February 2015 by China Newsweek Corporation

Simmering Stock: Shanghai-HK Index Linkup

SOCIETY

Home Truths: Global Property Binge

HISTORY

Death of a Titan: China's Forgotten Wreck

Why Chinaâ&#x20AC;&#x2122;s diplomacy will never be the same again $4.99 www.newschinamag.com

Volume No. 078 February 2015

ECONOMY

EDITORIAL

Published by China Newsweek Corporation Publisher: Liu Beixian Executive Director: Liu Beixian Editor-in-Chief: Wang Xiaohui Editorial Office Managing Editor: Zheng Zhonghai Advisor: Liu Dizhong Senior Editor: Yang Yi Copy Editors: Jack Smith, Alex Taggart Lead Writers: Yu Xiaodong, Li Jia Editors: Wang Yan, Yuan Ye, Xie Ying, Sun Zhe, Du Guodong First Reader: Sean Silbert Address: 5th Floor, 12 Baiwanzhuang South Street, Xicheng District, Beijing, China Post Code: 100037 Tel: 86-10-88395566 Fax: 86-10-88388045 Email: readers@newschinamag.com www.newschinamag.com Art Department Art Director: Wu Shangwen Art Editor/Designer: Zhang Dawei Publishing and Development Office China Newsweek Corporation President: Wang Xiaohui Chief Executive: Fred Teng Publishing Associate: Zhang Tianli Tel: 1-212-481-2510 Fax: 1-212-481-2503 Address: Suite 1101, 15 East 40th Street, New York, NY 10016, USA Email: readers@newschinamag.com Toronto Office Director: Lai Hailong Address: 51 Halstead Drive, Markham, ON Canada L3R7Z4 Tel: 1-905-604-6150 Fax: 1-905-604-6170 Email: canada@newschinamag.com Marketing Director: Wang Chenbo Account Manager : Ren Jie Tel: 86-10-88388027 Circulation Manager: Yu Lina Tel: 86-10-88311834 Advertising Director: Gao Weiwei Tel: 1-212-481-2510 Marketing Promoter: Jerry Meng Tel: 1-212-481-2510 New York Office: Wang Yongzhi, Ruan Yulin, Li Yang Washington Office: Wu Qingcai, De Yongjian Los Angeles Office: Mao Jianjun San Francisco Office: Liu Dan Houston Office: Wang Huan London Office: Zhou Zhaojun Tokyo Office: Sun Ran Paris Office: Long Jianwu Bangkok Office: Yu Xianlun Kuala Lumpur Office: Huang Hongbin Moscow Office: Jia Jingfeng Manila Office: Zhang Ming Berlin Office: Huang Shuanghong Sydney Office: Zhu Daqiang Legal Advisor: Allen Wu ISSN 1943-1902

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NEWSCHINA I February 2015

Land reform must redress the systematic bias against farmers

ne major item on China’s economic reform urbanization. However, such an approach also risks exagenda has been an overhaul of agricultural acerbating income disparity, as farmers who sell up and policy. For years, there have been calls for move to the city might struggle to establish themselves in land reform in order to liberalize the strict restrictions on an urban environment. rural land ownership. Therefore, the government should take a prudent Recently President Xi Jinping endorsed an experi- and balanced approach to any reform of land ownership mental program to permit farmers in certain localities to rules. Instead of the complete privatization of rural land transfer land use rights to other farmers for a rental fee. resources, the future of China’s rural society lies in the It is believed that liberalizing the “privatization of collective ownerland use rights system without ship,” allowing farmers to genueliminating the collective owninely enjoy their land rights and The government ership policy in rural areas will seek collective prosperity. must realize that a remain the focus of the governIn the meantime, the governmajor root cause of ment’s agenda. ment must go beyond the owndissatisfaction is not the For a long time, land use has ership issue to address some syscollective ownership been the single main contributing tematic bias against farmers. The factor to a variety of social probgovernment must realize that a of rural land, but the lems in China. As land use rights major root cause of dissatisfaction abuse of power and are split between households, is not the collective ownership of a failure to protect with holdings collectively owned rural land, but the abuse of power farmers’ rights. by entire villages, farms tend to and a failure to protect farmers’ be very small in China, averaging rights. just 1.6 acres (0.6 hectares), comIn recent years, local governpared with an average of 400 acres in the US. The result ments, plagued by endemic corruption, have played a has been low yields and low incomes. In the meantime, dominant role in the land market. With no effective corapid urbanization has led to the massive appropriation operative mechanism established among farmers, village of rural land resources, sometimes forcefully, and almost councils often merely serve as agents of local authorities, always with the complicity of village administrators but rather than a collective management body. Farmers face little input from individual farmers. This state of affairs various institutional barriers when attempting to exnot only exacerbates urban-rural income inequality, but ert their collective land rights. Lacking necessary skills, capital and collective organization, it is unsurprising that has become a major source of political dissent. With its proposed land reforms, the government farmers have found themselves marginalized in recent aims to achieve multiple goals, including further urban- years. In order to achieve its multiple goals and deliver a ization, by increasing the supply of land and labor to China’s cities, narrowing urban--rural income disparity, mutually beneficial land reform agenda, the government must focus on addressing these institutional barriand fostering the development of modern agriculture. The Chinese government also aspires to achieve the ers within the current system, which has so far prevented capitalization of land resources, and thus awaken so- farmers from effectively seeking collective prosperity. Mostly importantly, the government needs to retreat called “sleeping wealth,” which economists argue would enable farmers to acquire property income and give a from the land market to allow the market to do its job. By removing institutional barriers between urban and boost to China’s economy. However, there are conflicts of interest inherent in rural society, and allowing farmers to exercise their colthese goals. These conflicts could derail reform unless lective rights, the center can foster cooperation between urban capital and rural ownership. While urban capital they are addressed by the government. For example, many experts have argued for the can maximize the efficient use of rural land and introprivatization of rural land resources, which they argue duce modern skills into rural society, farmers, as primary to would allow market forces to create bigger farms, in- stakeholders, need to see the benefit of surrendering the creasing agricultural productivity and facilitating further only items of value most of them possess.

Contents

What the recent and unprecedented reconfiguration of China’s diplomatic priorities means for its partners, its rivals and all those in between

Editorial

politics

P18

01 Land reform must redress the systematic bias against farmers 10 13 16

Henan Residence Reform: Migrants No More Corruption: Minor Players, Major Leagues Private Investment: When We Need Your Money

Cover Story

society

P34

18 Foreign Policy Ringing Endorsement/Old Scores, New Solutions/ ”China needs to balance assertiveness with prudence in its diplomacy” 30 34

Preventive Healthcare: Unchecked Profiteering Property Investment: A Place in the Sun

P42 NEWSCHINA I February 2015

Photo by CFP

brave new world

Contents

P38

P64 feature

OUTSIDE IN

38 Chinese Adoptees: Roots and Branches

64 Sacred Shaanxi: Brushing Fingers with the Buddha

history

Commentary

42 China’s Titanic: The Forgotten Wreck

72 Reform of State-owned enterprises should focus on separating ownership and management

economy

04 MEDIA FOCUS 05 What They Say 06 NEWS BRIEF 08 Netizen Watch 55 China by numbers 66 real chinese 68 ESSAY 70 CULTURAL LISTINGS

46 Online Video: Video Killed the Video Stars 48 E-commerce Imports: When Pigs Fly 52 Index Link: Bears Meet Bulls

P30

P56

culture

56 Lou Ye: Unrepentantly Underground

visual REPORT

60 Decades of Decay

NEWSCHINA I February 2015

NewsChina, Chinese Edition

Caijing

December 18, 2014

December 16, 2014

Gone With a Bang

A Bumpy Journey

In Chinese film circles, Jiang Wen is an exceptional figure. His films, typified by strong, heroic and individualistic protagonists, tend to stoke debate among both critics and audiences and always cause a stir, whether they are officially banned or welcomed by the critical establishment. His five works are seen as a reflection of Jiang’s character and interests; nostalgia and rebelliousness in In the Heat of the Sun, self-criticism in Devils on the Doorstep, romanticism in The Sun Also Rises and adventurous spirit in Let the Bullets Fly. The new film Gone With the Bullets, set in Shanghai during the 1920s and released December 18, 2014, has similarly been described as having strong Jiang-style charisma. To most people, Jiang is a flamboyant and nonchalant director, but a mild and restrained off-screen personality. For the past 22 years, Jiang has been working to establish himself in this solo role. NewsChina secured an exclusive interview with one of China’s leading directors, exploring the inner world of Jiang Wen and attempting to understand the motivations behind his artistic creations.

China Economic Weekly December 9, 2014

Credit Card Crisis According to November 2014 data released by the People’s Bank of China, the average Chinese household owned at least one credit card by the end of September that year. A booming credit card market in recent years has prompted banks to issue more cards, a move which has proven to be a mixed blessing. In a recent report on credit cards by the People’s Court of Xicheng District in Beijing, the number of credit card disputes heard in court increased more than 50fold in the past nine years. The growing number of banks issuing cards, enhanced competition between financial institutions and a loosening of application requirements are blamed for the rising number of legal disputes. The changing consumption habits of historically credit-averse Chinese citizens have also contributed to the crisis. Young people in particular are often seen as charging their lives to their credit cards, resulting in overwhelming debts. In addition, the popular option to possess a number of cards simultaneously is also being explored by more and more consumers.

According to data released December 3, 2014 by the China Ministry of Industry and Information Technology, a record total of 9,728 electric or hybrid vehicles rolled off assembly lines in November 2014, signifying tenfold yearon-year growth in the industry. After many years of development, China’s electric car market has seen a boom following the issuance of a strong stimulus package, government subsidies and growing market demand. It is still too early to say, however, whether the Chinese electric car market is truly ready to take off. Wan Gang, the country’s science and technology minister, said recently that government subsidies for “new energy” vehicles are expected to be phased out in 2020. Tax departments also indicated that the sales tax exemption applied to new energy vehicles will end in 2017, but whether or not this will be the death knell for this emerging industry, none can say. Xinmin Weekly December 14, 2014

Think Tank Constraint Shortly after the Fourth Plenum of the 18th CPC Central Committee, convened in late October 2014, the central government discussed a report that recommended improving operations in advisory think tanks, a move widely hailed by observers as a signal that China would begin to incorporate these organizations into national strategic planning. After more than 30 years of rapid growth, the Chinese economy faces growing pressures and external challenges, and needs to meet these with foresight and research. According to the Global Go To Think Tank Index published by the Think Tanks and Civil Societies Program of the University of Pennsylvania in early 2014, China has 426 think tanks, up from a total of 74 in 2009, a number second only to that recorded in the United States. Nevertheless, many of these organizations in China are accused of lacking innovation and a sound personnel recruitment system. Real progress, it is argued, lies in the development of non-government think tanks, and deepening cooperation between overseas and domestic advisory bodies while also comprehensively reforming official and semi-official think tanks in China. Minsheng Weekly November 24, 2014

Poverty Alleviation Traps According to Chinese government data, China is home to nearly 100 million rural residents living in poverty, with roughly 120,000 villages marked as being below the poverty line. Since the end of 2013, when its much-anticipated reform mechanism for poverty alleviation was released, government bodies at all levels have worked hard to remove a series of rural counties from the poverty list. Minsheng Weekly reporters visited mountain communities in the Wuling area of Hunan Province, one of the most impoverished areas in China, to find out how the new measures, such as the drafting of favorable policies and improving performance assessment criteria for government officials in poor areas, are being put into practice. NEWSCHINA I February 2015

“I am pessimistic about [Chinese] intellectuals. Many of them are fighting simply for personal gain.”

“A spokesperson should never lie, nor tell the whole truth. In 10 years working for the Ministry of Foreign Affairs, I never said anything that I was not authorized to say.” Former foreign minister Li Zhaoxing speaking at an event in Xiamen, Fujian Province.

“There is no love truer than that between the Chinese government and the housing market.” Economist Ma Guangyuan expressing confidence that the Chinese authorities will continue to shore up the country’s sluggish real estate sector.

“I was devastated when the local middle court sentenced me to death after each retrial over the past seven years. Now, the hope rekindled by my release depends on those investigators and officials being held accountable for their wrongdoing.”

“Investigating a violation of constitutional rights is better than just propagandizing the constitution 1000 times.” Xiao Yang, former president of the Supreme People’s Court, calling for the National People’s Congress, the nation’s top legislature, to prove its commitment to China’s constitution through actions, not words.

“Study can be hard, but it must never be boring. Pain can be borne, so long as it has meaning. However, study simply for the sake of securing a place at college is utterly meaningless.” Writer Zhou Guoping on China’s exam-centric education system.

