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China’s Stability Maintenance System Faces Financial Pressure

November 30, 2012

Increasingly frequent social conflicts and economic downturn have not only presented China’s regional governments with overwhelming financial pressure, but also caused the central government a serious funding problem for its stability maintenance system.

The Huge Cost of “Stability Maintenance”

Beginning in the late 1990s, local governments’ excessive resource extraction led to a dramatic annual increase in social resistance and organized mass incidents. There were 87,000 incidents in 2005, more than 90,000 in 2006,1 124,000 in 2008,2 and more than 280,000 in 2009.3

The types of social protest in China are determined by the country’s special pattern of economic development. Economic growth in China depends on real estate and the resources sector—petroleum, heavy chemical industry, and mining. Social protests thus concentrate on these sectors. The first major type of protest is land rights defense. This includes housing demolition and eviction in cities and land requisition in the countryside. The second major type involves environmental rights defense, because  pollution caused by the resources sector such as the heavy chemical industry seriously endangers the wellbeing of the people. And, the third type involves corruption among local government officials. Many corruption cases have to do with local officials embezzling land requisition compensation funds.

Chinese police block Shaanxi Nan Lu. Shanghai, September 13, 2009. Photo credit: JoopDorresteijn.

China’s public security expenditures (commonly known as “stability maintenance expenses”) directly correspond to the growth of social protests. As the number of protests increased dramatically in 2009, the focus of local governments underwent subtle changes. The principle of “development is the priority task” became “development is the priority task and stability maintenance the foremost responsibility.” Government agencies in charge of stability maintenance were given permanent status. There are stability maintenance offices all the way from the central to local governments. The Central Committee of the Communist Party of China established a “Central Government Leading Group for Stability Maintenance.” It administers the Central Government Office of Stability Maintenance, located inside the Central Political and Legislative Affairs Committee. This office, under the direct administration of the CPC Central Committee, is responsible for rules of procedure and coordination. A “stability maintenance” office (full name: “office of the leading group for stability maintenance work”) can be found at every level of government—from each province or autonomous region to every city, county, village, neighborhood, even in major civic institutions and business enterprises.

“Stability maintenance offices” must fully understand all social development problems, not just those in the political and legal spheres. Thus, they comprise not only the departments of public security, procuratorate, the judicial system, and state security, but also propaganda departments. This system also maintains a huge informant network. For example, there are information staff members (i.e. informants) at universities, middle schools, civic institutions, business enterprises and in rural areas. According to a 2010 interview published on Xinhua Net, Liu Xingchen, assistant to the director of Kailu County, Inner Mongolia, and Party Secretary and Public Security Bureau Director, bragged to the reporter that he “has a huge informant network” and stays “highly alert” to any dissent and protest. How large is this network? Let’s take a look at the numbers Liu Xingchen provided: The number of informants under the Kailu County Public Security Bureau is as high as 12,093. For a county with a population of 400,000, excluding one quarter of the population who are underage, there is at least one informant for every 25 adults.4

As social protests increase and the stability maintenance system becomes systematized, the cost of stability maintenance has risen rapidly. According to the Ministry of Finance report on central and local government budget implementation, China’s expense for public security was 405.976 billion yuan [~$65.18 billion] in 20085 514 billion yuan [~$82.52 billion] in 2009,6 548.606 billion yuan [~$88.08 billion] in 2010,[7] and 624.421 billion yuan [~$100.25 billion] in 2011.8

“Stability Maintenance” Expenditures Exceed Military Budget, Straining People’s Livelihoods

To illustrate how alarmingly high stability maintenance costs are, researchers often compare them to military expenditures. The 514 billion yuan [~$82.52 billion] spent on stability maintenance in 2009 was close to the 532.1 billion yuan [~$85.43 billion] in military expenditures that year. The 624.421 billion yuan [~$100.25 billion] for stability maintenance in 2011 surpassed the military budget of 601.1 billion yuan [~$96.51 billion] the same year.

Public security expenditures chiefly fund organs of state-sanctioned violence. Of the 624.421 billion yuan [~$100.25  billion] public security budget in 2011, the budget for the following five groups account for 506.4 billion yuan [~$81.30 billion], or 81 percent, of the total public security budget: the armed police, public security, courts, judicial administration system,9 and anti-smuggling police. Of this total, the portion for public security departments (including state security, and public security for railway and civil aviation) was more than 322.562 billion yuan [~$51.79 billion]. The second-largest portion was 104.6 billion yuan [~$16.79 billion] for the paramilitary police. The budget for the courts—responsible for resolving social disputes—was no more than 60.804 billion yuan [~$9.76 billion], only 9.7 percent of the total.10 It must be pointed out that, unlike in countries with separation of power—where the courts are independent of the executive and legislative branches of the government—the court system in China is controlled by the CPC and is considered part of the stability maintenance system.

