This article will offer an assessment, first looking at the various discourses on villager self-government and trying to determine if there is a consensus on the significance of this undertaking. It will then examine how this political act is transforming the political language, culture and landscape in China and aim to decide if villager self-government indeed constitutes an opening crucial for China’s long overdue political reform. Third, it will address the questions: What is democracy? What is democracy with Chinese characteristics? And will the current village democracy lead to a fundamental transformation? – from a government of choice but little accountability at the lowest rung, to one of choice and accountability at each and every level, secured by institutions rather than by moral coercion and ideological purification. The article will then take a brief look at what the grassroot Party officials are saying and what Chinese peasants are doing in the era of relative freedom and self-management.

While it is hard to separate the past, present and future of a development that is so young, this article will focus more on the period from November 1998 when the Organic Law was amended, to September 2005, when Premier Wen Jiabao repeated Peng Zhen’s famous remarks to visiting foreign dignitaries: when villagers learned how to manage the village affairs they would then try to manage the township affairs.

When the National People’s Congress was debating the Organic Law, Peng Zhen, chairman of its Standing Committee, remarked that introducing villager self-government was in line with the Chinese Communist Party’s goal of making common people the masters of their own affairs. It was a very effective way to conduct a democracy seminar for the peasants. When they learned how to govern their own affairs, they would then try to learn how to manage the township and county affairs. In 1989, there was a coordinated effort to discredit the Organic Law and label it as a sinister plot derived from Western ideas of democratization. Peng Zhen and his supporters withstood the assault, stuck firm to the need for rule of law and said that a way must be found to allow peasants to hold local officials accountable. With almost a decade of persistent effort by the officials of the civil affairs apparatus, the Organic Law was finally amended and officially adopted. Another eight years have passed. What is the current discourse on villager self-government?

There seems to be little change among the top leadership of the Chinese Communist Party (CCP) in their view of the nature of villager self-government although there is a detectable shift of emphasis and priority. Jiang Zeming called villager self-government one of the three crucial reforms in China’s countryside, as important as the beginning of the household responsibility system and the launch of village and town enterprises. In the political reports of both the 15th and 16th CCP National Congresses, Jiang identified villager self-government as the point of breakthrough for China’s political reform. Since the ushering in of the Hu-Wen New Deal in late 2002, growing attention has been given to the solution of economic woes of the peasants and social instability in the countryside. From the campaign to promote open administration of village affairs to the elimination of taxes and fees, to the emphasis on increasing the income of the peasants, to the call to build a new socialist countryside, we see a pattern of devaluing rural democracy and accelerating pragmatic measures to create better conditions for peasants’ access to education, healthcare and wealth.

This shift of emphasis at the top is indicative of which arguments among the watchers of villager self-government have found more responsive ears among the national leaders. Like the current divergent assessments of reform and opening up, the views of villager self-government are also sharply divisive. There are those who perceive villager self-government as a miracle prescription to the chronic diseases of the Chinese countryside and the stepping stone to the eventual modernization and democratization of China. For those who are less friendly to villager self-government, they see the alarming reemergence of the clans, the susceptibility by the broad masses of peasants to small materialistic incentives and indirect anti-government appeals, and the interruption of the development of village enterprises.

Those who are opposed to the expansion of village self-government have been aided by two factors: 1) the lack of linkage between the institution of village democracy and the growth of village wealth (and the misery among tens of millions of Chinese peasants who increasingly sense that they are actually victims of the economic reform that has made China such an integral part of the world economy), and 2) the CCP’s concern that popular choice and strict accountability could undermine the Party’s legitimacy, and its insistence on being the paramount decision-maker on all aspects of rural life.

This dichotomy between perceptions of villager self-government has existed since the debate on what to do with the peasants in the wake of the abolition of the communes in the early 1980s. The discussion of whether villager self-government is empowering the rural residents or emasculating the Party’s leadership and whether it will make peasants feel happier or create obstacles for economic development, will continue in the foreseeable future and have a significant impact on the sustainability of villager self-government.

The renewal of the direct election of local people’s congress deputies in 1978, and particularly the introduction of direct election of village committees in 1988, has led to a new sense of political ownership and a new awareness of what constitutes political legitimacy. Real competition at the village level – in places where local officials believed that the most cost-effective way of providing “guidance” was direct nomination of candidates, and direct election of village committee members from among multiple candidates – has led the residents to overcome initial suspicion of whether their votes would make a difference and to begin playing the political game more seriously.