“I don’t think that the remarks of netizens represent public opinion. Collecting opinions through the Internet alone can hardly be called representative.”

Wrongfully convicted murder suspect Nian Bin on his case being thrown out due to a lack of evidence.

Journalism professor Zhang Taopu calling on the media to solicit a broader range of viewpoints in their reporting.

“It’s a great pain...when you’re the richest person in China. Everybody [is] surrounding you for money.”

“This is a university, not an entertainment venue.”

Jack Ma, billionaire founder of Alibaba, in an interview with CNBC.

NEWSCHINA I February 2015

Illustration by Wu Shangwen

Peking University professor Qian Liqun on the emerging divide between special interest groups in Chinese academia.

Commentator Hu Bo of the China Youth Daily on universities’ use of images of “campus beauties” in their promotional materials.

Top Story

China to Enter a “New Normal Economic State”

The Chinese government held its annual economic conference from December 9 to 11, mapping the country’s economic development throughout 2015. The theme of the conference was defined to “push the country’s economy into a ‘new normal state,’” which, according to analysts, is characterized by developing new stimuli for economic growth. Despite a continually high growth rate, China’s economy has been increasingly impeded by overcapacity in the manufacturing industry, the housing market bubble, disproportionate leverage in the financial sector, the widening income gap, and critical levels of environmental pollution. The so-called “new normal” thus aims to push the economy toward a more sustainable model of development with deeper reforms that analysts have said will focus on the faster adjustment of industrial structure, broader access for private investment, tightened

supervision on monopolies, harsher controls on pollution, and more attention afforded to low-income groups. Based on these targets, the Chinese government has emphasized its intention to “maintain stable economic growth” instead of “faster growth.” Analysts have predicted that the 2015 GDP growth target might be lowered to around 7 percent. “Lower growth does not mean economic recession. Instead, it will lead the government and the people to have a clearer and more rational attitude toward economic development,” Zhang Zhanbin, economics director of the Chinese Academy of Governance, told Xinhua News Agency. “[GDP] growth adjustment does not mean the government will make less or no effort toward economic development. The structural adjustment is actually harder and more fruitful [than pure GDP growth],” said Liu Shijin, deputy director of the Development Research Center of the State Council.

Five Tasks in 2015 1 Maintain stable economic growth 2 Develop new growth points 3 Quicken the transformation of agricultural development 4 Optimize the framework of economic development 5 Further improve quality of life

Features of the “new normal” - Increase individualized and diversified consumer demands - Increase investment in new and creative technologies - Import of higher-quality and high-tech products, while increasing exports - Further promote emerging industries, service sectors and small enterprises - Decrease rural surplus labor and raise quality of human resources - Shift the focus of market competition to quality and differentiation - Promote a “green,” low-emissions model - Further de-leverage and “burst” bubbles - Control overcapacity and guide industries with the market Source: www.people.cn

Anti-Corruption

Female General Falls Gao Xiaoyan, a People’s Liberation Army (PLA) major general serving as deputy political commissar at the PLA Information Engineering University, was detained by military prosecutors on November 27 on charges of corruption. Gao is the first female general detained since the Chinese government launched its nationwide anti-corruption campaign two years ago. According to media reports, Gao’s alleged corruption was largely related to the construction projects she was involved in when working with the 309th Hospital of the PLA.

During her tenure, the hospital built a total of 15 dormitories, several medical facilities and a 30,000-square-meter parking lot, the cost of which far exceeded the hospital’s budget. Media reports have attributed Gao’s fall to reports from retired cadres about the low quality of the projects she took charge of, but some other unidentified sources alleged that Gao may be an ally of Gu Junshan, the former deputy logistics director of the PLA who was accused of bribery, embezzlement and abuse of power in March 2014. The case is still under investigation. NEWSCHINA I February 2015

Society

Project

Public Memorial for the Nanjing Massacre

Water Diversion Project in Use

On December 13, China held its first public memorial ceremony for the dead in the Nanjing Massacre – sometimes referred to as the Rape of Nanking – at which President Xi Jinping delivered a public address calling upon people not to forget this period in history. The date was officially recognized as a memorial day by the National People’s Congress, the country’s highest legislative body, on February 27, in a move seen as a response to the rise of the Japanese right wing. At 10 AM, air-raid sirens sounded on every street corner in Nanjing, with people asked to observe a minute’s silence. People in other parts of the country also organized various events both in public and online to commemorate the day, such as laying wreaths on war memorials and retweeting media commentaries on the event. According to Chinese records, the Japanese army slaughtered over 300,000 people in Nanjing (formerly known as Nanking) during the Second Sino-Japanese War (1937-1945). Japan disputes the death toll.

Economy

China to Tighten Tax Supervision of Foreign Companies China will soon issue an array of new measures to crack down on tax evasion by foreign companies, according to Zhang Zhiyong, deputy director of China’s State Administration of Taxation. The new policy, according to Zhang, is based on the Addressing Base Erosion and Profit Shifting (BEPS) project, an anti-tax evasion agreement jointly concluded by the G20 member countries. Zhang said China will set up an information system to supervise the profits of multinational corporations and revise its tax laws to fulfill the agreement. Domestic media reports have claimed that China’s anti-tax evasion efforts have helped raise the country’s tax revenue a hundredfold between 2005 and 2013.

The middle route of China’s southto-north water diversion project was put into operation on December 12, which, according to media reports, will supply around 60 million people in four provinces and municipalities, including Beijing and Tianjin, with a total of 9.5 billion cubic meters of water every year. Begun in 2002, the project – the largest water diversion project in human history – aims to provide water resources for China’s drought-prone northern regions by diverting water from the Yangtze River northward via three routes: eastern, middle and western. Given that the middle route is designed to draw water from the Danjiangkou reservoir in Hubei Province, the government has relocated around 340,000 people living in that area, the largest relocation program since the Three Gorges Dam. The water project has reportedly cost the government 249.1 billion yuan (US$41.5bn), including construction, relocation and purification of water in some polluted tributaries. Though the project may benefit millions of people, many experts have expressed strong opposition, worrying that it will cause inconceivable damage to the ecology of the Yangtze River Valley.

Policy

Organs No Longer Harvested After Executions

NEWSCHINA I February 2015

Photos by Xinhua, CFP

China will stop appropriating the organs of executed criminals for transplant as of January 1, 2015, according to a recent announcement by Huang Jiefu, president of the Organ Procurement Organization (OPO) Alliance China under the Chinese Hospital Association. While China sees around 300,000 patients added to organ transplant waiting lists every year, only 10,000 of these can expect to find a donor. Huang attributed this to the prevalence of taboos surrounding death in China, as well as a lack of public confidence in the fairness of the donor organ allocation system. Huang also revealed that the number of voluntary organ donors in China is growing every year due to greater advocacy. According to media reports, a total of 38 hospitals in cities like Beijing and Guangzhou have stopped using organs obtained from executed criminals.

Comforting

Poll the People

Zhang Shuying, a 93-year-old woman in Chongqing, achieved a “reunification” of sorts with her deceased ex-husband, a Kuomintang military officer with whom she lost contact when the Second Sino-Japanese War began in 1937. With the help of a local veterans’ organization, Zhang found out that her ex-husband had lost his life in the war. At the end of November 2014, Zhang visited her husband’s tomb in Taiwan, fulfilling her 77-year wish.

China’s National Health and Family Planning Commission revealed on December 1, World AIDS Day, that nearly 500,000 people are infected with HIV in China, with the number of young and elderly carriers growing rapidly.

Do you think AIDS is a serious problem in China? Yes. 77.64% 12,555

Alarming

No. 12.05% 1,949

A man in Zhuhai, Guangdong Province, has drawn fire online after he was photographed kissing a young girl. Although the man explained to police that the girl was his daughter and that he was trying to comfort her when she was crying, many netizens thought it was inappropriate for the man to kiss his daughter in such an intimate manner.

Humiliating

Moving

I don’t know. 10.31% 1,667 Source: China Family Planning Association & ifeng.com

Most Circulated Post Retweeted 97,887 times by December 15 As Chinese New Year approaches and millions of people prepare to return to their hometowns, train tickets are – as usual – hard to come by. One netizen called upon people to help impoverished migrant workers buy a ticket.

A Chinese couple was recently detained by Thai police for a violent attack on an Air Asia cabin crew member on a flight from Bangkok to Nanjing, Jiangsu Province. During a conflict with an air stewardess over the availability of free water, one of the passengers threw a bowl of scalding hot instant noodles to her, while their companion threatened to blow up the aircraft. The flight returned to Bangkok, where the couple were handed over to the authorities. Many netizens criticized the two passengers for causing Chinese people to“lose face.”

26-year-old Qiu Yuanyuan, a popular TV hostess on Zhengzhou TV in Henan Province, moved a great many netizens by refusing to undertake chemotherapy in order to protect her unborn baby. Qiu died of cancer in early December 2014, around 100 days after giving birth to a healthy child.

“Unable to use smartphone apps or the Internet, migrant workers have to queue up in the cold for a ticket – this is their only chance to get back home. Please do not look down on them, and offer a helping hand to buy them a ticket. Retweet this post to enhance social morality.”

NEWSCHINA I February 2015

WHO’S

Top Five Search Queries On

HOT? WHO’S NOT?

over the week ending December 12 Peking University Sues for Reputation 173,339 Economist Zou Hengpu was sued by Peking University for a tweet alleging that several professors had seduced waitresses at a school-run restaurant. The case is under investigation. Child Abuse or Not? 158,700 Ray Widgal, an American who has lived in China for 30 years and reportedly aided in the full-time care of 11 abandoned babies, has been accused of child abuse after one of the children in his care died due to intestinal and kidney problems. Widgal has denied the accusation.

Zhou Yongkang 99,460 The CPC Standing Committee announced on December 6 that Zhou Yongkang, former security czar and Standing Committee member, had been expelled from the Party. Vietnamese Wives 80,713 Unable to afford the perceived financial burden of marrying a Chinese woman, many Chinese men are reportedly turning to illegal agents to procure a Vietnamese bride.

Top Blogger Profile Yu Jiawen

Followers: 92,878 Yu Jiawen, a 24-year-old graduate from the South China Institute of Software Engineering under Guangzhou University, became a hero of “post-90s” generation entrepreneurs after his productivity application “Super Timetable” reportedly received a more than US$10 million investment from Alibaba, China’s e-commerce giant. First made available in 2011, the application enables users to search class schedules of a number of universities in order to find classes to sit in on. Yu received his first angel investment in 2012, and set up his own company the same year. His database now covers around 3,000 universities and has over 10 million registered users, but Yu now faces growing controversy after claiming in a TV interview that he plans to distribute his 100 million yuan (US$16.7m) profits to his employees. Many have questioned Yu’s profit model, and accused him of bluffing to attract media hype. Yu has appeared calm in the face of the criticism, claiming that young people naturally follow their dreams. NEWSCHINA I February 2015

Some of the images used in this section are from the internet

Ladyboy Fraud 135,847 Han Junling, dubbed “China’s top ladyboy” by netizens, was exposed to have seduced two men and tricked them out of money.

Human Telegraph Pole An elderly woman in Jinhua, Zhejiang Province, moved many netizens by holding up a fallen power line for half an hour. The woman said she was worried that the wire might damage cars and injure pedestrians.

Octogenarian Skydiver An 81-year-old woman from Hubei Province stunned many Australians after she went skydiving while visiting her son in Australia. She told the media that she had a strong interest in the activity and felt very “excited” while up in the sky.

Tanked Teenager A 14-year-old girl from a boarding school in Yunnan Province drank herself to death after she and another 11 classmates gambled on who could drink the most alcohol. The girl’s parents blamed the school for poor supervision, while the school argued that it was unable to stop its students from drinking off-campus.

Official Manslaughter Xiu Qikai, a town-level deputy Party secretary in Fujian Province, was detained by police for allegedly shooting and killing a local villager he mistook for a wild boar during a hunting trip. The public have questioned why the official was in possession of a gun despite the State’s ban on private ownership of firearms.

politics

Henan Residence Reform

Migrants No More

Henan Province will soon allow rural migrants to apply for urban residence permits, but this seemingly progressive policy has been met with skepticism from the migrant workers themselves

Photo by IC

By Xie Ying and Xi Zhigang

n November 12, the Henan provincial government issued a new policy relating to hukou, or residence registration, a system often referred to as China’s “internal visa.” The province announced a plan to grant urban residence permits to around 11 million migrants to the province’s cities by 2020. While decades of rapid urbanization have

drawn millions of rural people to the cities in search of work, a lack of supporting policies has left them without a social safety net – many are homeless, and few have access to the same welfare and resources as urban residents. Henan’s new policy, according to the government, aims to further encourage surplus rural laborers to move to cities by endow-

ing them with the same rights as their urban counterparts. Analysts said the policy will help raise Henan’s urbanization rate to 56 percent, 12 percent higher than that of 2013. The announcement was met with skepticism, however, from those it purports to help – while the Henan authorities had predicted a boom in applications for urban residence permits, rural people have been reluctant to NEWSCHINA I February 2015

apply, many worried that an urban residence permit would cost them rights to their rural land. Given that farmland is the primary source of income for China’s huge agricultural population, and that the potential acceleration in urban population growth will place yet more strain on the already limited resources available to cities, experts said that the success of the new policy will be determined by the government’s capacity to solve the issues surrounding the permit.

