China's regulatory clampdowns: Masterful moves or persistent mistakes?

At the General Assembly of the United Nations in 2020, China pledged that its carbon emissions would peak by 2030, and that it would reach carbon neutrality by 2060. With China being the world's biggest carbon emitter, the fulfilment of this pledge is crucial for controlling global climate change. However, the goals so stated are very difficult to achieve.

In September 2021, China found itself in the grip of a power crunch. From Guangdong to Jiangsu and Zhejiang, multiple provinces began to ration power to energy-guzzling industries. Some cities in the Northeast even limited their citizens' power consumption, causing much trouble for production and everyday life.

Given that China had consistently been running ahead in infrastructure-building in recent years, the sudden power rationing naturally drew much attention.

During a meeting of the National Energy Commission in October 2021, Premier Li Keqiang pointed out that the goals of peaking carbon emissions and carbon neutrality should be pursued in a scientific and orderly manner, and so there was a need to correct the one-size-fits-all approach for limiting power and production or the campaign-style carbon reduction practised in some localities.

Obviously, part of the reason for the massive power disruption was the administrative means by which the carbon reduction goals were pursued.

This offers much food for thought.

The Chinese bureaucracy has shown high performance in stopping the spread of Covid-19. Its executive competence in enforcing the zero-Covid policy is nothing short of impressive.

And yet, when the same bureaucratic system strives towards carbon reduction goals, it employs unsophisticated, poorly performing administrative means, such that it fails to strike an acceptable balance between carbon reduction and other policy objectives, and underperforms severely.

So, what are the boundaries beyond which the Chinese bureaucracy's extraordinary effectiveness does not apply? When is the system able to show high performance?

Currently, the bureaucracies in many countries, such as Singapore, Japan and the UK, are basically built on the basis of Max Weber's theory and the politics-administration dichotomy articulated by Woodrow Wilson.

Within such systems, bureaucrats go by the law and set procedures to execute policies formulated by political appointees, and are empowered with autonomy. The whole system can operate on its own like the autopilot of an airplane.

Japan has had 18 prime ministers between 1991 and 2021 - in other words, each prime ministerial term lasted for less than two years on average. Even with frequent changes of governments, the effective operation of the Japanese bureaucratic system is not affected.

However, such bureaucracies are subject to legal and procedural restrictions. In the event of a sudden exigency, they are incapable of a quick mobilisation of resources to boost their administrative effectiveness.

In contrast, there is a tendency in China's bureaucracy to obey one's superiors unquestioningly. Under a system of centralised power, there is more emphasis on effectiveness, which means that efficiency and equity may be easily neglected.

When dealing with an emergency like the Covid-19 pandemic, this bureaucratic machine proves to be very flexible in mobilising administrative resources and demonstrates relatively high effectiveness in meeting policy goals, thanks to its being unfettered by too many systemic restraints. Why, then, does its performance seem subpar when it is working towards carbon reduction goals?

It turns out that this kind of bureaucracy can shift between different degrees of tension. It can be in a 'taut' mode or a 'slack' mode.

When the system is in a taut mode, the bureaucracy under the central government's control is like a whip being cracked by a warrior. It marries might with suppleness, and is nimble, fast and furious. With a flick, the force of intent can travel all the way to the tip of the whip.

But when the system is in a slack mode, the whip in the warrior's hand becomes a soft spring. Not only is the warrior's strength gradually reduced and cancelled out by a series of actions and reactions running through this spring, but the soft tool may also get flung in directions that often surprise the wielder himself greatly.

The central government that holds the reins of the bureaucracy knows how the "whip" in its hand works, so it often has to give a "tense-up" signal to put the bureaucrats in a taut mode, so as to raise the performance of the system.

However, even though one's bureaucratic career is at stake and the orders from the higher-ups cannot be disregarded, it is impossible for the bureaucrats to keep running on overdrive at all times. When the higher-ups give the signal to go taut, those below do not always buy into it and cooperate.