The political scientists who study this new rural political development began to paint a very rosy picture of this undertaking and have even hatched a new field of study. They call villager self-government a “silent revolution” that will lead to the destruction of old feudalistic heritage and the birth of new civic virtues and political activism. They feel villager self-government is the beginning of a new wave of the encirclement of the urban centers by the vast countryside. Further, they wonder whether if the least-informed and -educated group are given the right to directly elect those who make decisions affecting them, then perhaps the better-prepared residents in the cities should be offered at least the same opportunity.

The echoes of the Chinese scholars have not only reverberated in the capitals and classrooms of European countries and the United States, but also have been heard by the top leaders inside the Forbidden City. This new language has not only crept into the speeches of the China-watchers in the West, but also has been melded into the political jargon of Chinese leaders. While the image-makers of China have achieved the goal of using villager self-government to prove the nascent rise of political reform in China, the praise of it by the top Chinese leaders in 1998 at the 15th CCP National Congress led to the unprecedented experiment of a direct election of a township magistrate in Buyun, Sichuan.

If we measure villager self-government using Robert Dahl’s two attributes of democracy (contestation or compilation, and participation or inclusion), it seems we may call it a curtailed democracy in a restricted geographical area, always subject to outside forces it has no capacity to resist. Village self-government also seems to possess the features of both internal and external efficacy. If, however we used other criteria to determine whether villager self-government is democracy, with other universally recognized and accepted components, the answer becomes less certain and even doubtful.

In the context of Chinese political systems, both past and present, villager self-government can be described as meaningful democracy with Chinese characteristics, or, at least, as an embryonic form of a unique democratic practice that is different from other forms of democracy. First, it calls citizens’ attention to the serious problem of the Chinese political system, i.e. the justice of the systemic design and the injustice of procedures. This injustice is caused by the woeful lack of executable procedures in choice and accountability matters and the gross manipulation of those procedures that have been laid out.

Second, villager self-government is operating within the context of a Chinese system whose center of gravity is located with the Party. The fact that a significant number of Party officials feel the cost of governance is so much lower when the right to choose their immediate leaders is given to the peasants may lead to a reorientation of the belief that the Party always knows best. In fact, practice of villager self-government has already trickled upwards and led to many trials of choice and accountability at higher levels.

Thirdly, direct village elections, with their competitiveness and their real impact on political legitimacy, governance and the initiatives of those who run and get elected by the ordinary voter,s are a reminder to those who are contemplating political reform in China that real reform does not have to be wholesale adoption of the Western system of multiple political parties and parliamentary supremacy. The Chinese system on paper is sufficient if the Party superstructure does not interfere with direct elections of township and county people’s congress deputies and indirect elections of local officials such as township and county magistrates by the directly elected people’s deputies.

Lastly, it appears villager self-government is conducive to solidifying the Party’s legitimacy and likeability in the countryside. This may reduce the fear that is constantly on the lips of Chinese officials: that allowing the lowly common Chinese people to engage in democratic elections and decision-making at higher levels will lead to chaos and eventually break the back of the Party.

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In January 2003, the Jingdongfang Group spent $380 million for South Korea’s Hynix Company and kept its 1,700 Korean employees. In 2004, China’s zinc and copper producer China Minmetals negotiated a $5.5 billion deal to take over Noranda, Canada’s biggest mining company. Also in 2004, TCL claimed a 55% stake in a 100 million euro joint venture with French telecommunications giant Alcatel. Currently, China Mobile Communications Corp is close to finishing a $5.3 billion pact to acquire Millicom International Cellular SA of Luxumbourg.

Chinese companies are going global, and they’re doing it in a variety of industries: energy, steel, automotive, logistics, computers, consumer electronics, household appliances, telecommunications equipment, textiles and consumer products. Companies such as Haier (home appliances), Galanz (home appliances), Wanxiang Group (auto parts), Cosco (logistics), Lifan (motorcycles), BaoSteel (steel) and Huawei (telecom equipment) are among those well positioned to become global players over the next decade. Today, China has 16 companies in the Fortune Global 500 list, up from 11 in 2002. By May 2004, there were 7,720 Chinese companies registered abroad in 160 countries and $33 billion dollars in investment.

In this research, I explored the operational strategies and communication obstacles involved in China’s global expansion. Research data was obtained through ethnographic observation, textual analysis and case studies conducted in China and the U.S. in June, July, August and September of 2006. I will begin by summarizing the current state of Chinese companies’ global expansion, the political and economic support structure for such expansion, and the reasons these companies are going global. Then six operational strategies and three communication obstacles will be conceptualized.

Chinese companies are going global in search of new markets, raw materials, energy sources, advanced technology and global human resources. The move is being driven by growing labor costs in China and intensified competition from foreign multinational corporations in China following Beijing’s entry into the World Trade Organization Many of the Chinese companies looking outward are medium or large, state-owned and private enterprises. Most are market-driven, ambitious, nimble and flat in structure.