New Policy

While other regions have piloted similar policies in the past, Henan’s reform plan has stirred the waters nationwide due to the province’s huge population – it is home to roughly 8.2 percent of China’s citizens. In order to prevent an overwhelming influx of people into its biggest settlements, Henan’s pilot program has divided its towns and cities into four categories based on size, with each category imposing different residence requirements. Small towns, for example, only require that applicants are legally employed and either rent or own a house, while bigger cities also set thresholds for how long applicants have worked in the city, and their social welfare payments. Zhengzhou, Henan’s capital and its richest settlement, adopts a point-based system, covering 12 fields, including employment status, education level, social welfare payments and other metrics. Applicants who fall short of requirements will not be considered. “Given that Henan has about 70 million rural people, it is necessary for the government to route the migrant population into different towns and cities, or the capital will be overburdened,” Gu Jianquan, vice-director of the Henan Academy of Social Sciences (HASS), told NewsChina. “But no matter what the requirements are, application is voluntary,” he added. “That is an essential aspect of the new policy.” Geng Mingzhai, director of the Academy of Hinterland Development at Henan NEWSCHINA I February 2015

University, who participated in the research that guided the province’s residence reform, agrees. “The biggest highlight of [Henan’s] program is that it is voluntary. Migrants should have the freedom to choose where to register their residence. Past experience in other regions has told us that residence reform that forces people to participate is unsustainable,” he told NewsChina.

The Land Issue

Geng’s remarks are largely related to what are known as the “three land rights” that apply to rural people’s residence permits, namely, the right of using a free housing lot, the use rights to farmland allocated by their village committees – the collective entities that own the land on behalf of the State – and the right to share the benefits from contracted land. However, as Ye Tan, a renowned economics commentator recently pointed out, while Henan’s program pledges to protect the “three rights,” it fails to go into detail about how it will do so. Herein lies the primary concern of the migrants at whom the reform program is aimed. During interviews with local media, many asked whether or not the government would take back their land as part of the policy, with some netizens even calling the government’s program a “pincer movement” designed to eradicate rural smallholdings and make way for large-scale agricultural production, one of the main goals of China’s urbanization effort. “Pound for pound, a rural permit is actually seen to be worth more than an urban permit due to the land rights it grants to the holder,” Gao Zhihui, a 63-year-old farmer in a village in the Beijing suburbs, told NewsChina. “No rural person would easily give up their land,” she added. China has used a dual-track residence system for rural and urban people since 1958, at which time housing and land for rural residents was allocated by the rural collectives to which they belonged, and jobs and housing for urban people were assigned by the gov-

ernment. While market-oriented employment and residence reform has been going on in cities since the 1990s, the rural system has seen little change. According to current policy, rural residents who obtain permanent urban residence permits, generally via entry into a university or the army, lose the rights to their rural land. While housewife Gao Zhihui has lived in her village for over half a century, she has to rent farmland from one of her relatives, since she transferred to an urban residence permit after her husband took a job as a teacher at a public school over 40 years ago. Geng Mingzhai insisted that the new policy will not force any applicant to forfeit their land. “Henan is now re-defining and reregistering the land rights of its rural population. Once this process is complete, the land will always belong to the person to whom it is registered, and they will always have the right to share in the benefits from the land, no matter where their residence is,” he argued. Zhu Lijia, a professor from the Chinese Academy of Governance, however, believes it would be unfair to urban residents if rural migrants are allowed to enjoy all the benefits of both urban and rural residence permits in perpetuity. Given the Chinese government’s program to promote large-scale mechanized agricultural production, many analysts believe that the new policy aims to pave the way for rural people to transfer or sell their land use rights. The Henan program includes a pledge to “set up a sound compensation system in exchange for farmers’ land” and “conduct research into effective ways of marketizing the collectivelyowned land,” but does not go into details. Some regions, such as Tianjin and Chongqing municipalities, have taken the lead in land use transactions, allowing rural people to sell or sub-let their land within limited market parameters, or exchange their land for a house in the city. While the reform is generally considered to have been a breakthrough, a lack of legal and policy support

politics

Photo by xinhua

The Pressure

China’s residence registration requirements are enforced by the police

has, according to media reports, resulted in an array of problems. Some investors, for example, complained that rural people would often maximize their profits by illegally breaking contracts, while some rural people revealed that they were forced by their village collective to pool their land in order to drive prices up. “Some of the villagers in our village have

exchanged their land for a large sum of money and a house in the city, but many others, including my family, did not,” Wang Shuna, a villager in Hebei Province, told NewsChina. “I think rural people will be willing to exchange their land for something of equal or higher value. The key is how the government is to convince them that they will be protected in the cities,” she added.

Due to similar worries, most migrants in Henan, according to local media, are reluctant to apply for urban residence permits. Worse, due to difficulties in the cities, many have been moving back to villages before the policy is implemented, causing great concern for the local government. As analysts have warned, attracting rural laborers and helping them settle down is not simply a matter of granting them a permit, but requires an array of supporting measures to better accommodate and serve an increased population, an enormous undertaking. Given that Henan plans to grant new urban residency permits to around 11 million rural people, the local government, according to the 2013 report on the development of Henan Province issued by the Chinese Academy of Social Sciences, needs to invest at least 1.6 trillion yuan (US$266.7bn) in boosting and improving various forms of infrastructure and public services. Zhengzhou, for example, has suffered two water supply crises this year. If its population continues to expand to seven million by 2020 as planned, the government needs to build at least seven new water plants to ease water shortages. However, there is currently only one such plant under construction. Funding is an even bigger problem. Experts have proposed to further improve the tax system and introduce private capital into the provision of public services, both of which will require robust, long-term government policy support. “I have two concerns that might obstruct Henan’s residence reform. One is that lowerlevel local governments might misuse the policy to impair rural people’s rights to their land, and the other is that the government might drag its feet when it comes to working out supporting policies to guarantee the implementation of reform,” said Gu Jianquan of HASS. NEWSCHINA I February 2015

Corruption

Minor Players, Major Leagues The ongoing crackdown on official graft continues to fell cadres from all levels of the Party pecking order

Photo by IC

By Su Xiaoming

NEWSCHINA I February 2015

politics

n the narrative of China’s ongoing anti-corruption drama, minor offending officials, termed “flies” by the campaign’s chief architect Xi Jinping, are proving as damaging to the Party’s reputation as major-league “tigers.” Disciplinary authorities found 120 million yuan in cash (US$20m), 37 kilograms of gold and 68 property ownership certificates at the Qinhuangdao home of Ma Chaoqun, a minor official and former general manager of Hebei Province’s Beidaihe Water Supply Corporation (BWSC). Ma is currently under investigation by the Party’s anti-graft watchdog for bribery, embezzlement and misuse of public funds, according to a statement released in November by the provincial Commission for Discipline Inspection (CDI).

Watery

47-year-old Ma Chaoqun was born in Funing County, Qinhuangdao, Hebei Province, into a family of four. In 1985, Ma joined the Qinhuangdao Water Supply Company, and was made general manager of its Beidaihe branch in 1997, a promotion he received due to “exceptional work performance.” According to a report published by the official Xinhua News Agency in 2011, shortly after Ma’s promotion, the BWSC turned a profit for the first time in 11 years, with the company five million yuan (US$812,500) in the black after the first year of Ma’s tenure. More recently, however, the BWSC has fallen on hard times. According to an internal circular leaked to the media, in the past three years, the company incurred annual losses exceeding 18 million yuan (US$2.9m), and was struggling with a debt problem. Official data show that the BWSC, which employs more than 200 people, has one water processing plant drawing from a single source with a daily supply capacity of 50,000 liquid tons. Four pumping stations and a pipe system with a total length of 167 kilometers serve as its distribution network. This makes the BWSC the sole water provider for the entire Beidaihe District urban area and its neighboring counties. The company also has exclusive rights to approve, construct, maintain and manage the local water supply infrastructure. Due to the rigid top-down management style in China’s State sector, Ma effectively became the sole comptroller of water resources for an entire urban area of 66,000 inhabitants, with veto powers over any project involving the local water supply. The special political status afforded to Beidaihe, the coastal summer getaway for China’s senior Party officials since the 1950s which boasts a growing number of hotels, luxury villas and tourist resorts – over 280 at the last count – nurtured relations with Ma, giving him immense power and ample opportunity to cultivate his own connections to businesses, government agencies and the Party’s biggest hitters. In 2012, Ma was promoted to the position of deputy researcher with the Qinhuangdao Urban Management Bureau (UMB). This academic-sounding title, according to local sources, provided a front allowing Ma to ignore other peer-level and even higher-ranking government officials, including the UMB’s director, in fast-tracking his

own pet projects. These included those involving the BWSC, over which the bureau has nominal jurisdiction. The CDI claims that several of Ma’s relatives also worked in the same field, including his younger brother Ma Chongqun, a former manager of the water supply company in charge of Qinhuangdao’s Shanhaiguan District. Following his arrest, Ma’s mother Zhang Guiying told media that her son was “probably framed” by UMB director Ma Zhuang. She recalled that when Ma Zhuang went to the BWSC to conduct a routine inspection in 2013, he was barred from entering the building and had to wait for approval from Ma Chaoqun before security personnel would allow him to leave the premises. This incident resulted in a physical altercation between the two men. Attempts by NewsChina to contact Ma Zhuang for comment were unsuccessful. Local media described Ma as “irritable” and claimed that a number of his employees had complained that they had been verbally abused or even assaulted by their former boss. Some reported that Ma was “stingy” and frequently docked employees’ wages. Beijing-based Caijing magazine even claimed that Ma threatened to cut off the water supply for local public institutions including a hospital, several police stations, a park and a bus terminal. However, when talking to former employees of the BWSC, our reporter found no corroboration of these claims.

Downfall

On November 13, shortly after the CDI announced it was investigating Ma, his mother Zhang Guiying called a press conference to attempt to exonerate her son. According to Zhang, 71, her husband Ma Bingzhong, a well-regarded doctor known for treating senior Party officials, had accumulated the fortune seized at Ma Chaoqun’s home. “One time, he [Ma Senior] came home with over 1.8 million yuan (US$292,500) in cash. He knew quite a number of senior government officials,” Zhang told the press. Zhang added that her husband refused to deposit the money in the bank because he thought that keeping cash at home made it easier to spend and lend at high interest rates. She claimed that many of the bills had deteriorated after such a long time in storage. Zhang went on to say that her husband was an early-bird entrepreneur, who invested in businesses ranging from sewing machines to bicycles during the planned economy era, and had even invested in a mine in Tangshan, Hebei Province, which earned him 60 million yuan (US$9.8m) when he sold it. She also claimed that her husband, not her son, was the owner of the real estate which investigators had claimed was purchased with Ma Chaoqun’s embezzled funds. “We do have a lot of apartments, I cannot remember the specific number,” said Zhang. “I do not know how the CDI arrived at the number of 68.” Critics were swift to point out the convenience of Zhang’s claims. Her husband Ma Bingzhong passed away in 2013, and not a single one of her claims was backed up by documentary evidence such as deeds to properties or transaction records. Others doubted that even NEWSCHINA I February 2015

A crate of cash and gold discovered at Ma Chaoqun’s home in March

120 million yuan (US$20m) in cash is discovered by investigators

a doctor to the Party elite could earn such vast wealth without dabbling in graft – while the value of the scattered properties cited in the CDI’s report is still being calculated, out-of-control property prices in urban areas would indicate a total value in the tens of millions of dollars. Even Ma senior’s medical prowess was called into question by a former colleague, who told NewsChina on condition of anonymity that Ma had “ordinary” medical skills and opened a small clinic in retirement – hardly a major money-spinner. A prosecutor involved in Ma’s investigation told the Beijing-based China Youth Daily that the assets described by Ma’s mother during her press conference “had no connection to Ma’s father.” Zhang’s desire to clear her son’s name is perhaps understandable – her entire immediate family, like those of many officials targeted by the central government’s anti-graft drive, is threatened by the CDI investigation. Her younger son, Ma Chongqun, was detained the same day as his brother, and both were formally arrested in May 2014. Ma Chaoqun was removed from his post as a deputy to the local People’s Congress. A further six family members including Ma’s wife, son and fatherin-law were also questioned by police on suspicion of concealing and destroying evidence. Ma’s younger sister was detained on a further charge of illegally possessing firearms. Zhang herself, despite reportedly attempting to hoodwink police by having her daughter and grandson move some 40 crates of cash out of Ma’s apartment, has not been charged. According to a Xinhua report, Ma’s downfall came as the result of a tip-off from a hotel which had informed police he was asking for bribes to connect their water supply. Ma allegedly demanded millions of yuan, threatening to cut off or disrupt the hotel’s water supply if he was not paid. The hotel recorded a telephone call in which Ma demanded a second bribe, before sending the recording to CDI investigators.

