Asian Strategies Group


5. Leadership Politics

Debate over Foreign Investment

(Excerpts from a 3-page report)

Main Points

President Jiang Zemin's Shanghai faction occupies the high ground in the debate over foreign investment. On the other side is a group dubbed "leftists" made up of older party officials, military leaders, and propagandists who support restrictions on foreign involvement in the economy. The Shanghai faction's aim is to write the policy of openness into a new party constitution, thus making it difficult for "leftists" to oppose it. Jiang's strategy includes airing a TV series in which Deng's openness policy receives strong support from respected older leaders. There are some signs that the energy sector may become more open to foreign investment in the future.

Problem of Foreign Investment

Obscured by the sea of articles and speeches being prepared for China's upcoming 15th communist party congress is an important debate over foreign direct investment. Is it good for China? Should it be channeled? Are foreign companies milking China? The flood of foreign investment, which reached U.S. $40 billion in 1996, is expected to grow by 15% in 1997, raising the stakes in the debate considerably.

President Jiang Zemin's Shanghai faction, the dominant group in the leadership, occupies the high ground in the debate. Jiang supports openness, including relatively unrestricted foreign investment, because he believes that it is the only policy capable of sustaining China's remarkable record of growth in the 1980s and 1990s. To assure victory in the debate, faction leaders are attempting to wrap Jiang Zemin in the mantle of Deng Xiaoping, who first formulated the openness policy in 1979.

"Leftist"  Take Exception

Meanwhile, a rival group dubbed "leftists" favors restrictions on openness and foreign investment, using the slogan of "protecting national industries." The "leftists" contend that foreign investment is poisoning Chinese culture, while increasing the disparity between rich and poor and between coastal and inland regions. Represented in the leadership by older party, military, and government leaders, the "leftists" support a slower pace for foreign investment and tighter party control of the economy.

Jiang Zemin is taking no chances on the outcome. He has appointed supporters to the ad hoc group of party theorists and academics pulled together to draft key documents and speeches for the 15th party congress. The aim is to write the policy of openness into a new party constitution, thus making it difficult for "leftists" to continue debating the merits of interaction with the outside world.

TV Documentary on Deng Xiaoping

The Shanghai faction's strategy is evident in the recent 12-part TV series on Deng Xiaoping's life. The unprecedented series opens with shots of Jiang Zemin praising Deng for his "great contributions." Jiang's introduction sets the stage for the focus of the series, which is Deng's openness policy. Throughout the series, the policy receives strong support from respected older leaders, including many senior generals.

The TV series' treatment of the U.S. is generally favorably. The Korean War is hardly mentioned, while flattering footage is shown of Americans from Henry Kissinger to Mike Wallace to Presidents Nixon, Carter and Bush. Deng's 1979 visit to the U.S. is featured prominently, including his visit to the New York Stock Exchange, used then and now as a symbol of Deng's support for a modified form of capitalism.

Managing Personnel and Organizational Changes

Jiang's Shanghai faction is also managing personnel and organizational issues at the expenses of the "leftists." The expected restructuring of the party to be announced at the 15th congress-adding a chair and two vice chairs while eliminating the position of general secretary-maintains the current factional balance favoring Jiang. Personnel changes to be announced at the congress will add more Jiang Zemin supporters to the leadership and replace Premier Li Peng with Li Lanqing or another official drawn from Jiang's faction.

Special Case of Energy

The recent easing of restrictions on foreign investment in the energy sector shows the strength of Jiang's position. Long the special preserve of Premier Li Peng, foreign participation in power plant projects was effectively blocked by unrealistic rules on rates of return. Responding to pressure, the rules were modified in December, leading to a flood of approvals of new foreign investments.

There are also signs that limitations may be eased on foreign participation in offshore oil exploration. CNOOC' s annual January 1 review stressed the contribution of foreign firms and hinted at increased cooperation in the future. CNPC officials made similar but less convincing statements. How quickly China's surging oil import bill will push these nationalistic companies towards significant change is still far from clear.

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