The Party: The Secret World of China's Communist Rulers (12 page)

Chen had been removed by Zhu Rongji from his position as a deputy-governor at the central bank in 1998, severely denting his ego and setting back his career. But Chen bounced back in his new job, as party secretary and president of the China Development Bank, a so-called policy lender established to finance favoured state projects, such as the Three Gorges Dam and local infrastructure works. A thoroughly modern communist, Chen managed to turn it into the biggest job of his career, and the bank into one of the country’s most global institutions. Chen first extended the development bank’s largesse domestically, providing loans to oil and car companies which aspired to be national champions. The bank backed a host of politically popular projects, funding rural infrastructure, environmental schemes, loans for poor students and low-cost housing. Unrestrained by the kinds of restructuring the state banks were undergoing, CDB’s outstanding loans rose from $73 billion in 1998 to $544 billion a decade later.

By 2006, emboldened by the Politburo’s go-global push, CDB had headed offshore in the slipstream of China Inc. The bank won the mandate to manage a $5 billion fund Beijing had established to invest in Africa, and bought into Barclays Bank in the UK. CDB led the financing of Chinalco’s bid for Rio-Tinto and other offshore deals. The ambitious Chen even pushed to buy a share of Citigroup when the US bank was raising new capital in 2008, but was overruled by senior leaders fearful of investing in shaky western institutions. In private, Chen boasted that his bank had grown into the largest development lender in the globe, towering over, he said, the iconic World Bank in Washington. Perhaps mindful of ‘hiding his brightness’, Chen would not repeat such comments for the record on the rare occasions he met foreign journalists.

Even as he emerged as a sophisticated standard-bearer of Chinese state capitalism on the global stage, Chen retained a canny sense of his party’s proletarian roots. When I was in the foyer of the five-star Peninsula Hotel in 2007 ahead of a meeting of the bank’s international advisory board, I noticed a man in a cloth cap and a plain Mao-era jacket, resembling an old state factory manager, striding through the foyer, surrounded by smartly dressed, bustling secretaries and advisers. The outfit was so at odds with the surroundings that I didn’t realize it was Chen until he disappeared into the lift.

The proletarian look was not favoured by his daughter, Xiaodan. Unlike her father, she had been allowed by her parents to study overseas, at Duke University in the US. In November 2006, she represented China at the Crillon Ball in Paris. The annual debutante ball traditionally features the offspring of European royalty, multinational industrialists and Hollywood movie stars. That year, the ball was also graced by a representative of the globe’s newest power player, the Chinese Communist Party, in the form of Ms Chen. All the debutantes were decked out in haute couture loaned to them for the evening. Ms Chen wore an Azzedine Alaia pink cotton dress, which, if she had had to pay for it, would have cost as much as her father’s official cash salary for a few months. Her appearance at the ball nonetheless neatly symbolized the trajectory of her family, and of the Communist Party along with it.

The Chen that I chanced across in the foyer of the Peninsula Hotel may have been unique in dressing like an old-style cadre for a meeting with rich and powerful foreigners. These days, Chinese leaders usually reserve their Mao suits and army attire for party and military occasions respectively. Still, Chen’s style and his family’s trajectory were redolent of how top Chinese officials have learnt to speak out of both sides of their mouth. No matter how rich and powerful they have become, they are masters at calibrating their support for Marx, Mao or the market, depending on who is listening. The dexterity of officials in this respect remains one of the truly dizzying things about China Inc. The same official who one minute will be lecturing you about how the west should abide by the strictures of the market, a spiel usually delivered in defence of China’s competitively priced exports, the next minute will be assuring a Chinese audience of the horrors of unfettered capitalism and his or her deep belief in Marxism. The change of political attire is akin to a Wall Street banker disappearing Clark Kent-like into a phone box, and emerging swiftly a few minutes later dressed as Karl Marx.