When contacted by NewsChina, the hotel in question, the Huamao Sheraton in Beidaihe, owned by the Beijing Guohua Real Estate Company, denied any links with Ma’s corruption case and refused our request for an interview. Nevertheless, employees speaking on condition of anonymity confirmed to our reporter that the hotel’s opening in 2013 was postponed by six months because it had not had its water connected. Other hotels in Beidaihe contacted by our reporter also declined to comment on the allegations that Ma personally demanded “protection money” for providing them with a secure water supply. An internal circular issued by the BWSC indicated that five days after Ma was detained, senior positions were reassigned by the Qinhuangdao Urban Management Bureau, with the company’s 19 administrative officer roles reduced to 15. Grassroots officials gaining extraordinary wealth has been a regularly exposed feature of the anti-graft drive, according to recent findings by 13 investigative teams under the Central Commission for Discipline Inspection. Inspections of government agencies in 10 provinces and regions from July to October were followed by reports emphasizing the key role played by so-called “flies” in the most egregious abuses of power. “A lack of checks on power… leads to rampant corruption among local-level officials,” said Zhang Sining, a research fellow at the Liaoning Academy of Social Sciences, during an interview with the Global Times. Gao Bo, a political researcher at the Chinese Academy of Social Sciences, said the role of “flies” in feeding China’s graft addiction had been widely “underestimated.” Grassroots officials, in his view, are “close to the people,” and thus their malfeasance is massively damaging to public perceptions of the Party and the government. “A new image needs to be established, both inside and outside the company,” Han Juhong, deputy researcher with the Qinhuangdao Urban Management Bureau, told NewsChina.

NEWSCHINA I February 2015

politics

Private Investment

When We Need Your Money While the State is calling for more private investment in infrastructure, private enterprises remain skeptical

By Sun Zhe and Han Yong A man walks past a private capital management company in Beijing, May 31,

n a guideline released late November 2014, China opened seven industrial sectors to private capital, ranging from transport to social services – an extension of a May 2014 invitation to private businesses to invest in 80 pilot infrastructure projects. This increased openness to the private sector, announced by the National Development and Reform Commission (NDRC), China’s top macroeconomic planning body, is a result of declining growth in the government’s fiscal revenue, according to Zuo Xiaolei, chief economist with Beijing-based finance firm Galaxy Securities. “Also, it is not appropriate for [the government] to invest directly,” Zuo said.

Ill-advised

Over the past decade, local governments have repeatedly proved their ineptitude when it comes to investment. According to a report released by a research organization attached to the NDRC, Chinese governments have

wasted US$6.9 trillion on inefficient investments since 2009, following a flood of loans for infrastructure projects doled out to local governments and State-owned enterprises (SOEs) as part of China’s stimulus program during the global recession. As a result, China used more 30 percent more cement from 2011 to 2013 than the US has for the whole of the 21st century, according to data from the US Geological Survey and China’s National Bureau of Statistics. Much of this was used to build unnecessary expressways and ill-advised construction developments, creating the much-discussed “ghost-town” phenomenon. These inefficient investments, many of which had no hope of generating enough profit to cover the interest of the loans used to finance them, accounted for about half of China’s total investment over the period 2009-2013. The majority were injected into industries like steel, housing, renewable energy and automobiles, and infrastructure –

particularly expressways. It has become infeasible to rely solely on government spending for infrastructure construction, given that governments themselves are suffering from fiscal strain due to the decline in the land sales that account for more than half their revenues. Outstanding loans accumulated over the past few years only add to their fiscal burden. Annual growth in fixed investments, or those in infrastructure, topped 25 percent before 2012 but has since slowed to 20 percent, and is expected to drop to 16 percent in 2014. By the end of June 2013, loans to regional governments had reached a total of 11 trillion yuan (US$1.8tn), with 2.4 trillion yuan (US$453bn) – more than a fifth of them – due in 2015. Bad loans resulting from bad investments on the part of governments and SOEs are now adding to the country’s systemic financial risk. The side effects of the stimulus program are also making it difficult for the NEWSCHINA I February 2015

Photo by xinhua

2013

Renewable energy projects built with State loans struggle to generate enough profit to cover their interest

country to steer itself away from the creditdriven model – bad loans, a slowing housing market and industrial overcapacity resulting from poor investments during the stimulus are weighing down the economy, and stymieing the country’s efforts to carry out economic reform. In the first half of 2014, GDP growth in more than two thirds of China’s provinces fell short of their targets – a rare occurence – while fiscal revenue growth in 11 provinces fell below 10 percent, in comparison to the double-digit growth recorded in the past few years. China’s GDP growth fell to 7.3 percent in the third quarter of 2014, a six-year low, causing new fears of further quantitative easing and stimulus. Given that domestic consumption is not expected to grow fast enough to balance out the slowdown in exports, the government is predicted to rely on investment again to boost the economy. Due to the government’s cashflow problem, many believe NEWSCHINA I February 2015

the private sector to be the natural choice.

Hesitance

So far, however, since the program was launched in May 2014, more than half of the 80 pilot projects open to private capital, including roads, railways and energy infrastructure, have yet to arouse much interest among private investors. Their caution is reasonable – in the wake of the stimulus program, when governments were suddenly given easy access to loans from State banks, there were plenty of examples of governments unilaterally canceling privatepublic partnership projects. While government leaders have repeatedly refuted the idea of another such stimulus program, private investors do not appear to have been convinced. Premier Li Keqiang has vowed on various occasions that the central government will not launch another stimulus program in pursuit of short-term growth, instead relying more on the improvement of market mecha-

nisms, calling large stimulus packages an “unsustainable” measure that could “sow the seeds of a new risk of relying on government investment to generate economic growth.” The central government has repeatedly stated its intention to reform and switch to a more efficient, sustainable and balanced economic growth model. At a government meeting in early 2014, Xu Shaoshi, director of the NDRC, said that central government investment would mainly be used to build railways in the country’s central and western regions, as well as for affordable housing and irrigation projects elsewhere. But risks exist even for private companies who take on infrastructure projects without partnering with the government. In one case, a private company in Inner Mongolia took five years to get a threekilometer branch of railway approved and built. After it was eventually put into use, the company found that all railway transportation was monopolized by a single local State-owned company, locking the private company out of railway cargo quotas. Moreover, most of the sectors so far open to private investment, such as environmental protection, irrigation, municipal services, transportation, energy infrastructure and social services, call for long-term investment that will likely only turn a profit after a number of years. Meanwhile, most lucrative sectors such as electricity, telecoms and banking, remain comparatively closed off to private invesment. Private investors, playing with their own finite resources on an unequal playing field, are bound to be more cautious than governments and SOEs, for whom short-term GDP growth is vital for the promotion of officials. Projects need a potential minimum profit margin of 5 to 8 percent in order to attract private capital, said Zuo Xiaolei of Galaxy Securities. However, at least in the short term, the seven sectors newly opened to private investment fall far short of this figure, according to a private entrepreneur who asked to remain anonymous. It might take even longer for the NDRC to win the trust of private enterprises.

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Foreign Policy

Ringing Endors

NEWSCHINA I February 2015

sement T

With its unprecedented diplomatic activity over the last two years, China’s vision of a “new diplomatic landscape” is steadily taking shape By Xu Fangqing

wo years since assuming power, China’s leadership under President Xi Jinping has gained a reputation for being proactive. Domestically, Xi has launched a high-profile anti-graft campaign and various reform initiatives, while championing a proactive foreign policy and raising a number of major regional and international initiatives across a variety of fields. In less than two years, Xi has made 11 overseas trips, visiting 31 countries on five continents. On his latest trip in November 2014, Xi visited Fiji and met with leaders of eight Pacific Island nations on his way back from a tour of Australia and New Zealand. Not only is Xi the first Chinese president to visit the Pacific Islands, he is by far the most diplomatically active paramount leader in the history of the People’s Republic of China. Many analysts believe that China’s intensified diplomatic activity not only reflects a more proactive approach, but has revealed major changes in the underlying doctrine informing China’s current foreign policy. Qu Xing, president of the China Institute

NEWSCHINA I February 2015

of International Studies, for example, has argued that Xi’s visits have outlined a “new diplomatic landscape” in China’s foreign policy.

‘Three-Ring’ Diplomacy

During China’s previous leadership under former president Hu Jintao, China’s foreign policy was guided by the so-called “threering” doctrine – State Council annual reports during Hu’s presidency repeatedly referred to the idea that “relationships between major countries are the key, neighboring countries are principal, and the developing world is the foundation.” This policy mandated that “great power relationships,” primarily the Sino-US relationship, were given priority, followed by China’s relationships with its neighbors, and lastly its ties with the rest of the developing world, with individual developing countries prioritized by their importance. But according to Professor Wang Yiwei from the Renmin University of China, China has gradually been adopting an updated version of the “three-ring” doctrine since

Photo by Pablo Martinez Monsivais

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Xi Jinping meets with Barack Obama in Beijing, November 11, 2014

President Xi Jinping assumed power in 2013. If the old “three-ring” diplomacy centered on the Sino-US relationship, the new approach takes a more China-centric perspective, devoting more diplomatic resources to countries that are geographically and strategically closer to China. According to Professor Wang, at the core of this new three-ring diplomacy are China’s neighbors, which he argued have been given foremost priority under China’s new approach. In the middle ring is the developing world, with regions like Africa and South America receiving comparatively more attention. Meanwhile, the rest of the developed world has effectively been relegated to the outermost diplomatic ring. Wang argues that by attaching different priorities to these three rings, China is showing that it has a new set of goals regarding its relationship with these countries.

Photo by xinhua

Multilateralism

Xi Jinping with Russian President Vladimir Putin in Shanghai, May 21, 2014

Regarding neighboring countries and the rest of the developing world, China has raised the concept of “common destiny” in the past few months, aiming to build closer strategic cooperation through the promotion of regional integration. On his visits to 13 different Asian countries over the past two years, Xi has been pushing forward various initiatives, including a “New Silk Road” linking China and Europe via Central Asia, and a “maritime Silk Road economic belt” covering Southeast and South Asian countries. This pair of initiatives, commonly referred to as “One Road, One Belt” within China, have gained momentum recently, with China contributing US$40 billion to set up a Silk Road infrastructure fund to boost connectivity across Asia in November 2014. In the meantime, China has adopted a NEWSCHINA I February 2015

Kazakhstan Turkmenistan Germany The Netherlands Belgium France

Kyrgyzstan Uzbekistan

Russia

Mongolia

Europe

The Americas Asia Africa

Mexico Cuba

South Korea India Tajikistan

Republic of Congo

Tanzania

Costa Rica

Venezuela Trinidad & Tobago

Sri Lanka

Maldives Malaysia Indonesia Fiji Brazil

Australia South Africa New Zealand Argentina

2013

2014

In less than two years, Xi Jinping has made 11 overseas trips, visiting 31 countries on five continents

similarly multilateralist approach toward the rest of the developing world, the middle ring of the new three-ring structure. In recent months, China has launched various initiatives, including the New Development Bank along with the other BRICS nations, the Asian Infrastructure Investment Bank (AIIB), and the FTAAP trade framework in cooperation with the APEC bloc. According to Professor Wang, China’s new policy of attaching more strategic importance to its relationships with surrounding countries and the developing world is a natural response to the altered nature of its relationship with both the developing and developed worlds. “As China moves from the lower end of the NEWSCHINA I February 2015

global supply chain towards the higher end, trade and economic relationships between China and the rest of the developing world have become less competitive and more reciprocal, which has created a need for an adjustment of China’s foreign policy,” Wang told NewsChina. Not only do developing countries provide China with raw materials and resources, but they are also emerging as strong markets for Chinese goods – a significant boon to China, particularly given the flagging demand in developed countries in recent years. In comparison, competition for raw materials, markets and influence between China and the developed world has intensified. Under its new doctrine, China will strive to seek

“common interests” with developed countries. For example, on a visit to Europe in March 2014, China and EU leaders agreed to jointly develop “third-party markets,” meaning those outside the European and Asian continents. In the meantime, China has also been increasingly seeking a more equal footing in its relationships with the developed world, a trend most visible in its relationship with the US. In the past few years, China has raised the concept of a “new type of great power relations” regarding its relationship with the US, stressing the importance of “mutual respect,” along with other principles such as “non-conflict,” “non-confrontation,” and “win-win cooperation.”

