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China Reform Monitor - No. 906

Local government sink into debt;
Ethnic clashes in Burma put Chinese projects at risk

Edited by Joshua Eisenman
July 12, 2011

June 20:
 This week deadly armed clashes near Burma’s border with China ended a nearly two-decade-old ceasefire between the Kachin Independence Army (KIA) and Burma’s government. About 10,000 people have fled to refugee camps along the Chinese border and 215 Chinese workers from the Datang United Hydropower Developing Co. returned home after the KIA captured a Chinese-built and operated hydropower plant last week. A KIA spokesperson
told the Thailand-based Irrawaddy that the uprising began when the government reneged on an agreement to share electricity generated from the region’s Chinese-built hydropower plants with local people. “This electricity is now going to China, not the people as we’ve agreed,” he said. Beijing has called for restraint and its ambassador to Burma met with the foreign minister and border affairs minister on July 17 to discuss the ongoing hostilities.
 [Editor’s Note: Conflict between the KIA, the country’s second largest ethnic army, and Burma’s government forces could disrupt energy supplies to Yunnan. In May, the KIA sent a letter to Beijing formally objecting to the Chinese-built Myitsone hydroelectric dam project and warning that local resentment against the project could spark a civil war. Kachin State is also adjacent to the route of China’s twin oil and gas pipelines being built through central Burma from the Bay of Bengal to Yunnan Province.]
 June 21:

 General Li Jinai, a member of the Central Military Commission and director of the PLA General Political Department, has published an opinion piece
on the front page of the PLA Daily and in the English version of the People’s Daily, arguing that: “The military is the cornerstone of the regime. The absolute leadership of the CPC over the military is the soul of the army as well as an important political advantage of the party and the state.” Li warned that “domestic and foreign hostile forces” that call for nationalization of the PLA, breaking the links between the CPC and the PLA or depoliticizing the military seek to overthrow the CPC’s ruling position and subvert the system. “We must resolutely reject these false political ideas and unswervingly listen to and follow the Party,” Li wrote.
 June 26:

 China’s former finance minister, Jin Renjing, was forced to resign in 2007 because he was caught in a “honeytrap” with a female spy from Taiwan. Chen Tonghai, who was chief of the oil group Sinopec at the time, and also one of the spy’s lovers, apparently introduced Jin to the woman. Other top officials implicated include Du Qinglin, who was Communist Party of Sichuan at the time and Du Shicheng, a former deputy party secretary of Shandong province and party secretary of Qingdao. The latter resigned abruptly on New Year’s eve 2006 for a “serious discipline violation,” while Chen was sentenced to death with a two-year reprieve in 2009 in a corruption case. After his resignation, Jin was transferred to a government think-tank.
The Agence France Presse reports that the secret agent was introduced into official circles by “someone working with a Chinese military intelligence department.”
 June 27:

 China’s top auditor said that at the end of 2010 local government debt was at least $1.7 trillion, or about 27 percent of GDP, and called for better regulations to manage the problem,
the official China Daily reports. The report examined about 6,500 of the estimated 10,000 local government investment companies that borrow money from China’s state-run banks, mostly to finance infrastructure projects. The auditor’s report is less severe than a central bank announcement earlier this month that said by the end of last year, local government liabilities stood at about $2.2 trillion, 30 percent of GDP. An analyst at the credit rating agency Fitch said a shadow banking system has emerged beyond regulatory scrutiny in China causing an “overextension” of loans to local governments. “Rapid expansion of off-balance-sheet transactions is distorting bank financial statements,” she said. Victor Shih at Northwestern University agrees: “I think the problem is much, much bigger” than Beijing has acknowledged, he said in comments carried by the New York Times

Related Categories: China; China and East Asia Program

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