Economy

Power problem

Beijing orders factories shut; will provinces do so?

Cracking the whip? Hu and Wen

When it comes to creative acts of insubordination, it is hard to beat Horatio Nelson’s efforts at the Battle of Copenhagen. Ordered to retreat by Admiral Sir Hyde Parker, Nelson opted to hold his telescope to his blind eye. “I see no ships”, he remarked coolly, before continuing with his attack.

Disobedience has a long history in China too. A popular proverb – which WiC has cited before – celebrates that “Heaven is high and the emperor is far away”. It denotes the difficulties of Chinese rulers in enforcing their authority, especially in the more distant provinces.

That doesn’t stop the emperors from trying to express their will, of course. And one government ministry has made just such an effort this month, releasing a list of more than 2,000 companies targeted for closures due to “backward production capacity”.

The roll call, released by the Ministry of Industry and Information Technology (MIIT), includes companies from a range of industries and provinces. Heavy polluters get most attention, with cement producers, papermakers and printing firms featuring heavily, as do coking and iron smelters. Henan, Shanxi and Zhejiang top the list for provinces facing the most factory shutdowns.

One response to such pronouncements is that we’ve heard them all before. Most recently, in fact, about four months ago, when Beijing’s determination to reduce energy consumption as a percentage of GDP growth was again making headlines. Pretty much the same group of offenders came in for media treatment at the time, too.

The problem for the State Council is that it is fast running out of time to meet its energy policy commitments (and we all know how keen the authorities are to show that they can make their numbers).

This particular target is a 20% reduction in energy intensity (on 2005 levels) by the end of this year. But according to the official data, the programme is off the pace. International experts say that the official figures look suspect, and shroud a much larger shortfall.

Not that the government is in cover-up mode. Data released for the start of the year showed energy intensity had actually increased (i.e. more energy has been required for each additional unit of economic growth). It was the first deterioration in performance for four years.

“Our consumption of energy is speeding up and saving energy and cutting emissions are becoming even more pressing tasks,” Sheng Laiyun, a spokesman for the National Bureau of Statistics, told the China Daily.

That must have been a frustrating admission. Wen has come on particularly strong in national TV slots, stressing that energy conservation is a “fundamental national policy” crucial to the “survival and development of the Chinese people”. He has been talking a tough line. “We can never break our pledge, stagger our resolution or weaken our efforts,” he warned. Follow-up coverage in the state newspaper editorials has made much of references to the government’s readiness to employ an “iron hand” in getting to grips with the problem.

But what’s in the national interest, may not be in the provincial one (or for local bureaucrats, who have their performances measured on GDP growth). That’s why many tend to ignore or resist Beijing’s calls to action.

According to the 21CN Business Herald, Henan province’s bureaucrats may be doing just that. Defending their own cement industry vigorously, they have insisted that their own investigations show that local enterprises have switched to new production techniques that mean the cement plants can remain open.

But MIIT seems reluctant to take similar commitments at face value, suspecting that information submitted by local firms (and, by inference, the local authorities that oversee them) is “somewhat exaggerated,” 21CN says.

The newspaper then called up a number of companies on the hit list, to be told that many were either challenging the directives, or were insisting that they had acted previously in shutting offending plants.

Clearly, policy enforcement is far from a given. MIIT also fears that there may have been backtracking on previous shutdowns, with decommissioned capacity reintroduced when the economy improved in response to national stimulus spend.

This ongoing struggle between the central government and its provincial representatives is a revealing one, not least in highlighting some of the limitations of the State Council’s power.

While it can be fashionable to present the country’s leadership as an irresistible force, the political realities on the ground mean that too much can be made of its mastery, especially in the actual implementation of policy initiatives often announced (with fanfare) at a central level.

Still, some sense a new determination in Beijing’s efforts to enforce its writ.

Back in 1978, when Deng Xiaoping first launched the country’s economic reforms, local governments were made responsible for delivering their own economic growth. Provinces like Guangdong, Fujian and Jiangsu responded with alacrity.

But years of rapid economic growth then made them more resentful of central interference. Under former premier Zhu Rongji, the central leadership tried to regain more of the policy initiative, especially in car and steel production. But it struggled for traction.

Now some say that, with less than two years left of their time in office, Hu Jintao and his colleague Wen are making a similar effort to impose themselves; hitting back at high-polluters, trying to curtail over-production in various sectors, clamping down on local government practices that encourage property market speculation or high-risk borrowing, and countering high-profile cases of official corruption.

Officials at MIIT also want to be more proactive, and are promising to punish those who ignore the latest set of directives. They say that factories that fail to comply will face a series of penalties, including new restrictions on access to bank financing, further blocks on new project approvals and even the confiscation of business licences.

The China Daily reports that a particularly draconian approach was taken in eight cities in Anhui province last Sunday: 506 factories had their electricity cut off because they didn’t meet energy conservation and emission reduction goals.


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