South China Weekend [Nanfang Zhoumou] February 13, 1998 on p. 5 Nanfang Zhoumou is published by the Guangzhou Municipality Committee of the Communist Party of China. Article appeared beneath a regular column entitled “An Expert’s Perspective?/P>
by Yang Fan
The most serious interference with the rule of law by administrative power and in law enforcement is seen in local protectionism. In the legislative process we see another kind of protectionism, department (agency) protectionism. This makes law-making in China particularly complex. The laws passed by the National People’s Congress are drafted by the administrative department concerned with the law. A great many regulations need to be written to give concrete expression to the laws. Therefore the administrative departments charged with regulating various fields can use this process to write their economic interests into the laws and regulations.
Certain departments, in the name of “making things more orderly, strengthening management and protecting Chinese national enterprises?promulgate strict regulations governing entry into the market in the fields of foreign trade, wholesale business, telecommunications, finance and insurance, construction and other industries. These regulations are aimed at preventing the free business operations of non-state enterprises and enterprises not related to the ministry in the market. In many areas such as directives on the management of state-owned lands, management of permits for foreign trade, household registration system management, initial issuance of stock, and issuance of loans. These departments refuse to adopt the open bidding practices of the market economy and insist on a confidential internal approval process, getting bids from only a small circle of bidders, and administrative allocation.
The central authorities have time and time again ordered that the administrative departments divest themselves of their affiliated companies. In fact these companies were not fully divested, they are merely affiliated in a new, hidden way. The administrative departments with regulatory responsibilities and some departments which have special powers use their authority to operate businesses in fields where approval is very difficult to obtain. Some departments go so far as to get special permission to operate businesses, to operate in the financial sector, in the telecommunications sector, to get involved in real estate, operate “high class entertainment establishments?such as saunas and massage parlors or operate businesses involved in bullet-proof vests or weapons. The regulatory department uses its powers to set up commercial networks, to buy materials cheaply and to make a good profit. The regulatory department ensures that its affiliated company gets written into the plan, gets the appropriate permit, and blocks inspections in order to ensure that the company gets an abnormally high profit. The regulatory department gets its pay-off.
This situation is an even worse than existed before the formal relationship between the department concerned and the affiliated company was formally dissolved. This is because there is no formal relationship between the leadership of the department concerned and the managers of the company. Instead these are even stronger personal relationships among certain powerful people. These relationships are even more exclusively focused on private profit than before. Moreover, the regulatory department can say, since the relationship with the affiliated company has been officially dissolved, that the “company is no longer affiliated?with the department, and so absolve itself of responsibility. Now relations between the regulatory department and the enterprise are conducted in the shadows.
There is an economic theory called “seeking rents?which describes how a social interest group can, through lobbying, by influencing the enactment of legislation, and through government policy obtain special privileges. As the interest groups in the country become more diverse, “rent collecting? activities of interest groups becomes steadily more serious and more open. Moreover, the regulatory departments start “establishing rents? Regulatory departments do this by expanding the scope of their regulatory activities and by selling scarce resources controlled by the regulatory department in order to collect big profits.
Corruption in the enterprises has become much more serious that just snatching at nearby targets of opportunity or trading favors between work units. Corruption has developed to the stage of regulatory departments supporting, tolerating, or even organizing “systematized corruption?and corruption in education, corruption in scientific research work, corruption in the selection of cadres, corruption in journalists accepting payments for making news reports, and other forms of corruption. Despite shortages, we can see high priced black market in things like a high priced supplementary tickets for train berths, for performances, for medical exams by specialists. If there wasn’t a set up between the inside and the outside, how could such high prices be maintained?
The regulatory departments, in a planned economy, sets the functions of each level of government below it and directly organizes economic activity in each field. The macroscopic management function and the function of owner of a state enterprise are combined in one organization. During the transition to the market economy, the law has already made a distinction between the regulatory department and the state enterprise. Now ownership in the state enterprise is vested in the Property Management Bureau. However, the regulatory department still retains control over the right of the enterprise to conduct business in its field. Even more important is the regulatory department’s right to appoint the managers of the enterprise. In policymaking, the regulatory department favors “family?
Moreover, when helping non-state enterprises to obtain favorable policies from the government, some of the cadres of the regulatory department privately act as “the manager?of these companies to reap a rich recompense. The regulatory departments, because they have too much contact with the enterprises and their interests are tied too tightly to the enterprises, in the name of “strengthening management?issue innumerable management regulations. These management regulations assist the enterprises to “succeed by getting around things?to reap an incommensurably large profit. Although these departments are called regulatory departments, they are really more like the corporate headquarters of some of the enterprises they regulate!