Stability maintenance has become an important measure of the political performance of government officials. Local officials are compelled to prioritize stability maintenance above other issues affecting people’s livelihoods such as social security and education. According to local government budget implementation in 2009, public security expenditures in many regions exceeded the amount spent on social security, employment, education, environmental protection, science and technology innovation and affordable housing. In Huizhou city, Guangdong Province, at least 36.64 million yuan [~$5.88 million] was spent on leasing surveillance monitors alone. The fund for 11 social security services including employment subsidy, state enterprise bankruptcy subsidy, medical insurance for seniors, and emergency relief totaled only 50.4 million yuan [~$8.09 million].11 In 2007 in Guangzhou (the capital of Guangdong province), expenses for social stability maintenance totaled 4.4 billion yuan [~$710 million], much more than the social security fund of 3.52 billion yuan [~$ 560 million].12

As mentioned above, the main cause of China’s social conflicts is excessive extraction of resources by government at all levels, creating a vicious cycle between stability maintenance and economic development. Local officials need GDP growth to demonstrate their effectiveness, and are compelled to undertake a large number of projects. The most profitable projects are real estate and polluting industries (because China has very lax oversight on environmental pollution, and one can pay very little, or even nothing, for polluting). However, real estate development involves land acquisition and property demolition, and industrial pollution triggers environmental rights defense actions by local residents. The more the economy develops, the more conflicts there are between government officials and the people, and the more stability maintenance is needed, requiring greater expenditures. City and county governments all feel increasing strain in funding stability maintenance. The November 2011 protest against the government’s land grab in Wukan Village, Shanwei City, Guangdong Province, lasted several months. The Shanwei municipal government spent a large sum to “maintain stability” in the village. The party secretary of Shanwei, Zheng Yanxiong, vented in his internally circulated speech: “You think it’s free to hire armed police? Hundreds of armed police and regular police living here has made our mayor’s wallet thinner by the day.”13

The Astronomical Price of Stability Maintenance is a Heavy Financial Burden on Local Governments

In his 2010 article, “The Astronomical Cost of Stability Maintenance is Eroding Local Government,” in Lianhe Zaobo, Xie Yue reported: “According to published Chinese government statistics, on average, local governments shoulder about 70 percent of their stability maintenance budget, with the remaining 30 percent coming from the central government. …”14

“There is a great regional difference in local governments’ spending on ‘stability maintenance.’ The more developed the area, the more it can spend.” And the converse is also true: the poorer the area, the less it can afford. “In the past 15 years, the top five biggest municipal spenders on public security, procuratorate, court, judicial administration system, and people’s armed police were Guangdong, Jiangsu, Shanghai, Zhejiang and Shandong. The smallest five spenders were Guizhou, Gansu, Qinghai, Tibet and Ningxia. However, the stability maintenance expenditures of a poor region may appear small in absolute amounts, those may eat up a big portion of its revenue. In 2008, number one-ranked Guangdong spent nearly 40 billion yuan [~$6.42 billion] on public security, procuratorate, court system and people’s armed police. Bottom-ranking Ningxia spent only 1.9 billion yuan [~$300 million],” Xie Yue wrote.15

Even though spending was relatively less in backward areas, it still accounted for a large percentage of local budgets. Xie Yue said: “In 2008, only 6.34 percent of Shanghai’s annual expenditure was on public security, procuratorate, court system, and people’s armed police. But in economically backward Ningxia this percentage was 28.4 percent. These statistics show that backward areas were under much greater economic stress due to ‘stability maintenance’ than developed areas. Many provinces run in fiscal deficit due to ‘stability maintenance.’”16

The above took place during a period when China’s economy was developing rapidly and income for local government was relatively good. Since 2009, income for local governments has decreased. To resolve local financial difficulties, the central government had to issue—on behalf of the local governments of 31 cities and provinces—three-year bonds worth 700 billion yuan [~$112.39 billion] to maintain the financial health of local governments. In the period March-August, 2012, more than 210 billion yuan [~$33.72 billion] worth of bonds matured, but local governments were unable to repay the debts. All they could do was play the game of borrowing new debt to repay old debt.17