Few were as adept at switching stride as Liu Mingkang, China’s bank regulator. Becoming a banker in 1979, aged thirty-three, after the Cultural Revolution, Liu was quickly promoted through a range of state business and government positions. He worked at the Bank of China, in the Fujian provincial administration and at the central bank, before founding the regulatory body in 2003. In between times, he completed an MBA at City University in London, where he still sends up-and-coming finance officials from China on scholarships for an education in liberal finance and economics. When the state banks were being restructured, Liu relentlessly drilled his subordinates on the importance of global regulatory norms, like capital ratios, risk returns and non-performing loan rates. On lazy Friday afternoons at the regulator, lower-level officials joked that Liu would terrify them by landing unannounced in their departments and putting them through an impromptu grilling on ‘Basel II’, the formula named after the Swiss city which dictates the optimum level of bank reserves.

Long considered to be one of the country’s most westernized officials, Liu wowed foreign visitors with expositions in flawless English about financial reform. Whether he was spinning you a line or not, Liu cut a deeply impressive figure. On important political occasions, however, Liu, the smooth global banker, dropped out of sight and reappeared, reprogrammed, as a sombre student of Chinese Marxism. At the time of the 2007 party congress, Liu eschewed the nostrums of liberal finance and Basel II and lectured staff about the great invention of ‘Sinified Marxism’. Speaking to leading cadres at the opening of a new term at the bank regulator’s party school in late 2007 ahead of the congress that year, Liu urged his officials to ‘use the latest fruits of Sinified Marxism to guide our practice’.

Around the same time, Guo Shuqing, of the China Construction Bank, intoned that ‘the only way to put the latest communist principles into practice was to maximize returns for shareholders’. Guo at least had a concrete point to make. The largest shareholder in the bank was a central government agency, which was in turn controlled by the Party. It was certainly in the Party’s interest that the bank make a sustainable profit. Indeed, the economy depended on it. But the notion that shareholders’ returns could be so directly tied to communism was novel, even for China.

Easy as it is to mock these utterances, they cannot be dismissed as mere ritualistic incantations of faith, like the lapsed Catholic who still goes to Sunday Mass from habit and a desire to maintain valuable social networks. The rhetoric about the Party is backed by the full force of its political institutions that make and break careers. At times as sensitive as that of the party congress, these statements are timely genuflections at the feet of the Party by officials, and indicative of political loyalty and reliability, both essential to a career in public life.

The financial restructuring of China’s vast and sprawling state sector embodies such contradictions perfectly. The overhaul of these companies was done in plain and often painful view. Entire communities and their families, whose lives had once been entirely dependent on the iron rice bowl the enterprises provided, were upturned. The companies’ executives had been exposed to pressure from global investors in ways never thought possible. And a conservative political class whose entire lives had been built around old-style state ownership had been swept aside.

The political restructuring of these enterprises, however, and the role of the Party, has not been nearly so clear. With the need to be profitable and compete globally, top executives of state enterprises these days have a relative freedom to run their businesses inconceivable a decade ago. Human nature being what it is, many have exploited that freedom to build personal empires of their own. But throughout the reform of the sector, the Party has retained its influence by maintaining power over all senior appointments. Through personnel, they can in turn direct corporate policy.

The Party’s power was on display in late 2008 and early 2009, when the deepening global financial crisis threatened to engulf China, as it had the rest of the world. The central bank, the bank regulator and even the banks themselves, all counselled caution in formulating a response to the crisis. All three had battled hard to build a credible commercial banking system over the previous decade. The Politburo, however, staring into the abyss of a sharp slowdown, issued an edict from on high for the money pumps to be opened. Once done, the banks had no choice but to race out of the blocks. In the first six months of 2009, Chinese banks lent nearly 50 per cent more than during the whole of 2008. Just 15 per cent went to household consumers and private businesses, compared to a peak of one-third in 2007. Most went to state companies.

The behaviour of Chinese banks was instructive compared to their counterparts in the developed world. Many western banks were by that stage controlled directly by their respective national governments. In Washington and London, the US and UK administrations were imploring financial institutions to restart lending to revive their respective economies, but they possessed few concrete tools to force them to do so. In China, by contrast, the banks were both state-owned and state-controlled. When the Party directed the banks to lift lending, the senior executives had a political duty to comply. More than business was at stake. ‘Top executives [at the big state banks] are also government officials with vice minister-level positions,’ reported
Caijing
magazine. ‘So in addition to caring for their banks, they are responsible for supporting the central government’s economic stimulus policy.’