The effectiveness of the kind of bureaucracy in question not only depends on whether the system is in a taut or slack mode, but also, very importantly, on the interactions between the higher and lower echelons - that is to say, the efforts of the former to get the latter tensed up, and the latter's responses to such efforts.

It is under such circumstances that different mobilisation methods characterised by "rigid uniformity", the "one-item-veto rule" (yi piao fou jue 一票否决) and "campaign-style enforcement" respectively have been developed to save the day.

China is a vast country with significant differences between localities. When the central government formulates its policies, it often has to take locality differences into consideration, allowing local governments to make adaptations according to their situations and execute the imposed policies with flexibility.

However, the local governments may leverage their informational advantage and execute the central government's policies selectively - that is to say, whatever is beneficial for them is utilised to the max, whereas whatever is disadvantageous for them is met with buck-passing and perfunctory responses.

Clearly, the autonomy of the local governments hinders the full transmission of impetus down to the very tip of the central government's "whip". When the central government wishes to ensure that policy execution is not watered down, it has to limit local autonomy strictly. The most common way to do so is to demand rigid uniformity.

Rigid uniformity means no room for any exception and bargaining. In the Chinese system of centralised power, when the higher-ups order those below them to reach a fixed, objective target (a "hard index"), all subordinate units must succeed, or else officials could lose their jobs.

A case in point is an economic directive put out years ago by the central government to the effect that China's GDP growth rate must be kept at 8% or higher. The figure was broken down into numerical targets for all levels of local governments. The numbers were jacked up cumulatively at each level, and all were expected to do all they could to hit the target.

Generally speaking, when policies face resistance, mobilisation by demanding rigid uniformity is a method that breaks through every obstacle and works every time.

Such was the case when, for the purpose of cutting excess production capacity for cotton yarns, a limit on the number of spindles was imposed on cotton spinning mills. The same effect was also seen on the past occasions of administrative staff streamlining and of the reduction of coal production.

In 2016, multiple departments of the central government jointly implemented the 276-day policy, which restricted all the coal mines throughout the country to only 276 days of production a year. This brought the annual coal output down rapidly by 300 million tonnes. In less than a year, 65% of the state's plan to reduce coal production in three to five years was accomplished.

On the flip side, the rigid uniformity approach often has side effects. With the loss of autonomy, subordinate governments lose their proactiveness, and passively become mere "setters" to pass on the policies from above. They end up responding to the demands made in meetings and documents with merely more meetings and documents.

Furthermore, the rigid uniformity approach spares no consideration for local circumstances, so the burden of executing the orders that cannot be refused is felt differently from place to place. Take, for example, the goal of reducing energy consumption per unit of GDP by 3% annually. This is more easily met in regions with a proportionally enlarged service sector since the energy consumption per unit for this sector is only one-seventh that for the industrial sector.

During the pandemic, as exports from the Chinese manufacturing sector grow at an accelerated rate, some of the provinces that are prolific exporters would find it difficult to stay within the numerical limit stipulated for the dual control of energy consumption.

And there is more to the downside. The rigid uniformity approach is simplistic and crude, and the results obtained are temporary.

The administrative positions that had been streamlined away with this method were later filled back in through various "secondments". The 276-day policy did not do well either. It caused the price of coal to skyrocket, and had to be cursorily wrapped up before the end of 2016.

The Chinese local governments are arranged in a four-tiered hierarchy. The basic level governments have to take on tasks passed down from many departments higher up.

There is a common saying among basic level cadres that goes "a thousand threads from above, a single needle below" (上面千条线、下面一根针), or "a thousand hammers above, a single nail below" (上面千把锤、下面一根钉). It reflects the prevalence of the common agency problem, which occurs when a shared agent is entrusted with tasks by multiple principals.

These grassroots cadres cannot possibly prioritise every matter and cover all the bases. They adopt a "formalism" style of work to cope with repeated, fastidious checks.

Moreover, they have more autonomy in policy implementation when they deal with contradictory directives from the higher-ups. In general, a common agency problem tends to push the bureaucratic system into the slack mode.

