster enterprises that integrate domestic services with education and to support the construction of practical training bases.
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China saw a wave of domestic service platform closures, including leading companies, during the COVID-19 pandemic years and particularly after 2022. The closures left customers unable to recover their prepaid fees and domestic workers not paid for their services.
“51 Family Guanjia” (51家庭管家) is the latest domestic service platform to run into trouble. In an open letter to customers posted on its WeChat account on Oct. 28, 2024, the company announced that it would suspend services starting Oct. 29 to stem further losses, with the resumption of operations dependent on the effectiveness of its self-rescue efforts in the coming weeks.
The open letter added that “51 Family Guanjia” had created over 20,000 jobs and accumulated 240,000 customers since it opened. The company also maintained an annual business growth rate of 30 percent during the three pandemic years. However, the company said it did not anticipate the prolonged economic downturn and sustained decline in consumer spending after the pandemic, and the continuous drop in its revenue ultimately led to a liquidity crisis.
Publicly available information shows that “51 Family Guanjia” was founded in 2014 and primarily offered services such as hourly cleaning, household maids, maternity nannies, and eldercare under an employee-based model. The company’s operations covered cities such as Guangzhou, Shanghai, Shenzhen, and Foshan. The company had over 3,000 employees as of June 2024.
SASAC engages in sloganing
Nov. 19 to Nov. 20
The Party Committee of the State-owned Assets Supervision and Administration Commission (SASAC) of the State Council held a collective study session for its theoretical study center group and a training class for department and bureau-level cadres.
According to state media, participants of the collective study session unanimously agreed on the following points:
- There is a need to further enhance political awareness and align their thoughts and actions with the spirit of General Secretary Xi Jinping’s important speeches and the decisions and plans of Party Central.
- There is a need to help central enterprises navigate the economic cycle and support them in initiating a “second curve” of growth.
- There is a need to promote the greater role of central enterprises in the construction of a technologically strong nation.
- There is a need to further deepen reforms of systems and mechanisms to accelerate the formation of production relations that are better suited to “new quality production” (新質生產力, or cutting-edge technologies and breakthroughs).
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Previously, Xi Jinping presided over a meeting of the CCP Politburo on Oct. 28, 2024 to review a comprehensive report on the third round of inspections of the 20th Central Committee. The meeting stressed that Party Committees at all levels must continuously elevate their political standing, proactively alleviate the Party’s burdens, and fulfill their responsibilities to the country.
Our take
The above measures suggest that CCP officials across various departments are busy aligning themselves with the “spirit of the Third Plenum of the 20th Central Committee” and responding to the Xi leadership’s call to “proactively alleviate the Party’s burdens.”
However, a closer look at the measures shows that they are more rhetorical than practical, demonstrate political “diligence” without offering substantive solutions, and do not sufficiently address the problems plaguing China’s economy.
1. The Opinion by several ministries on “deepening the integration of production and education in the domestic services industry” offers little to address China’s employment challenges and is not in sync with present economic realities.
There is a mismatch in what the Opinion offers and what China’s current economic needs actually are. The plan by central departments to expand domestic services higher education and large-scale training would provide the personnel to fulfill high-end housekeeping positions, address some of the wants of an aging population, and support Beijing’s pro-natalist policies. However, the wave of domestic service platform closures in recent years reflects a declining demand for high-end housekeeping and domestic services in general as consumers become more reluctant to spend in tough economic times. Also, the demand for high-end housekeeping is affected by the widening wealth gap in China, with fewer affluent individuals who can afford such services and a shrinking middle class reducing potential demand. Meanwhile, the number of births in China may not go up due to more people experiencing financial constraints, changing social mindsets (i.e. fewer people wanting children), and the CCP authorities’ limited ability to provide pro-natalist subsidies. Unless there is a sustained improvement in the birthrate (the birthrate for 2024 could go up due to it being the auspicious Year of the Dragon in the Chinese zodiac), the increased number of domestic service workers in China are likely to struggle to find employment.
The departments behind the Opinion could be thinking that it is a solution for alleviating the college graduate employment problem and the lack of higher education enrolment as various sectors are affected by the bursting real estate bubble. However, the measures in the Opinion would see highly educated young people taking on low-skill domestic service jobs and replacing those with lower education in the field (such as middle-aged women) who are currently in the sector. This arrangement would demoralize both those coming into the domestic service sector and those who are being displaced, and could potentially create new social tensions and instability.
The Opinion also has the potential to encourage rent-seeking and exploitation as national occupational standards for relevant domestic service professions are put in place. As the measures in the Opinion take shape, new industry barriers, including the requirement of mandatory training and various certification, could be introduced. These requirements could benefit people with close government ties who seek to profit from monopolizing training programs and certifications while extracting from the growing pool of domestic service workers.
There are many examples where the CCP introduces policies that encourage rent-seeking activities. During the COVID-19 pandemic, influential businesspeople secured lucrative government contracts for tasks like distributing supplies and conducting mass nucleic acid testing. Likewise, certain groups of people who usually gravitate towards the domestic service sector (usually women from rural backgrounds with low levels of education) could find themselves excluded from the industry for not meeting the new standards, exacerbating the problems of a vulnerable economic group and worsening social problems in China.
2. The requirements and measures proposed by the SASAC Party Committee during its recent study session appear flashy and gung-ho, but lack substance. The SASAC top brass are likely posturing to stay “politically correct” without proposing anything tangible to address the real challenges facing the regime.
SASAC is in charge of boosting the vitality of central and state-owned enterprises. Those enterprises are becoming more important to the PRC because Beijing uses profits remitted by COEs and SOEs to partly offset China’s fiscal deficit. PRC financial institutions estimate the fiscal deficit to reach around 2 trillion yuan in 2024. However, those enterprises are also struggling to generate additional revenue; total profits of SOEs fell by 2.3 percent year-on-year during the January-September 2024 period to 3.25 trillion yuan.
Some of the points that were “unanimously agreed” upon at the SASAC collective study session are either insincere or unrealistic. For instance, the call to support central enterprises in initiating a “second curve” of growth does not appear workable because those enterprises primarily rely on artificial government monopolies to generate profits and are largely incapable of competing fairly with private companies in non-monopolistic sectors.
Meanwhile, the call for central enterprises to have a greater role in the “construction of a technologically strong nation” rings hollow. Central enterprises have long trailed private enterprises in technological innovation because the Party-led authoritarian system is prone to suppression and self-preservation, and naturally stifles independent thought. Innovation inherently involves risk-taking, which CCP officials who are more interested in career advancement are unwilling to take lest they rack up state asset losses and are severely penalized by the system. Therefore, the various exhortations at the SASAC collective study session that are meant to show effort by officials at “proactively alleviating the Party’s burdens” and “fulfilling their responsibilities to the country” are largely performative and are unlikely to yield tangible results to benefit the regime.
3. Xi Jinping is likely attempting to increase government efficiency and rescue the regime by having various departments study and implement the “spirit of the Third Plenum of the 20th Central Committee.” While the move would help Xi consolidate power and “quan wei” (authority and prestige), he would not be able to overcome bureaucratic inertia and effectively resolve the many crises facing the regime as long as the CCP authoritarian dictatorship is in place. Instead, officials and cadres will continue to prioritize their interests over those of the regime, feign enthusiasm, and issue hollow slogans (like those at the SASAC collective study session) to placate Xi and appear “politically correct.”
