Op-Ed Contributors

Vested interests eat into economy

By He Bolin (China Daily)
Updated: 2010-06-17 07:55

Behind China's fast GDP growth and deepening economic reform lurk the shadows of social problems. Ask Yang Fan, professor in China University of Political Science and Law's Business School, why, and he will tell you that it's because "special interest groups" have encroached upon society's policymaking framework.

Yang, whose new book, Interest Groups, has raised the taboo subject of "interest groups" in China, has sounded the alarm against the power-capital nexus that intervenes in the policymaking process. He says the worsening social situation and the growing threats that development of a harmonious society face from these special interest groups compelled him to conduct a comprehensive research on how and where they operate.

Special interest groups exist in almost all the fields and have links with corrupt officials, he says. From the constant failures to check rising housing prices and rampant speculation in the market to public hearings predictably ending in still higher prices all point to one thing: special interest groups' attempt to manipulate public policies in their own favor.

Yang differentiates between interest groups and special interest groups, and says only the latter are illegal and harmful. In fact, interest groups' games are what Western democracies play. These groups, run under a set of regulatory frameworks, and represent and serve different interests. But interest groups in China function on a different level or with a different purpose: They operate mostly underground to extract privileges, which leads to corruption in the government and intensifies social contradictions.

The existence of interest groups in a market economy is normal. They pursue a set of interests, as well as create social wealth. But the trouble is that in China they have been popping up only to snatch away other people's or group's interests by building official-businessperson and power-money nexus.

Yang says there are three kinds of special interest groups in China: monopoly capital, international capital and domestic private capital. Monopoly capital is represented by State-owned enterprises and monopoly enterprises backed by the government. The administrative-organs-turned industry leaders such as those in the power, postal service, railway, oil and telecom sectors have thwarted true development by monopolizing or using their administrative influence on these sectors. They make huge profits but little of that goes to the government.

In order to encourage competition and raise efficiency, State-owned monopolies should start withdrawing from the competitive market, Yang says. And those engaged in energy and resources' sectors, which are of strategic importance to the country, should undergo public supervision to avoid loss of State assets. This is important because a lot of corruption and bribery may be involved in the purchase of equipment and facilities by such enterprises, which more often than not place orders only for foreign products.

International capital, the second interest group, is equally dangerous. International hot money speculators and their Chinese pawns have been directly responsible for the unusual fluctuations in China's stock market in recent years. Common people, many of who had invested their decades-long savings into the stock market, have lost huge amounts of money because of the fluctuations engineered by international speculators.