The Organizational Structure of the Chinese Communist Party

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The New York Times published an expose last week on the wealth accumulated by the family of outgoing Chinese Prime minister Wen Jiabao. According to the article, Mr.Wen’s family and relatives control assets worth at least $2.7 billion. Though Mr.Wen comes from an extremely poor family many of his relatives have become very rich. Many other politically connected individuals and party officials have also become wealthy since China moved from a socialist economy to a free-market economy.  From a Bloomberg article earlier this year:

The net worth of the 70 richest delegates in China’s National People’s Congress, which opens its annual session on March 5, rose to 565.8 billion yuan ($89.8 billion) in 2011, a gain of $11.5 billion from 2010, according to figures from the Hurun Report, which tracks the country’s wealthy.That compares to the $7.5 billion net worth of all 660 top officials in the three branches of the U.S. government.

China is a one-party country ruled by the Chinese Communist Party(CCP). Though the country follows the capitalist economic model, the political power remains under the firm grip of the CCP. Any attempts by citizens to challenge the CCP is crushed and to-date no other party has survived despite endless talks of a democratic China since the Tiananmen Square protests of 1989.

Nobody knows how the members of the CCP are elected. The process remains opaque to say the least. The structure of the CCP is shown in the chart below:

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Source: The Political Mapping of China’s Tobacco Industry and Anti-Smoking Campaign, The John L. Thornton China Center at Brookings, October 2012

From the Brookings research report:

Chart 3-1 presents the organizational structure of the CCP at the national level, using data on the 17th (current) National Congress of the CCP as an example. The National Congress of the CCP, which convenes for about two weeks once every five years, is the most important political convention in the country. The party congress delegates (currently numbering 2,270) elect the Central Committee (currently 371 members) and the Central Commission for Discipline Inspection (127 members).171 In theory, the Central Committee then elects the general secretary of the CCP, the Politburo Standing Committee (9 members), the Politburo (25 members), the Secretariat (6 members), and the Central Military Commission (11 members). In practice, however, the process is top down rather than bottom up: members of these leading Party organs guide the selection of members of the lower-level leadership bodies such as the Central Committee, which then “approves” the slate of candidates for higher-level positions such as the next Politburo and its Standing Committee. To call the Central Committee’s selection of the Politburo an election is something of a misnomer. Members of the Politburo are actually elected by the outgoing Politburo Standing Committee and a handful of retired top leaders. This largely opaque process involves complicated factional deal-making and compromises.

 

Fifth Plenum of the 17th Central Committee of the Communist Party of China (CPC),October 2010

Photo Courtesy: Chinanews.com

Related:

  1. China’s Private Party (The Wall Street Journal)
  2. Chinese Communist Party (CCP) (Wikipedia)
  3. Billions in Hidden Riches for Family of Chinese Leader (The New York Times)
  4. The Party: The Secret World of China’s Communist Rulers a book by Richard McGregor
  5. Chinese man jailed for trying to form opposition party (The Guardian, UK)
  6. How CCP Controls China
  7. How China is Ruled (BBC)china_diagram_BBC
  8. China Communist Part Politburo Structure:

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Source: Xi’s Power Play Foreshadows Historic Transformation of How China Is Ruled, WSJ, Dec 26, 2016

How CPC Elects Delegates to the National Congress:

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Source: China Daily

Updates(9/5/22):

100 Years of Chinese Communist Party: Infographic

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The Structure of the Chinese Communist Party:

The Leaders of Chinese Communist Party since Founding:

Source: Infographic: 100 years of China’s Communist Party, Aljazeera

Chinese Communist Party System – Nerve Center:

Source: RR Power School

Chinese Communist Party Politburo – Fan of Power:

Source: Merics

Comparing Equity Mutual Funds’ Performance in US and Europe

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Exchange Traded Funds (ETFs) are becoming more popular with investors than mutual funds in recent years. In order to meet the increasing demand ETF providers have sliced and diced the market in as many ways as possible and continue to add new ETFs to their offerings.

From a recent article in  The Journal Report of WSJ:

The first ETF in the U.S. now called the SPDR S&P 500 was launched about 20 years ago. Since then the ETF industry has grown by leaps and bounds primarily competing against the mutual fund industry. Some of the interesting tidbits from the journal article include:

  • Total number of ETFs = 1,436 (more than 10 times the total 10 years ago)
  • Total assets in ETFs = $1.3 Trillion (more than 15 times the total 10 years ago)

The Top Sponsors – The Biggest ETF companies by ETF Assets and Market Share:

  • Blackrock- $536.5 billion/40.7%
  • State Stree – $328.5 billion/24.9%
  • Vanguard Group – $235.7 billion/17.9%

The Big five – The Largest ETFs by Assets:

  • SPDR S&P 500 (SPY) = $119.1 billion
  • SPDR Gold Shares (GLD) = $74.7 billion
  • Vanguard MSCI Emerging Markets  (VWO) = $58.1 billion
  • iShares MSCI Emerging Markts (EEM) = $38.1 billion
  • iShares MSCI EAFE (EFA) = $37.9 billion

There are many reasons for investors’ preference for ETFs over mutual funds. One of the reasons if the low cost of ETFs compared to mutual funds. Currently ETF providers are engaged in a price war where some of the providers have waived the fees entirely and others are reducing them saving investors money. Another reason for the popularity of ETFs can be attributed to the average performance of equity mutual funds. The following chart shows the performance comparison of US and European equity mutual funds:

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Source: THE REAL FINANCIAL CRISIS: WHY FINANCIAL INTERMEDIATION IS FAILING, Oliver Wyman

From the Oliver Wyman report:

As has been well documented, most funds perform in-line with benchmarks. After fees, the average mutual fund equity investor will have seen a return of more like 1.5% in the US and 5% in Europe over 10 years (see figure overleaf). Yet these products may have been sold with return illustrations of up to 10%.