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Photo by Mark Mitchell

‘One Road, One Belt’

Photo by Fernando Llano

Xi Jinping meets a veteran at a traditional Maori welcome ceremony in Wellington, New Zealand, November 20, 2014

Xi Jinping in Caracas, capital of Venezuela, July 21, 2014

It is perhaps this mentality of respectseeking that has emboldened China to show more assertiveness in its territorial disputes with Japan in the East China Sea and with the Philippines and Vietnam in the South China Sea, resulting in increased tensions and provoking a strategic counter-response from the US. But recently China has taken steps to reduce tension. In November 2014, China signed a military accord with the US to avert potential military clashes, and reached a tentative consensus with Japan over an island chain claimed by both countries. In the same month, China also launched a new “dual approach” regarding territorial disputes in the South China Sea, officially recognizing the role of the Association of Southeast Asian Nations in controlling tensions in the region. For many domestic analysts, the policy adjustment indicates that China’s foreign policy approach is now comparatively mature and stable, as China sorts out its strategic priorities in dealing with various challenges. At a high-level Party meeting held in late October, 2014, Xi reiterated the significance of China’s “periphery diplomacy” and “One Road, One Belt” initiative, which he said would aim not just at interconnectivity in terms of infrastructure, but also in trade, policy, currency and cultural exchanges. Given the high status of the meeting, which was attended by all seven members of the Standing Committee of the Politburo, it is believed to have set the tone for China’s overall foreign policy in the foreseeable future, with “One Road, One Belt” at the core. For many Chinese officials and experts, the New Silk Road initiative, with its inclusiveness and openness, can foster shared interests through regional integration, minimize security and geopolitical concerns among neighboring countries, and may provide China with the means to eventually achieve its much-vaunted peaceful rise.  NEWSCHINA I February 2015

Foreign Policy

Old Scores, New Solutions Competing initiatives and interests between China, the US and ASEAN countries mean territorial disputes in the South China Sea threaten to undermine China’s recent diplomatic efforts to revitalize regional trust and confidence By Yu Xiaodong and Xu Fangqing

t the 22nd APEC Summit in Beijing in November 2014, Chinese President Xi Jinping showed his desire for better relations with the US, Japan and China’s neighbors. Not only did Xi sign several unexpected deals with US President Barack Obama and meet with Japanese Prime Minister Shinzo Abe, he also pledged US$40 billion to the Silk Road Infrastructure Fund to improve economic connectivity across Asia. Then, at the East Asia Summit held in Myanmar later that month, Chinese Premier Li Keqiang extended an olive branch to the Association of Southeast Asian Nations (ASEAN) bloc, proposing a friendship treaty and a defense hotline with Southeast Asian nations, also offering US$20 billion in loans. Shortly before his departure, Li proposed to make 2015 “the year of China-ASEAN maritime cooperation.” Many analysts believe China’s overtures at recent gatherings mark a new approach in its foreign policy. Proposing a holistic vision for the entire Asia-Pacific region, China seemed to be emphasizing economic cooperation

NEWSCHINA I February 2015

and downplaying its maritime disputes with surrounding countries.

‘Dual-track’

Regarding tensions in the South China Sea, China (in August) unveiled a so-called “dual track” approach, whereby the issues at the core of specific disputes between China and other countries are discussed bilaterally, while ASEAN as a whole works with China to play a role in upholding “peace and stability” in the region. In 2002, China signed the Declaration on the Conduct of Parties in the South China Sea with ASEAN members. Recognizing freedom of navigation in the South China Sea, and calling for disputes to be settled “by peaceful means, without resorting to the threat of or use of force,” the countries agreed to work on a “code of conduct” (COC) in the South China Sea. However, given the vast discrepancies between the positions of the various parties involved, negotiations on this front have stalled.

“A major sticking point is that some countries treated the negotiations on the COC as a platform to resolve sovereignty and territorial disputes, rather than as a conflict control mechanism, which is not its original intention,” Ouyang Yujing, director-general of the Chinese Foreign Ministry’s Department of Boundary and Ocean Affairs told NewsChina. China has long insisted that its territorial disputes with other countries should be resolved through bilateral negotiation rather than multilaterally between China and ASEAN as a whole, and has opposed the involvement of extra-regional countries, such as Japan, India, and primarily the US. By separating the issue of conflict control – a particularly pressing one given the tension in the South China Sea – from the eventual long-term resolution of territorial disputes, Chinese officials and experts argue that a “dual-track” approach will enable China and ASEAN to make concrete progress in reaching consensus on a binding code of conduct. “It is by far the most balanced, practical

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Photo by liu zhen

tional Relations, the key question for China is why the proposal does not apply to the US itself. “If China were to ask the US to first freeze its own actions that could cause tension in the South China Sea, undoubtedly the answer would be ‘No,’” Zhai wrote in a commentary published at chinausfocus. com. The fact that the US itself has not ratified the UN Convention on the Law of the Sea (UNCLOS) is also often cited by Chinese officials critical of the basis for the US’s “legal high ground” attitude. But perhaps more notably, the freeze proposal was received with skepticism even by many ASEAN countries. While non-claimant countries such as Thailand, Myanmar, Cambodia and Laos were concerned that the proposal would jeopardize their cooperation with China, claimant countries such as Vietnam worried that the implementation of the proposal would constrain their own actions and undermine their maritime economy. In the final joint declaration concluded at the ARF meetings, the ASEAN foreign ministers did not mention a “freeze.” Instead, the document only “noted” the three-step plan raised by the Philippines to suspend activities that aggravate tensions in the short term, conclude a legally binding COC in the mid-

Chinese Premier Li Keqiang addresses the 17th ASEAN-China, Japan and South Korea leaders’ meeting, in Naypyidaw, capital of Myanmar, November 13

and reasonable approach among all the available options,” Professor Zhu Feng, an expert on South China Sea issues from Nanjing University, told NewsChina. There is no doubt that the dual-track approach also serves to counter increasing pressure from the US. Acknowledging the role of ASEAN as a whole in maritime negotiation, something the US has been actively supporting, the dual-track approach allows China to uphold its core policy of solving sovereignty issues through bilateral negotiation, while allowing ASEAN to play a role in South China Sea disputes. According to Ouyang Yujing, China has gained support from 8 out of 10 ASEAN countries, the exceptions being the Philippines and Vietnam. At the East Asia Summit, Chinese Premier Li claimed that China and ASEAN had reached a consensus on this du-

al-track approach, reflecting China’s increasing confidence in handling the issue.

‘Freeze’ Proposal

Part of China’s confidence and optimism also comes from the lackluster reaction to the US’s “freeze proposal” in recent months. The long-expected proposal, officially raised by US Secretary of State John Kerry at the ASEAN Regional Forum (ARF) Foreign Ministers’ Meetings, called for all claimants in the South China Sea disputes to freeze provocative actions, including land reclamation and construction on disputed islands. The proposal has met with strong objections from China, itself rooted in longstanding opposition to extra-regional intervention. According to Zhai Kun, director of the Institute of World Political Studies under the China Institute of Contemporary Interna-

NEWSCHINA I February 2015

China

term, and settle sovereign disputes peacefully in the long run. The most explicit statement was one urging the acceleration of the negotiation process on the COC, a position closer to China’s dual-track approach than the US’ freeze proposal.

Dueling Papers

But as long as these disputes remain unsolved, they will remain a sticking point for China’s global diplomacy. After a brief lull following various regional summits in November 2014, debate had rekindled by early December. On December 5, 2014, the US State Department released its analysis of the legality of Beijing’s South China Sea claims. Questioning the “clarity” and “geographical consistency and precision” of the nine-dashed line which is the basis of China’s maritime claim, the analysis reads as a refutation of China’s position with the US, suggesting that Washington has aligned itself with the Philippines. Having only declared the South China Sea a US national interest in 2010, the US has claimed to be “neutral” in disputes, focusing instead on fostering a united position among ASEAN countries to confront China. However, it appears that the US has become more overt in voicing its position. Not only is the State Department paper the first official government paper released by the US to explicitly back the claim by the Philippines, the timing of its release appears to be carefully calculated. Earlier in 2014, the Philippines submitted its territorial disputes for international arbitration under the UNCLOS’s compulsory dispute mechanism – December 15 is the deadline for China to submit its defense in the case. As China has showed no intention of taking part in the arbitration, the release of NEWSCHINA I February 2015

Burma the study seems designed to achieve multiple goals: gaining the legal high ground for the Philippines’ position, pressing China to go on the defensive, and influencing the decision of the arbitration tribunal. Then, two days later, China released its own paper. Instead of defending its claim, China argued that the issue of territorial sovereignty falls beyond the purview of the UNCLOS, which it argues can only address maritime issues and has no jurisdiction. Moreover, China stressed that it, like many other countries, did not accept the compulsory settlement procedures provided for by UNCLOS, including those dealing with maritime delimitation, back in 2006. For a long time, China has considered the vagueness of its maritime claims a constraint, and something that should only be further clarified in bilateral negotiations to allow for mutual compromise. With its recent adjustment in foreign policy toward focusing on economic initiatives such as the New Silk Road, China is determined not to be dragged into a legal battle that may lead to increased tensions and divert its attention from its broader strategic priorities. However, as the US efforts to establish a broader united front against China with ASEAN as a whole have stalled, it appears to be fostering a smaller united front with the Philippines and Vietnam. Not only has the US supported the Philippine litigation case against China, it has partially lifted a 50-yearold arms embargo on Vietnam. On December 9, 2014, Vietnam an-

Vietnam Laos Philippines

Thailand Cambodia Malaysia

Brunei

Singapore Indonesia

ASEAN Member States

nounced that it would be taking legal recourse, as it has lodged a proposal to the Permanent Court of Arbitration (PCA) in The Hague to reject China’s nine-dashed line and give “due regard” to Vietnam’s own legal rights and interests in the Spratly and Paracel Islands, known in China as the Nansha and Xisha. Earlier, in late November 2014, Vietnam sent a navy convoy consisting of two of Vietnam’s most advanced vessels the Dinh Tien Hoang (HQ-011) and Ly Thai To (HQ-012) to visit the Philippines. Led by Rear Admiral Nguyen Van Kiem, deputy chief of staff of the Vietnam People’s Navy, the convoy made a high-profile visit to Southwest Cay (Nanzi Island), an island in the middle of the disputed Spratly archipelago. One of the vessels even approached the China-controlled Johnson Reef (Chiguajiao), resulting in a brief confrontation with a Chinese vessel. As the South China Sea is increasingly becoming the chessboard upon which regional power rivalries are played out, maintaining peace while encouraging activity in the area presents perhaps the greatest challenge to China’s new diplomatic approach.

Photo by lIAO PAN

cover story

Chinese President Xi Jinping and First Lady Peng Liyuan with Asia-Pacific leaders, Beijing, November 10, 2014

Foreign Policy

“China needs to balance assertiveness with prudence in its diplomacy” If China is to become a major power in Asia, its leadership must take a more nuanced approach in dealings with neighboring countries By Shi Yinhong

n recent years, as China has emerged as the world’s second largest economy and has aspired to greater influence in the region, potential clashes with the US – the dominant power both in the region and the world – have become one of the most popular topics among Chinese decision makers, analysts and experts. Some scholars have dubbed the Sino-US relationship, perhaps the world’s most important bilateral relationship, “the contest of the 21st century.” Many are concerned that the two countries are headed for what is known in diplomacy as the “Thucydides trap,” where competition between a rising power and an established power can escalate towards war.