An obvious impetus for Chinese companies’ global expansion is China’s WTO entry, which came officially on December 11, 2001. WTO membership made it possible for Chinese companies to enjoy favored nation status in expanding to global markets, but it also presented Chinese companies with enhanced competition at home. WTO membership granted all member countries favored nation status in China. As a result, in recent years China has experienced a 36% increase in Fortune 500 representation. Anxiety about “foreign wolves coming to China” plagues many Chinese companies. For example, China’s entry into the WTO dramatically cut import barriers previously imposed on American agricultural products. Total U.S. exports to China have grown from negligible levels to about $14 billion a year.

Chinese companies have accumulated capital to invest overseas, and they are receiving official encouragement, which means support from Chinese banks. “Going global” became a national policy in the five-year plan for 2001-2005 in an effort to move from the “defense” to the “offense” and enable Chinese companies to acquire advanced technology, global brands, managerial know-how, and advanced human resources.

Chinese banks are well poised to provide support by virtue of a strong Chinese economy, high savings rate and abundant foreign reserves. Net savings have been accumulating in Chinese banks since 1994. In 2001, savings in banks exceeded loans by 3,200 billions RMB. China’s GDP is currently fourth in the world, and the country is No. 3 in foreign trade. Foreign reserves exceed $6 trillion.

Finally, labor costs are rising in China, making the country less competitive in some areas as a manufacturing base. Experts estimate that labor costs in China will continue to rise by 30% to 50% in the next three to five years. One result: Nike has moved some of its production line out of China to Vietnam to take advantage of lower labor costs.

Chinese multinationals are adopting six operational strategies in their global expansion:

All Chinese corporations going global need to answer three critical questions prior to any decision. First, should a manufacturing base be built in China or overseas? Second, should product distribution and sales be outsourced to foreign marketing companies? Third, should the Chinese company go global with its own brand name, which is usually little known to the outside world, or with a global brand name?

Chinese companies also have to overcome three major communication challenges in their globalization drive: negative perceptions of Chinese companies by the outside and especially the Western world, Chinese companies’ inefficient conflict management style, and their low proficiency in understanding local cultures worldwide.

Chinese executives can learn much from the Japanese and Korean experience in the 1970s, 1980s, and 1990s. As the domestic market in China continues to grow, these outward-looking companies play a key role in shaping up Chinese economy while bring in new knowledge, capital, products and personnel to China.

“Ten years ago, Lenovo’s participation in the international market was just like taking part in the Paralympics, with various tariffs and other obstacles preventing its internationalization process,” said Liu Chuanzhi, Lenovo’s former chairman, “Things have changed, however, now we are on a racetrack of real Olympic Games.”

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In China “local government” refers to all types of sub-national governments. As a key part of the central-local dynamic, China’s fiscal system plays an important role of macro-regulation, exerting great influence upon local governmental behavior by defining the scope of fiscal revenue and expenditure, and the responsibilities and rights of fiscal management between the central government and local governments. China’s fiscal system has undergone a series of changes as part of the overall reform process in order to improve resource allocation and overall economic productivity. This article re-examines the previous narrow notion of a fiscal system as applied in China, analyzes the changes that have taken place, and offers suggestions for further reform.

The structure of China’s fiscal system has shaped local governments into “quasi-market agents” that demonstrate great enthusiasm in participating in resource allocation activities. As a result, they have made great contributions to recent national economic growth. At the same time the present fiscal system also brings many negative influences to local government behavior, and thereby is hindering the economy’s development of healthy growth in the future. The way China reforms its fiscal system from here will directly affect the behavior of local governments. It is critical that China deepen its fiscal system reform to optimize local governmental behavior to ensure economic development in the long run.

At present, the pivotal question for China’s economists and officials is what kind of fiscal system can promise the greatest success in maintaining economic stability and lead to the establishment of a more equitable redistribution of income and efficient allocation of resources. There seems to be consensus that a strong government has some advantages with regard to the functions of stabilization, redistribution and provision of public goods and services. Meanwhile, with the move to a more market-oriented system, governments should work to become macroeconomic regulators instead of direct organizers of microeconomic activities.

Local government behavior under different reform systems
Early Reforms
After years of under a very top-down fiscal system where local governments did not have control over their budgets, reforms in the early 1980s experimented with various contractual systems between different levels of government. The contractual fiscal system was characterized by defining a fixed sum paid (or received, if subsidized) to the central government by a local government. This approach clarified the tasks assigned to local governments and the benefits they would receive, and provided greater incentives to encourage local growth. Within the term of the contracts, local governments could arrange their own revenue and expenditure according to their goals of regional economic and social development. However, their increased independence also dramatically changed their behavior.