Disclosure: No Positions

Number of UK Publicly Listed Companies Continue to Decline

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The total number of British companies traded publicly on the equity markets continue to decline for many years due to many reasons. Unlike in the past, many companies do not find a compelling need to go public. In addition, companies are able to fund their capital requirements through internal funding and issuing debt. The explosive growth of the private equity industry is also averse impacting the number of listings. Rise in M&A activity also leads to fewer publicly listed firms.

The U.S. market also fewer listings today due to the reasons mentioned above.Most of the high tech companies going public accumulate most of their funding before they list their shares on the market. In fact, the prospectus of Facebook IPO stated “we do not currently have any specific uses for the net proceeds planned”.

The total number of publicly traded companies on the London Stock Exchange’s all markets at the end of September, 2012 is 2,500 compared to 2,938 in 2011. Currently less than 1,000 companies trade on the Main market.

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Source: THE KAY REVIEW OF UK EQUITY MARKETS AND LONG-TERM DECISION MAKING, Final Report, June 2012, The Department for Business, Innovation and Skills, UK

Hence it can be argued that a public listing is no longer considered a prestigious event or a natural progression of business growth for most companies. While there has a been a flood of IPOs on the market, it should be noted that most of these are worthless companies hyped up by Wall Street to earn investment fees and greedy Silicon Valley venture capital firms waiting to unload shares on the unsuspecting public and move to the next big fad. The disastrous stock performance of recent IPOs such as Facebook(FB), Zynga Inc (ZNGA), Pandora Media (P)‎, Groupon Inc (GRPN)‎ and Angie’s List Inc. (ANGI) are some examples.

Related ETF:

iShares MSCI United Kingdom Index (EWU)

Disclosure: No Positions

Corporate Profits and Share Buybacks Are Up But Dividend Payout Ratio Remains Low

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U.S. Corporate Profits reached all-time highs recently this year despite all the ills plaguing the economy such as high unemployment rate, debts issues, political uncertainty, etc.

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via Decisions Based on Evidence from St.Louis Federal Reserve

What are companies doing with the profits?

The current yield on the S&P 500 is 2.01%. Instead of increasing dividend payouts or investing in capital equipment, hiring companies are spending the earnings on share buybacks. Investment advisor and blogger Joshua Brown wrote an interesting post on this topic. From the post:

In the second quarter of this year, share buybacks among S&P 500 companies grew to $112 billion as corporations finished with a record $1.03 trillion in cash sloshing around on their balance sheets. This buyback amount represented a 30% jump over Q1. In contrast, S&P 500 corporations paid out just $70 billion in cash dividends during the same period, an 11% growth rate over the prior quarter.

This preference for financial engineering over hiring, expansion, M&A, or dividend issuance has been in force for a while now.

And quite frankly, nothing could be less productive.

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Source:  The Buyback Epidemic, The Reformed Broker

U.S. companies are able to generate higher profits due to globalization, automation, higher productivity from workers, raising prices, outsourcing, continuous decline in wages and benefits for most workers and many other factors. The following chart shows the downward-trend of wages:

Source:  What’s behind the rise in U.S. corporate profits?, Supply Chain Quarterly

As I lamented about in an earlier article, U.S. companies prefer share buybacks than raising dividend payouts. The dividend payout ratio for the S&P 500 currently stands at about 27.4% compared to 40 to 60% prevalent from the 1950s thru the 1980s as shown in the chart below:

 

Source: Dividends Deliver, Eagle Asset Management

Clearly while companies can raise dividend payout significantly many are not doing so. Unless shareholders hold managements accountable, demand higher payouts and in general a shift in dividend culture occurs the current low payout ratio may remain for years to come.

Related ETFs:

SPDR S&P 500 ETF (SPY)

PowerShares QQQ Trust (QQQQ)

iShares S&P 500 Index (IVV)

Disclosure; No Positions

Relationship between Stock Market, GDP and Earnings

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In an article last year on the relationship between economic growth and equity returns in emerging markets I wrote:

“In a study of 16 major markets by the Vanguard group, the correlation  between economic growth as measured by GDP per capita and long run stock returns since the 1900 was effectively zero.”

However a recent research by Alliance Bernstein on this subject noted that equity returns tend to rise with economic growth in the long-term for the US market.

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From the report:

Historically, earnings and the stock market have grown with the economy over time, although they can diverge for several years at a stretch, particularly if market euphoria drives stock prices to very high multiples of earnings, or gloom drives stock prices to low multiples. Nominal US GDP2 (which includes inflation) has grown 7% a year onaverage since 1947—and so have the S&P 500’s earnings and price (Display 4).

Source: The Fundamental Case for the 20,000 Dow by Seth J. Masters, Bernstein Global Wealth Management