The Party’s control over personnel was at the heart of its ability to overhaul state companies, without losing leverage over them at the same time. So important does the Party rate its power to hire and fire government officials that it places it on a par with its control over the media and the military. Zhou Tianyong, a relatively liberal political theorist at the Central Party School in Beijing, laid out the Party’s absolute bottom line in a book published in early 2008,
Storming the Barricades.
. ‘To uphold the leadership of the Party in political reform,’ Zhou wrote, ‘three principles must be followed: that the Party controls the armed forces; the Party controls cadres; and the Party controls the news.’

The party body with ultimate power over personnel, the Central Organization Department, is without a doubt the largest and most powerful human resources body in the world. Barely heard of outside China and little known inside the country itself, beyond official circles, its reach extends into every department of state. Much like the Party itself, the department is a fearsome, secretive hulk, struggling to adapt to a vastly more complex world which has grown up around it in the last three decades.

The Party and Personnel

The moment I sat down in the coffee shop of the party leadership compound in Changsha, I handed over my name card. It was a polite, reflex act, part of an introduction ritual so seemingly indispensable in Asia that business consultants still solemnly peddle advice about the culturally correct way of making the exchange. Wang Minggao, the man sitting opposite me, initially played out his role to a tee, studying my card from all angles, and nodding intently at its contents, but then did not round out the ritual by offering his in return. When we had finished chatting and were about to leave for dinner, I asked directly if I could have one of his cards, to contact him in the future. ‘I don’t carry a name card,’ he replied, folding his arms to end the matter. From his point of view, there had been no slight. Mr Wang didn’t use a card when dealing with outsiders. His employer, the Organization Department of Hunan, only faced in one direction, inwards, at the Party.

Wang had picked me up at the gates of the sprawling complex in Changsha, the capital of Hunan, in central China. Like entrances to all official estates in China, the security reception was officious and intimidating for obvious outsiders, but seemingly porous for privileged people and their vehicles, the status of which was indistinguishable to the untrained eye. The green-uniformed paramilitary guards at the gates glared at my assistant and me on approach, lifted their hands stiffly in the form of a stop-sign and barked directions to stand to one side, together with other assorted ne’er-do-wells congregating nearby. While we waited, the local elite, in sharp, late-model cars, often with no number-plates, glided into the compound without braking, let alone pausing to acknowledge the guards. Mr Wang whisked us inside in his vehicle unchallenged as well, a tell-tale sign of his own elevated status, driving past the stately red-brick government buildings abandoned by the former Nationalist administration of Chiang Kai-shek in their flight into exile in Taiwan ahead of the communist victory in 1949. In a moment, he had deposited us at the compound coffee shop for our interview.

The appointment with Wang had taken many months, and much gentle flattery and harassment, to secure. ‘As long as it is nothing to do with state secrets, it should be OK,’ he eventually said. Wang had endured our courting with impeccable politeness and sat cheerfully through the two-hour interview before inviting us for dinner. To have not invited his guests to eat with him would have been inexplicably rude in China, where any out-of-town host will instinctively ask visitors for a meal, and protest noisily if the invitation is refused. But in failing to hand out his name card, Wang breached just about every other protocol for first meetings. A trivial issue at the end of the day, his handling of his cards was symbolic of how his employer viewed the world. The rest of the universe outside of the organization department was peripheral for Wang. Any cards that he had were handed out inside the communist club, and nowhere else.

It was rare to secure a meeting with an official from a department which keeps itself firmly out of sight even in China itself. The national headquarters of the Central Organization Department occupy an unmarked building in Beijing, about a kilometre west of Tiananmen Square along the broad sweep of Chang’an Avenue. No sign hangs outside indicating the business of the building’s tenant. The department’s general switchboard number is unlisted. Calls from landlines in the building to mobile phones do not display an incoming number, as is customary for ordinary phones, just a string of zeros. The only way a member of the public can make contact with the department in Beijing is through its sole listed number, 12380, which has a recorded message, allowing the caller to report any ‘organizational’ problems above the county level. From early 2009, a website was launched, offering the same complaints service. Around the same time, the department appointed a spokesman. But for the first six months of his tenure, he did not utter a single word in public. Friends of the latest head of the department in Beijing, Li Yuanchao, a relatively liberal figure appointed at the end of 2007, once joked that they wanted to ask him about what they considered to be the absurd level of secrecy surrounding the body. ‘Are we still an underground party?’ exclaimed one of his longtime friends, before admitting he could talk to Li about anything except his work.