First, because local budgets increased with local revenue, local governments had a strong motive to develop their regional economies and new opportunities for profit generation. However, since they did not have taxation power and because of shortages in local revenue in the face of the need to develop infrastructure, local governments began to depend more on revenue that could be raised and spent outside of the official budget. This included the unwarranted pooling of funds, as well as arbitrary charges and fines that helped cover the gap between expenditure and revenue. The unintended consequences of these efforts were that they undermined fiscal discipline and distorted the internal mechanism of the contractual system.

Second, in order to take advantage of resource allocation and system arrangements, local governments bargained hard with the central government to win decisions on system choice and policy-making that were slanted in their favor. Many different contracts resulted, with little consistency across local governments, and the short timeframe of each contract led to short-term-oriented behavior.

Third, because local governments had control over extra revenue generated above their negotiated contract with the central government, local governments tended to interfere with the management and other decisions of firms within their jurisdiction, frustrating enterprise market reforms.

Tax Reform in 1994
Compared to China’s tax system prior to 1994, the Tax Sharing Reform, enacted in January 1994, instituted monumental change. The reform was aimed at (1) unifying and perfecting the tax system so that tax collection could be administered on the basis of law instead of on the basis of administrative discretion and bargaining; (2) simplifying the tax system; (3) assuring governmental revenue; (4) enabling reasonable sharing of tax revenue, and taxation authority between the central and local governments; (5) using taxation as an instrument to control the economy and adjust resource allocations; and (6) ensuring tax burden equity.

The 1994 Tax Reform divided tax revenue into three categories: central taxes, regional taxes, and central/regional government shared taxes. These divisions are close to those often used in countries with market-oriented economic systems. Administratively, two levels of tax administration were established: the state bureau of tax administration (responsible for central government tax and central/regional shared tax administration) and regional tax administration (responsible for regional/local tax only). The central and provincial tax administrations each levied its own taxes on the basis of the new tax laws. As a result, local governments could in theory enjoy more freedom over their own revenue, while helping to ensure the central government’s revenue. At the same time, the changes that resulted in decentralized tax authority would give incentives to local governments to work towards good economic performance to increase the tax revenue generated.

The appeal of the revenue-sharing system embedded in the 1994 Tax Sharing Reforms is that it put a highly elastic central revenue system at the disposal of local governments. With this system, local governments were allowed to disburse expenditures if they generated more revenue. This created powerful fiscal incentives for local governments to promote local economic growth in order to raise revenue and create employment.

Alongside these positive incentives a number of serious negative results also emerged, largely due to the lack of institutional guarantees, making the balance of power between central and local governments difficult. The changes lead to resentment due to the absence of popular representation, which meant local officials were appointed by the central government according to their ability to promote economic growth rather than being elected locally. Therefore, when local officials did not live up to the expectations of their constituents, they did not suffer any serious consequences, and they easily avoided transparency in their negotiations with the central government.

Policy Options to optimize local government behavior
Local governments play a very important role in national economic development. Without optimal local government behavior, it is impossible for a society to achieve a healthy development in the long run. Broadly speaking, there are a lot of factors affecting the negative behavior of local government in China. However, from the above analysis, we can see the fiscal system is one of the most important. In this context, taking measures to further fiscal-system reform can not only optimize local government behavior, but can also bring long-term positive effects for future development. Several policy reforms are needed.

Ultimately, no matter what the central or the local governments do, their power comes from the society they serve. But the self-inflation of power by the government sometimes exceeds the scope given by society. With no adjustment mechanism, the result is often inflation of government bureaucracy and rent-seeking, where the government officials impose hefty fees on productive economic activity. After 20 years of reform in China, the growing social strength of the citizens makes it more urgent that local officials monitor their own behavior. To accomplish this, the reforms should support the development of three kinds of social organizations: (1) those organizations that can improve the degree of self-discipline of the agents in the micro-economy, such as trademark and intellectual property protection, accounting and audit expertise, asset assessment and stock exchange information and transactions; (2) those organizations that can improve the organization and smooth functioning of markets, such as judicial process and other organizations that support social service and social welfare; and (3) those organizations that can improve the coordination between macro-control and micro-activities, such as trade associations, labor unions and professional associations.

Under the present fiscal system, local governments are both players and referees. In order to improve their local performance, there is need to separate the evaluation of local government officials from a simple measure of rapid growth in output, which to date has driven local officials’ promotion and their chances of winning favorable policies for the future. Freeing enterprises from government intervention in their operations and putting more resources in the hands of the populace would be more desirable. In the future, some of these types of measures must be taken to reshape local governments and turn them into lean and efficient governments by making clear their rights and responsibilities.

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