After decades of globalization, today’s geopolitical landscape is characterized by a high level of interdependence between countries, and the Sino-US relationship is no exception. The two nations are both rivals and partners, and their bilateral relationship is one of confrontation and competition as much as cooperation and collaboration. To perceive Sino-US ties purely from the perspective of strategic rivalry is misleading, as such a view ignores the complexity of the relationship. But, given that the world is a metaphorical chessboard of contending rival powers, it is inevitable that these rivalries will be most acute between the rising great power and the incumbent dominant power. To avoid the

prospect of the Thucydides trap, decision makers in both China and the US must craft policies based on a sound and solid judgment of each other’s core interests, strategic intentions, actual capability and basic national psyche. Any misunderstanding, underestimation, prejudice or misjudgment could have devastating consequences for both countries, and any attempt by one side to coerce the other would be politically reckless and strategically foolhardy. In recent months, China has made it clear that its goal both in the short- and the long -term is to “persuade” the US to recognize and respect China’s strategic interests in the West Pacific – an objective China considers NEWSCHINA I February 2015

Photo by xinhua

G20 leaders in Brisbane, Australia, November 15, 2014

to be reasonable. However, in pursing this understanding, China needs to adopt a more balanced approach between assertiveness and prudence. In order to achieve this strategic goal, China needs to have patience in pushing forward its policies and initiatives. A more balanced and prudent approach will allow China and the US a longer period of stability in which to permanently settle their disputes and agree on a new power equilibrium, ensuring the sustainability of China’s peaceful rise.

Periphery Diplomacy

In the last couple of years, as China has sought to improve and consolidate relationships with neighboring countries, there has been a notable shift in the focus of Chinese foreign policy toward so-called “periphery diplomacy” – a departure from its previous policy prioritizing the relationship with the US. However, given that the US has an established network of alliances and commitments in the region, the status of China’s relationships with its neighbors continues to depend on China’s relationship with the US. For example, China’s increasing assertiveness in territorial disputes in the East China and South China seas has lead to military confrontations with Japan, the Philippines and Vietnam. These maritime disputes have become a deadlock for Chinese regional strategy, especially when the US has taken advantage of these disputes in the context of its “pivot to Asia.” In the meantime, other challenges have NEWSCHINA I February 2015

emerged along China’s borders. In Northeast Asia, China’s relationship with traditional ally North Korea has reached its lowest point since President Xi assumed power in 2012. In South Asia, the prospect of greater rivalry with India has also been on the rise since Hindu nationalist Narendra Modi came to power in 2014. Given the complexity of power rivalries in the region, China must be clear about its strategic priorities in its relationships with neighboring countries and the US. Rather than showing assertiveness on all fronts, China should devote its resources to its chief strategic objective, while adopting a more flexible and pragmatic approach on other fronts.

Russia

Another notable feature of China’s diplomatic activities in the past couple of years is its increasingly close relationship with Russia. Sino-Russian ties are not only a key component of China’s periphery diplomacy, but also have significant bearing on the Sino-US relationship. In the past few months, increased Western sanctions on Russia have resulted in strengthened cooperation between China and Russia. As Russia becomes more and more dependent on China for strategic support, China has provided Moscow with key financial assistance in the form of colossal oil and gas deals. However, despite the importance of the partnership with Russia in countering the US’ increasing strategic pressure on China,

China has made it clear that a full-blown alliance with Russia is out of the question. China must remain aware that close ties with Russia may become a liability. For several decades, China has upheld the principles of non-interference, sovereign integrity, and peaceful resolution of international disputes. But following the crisis in Ukraine, China has resorted to these principles less frequently and less determinedly in international diplomacy. As long as the Ukraine issue remains unsolved, it constitutes a diplomatic challenge for China, as it undermines China’s integrity in upholding the various international principles that have long been the foundation of its international credibility. China must handle its relationship with Russia from a broader global perspective. Closer strategic cooperation with Russia will improve China’s geopolitical position in the short term, but China must distance itself from Russia regarding Ukraine and other such thorny issues.

Asia

As recent events have shown – most notably the APEC leaders’ summit in Beijing in mid-November – China’s leadership has toned down its previous assertiveness in territorial disputes. By signing a military accord with the US designed to avert conflict and reaching a landmark four-point consensus with Japan, China has made efforts to reduce tensions in the region. The adjustment suggests that China’s leadership has realized that its military assertive-

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cover story

Premier Li Keqiang with other regional leaders at the 17th ASEAN summit in Naypyidaw, Myanmar, November 13, 2014

ness in the region not only undermines its efforts to build soft power, but increases the likelihood of a military clash with the US and its allies, primarily Japan, and has led the US to take a more assertive stance to counter China’s influence. However, a grand Chinese vision for a future role as the region’s dominant power

remains unchanged. Its policy adjustment will see China focusing on financial and economic competition, manifested in the various initiatives China has launched in the past few months. In May, for example, President Xi Jinping proposed the slogan “Asia for Asians” at the fourth Conference on Interaction and Confi-

dence Building Measures. In October, 2014, China reached agreements with 20 other countries to establish the Asian Infrastructure Investment Bank (AIIB), and at the APEC summit Xi called on the bloc to begin negotiations on the FTAAP framework. These moves have been seen as a direct challenge to the existing international order under the

A Brief History of China’s Foreign Policy T o understand the mentality of the current Chinese leadership and the rationale behind its foreign policy, it is necessary to look at the drastic changes that have marked the last 65 years of Chinese diplomacy.

1950s: Leaning to One Side

After winning the Chinese Civil War and establishing the People’s Republic of China in 1949, the Communist Party of China immediately aligned publicly with the Soviet Union. With the onset of the Cold War, and particularly the outbreak of the Korean War (1950-53), China placed itself firmly in the Soviet camp.

1960s: Anti-Soviet and Anti-US

China’s honeymoon with the Soviet Union soured in the late 1950s and early 1960s as the two countries engaged in an ideological debate on the interpretation of Marxism. Launching political movements in alignment with “traditional” Marxism, Chairman Mao Zedong condemned the Soviet Union’s policy of “peaceful coexistence” with the US as “revisionism.”

In this period, China adopted hard-line policies towards both the Soviet Union and the US, resulting in diplomatic isolation from both powers. At the height of the Sino-Soviet Split in late 1960, territorial disputes between the two countries lead to border skirmishes. In 1962, China also fought a brief border conflict with India.

1970s: ‘One-Line’ Policy

As Soviet invasion appeared imminent against the backdrop of deteriorating Sino-Soviet relations, China adjusted its policy towards the West. After President Richard Nixon’s landmark visit to China in 1972, China began to adopt a “one-line” policy, uniting with other countries along the same latitude to form a united front against the Soviet Union. It was in this period that China began to normalize relations with the US, Japan and European countries.

1980s: Beyond Ideology

After the death of Mao Zedong in 1976 and the launch of Reform and Opening-up in 1978 under the leadership of Deng

NEWSCHINA I February 2015

leadership of the US. As the US remains extremely sensitive to any challenge to its predominance in the region, the strategic distrust and rivalry between the US and China will persist, if not intensify. While the chances of a direct military clash have decreased, the competition and rivalry between the two countries will likely become

more profound and extensive. As rivalries in the region become more complicated, China’s determination, patience and endurance will be tested. On one hand, China should be unwavering in pushing forward the various trade, financial and economic initiatives it has launched, and on the other, China should tone down its hawkish-

Xiaoping, China began to adopt a more pragmatic approach to diplomacy, abandoning political ideology as its guiding doctrine. By 1989, China had established diplomatic relationships with 133 countries. In this period, China embraced policies of setting aside disputes and promoting joint development regarding its territorial disputes in both the East China Sea and the South China Sea

1990s: Biding One’s Time

With the collapse of the the Soviet Union in early 1991, China faced a great political challenge, especially given the sanctions on China by the West after the Tian’anmen Square Incident in 1989. The easy US military victory in the First Gulf War in 1991 also had a significant psychological impact on Chinese leaders. As a US-led world began to take shape, Deng Xiaoping raised his famous policy of “hiding our capacities, biding our time and doing something worthwhile.” In this period, China adopted a rather passive foreign policy and focused primarily on domestic issues such as economic reform.

2000s: Going Out

In 2001, China joined the World Trade Organization, allowing it to seek economic cooperation with other countries on a larger scale. China’s foreign policy became more and more cen-

NEWSCHINA I February 2015

Photo by xinhua

Premier Li Keqiang in a group photo at the 13th Shanghai Cooperation Organization prime ministers’ meeting in Astana, Kazakhstan, December 15, 2014

ness in its dealings with its neighboring countries to prevent the US from forging a “united front” against China in the region. Only this way can China achieve its peaceful rise. The author is a professor from the School of International Relations at the Renmin University of China

tered around ensuring a friendly international environment so that China could focus on economic development. This period was marked by increasing interdependence between China and the rest of the world, as China became “the world’s factory,” leading to rapid economic growth. In the meantime, the US’ focus on global terrorism also allowed China to begin subtly exerting more influence in the Asia-Pacific region.

2010s: Great Power Diplomacy

After decades of economic growth, the relationship between China and Western countries has become unprecedentedly complex. On one hand, China has begun to seek a greater role on the international stage, which it considers a reasonable expectation given its status as the world’s second largest economy. But given China’s political system and distinctive development path, the West has become increasingly weary of China’s increasing influence. China’s aspirations are to some extent considered a threat to the Western-controlled global order. Since Xi Jinping assumed power in 2013, China has adjusted its policy toward the US and Russia, and become more assertive in territorial disputes with Japan while devoting more diplomatic resources to other parts of the world, possibly hailing a new era for Chinese diplomacy.

society

Preventive Healthcare

Unchecked Profiteering Chinaâ&#x20AC;&#x2122;s expanding and largely unregulated private medical service industry is reaping major rewards through the exploitation of popular hypochondria By Qian Wei

NEWSCHINA I February 2015

Unnecessary Luxury

In 2012, 33-year-old Zhang Chao went to a high-end private health check clinic in Beijing, and was so impressed with the luxurious atmosphere and meticulous service that he has returned every year, despite having no detectable health problems. According to Dr Richard St Cyr, an American physician now working at the Beijing United Family Clinic, he has personally undergone three health checks at local Chinese health centers since he arrived in the country eight years ago. In an article posted on his personal website, he said that he was impressed by these local clinics’ “efficiency,” but was shocked by the number of unnecessary tests that the local doctors insisted on running – many of which would, in the West at least, only be carried out on patients showing symptoms of the related conditions. “I literally felt like a cow being herded through a slaughterhouse,” St Cyr told NewsChina. “I was being moved on an assembly line from room to room, poked and prodded in all sorts of embarrassing places. And yet everyone around me seemed completely happy and reassured.” China has few family doctors, meaning referrals are a rarity. Most Chinese people head straight to the nearest hospital when they get sick, meaning that preventive care is largely the playground of profit-making enterprises, some of which have questionable medical credentials. According to Zhang Jingbo, director of the NEWSCHINA I February 2015

Beijing Municipal Health Bureau, there are a total of 204 health check clinics currently operating in Beijing. In the private sector, Ciming Health Checkup Management Group now dominates around one fourth of the overall market. A range of packages targeting different groups of people are on offer to clients, with prices ranging from a few hundred yuan up to over ten thousand. Ciming spokesperson Mo Jinrui told NewsChina that the number of tests offered by his company has increased from an initial “standard dozen” to over 1,000. Most of Ciming’s business, Mo added, comes from the sale of medium-level packages priced below 1,000 yuan (US$163). Han Xiaohong, founder and CEO of Ciming, told NewsChina she plans to expand her health check business and encourage people to purchase “highlevel physical check” packages, few of which cost less than 10,000 yuan (US$1,628). “The popular cheap package can only test for chronic diseases and advanced cancers,” Han told NewsChina. “To maximize the effectiveness of ‘health management,’ people need to have the high-level body check.” Han scoffs at critics who claim her business is profiteering from ignorance. “We should encourage so-called ‘over-testing,’” she told NewsChina. My own health has benefitted a lot from over-testing.” This package, Han revealed, includes gas-

trointestinal endoscopy, Nuclear Magnetic Resonance Imaging (NMRI), Transcranial Doppler (TCD) and PET/CT scans – all expensive procedures that are far from routine, and most of which are designed to detect lifethreatening conditions. Moreover, follow-up services including health adjustment, Traditional Chinese Medicine (TCM) regimens, beauty and anti-aging treatments are also available to Ciming’s high-paying customers. Yu Rong, Chairman of Meinian Onehealth Healthcare Co Ltd, one of Ciming’s main rivals, told NewsChina that, in the future, health check institutes would “replace hospitals.” To his mind, he added, whoever can “grasp this opportunity,” would become “the ringleader for the whole health industry.” Yu’s company is set to go public in 2015. “At present, the market capacity for the health check industry is 70 to 80 billion yuan (US$11.4bn to 3bn),” Yu told a recent industry conference in Beijing. “In some third-tier cities, this market will expand far beyond our imagination.” China’s government hospitals, themselves increasingly profit-driven enterprises, are also attempting to tap this lucrative market. Beijing Union Medical College hospital and the General Hospital of the People’s Liberation Army (GHPLA), also in Beijing, are both offering health checks, as are a number of smaller community-based clinics.