The department is accurately, if blandly, described as the human resources arm of the Party, but this does not do justice to its extraordinary brief and the way it is empowered to penetrate every state body, and even some nominally private ones, throughout the country. The best way to get a sense of the dimensions of the department’s job is to conjure up an imaginary parallel body in Washington. A similar department in the US would oversee the appointment of the entire US cabinet, state governors and their deputies, the mayors of major cities, the heads of all federal regulatory agencies, the chief executives of GE, Exxon-Mobile, Wal-Mart and about fifty of the remaining largest US companies, the justices on the Supreme Court, the editors of the
New York Times
, the
Washington Post
and the
Wall Street Journal
, the bosses of the TV networks and cable stations, the presidents of Yale and Harvard and other big universities, and the heads of think-tanks like the Brookings Institution and the Heritage Foundation. Not only that, the vetting process would take place behind closed doors, and the appointments announced without any accompanying explanation why they had been made. When the department knocks back candidates for promotion, it does that in private as well.

In Beijing, the Politburo decides on the most senior of appointments but the organization department is the gatekeeper that all candidates must get past to take office. ‘All official positions of a certain rank on the public payroll are covered by the organization department,’ Wang said, with the kind of pride that comes from being a member of an elite, powerful and secret club. ‘From 1949 onwards,’ he added with a wink, ‘we even covered some journalists.’ Wang and his ilk at organization departments across China have no problem in distinguishing who can come and go from party compounds like the one in Hunan. Encoding and decoding hierarchies and the privileges attached to them is their daily bread. The Party has been tentatively experimenting with ways to make the system more transparent, by allowing the public into some areas of the local people’s congress to express an opinion about officials up for promotion, a process that has been creatively labelled ‘democratic recommendation’. By and large, though, the department works in a shroud of secrecy.

If I needed any reminder of the closed universe the department and its officers lived in, it came when I suggested to Wang that the body was unnecessarily mysterious. The question left him nonplussed, as though he had never even considered the issue. ‘Government departments hang their plaque outside their buildings because they have to face the public. We are only here to service the cadres,’ he said. ‘The cadres all know where we are. It’s a bit like knowing where your parents live.’

The department maintains files on top-level officials in the public sector, to keep tabs on their political reliability and past job performance, making it indispensable to the Party’s control of the country and the nation’s vast public sector. With their colleagues in the Party’s anti-corruption unit, the department cross-checks for any black marks recorded for graft or sexual misdemeanours. The breadth of the department’s role is a source of pride. ‘Our Party’s organizational working resources have no equal with other political parties in the world,’ internal documents boast. The system is replicated in China at each of the remaining levels of government. To simplify a complicated system, the centre supervises appointments in the provinces; the provincial organization departments supervise the cities, and so on, right down to the lowest tier of government, at the township level. In practice, the party secretary at each level retains a huge amount of power over appointments in the area over which he or she rules.

A Chinese official-turned-private-equity-investor once compared the department’s work in conversation to the confirmation process officials nominated to work in the US administration go through. In both cases, potential candidates for jobs are interviewed: in China by members of the department, which also sends teams of people around the country vetting potential candidates for promotion; and in the US, by congressional confirmation panels. Otherwise, it was a slyly misleading analogy, in the way that direct comparisons between western and Chinese governing systems usually are. One process unfolds in a partisan public forum and the other takes place almost entirely behind closed doors, buttressed by a managed media which is not allowed to report details of appointment battles, even if they find out about them. The ghostly, undocumented presence of the Party, which sits behind the government in China and manipulates its staffing, makes most of such comparisons redundant.