The "one-item-veto rule" (OIVR) is about emphasising specific tasks for performance reviews. While there are many must-dos to be considered in a review, the reviewee is deemed to have failed on the whole as long as one single task classified as an OIVR item is not completed.

Performance reviews are a powerful performance baton. The bureaucracy automatically goes into a taut mode when it is given the mobilisation signal of OIVR.

In the past, tasks tagged with "OIVR" included those pertaining to family planning, safe production, food safety, public petitioning and stability maintenance. In recent years, environmental protection and the reduction of energy consumption and carbon emissions have also been added to the list.

Although OIVR is effective as a method of mobilisation, it is often abused. In some places, a whole range of matters from controlling price hikes, tax collection to attracting investments have been tagged with it. According to a 2011 survey conducted in Jiangxi province, as many as 62 tasks had been covered under OIVR.

An excess of OIVR items brings about the opposite effect, diminishing the effectiveness of the bureaucratic system. When everything is an OIVR task, focus is lost and no work can be prioritised clearly.

A system of centralised power needs to collect lots of local information. This means it is bound to have related problems, such as the difficulty of transmitting information upwards and too much time taken by the consolidation of information.

It is simply impossible for the central government to prioritise everything and attend to every matter big and small indiscriminately. Many of the matters that cannot be covered by the "one-item-veto rule" or handled with an order for rigid uniformity never get dealt with in a timely manner.

The small problems draw serious attention only after they have grown big through accretion. By then it may have become so serious that the power of the entire bureaucratic system has to be mobilised to fight a critical battle against it.

Campaign-style enforcement means the focused mobilisation of a great deal of administrative resources within a period of time to execute a policy forcefully. When it happens, it usually indicates that the conventional ways of execution have failed or proved ineffective for certain policies, and thus it becomes necessary for a strong political leader to correct the situation with means beyond the conventional.

Campaign-style enforcement sends a very strong signal for the bureaucracy to go taut. Not only would there be a publicity blitz launched through the state-controlled media, inspection and monitoring teams are typically sent out to perform checks, making sure that failures to enforce or cooperate are severely penalised.

There is a long tradition of campaigns in China. While political campaigns have faded out since China's economic reform and opening up began, the administrative system continues to tackle social issues with campaign-style actions.

In recent years, we have seen the high-pressure anti-corruption campaign, the "critical battle of pollution prevention and control", the "critical battle of poverty alleviation", the "critical battle to prevent and defuse financial risks", as well as the campaign-style carbon reduction drive.

Even though the central government has asked that campaign-style rectification be avoided, the signals for campaigning come in as such a forceful blast that the bureaucrats cannot possibly make a misjudgement, so they respond very quickly.

With the bureaucratic system showing a high level of cooperation, campaign-style enforcement can achieve visible results within a short time. However, its effectiveness cannot be sustained because everyone knows that campaigns rage on only for a limited period. People can sustain an illusion of enthusiastic cooperation for a time. Once the heat has passed, they drop out of the taut mode.

The central government is also aware of this, which is why inspection teams from the Central Commission for Discipline Inspection have to go back to "take a second look", and monitoring teams for environmental protection are dispatched round after round.

With campaign-style enforcement, excesses in going along easily occur. For example, in the course of campaign-style carbon reduction, there was an overemphasis on going green and low-carbon initiatives in some localities, such that coordinated goals for energy development were neglected. Administrators went so far as to shut down thermal power units that were running normally, to the point of disrupting energy supply.

In 2020, many provinces overshot the mark in their frenzy to fulfil the shutdown requirement issued by the National Energy Administration. The combined capacity of the thermal power units shut down in Shandong even came up to 13 times the designated target. In some places, the governments were pushing their jurisdictions beyond their respective current stages of development, unrealistically driving carbon reduction towards "early peaking".

Campaign-style enforcement overdraws administrative resources. It takes a toll on the bureaucratic system's normal procedural functions. Metaphorically speaking, other whips are relaxed when one particular whip is being swung.

For policies that require the long-term cooperation of multiple departments (as well as the weighing of and simultaneous attention paid to multiple goals), the negative impact of this form of mobilisation is particularly prominent.