Photo by CFP

ncreasing national expenditure on healthcare in China has come alongside a boom in so-called “preventive care services.” By 2013, revenue from “checkup clinics” amounted to 60 billion yuan (US$ 9.76bn), with the average urban resident spending 870 yuan (US$142 bn) on annual health checks in 2010 – compared to 26 yuan (US$4.23) in 1990. Total revenues in the sector, which in Beijing alone is responsible for 10,000 jobs, are expected to break 300 billion yuan (US$49bn) by 2020.

Sub-health body fluid screening is available at this local hospital in Nanjing

Photo by CFP

society

Staff are offered free health checks by their employers in Tianqiao Hospital, Beijing

Wu Haiyun, a cardiovascular surgeon from GHPLA, one of the earliest advocates for the concept of “health management” in China is not comfortable with the unchecked growth of a relentlessly profiteering health check industry. “Health management is supposed to mean early intervention and preventive care,” Wu told our reporter. “In China, the term is now shorthand for health checks.” According to government data, offering health checks can account for some 20 percent of a hospital’s total revenue. Yuan Xiangdong, director of the health check center of Guangdong People’s Hospital, gave NewsChina a breakdown of the math. “If those patients who actually discover illness via routine health checks are taken into account, the indirect income from follow-up treatment could amount to over 50 to 60 million yuan (US$8.13 to 9.77bn) per year.”

Excessive

In the eyes of an expat like Dr St Cyr, many Chinese people have become “addicted” to annual health checks, with many workplaces offering comprehensive annual physicals as a matter of course. St Cyr believes many are

convinced that regular health screenings help keep one healthy. It is common in China for people to undergo procedures which would in the West only be recommended for those showing symptoms of disease. Chest X-rays or ECGs, blood testing, CT scans and ultrasound are all viewed as routine parts of an annual health check – all of these, worryingly, frequently conducted by nurses or even trainee orderlies with only basic medical training. Dr St Cyr recalled undergoing Thermal Metabolic Imaging (TMI) during a “routine” checkup – essentially a full-body scan looking for any physiological anomaly. “I never ever heard of such a meticulous ‘checkup’ in the US,” he said. NewsChina noticed this test included in a Ciming Health Checkup preventive care package costing over 5,000 yuan (US$814). TMIs are in most countries used more for military reconnaissance than in medicine, where they only have limited utility in detecting underlying conditions. Wu Haiyun told NewsChina that the adoption of this technology by the health check industry is a “purely Chinese invention.” In Dr St Cyr’s

words, TMIs are “unnecessary and unhelpful tests.” Wang Yongliang, aged 60, has regularly undergone what those administering them call “tumor marker” blood tests for various cancers. Despite being largely discredited as a viable method for detecting common cancers, particularly prostate cancer, these blood tests are often heavily marketed to patients by Chinese health check clinics. Wang told NewsChina that the results of his tests were suspicious, fluctuating wildly depending on when the test was carried out. Inaccurate and unnecessary testing can be hugely expensive for ordinary consumers, particularly if they produce spurious results that give clinics an excuse to subject patients to follow-up testing. Some tests are even potentially harmful to health, such as chest Xrays and CT scans, which subject the body to high doses of radiation and, as Dr St Cyr pointed out, potentially cause the very cancers they are designed to detect. “Also, many CT results may find something that looks suspicious, but the expensive follow-up tests – sometimes biopsies or surgery – show it to be benign,” he added. Another problem with the system, says St Cyr, is its tendency to treat patients as identical in a one-size-fits-all system that is pegged to how much an individual is willing to spend rather than their actual risk factors. At no point during his many checkups, St Cyr told NewsChina, did a doctor engage him in a consultation about his lifestyle or medical history. “No panel of tests, no matter how much money you spend on them, are a superior substitute for one good primary care doctor who knows you well and simply asks you a few questions,” he told NewsChina. “Every good doctor knows that 80-90 percent of all diagnoses are made from a patient’s medical history and a [basic] physical exam.” As a doctor himself, Wu Haiyun has never purchased a health check package, instead self-prescribing medical screenings based

NEWSCHINA I February 2015

on his own risk factors. “Almost no other country has such a profitable and diversified health check industry as China has,” he told NewsChina. “The ‘Chinese style health check’ is a weird phenomenon. We’ve invested too much in these utterly non-costeffective measures.” Han Qide, chairman of the China Association for Science and Technology and dean of Beijing University Medical School has publicly expressed his concern about the lack of public education on preventive medicine, which has left most people ignorant of the general lack of effectiveness of general health checks. While critics such as Wu Haiyun admit that annual physicals are essential, typically most argue that beyond routine checks of blood pressure, glucose levels and a few other vital statistics, anything more is likely to be expensive window-dressing. “People should be selective, not have an attitude of ‘more is better,’” said Wu. Dr St Cyr believes that the “over-testing” phenomenon in China is rooted in a lack of primary care doctors, whose main role is to keep people healthy and handle common complaints such as high blood pressure and diabetes to reduce pressure on hospitals. In the US and other developed economies, he said, doctors receive invaluable guidance from the government each year, along with a list of evidence-based tests, as well as tests not to be performed as routine, which is issued each year by the US Preventive Service Task Force. In China, no government standards have been set to guide or regulate this massively lucrative industry. Although the Chinese Society of Health Management (CSHM) under the Chinese Medical Association managed, in May 2014, to achieve an academic consensus among 100 medical specialists on the basic screening tests necessary for routine health checks, this consensus is not binding, and most clinics are free to ignore the guide-

NEWSCHINA I February 2015

Photo by CFP

Regulation

A patient undergoes a PET/CT scan at Beijing Hospital

lines. Wu Liuxin, director of the CSHM, remains optimistic that this consensus “will become the precursor for national standards.” The CSHM is now anticipating the drafting of industry guidelines by the National Health and Family Planning Commission, the only government body with the clout to rein in China’s health check industry.

The overwhelming problem, perceived by government, the healthcare sector and individual doctors, is clear – China’s checkup clinics are more interested in making money than providing effective preventive care. Solving this problem requires companies to put the interests of patients ahead of their own – a tall order anywhere on Earth, but particularly in a market as poorly-regulated as China. 

Mario Proenca/Bloomberg via Getty Images

society

Property Investment

A Place in the Sun

A Chinese tourist walks past a souvenir stall in Lisbon, Portugal, November 1, 2014

Chinese people are pouring money into overseas real estate. Can they hold their own in complex foreign markets? By Fu Yao

n the website of the US National Association of Realtors, a recently published special report teaches real estate agents how best to communicate with prospective Chinese clients. With their increasing appetite for overseas property, Chinese buyers are now among the most welcomed customers in the US housing market. According to statistics from the association published in July 2014, Chinese people last year surpassed Canadians to become the biggest overseas buyers of US property. From April 2013 to March 2014, a total of

US$92.2 billion worth of US real estate was purchased by overseas investors, 24 percent of it by Chinese nationals. What’s more, the average closing value for Chinese buyers was US$523,000, 2.6 times higher than that recorded among Americans. Nearly 70 percent of Chinese investors paid cash. Chinese people are also the most prolific overseas buyers in Australia. Data from the Australian Foreign Investment Review Board showed that buyers from the Chinese mainland spent US$5.9 billion on property in the

country in 2013, accounting for 11.4 percent of non-Australian buyers. While most Chinese property investors would have struggled to place Cyprus on a map a few years ago, the Mediterranean island’s policy entitling foreign buyers of property worth more than 300,000 euros (US$373,000) to a Cypriot green card has made it a popular destination for Chinese people. In a survey of 12 million Chinese househunters conducted by SouFun International, one of China’s largest overseas real estate NEWSCHINA I February 2015

agencies, in 2013, nearly 44 percent of respondents said their main motivation for looking for property overseas was an intention to migrate. Other factors included pursuing better educational resources, safer and diversified investment options, and improved quality of life.

Permanent Residency

In October 2013, Lin Yao, 45, heard about Portugal’s Golden Residence Permit Program from a friend. Shortly afterwards, Lin went to Lisbon with his wife, and before long had inked a purchase contract with a local property company. The Lins’ 550,000-euro (US$684,000) apartment entitles all four members of thefamily to a year-long residency permit starting from January 2014. According to Portuguese immigration law, non-European investors can obtain temporary residence permits in the country after buying property worth more than 500,000 euros (US$622,000). After five years, Lin’s family will automatically be given permanent residence permits, and the right to apply for citizenship after one more year. Lin told NewsChina that his motivation for buying property in Portugal was simple – a Portuguese permanent residence permit will allow him visa-free access to more than 150 countries. Since the new immigration policy was implemented in October 2013, the Portuguese immigration office has ratified 1,681 property purchase applications, 1,429 of them from China, about 85 percent of the total. Statistics also show that within two years, the Golden Residence Permit Program had attracted more than 1 billion euros (US$1.2bn) of revenue to Portugal. Over the past few years, several European countries, including Greece, Spain and Hungary, have introduced similar immigration policies. The relatively simple procedures and low requirements have piqued the interest of Chinese buyers. “The most satisfactory part is the lack of the residency requirements that some other countries have,” Lin Yao told NewsChina. Lin only needs to be in Portugal for seven days per year to retain his permanent residency, NEWSCHINA I February 2015

and because of his business in China, he has no intention of applying for Portuguese citizenship. “Over 90 percent of my customers who have bought property in Portugal do not want to live there,” an employee at a Beijingbased immigration company, who asked only to be identified as Jack, told NewsChina. He said most Chinese property buyers in Europe are middle-aged business people who want to obtain European identification that will exempt them from visa requirements in most countries. A report published by the Center for China and Globalization and the Social Sciences Academic Press in early 2014 showed that an increasing number of Chinese buyers are flocking overseas to buy property in order to gain permanent residence in regions like Europe and North America.

Education

35-year-old Zi Fang, a college professor at a high-profile university in China, spends time in California every year because of a joint education program with a partner university in the US. On one such visit in March 2011, Zi spent several days at the home of a friend, whose beautiful house fueled her own appetite to buy property in the United States. While a few million yuan will only buy Zi a leasehold on an average-sized apartment in Beijing or Shanghai, it is enough to buy a large house in perpetuity in the US, she said. “Property investment in the US is a way to divide my assets. What’s more, some years later, it will offer me the option to live in the US,” Zi told NewsChina. At the end of 2012, Zi Fang went on a property-hunting trip to the US. Her priority was Los Angeles, a city popular with Chinese expats. After several weeks of property viewings with a local agent, she chose a house with a total floor space of over 200 square meters in Chino Hills, at a cost of over US$600,000. As a college professor, Zi Fang is well aware of the differences between the two countries’ education systems. She told NewsChina that her main motivation for buying the property was to send her four-year-old child to study in the US. “More than 90 percent of my friends who

Top 10 Destinations for Chinese Buyers of Overseas Real Estate in 2014

USA

Australia

Canada

United Kingdom

New Zealand

Thailand

Spain

Portugal

Singapore

Malaysia

society

seas property as she can afford in the future. However, she told NewsChina that due to tight government controls and tepid market activity, she would not consider investing in property in the Chinese mainland.