Beginning 2012, local governments have been facing even greater financial pressure. With the introduction of stricter real estate market controls in 2011, local land finances were hard hit. Chinese Index Institute statistics indicate that in the first half of 2012, the total value of land transfer in China’s 300 cities was 652.598 billion yuan [~$104.77 billion], a decrease of 38 percent from the same period the previous year. Even in the wealthiest regions of the country—Beijing, Shanghai, Zhejiang and Guangdong—the revenue growth rate for the first half of 2012 went down to less than 10 percent from 20-to-30 percent in the same period last year. Due to the difficulties in transitioning from an export economy to a consumer market economy, the developed southeast coastal region also suffered serious financial downturn. Rich areas such as Shenzhen and Dongguan are on the verge of fiscal deficit.18

The Two-Faced Role of Regional Governments: Creator of Social Unrest and Maintainer of Stability

According to statistics provided by the article “Public Security Bill,” in the May 2011 issue of Caijing Magazine, the public security expenditures of local governments surpassed those of the central government. The amounts were 521.968 billion yuan [~$83.80 billion] and 102.452 billion yuan [~$16.45 billion], respectively, representing a ratio of greater than 3:1.19 This shows that local governments are the prime actors of stability maintenance.

Public security expenditures account for a large portion of local governments’ total expenditures. The hidden fact is that the local government benefits from land acquisition and housing demolition. That is, the government acquires the land before it sells it, and pockets the profits. It is also the behind-the scenes protector of local polluting enterprises. In 2010, nationally, land transfer funds accounted for 76.6 percent of local government revenues.20 In 2005, 80 percent of corrupt Chinese officials dealt in land.21 The fact these two figures reveal is that without the income from land transfers, most of local government finances would collapse. Officials would no longer be able to wear expensive clothes, eat fancy food, live in mansions, and drive luxury cars. As for the local government’s protection of polluting enterprises economic considerations are a factor. Polluting enterprises in many areas, especially in poor areas, are supported by the local governments and are also big tax payers. Wucheng County, Dezhou City, Shandong Province became a famous well-off village after developing a dairy industry. But many villagers in recent years died of cancer. The source of cancer is the Shandong Gaoxinrun Agricultural Chemical Co., Ltd., a big tax payer.22 The largest polluting enterprises in Yuanshi County, Henan Province are also the local star enterprises and big tax payers.23

We can see from this that local governments are the real culprits in the disputes and protests caused by land acquisition and industrial pollution. But since the local government has the executive power and judicial administrative power, they can use violent means to suppress people at any time. A great number of cases demonstrate that those whose interests have been harmed tried to get justice through legal channels. But either their cases are not accepted by the local courts or they lose their cases after exhausting their energy and money. If the people protest, they will most likely be violently suppressed by police dispatched by local authorities. They may even be arrested and labeled protest leaders and end up in prison. When we see the logic of the relationship of the above facts, things are terrifyingly simple: China’s local governments at different levels are themselves creators of social conflict, and they are the biggest threat to public security.

In summary, “stability maintenance” in China has become an industrial chain. At its top is the government’s plundering through land requisition, property demolition, and industrial pollution in order to preserve tax and financial revenues. At the middle of the chain is the government’s interception of complaints and petitions, crackdown, control of public opinion, propaganda, and informants. At the end of the chain is the judicial system, mental hospitals,24 and prisons. This new industrial chain provides a huge profit-sharing opportunity for China’s government officials and their relatives at all levels. Everyone—from the central government ministries to local government and the poor countryside—is connected to this chain of interests. Such an iron-fisted stability maintenance system not only makes it financially difficult for the government to continue to “maintain stability,” but also drags China into a vicious cycle of “the more one tries to maintain stability, the less stable it is.”

He Qinglian (何清涟), is an economist and author of China’s Pitfall and Media Control in China. A graduate of Hunan Normal University, with a master’s degree in economics from Shanghai’s Fudan University, He Qinglian worked in the propaganda department of the municipal Communist Party Committee in Shenzhen before becoming a writer and editor for the Shenzhen Legal Daily and working at Jinan University. He Qinglian moved to the United States in 2001.



Notes

1. Xu Kai, Chen Xiaoshu, Li Wei’ao, “Public Security Bill,” Caijing Magazine, Issue 11, 2011,  http://magazine.caijing.com.cn/2011-05-08/110712639.html.^

2. For 2008 data see John Lee, “If Only China Were More Like Japan,” Businessweek, August 31, 2010, http://www.businessweek.com/globalbiz/content/aug2010/gb20100831_989060.htm#p2.^

3. “Difficulty of Investing in Industry Leads to Increased Speculation,” Sina.com, July 4, 2011, http://news.sina.com.cn/c/sd/2011-07-04/144522753694.shtml.^

4. Malcolm Moore, “Chinese police admit enormous number of spies. A Chinese police chief has said he uses more than 12,000 spies to inform on a remote county of just 400,000 people, an admission that lays bare the enormous scale of China's surveillance network,” Feb. 9, 2010, http://www.telegraph.co.uk/news/worldnews/asia/china/7195592/Chinese-police-admit-enormous-number-of-spies.html.^