The foregoing discussion tells us one thing. How much administrative effectiveness the bureaucracy under a system of centralised power has depends on the central government's capacity for mobilising the bureaucratic machine.

Wherever there are short-term goals associated with clearly defined tasks and easily measurable results, the bureaucracy can be mobilised superbly and will perform well. For long-term goals that require the coordination and cooperation of multiple regions and departments, the systemic effectiveness falls short significantly because the bureaucrats cannot maintain their taut mode over a long period, and the level of overall coordination can be easily impacted by campaign-style enforcement, which makes it impossible to take care of other policy goals with the bigger picture in mind.

The zero-Covid policy is a case of short-term goals associated with easily measurable results, which is why we see high performance here. Carbon reduction, on the other hand, involves long-term goals. It entails the production of new energy, not to mention a master plan to solve the problems of energy storage, long-distance transmission, new energy grid connection, the flexible modification of coal-fired power plants and so on. Coordination and cooperation across different regions and departments is required. The Chinese bureaucratic system's effectiveness in achieving policy goals of this sort is obviously inadequate.

It must be noted that, in the actual operation of the system, a local government at any level may apply the mobilisation methods described above to its own subordinates, thereby bringing about a taut mode locally which overlaps with that resulting from the central government's mobilisation.

The bureaucrats caught in such a situation would make their own judgements and assessments, and go along with such actions selectively. Whether these people go along or not is in turn factored into the higher-ups' choice of mobilisation method and how strongly they would drive the mobilisation.

Apart from the different methods of mobilisation discussed above, making the bureaucracy treat any given policy more seriously can also be achieved by setting someone higher up in the hierarchy as the overseer for the said policy.

An initiative that a minister is in charge of pushing may not be ascribed the same level of importance as one overseen by the vice-premier. A policy spearheaded by the vice-premier would not have as much weight as one driven by the premier personally.

The magnification goes all the way up, level by level. In the end the oversight of many policies falls to the highest echelon. Indeed, the stronger the man at the very top is, the better the results of the mobilisation would be.

Policies put into motion by the apex leadership are prone to the illusion of policy coordination. That's because with all the policies originating from the same office, no one would question their level of underlying coordination. Everyone would imagine that they are all part of a grand scheme, that the top brass is moving pieces across a chessboard of a breathtaking scale, managing everything according to an overarching master plan.

This was exactly what happened from 1997 to 1998. That was a time when monetary tightening was necessary as China was still fighting inflation. It was also a time when a large number of workers had to be allowed to lose their jobs as the reform of the state-owned enterprises had to show results within three years and the state had no choice but to hold on only to the larger enterprises while letting the small ones go.

On top of these, the central government's finances needed to be jacked up through fiscal recentralisation, such that it was impossible for the time being to deal with financial difficulties on the county and township level, as well as the Three Rural Issues (三农问题) concerning agriculture, rural areas and farmers caused by them.

Meanwhile, the reform of the state-owned banks was also a top priority and banks were strictly prohibited to give out new non-performing loans, the related problem of the banks' reluctance to lend could not be solved at the same time.

The emergence of the Asian financial crisis further complicated the situation. Hoping to demonstrate its clout for stabilising the choppy waters (as befitting a major power), China pledged not to devalue the renminbi, and thus bore the pressure.

All of these policies were overseen by the top brass. Each of them was very necessary and had to be implemented. The problem was: no one asked questions about the timing of the policies' introduction and what their combined effect could be. The reason was the illusion of policy coordination.

As a result, from the fourth quarter of 1997 onwards, China lapsed into five years of deflation. This was a very rare occurrence in all of the country's over 40 years of economic reform and opening up. It was precisely in such a context that the central government was forced to give the orders, as mentioned earlier, to keep the GDP growing at no less than 8%.

It occurs to me that the various policies introduced in China recently are apparently not less than those in 1997. Many of them have a significant suppressive effect on the aggregate demand and the overall economy. Could it be that we are seeing an illusion of policy coordination again?

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