The patronage dispensed through the department, in the form of the most powerful party and government positions in the country, have turned it into a make-or-break forum for the system’s toughest internal political battles. Politburo members, factional groupings, the centre and the provinces, and individuals aligned to different ministries and industries–all struggle to place their people into positions of power and influence in state institutions. ‘If the job of a bureau chief becomes vacant, then a lot of senior officials in Beijing will want to have it filled with their person. In times like this, the organization department will have a very difficult task,’ said Wu Si, the editor of a prominent liberal magazine,
Annals of the Yellow Emperor
. ‘It is meant to be about virtue and talent but it becomes a test of your relationship with the department and the seniority of your patron. At the end of the day, the department cannot be bypassed.’ In the absence of elections or any overtly public competition for government posts, the behind-the-scenes battles to secure appointments are the very stuff of politics in China. As the clearing house for these disputes, the organization department has become the institutional hub of the entire political system.

The alumni of former leaders of the organization department are testament to its status. Deng Xiaoping and Hu Yaobang both headed the body during their careers. Zeng Qinghong, a political fixer who acted as a kind of cardinal-at-the-elbow for Jiang Zemin during his years in power, also led the department. When Hu Jintao began to gain control of the party apparatus by the start of his second term in late 2007, he was able to secure leadership of the body for a loyalist of his own, Li Yuanchao.

Scratch the surface of this colossus, however, and you find incipient panic at the way the system is being subverted by multiple trends outside of the department’s control. Since the upheavals of 1989, the organization department’s oversight of potentially suspect institutions, especially universities, has been formally tightened, but the ideological foundation of its work has drifted. Party members are ‘losing belief’, the department’s own secret documents complain. ‘Some individual party members and even cadres in leadership positions no longer have a clear head and doubt the inevitability of the ultimate triumph of socialism and communism.’ Many individuals have begun to believe in ‘ghosts and deities instead of Marx and Lenin’, a reference not just to the spread of western religions, but to the revival of traditional Chinese superstitions stamped out after 1949.

The department is plagued by a constant tension that bedevils most political systems. The Politburo has striven to professionalize the selection of top officials through the department, while undermining the process at the same time by fixing appointments in favour of loyalists and relatives. Powerful officials presiding over local fiefdoms have swept aside the rules even more crudely, establishing market places in which government positions are bought and sold for huge financial gain. ‘The older senior officials who survived the wartime were different from the younger officials who tend to think about themselves and are mainly after power, salary, status, housing and medical care,’ said Zhang Quanjing, who headed the department for five years until 1999. ‘This thinking triggers jealousy and encourages the buying of official posts to get promoted.’

At the local level, the party secretaries and the heads of the organization department run the grassroots administration like a franchise, selling government jobs for vast sums of money.

The value of the market was illustrated by a case in Sichuan in 2007, when a man passing himself off as an organization department official secured a payment of $63,000 from a local bureaucrat under the guise of finding him a senior government post. ‘While they jeered at the miserable unlucky bureaucrat who paid the bribe,’ the local media reported, ‘people were astonished by the influence of the department over Chinese officials.’

Enamoured of its rituals and privileges, the department is still powerful and feared. But it is resented in equal measure, as a static relic of a bureaucratic system that has battled to keep pace with a more fractured and open society, and the demands and temptations of the moneyed new world that has grown up around it. One vice-minister who has to jump through the department’s hoops every year to stay in his job used a Chinese aphorism to describe the body: ‘It’s not good enough to make for a success, but more than enough to make for failure.’ Much of the debate about China focuses on how the Party can control the people. The organization department is at the heart of an even bigger challenge–of whether the Party can control itself.

Soon after the Red Army holed up in Yan’an after the Long March in the thirties, Mao Zedong decided he needed a body to ascertain the political reliability of the supporters flocking into the mountainous retreat to join the communist cause. A fraternal model for such a gatekeeper was close at hand, in the Soviet Union. The Orgburo in Soviet Russia was one of the two original bodies established by Lenin under the Central Committee in 1919, to direct the daily business of the Party. Stalin was quick to see its usefulness. He made the Orgburo his ‘first base of operations in building his own machine’ in the early 1920s, as he began to steal power away from an ailing Lenin. Stalin’s command over the personal dossiers of senior party members earned him the nickname, ‘Comrade File Cabinet’.