5. “China’s Public Security Expenditure Surpassing Military Budget Should Be No Surprise,” Xinhua Net, April 7, 2011, http://mil.huanqiu.com/Observation/2011-04/1612496.html.^

6. Xu Kai, et al, “Public Security Bill,” Caijing Magazine, Issue 11, 2011,  http://magazine.caijing.com.cn/2011-05-08/110712639.html.^

7. “China’s Public Security Expenditure Surpassing Military Budget Should Be No Surprise,” Xinhua Net, April 7, 2011, http://mil.huanqiu.com/Observation/2011-04/1612496.html.^

8. Xu Kai et al, “Public Security Bill,” Caijing Magazine, Issue 11, 2011,  http://magazine.caijing.com.cn/2011-05-08/110712639.html.^

9. This refers to the system of judicial bureaus headed by the Ministry of Justice. Among the functions of judicial bureaus is the management of lawyers, prisons, and the Reeducation-Through-Labor system. See http://news.xinhuanet.com/ziliao/2003-08/21/content_1038382.htm, http://www.moj.gov.cn/  and http://www.moj.gov.cn/index/content/2008-07/15/content_900525.htm?node=7350.^

10. Xu Kai et al, “Public Security Bill,” Caijing Magazine, Issue 11, 2011,  http://magazine.caijing.com.cn/2011-05-08/110712639.html.^

11. Huizhou City Report on 2009 Budget Implementation and 2010 Budget Draft, http://www.huizhou.gov.cn/zwgkviewArticle.shtml?method=viewArticle&id=bba17c65264ca60d0126500505d50165.^

12. “Yu Jianrong: Repressive Social Stability Maintenance System Reaches Its Limit,” April 12, 2010, http://www.21ccom.net/newsinfo-1.asp?id=8061&cid=10342300, reposted at http://www.aisixiang.com/data/detail.php?id=32941.^

13. Fang Fang, “After Authorities Meet Villagers Is Wukan Problem Resolved?” Voice of America, November 22, 2011, http://www.voanews.com/chinese/news/20111222-China-Wukan-problems-136072303.html.^

14. Xie Yue, “The Astronomical Cost of Stability Maintenance is Eroding Local Government Finances.” Lianhe Zaobao, October 27, 2010, http://www.rmlt.com.cn/News/201010/201010270933287379.html.^

15. Ibid.^

16. Ibid.^

17. “Ministry of Finance Refusal to Renew Local Government Debt Causes Local Governments to Collude in ‘Borrowing New Loans to Repay Old Debts,’” June 2, 2012, Economic Observer Net, http://www.eeo.com.cn/2012/0602/227613.shtml.^

18. “Is Tax Levying “Battle” Any Use in Resolving Local Financial Crisis?” Finance Digest Net, August 28, 2012, http://www.21fd.cn/a/fengmianbaodao/2012082850499.html.^

19. Xu Kai, et al, “Public Security Bill,” Caijing Magazine, Issue 11, 2011, http://magazine.caijing.com.cn/2011-05-08/110712639.html.^

[20]  “Land Sales Account for More Than 76.6 Percent of Local Government Revenue in 2010,” Southern Weekend, January 14, 2011, http://www.infzm.com/content/54644.^

21. “Interview With Vice Minister of Land and Resources: Of Ten Corrupt Officials, Eight Deal in Land,” Sina.Com, July 4, 2005, http://bj.house.sina.com.cn/news/yjgd/p/2005-07-04/105782301.html. ^

22. “Hard-to-Ban Polluting Chemical Enterprise Suspected to Cause Cancer in Village in Wucheng City, Shandong Province,” www.sina.com.cn, http://green.sina.com.cn/news/roll/2012-08-08/102524929445.shtml.^

23. Zhang Tao, Bai Mingshan “Star Enterprise Now Sewage Draining Polluter—Tracking the Chemical Pollution Incident in Yuanshi County, Hebei Province,”  China Youth Daily, Page 4, May 3, 2011, http://zqb.cyol.com/html/2011-05/03/nw.D110000zgqnb_20110503_5-04.htm.^

24. “Research Reveals that China Has More Than 100 Million Mentally Ill, 16 Million Seriously Ill,” Outlook Weekly, May 30, 2010, http://news.xinhuanet.com/politics/2010-05/30/c_12158168.htm. This article classifies ideological crime as mental illness, and submits that “uncertainty due to confusion and even disintegration in values, psychological instability arising from severe social inequality, and the disparity between individuals’ aspirations and reality can all induce mental illness.”^

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