Photo by CFP

Thousands of students wait to sit the American SAT exam in Hong Kong, January 25, 2014

Photo by CFP

Hidden Risks

Chinese mainland buyers inspect a home in California, March 14, 2013

have bought an apartment in the US did so for the sake of their children’s education,” she said. Liu Bin, marketing manager with the New York City Regional Center, a division of the Department of Homeland Security that facilitates visa-motivated investment, told NewsChina that over 70 percent of Chinese people who buy property in New York either plan to live there themselves or send their children to

the city for school. The most popular areas are Manhattan’s Central Park, and addresses on Fifth Avenue and Wall Street, she added. Zi Fang paid a downpayment of 40 percent and took out a 30-year mortgage. She currently leases out her apartment at US$2,500 a month, enough to cover her mortgage payments. While Zi has no intention to emigrate, she said will continue to buy as much over-

In recent years, the recovery of the property market in most developed countries, coupled with various other factors including high rental yields, permanent property rights, the appreciation of the Chinese yuan, and relatively cheaper prices compared to big cities in China, have prompted a growing number of Chinese investors to buy overseas properties. Wang Ning, a manager at SouFun International, told NewsChina that 2014 saw an explosion in Chinese offshore property investment. She added that she expects this trend to grow further. “Chinese people are keen to invest, but are also relatively conservative. What they look for are programs which can bring [at least] some profit, with no risk of losing money,” she told our reporter. “Some of our customers are not familiar with the target country, let alone the property market there. These customers are becoming a priority of our future services.” She said that there are both opportunities and risks, and the company encourages customers to research a number of concepts including residence permits, permanent residence, immigration and citizenship, to avoid misunderstandings with immigration agencies. Earlier media reports claimed that some Chinese buyers had spent 300,000 euros on property in Cyprus but later learned that there were further requirements to be met before they could apply for permanent residency. Furthermore, those with permanent residency are not entitled to the same benefits as naturalized Cypriot citizens, such as access to the local jobs market. From an investment perspective, overseas property markets are full of pitfalls for Chinese buyers. Due to language barriers and NEWSCHINA I February 2015

Key Target Overseas Cities for Chinese Real Estate Investment Q1-Q2, 2014

their limited knowledge of overseas property law, many are liable to overlook key details in contracts, laws and tax calculations, potentially leading to unfavorable deals and even intentional deception. Chen Sijin, a senior consultant with the Royal Bank of Canada who has been working in North America for over 20 years, is always cautious when dealing with over-keen Chinese offshore property investors. “Chinese buyers’ current enthusiasm for the global property market is due to the fact that they have never suffered a drop in real estate prices,” he told NewsChina. He said that over the past few years, some of his friends and relatives from Beijing and Shanghai had flocked to Canada and the United States to buy property, but all had expressed regrets within a year after buying. Chen’s brother emigrated to Canada in 2012 and bought an apartment for 360,000 Canadian dollars (US$309,000), but is now trying to sell the property for 250,000 Canadian dollars (US$214,000). Many are facing similar worries in the United States. Chen told NewsChina that after the sub-prime crisis, property prices in the US dropped by 37 percent, and even though areas preferred by Chinese people were less affected, prices still dropped by around 15 percent on average. According to a report by Bank of America Merrill Lynch in July 2014, the real estate market in the US is 10 percent overvalued relative to incomes, and growth is expected to halt by the end of 2016 before the market enters a six-year dormant period. Chen pointed out that looking at the real estate market over the past 100 years, if costs are taken into account, it is impossible for rising house prices and rent revenues to offset currency inflation in the long run. After settling down in Toronto several years ago, Chen still lives with his family in a high-end serviced apartment, where they pay 2,500 Canadian dollars (US$2,140) a month in rent. “People should be careful when investing in real estate projects in Europe and the UnitNEWSCHINA I February 2015

ed States – the general public sees apartments as consumer goods like cars,” he warned.

1. Los Angeles 2. London 3. Melbourne 4. San Francisco 5. New York 6. Vancouver 7. Sydney 8. Seattle 9. Boston 10. Houston

United Kingdom London

Chinese Investment in Overseas Real Estate

Seattle

Unit: US$

Boston New York

San Francisco

USA Los Angeles Houston Below 160,500

2013

160,500-482,000 482,000-800,000

Australia

800,000-1.6m 1.6m and above

Jan-Jun 2014

Sydney Melbourne

Below 482,000

Canada

482,000-800,000 Above 800,000

Vancouver

Source: SouFun International Data Center

2013

Popularity of Top Destinations for Chinese Investment in Overseas Real Estate Source: 2013 Report on Chinese Overseas Real Estate Investment Trends by the SouFun International Data Center, issued in January 2014

1. USA 2. Australia 3. Canada 4. United Kingdom 5. New Zealand

6. Singapore 7. Malaysia 8. Germany 9. Spain 10.Cyprus

11. Portugal 12. South Korea 13. Thailand 14. Greece 15. France 16. Other Countries

feature

Chinese Adoptees

Roots and Branches On reaching adulthood, a generation of Chinese-born adoptees raised in the US are choosing to return to their birthplaces in the hope of tracing their biological roots. NewsChina accompanies some of them on their journeys

Photo by Greg Baker

By Zhou Fengting

Chinese children adopted by a Spanish couple visit Beijing

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n the summer of 2014, US citizen Kate Crotty returned to her birthplace for the first time in almost 18 years. In the 1990s, over 30,000 Chinese-born orphans, most of them female like Kate, were adopted by American families. Now, many are choosing to return to China, hoping to explore their cultural heritage and, in rare cases, reestablish contact with their biological families, many of whom were forced to give up their children under the One Child Policy.

Orphaned Overnight

In the early hours of September 27, 1996, an infant girl wrapped in a bath towel was laid on the doorstep of the Huayuan village committee in Wuxi, Jiangsu Province. She had no identification on her beyond a scrap of red paper upon which was written her assumed date of birth – September 15, 1996. The infant was taken to the local police station, where officers immediately redirected her rescuer to the Wuxi Orphanage, where she was given the name Xi Yunzhu. In 1995, on the other side of the world, a Ms Crotty, 41, resigned from her White House job and relocated to Cincinnati, Ohio. The unmarried Crotty had long wished to adopt a baby girl, but, at the time, it was difficult for single people to adopt American children. When she heard it was much easier to adopt a Chinese child, particularly female babies abandoned by parents in violation of the country’s strict One Child Policy, Crotty decided that this was her best hope at having a daughter. Through an American intermediary, Crotty sent her adoption application to the China Center for Children’s Welfare and Adoption (CCCWA,) the central government organization in China that manages international adoptions, which would ultimately match her with Xi Yunzhu. China made it legal for foreign nationals to adopt Chinese orphans in the first national Adoption Law implemented in April 1992. Crotty was informed that she would most likely have to wait one to two years to be matched with her adopted daughter, and she would have to pay a total US$15,000 for the process, including a 3,000 yuan (US$485) fee paid directly to the orphanage as compensation for them having raised the child.

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In 1997, one-year-old Xi Yunzhu was introduced to her mom, and given the name Kate. A few weeks later, Kate Crotty became an American citizen. Zoe Puyang Berling, a girl born in November 1994 in Hunan Province, told NewsChina a similar story. Both girls met their adoptive families via Chinese Children Adoption International (CCAI), a Colorado-based non-government organization that has so far helped American families adopt over 11,000 Chinese orphans. In 1993, Zoe’s adoptive father received a leaflet from CCAI and decided, after a lengthy consultation with his wife, to adopt a Chinese orphan. The Berlings’ three biological children had already graduated from college, and they felt they had space at home for a new baby. CCAI helped the couple fill out the application paperwork and allow background checks on their family’s situation. One year later in March 1994, CCAI president Joshua Zhong accompanied six Colorado families to the Xiangtan Orphanage in China’s Hunan Province to meet the newest members of their households. Between 1999 and 2013, some 71,632 Chinese children, over 90 percent of whom are female, have been adopted by American families according to the US Department of State. This makes China the primary origin of children adopted from overseas by US families. Changfu Chang, a professor from Millersville University, Pennsylvania has carried out extensive research on the subject of cross-cultural adoptions, and has filmed a series of documentaries on the subject in the last fourteen years. Chang estimates that some 130,000 Chinese orphans have been adopted by international families worldwide since 1992. Chang’s research is particularly concerned with what he believes are the “identity crises” which manifest in these adoptees upon reaching adulthood.

Searching

Now a senior at Walnut Hills High School in Cincinnati, Kate Crotty told NewsChina that she “hated” China while growing up. “My mom always tried to dress me in a Chinese style, and she took me to Chinese classes,” said Kate. “I didn’t want to learn about China. Even though I was from China, I didn’t understand that, and I didn’t

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fully reconnected with their birth parents. “This is due to large scale [rural-urban] migration in the last few decades and a lack of adequate records,” said Chang. “Being unable to find one’s birth parents is not a ‘failure,’” added Professor Chang: “It is, to a large extent, a journey of self-discovery. Self-recognition is more meaningful than elusive blood ties.”

remember anything about China.” To help Kate understand something of her origins, she continued, her adoptive mother suggested they take a heritage tour of China to Lucky Few search for her birth parents. For 21-year-old Ricki Mudd, a In June 2014, Kate and her Left: the red paper left by the biological mother of Kate Crotty Chinese adoptee living in Seattle, mother took a month-long trip Right: Kate today Washington, however, her journey back to her birthplace. The Crotof self-discovery did include coming tys witnessed and experienced the face-to-face with her birth parents. daily routines of Chinese people, The Mudds adopted Ricki and Kate, despite never having returned to China in 18 years, found through CCCWA in 1997 when she was almost five years old. Ofherself fitting easily into the rhythms of life. ficial records indicated that Ricki was an orphan, which in most cases At the Wuxi Orphanage, Kate was confronted with her origins, simply meant that her parents were unknown. When Ricki reached which had a profound effect on her. “I saw the piece of paper that the age of nine, however, the Mudds acquired information that inmy birth mother left, and I melted,” she wrote on her blog: “It was dicated that Ricki was not abandoned by her parents. Instead, she beautiful red origami-like paper and it had my birth date on it. I have was forcibly taken from her home by government officials after her had my doubts about my birthday, but after seeing that paper I know mother gave birth to her without permission from the local authorithat my birthday is real. I wanted to take [the paper] and keep it with ties – a violation of China’s One Child Policy. Her parents had been me forever.” trying to establish contact with their daughter ever since, and, when The Crottys also visited the only maternity ward in the village Ricki turned 12, the Mudds took her back to China to meet them. where Kate was abandoned, in the hope that there would be a record The experience was a confusing and highly emotional one for Ricki. of her birth. However, the hospital proved a dead end. Nonetheless, “In my heart, they were not my parents – I hadn’t known they had Kate returned to the US feeling she had gained some closure in terms existed until that point. But they were just so loving, and so warm, of her relationship to her homeland. that when I first met them, I accepted them.” “Last year, I would have said, ‘I’m American, I’m from Cincinnati,’ Ricki promised her birth parents that she would visit them again and I would have said all that in a straight tone,” said Crotty dur- when she turned 18, and duly spent a summer in her birth family’s ing an interview with NBC News. “Now, after the trip, I would say hometown. Ricki tried to build relationships with the birth parents she never knew, the younger brother who was seemingly “chosen Chinese.” From 2011, CCAI began to cooperate with the China Ministry of ahead of her,” and the paternal grandmother who had essentially told Civil Affairs in helping Chinese adoptees reconnect with their bio- her parents to give her up. Slowly she began to accept her parents’ logical families in China. Joshua Zhong believes it is both valuable regret at having abandoned her, and that her presence in the family’s and profound for these adoptees to see China with their own eyes, life was healing wounds that had festered for over a decade. rather than learning about it second-hand. Locating birth families in China, however, is extremely difficult, as Getting Closer in most cases abandoned babies are the result of unregistered births. The Hague Convention on Adoption, issued in 1993, recognizes Professor Changfu Chang told NewsChina that only 70 out of hun- that adoption within a child’s own state of origin should be prioridreds of thousands of Chinese adoptees living in the US have success- tized ahead of international adoption. Where international adoption

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is necessary, the text reads, adoptive families should give “due consideration to the child’s upbringing and to his or her ethnic, religious and cultural background.” So-called identity crises resulting from international and intercultural adoptions were first documented en masse in Korean-American adoptees in the 1950s. In line with contemporary values, the Americanization of these children was prioritized and, in many cases, families simply lacked the cultural knowledge to maintain their adopted child’s connection to their birth culture. In their teens or twenties, these children reported feeling estranged from mainstream white society, while also being unable to fully connect to their birth cultures due to decades of separation. By the 1990s, however, most American adoptive families were highly sensitive to the importance of allowing their newest members to retain links to their birth culture. Great emphasis was placed on allowing Chinese adoptees to learn Chinese, visit their nearest Chinatown and celebrate Chinese New Year. Those who could afford it ensured their child had the option to visit China regularly. “In recent years, an increasing number of adoptees and their families have traveled to China to research their past,” Professor Chang told NewsChina. Zoe is one example of this new wave. In June 2014 she came to Beijing on a language exchange program with Peking University. “I’m very, very, very lucky,” she told NewsChina, adding that, in her teens, she had felt anything but. However, sudden immersion in Chinese culture has been a challenge for Zoe, particularly when it comes to mastering the language.“I can listen, but I can’t speak very well,” she said. “I bought some Chinese children’s books to practice reading, but I still cannot recognize all of the characters, even though [the books] are for six-year-old children. Sometimes it makes me sad.” Zoe has also decided not to return to Hunan for the time being, and is instead trying to find a more enduring way of defining her identity. “It’s not the country where you were born or where you grow up, it’s all about the people that you’re with,” she told NewsChina. “I’m glad I came back to China. It made me more confident in who I am,” she continued. “I’m an American born in China, and that’s OK.”

Reorientation

On her blog, Kate Crotty wrote that she would have loved to have found her birth parents in China, but didn’t feel the need to rush back and continue searching. “We were so productive and literally did everything that we could, that I would most definitely say that I found my necessary peace and closure,” she wrote. “In the end, I discovered more about myself than

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Ricki Mudd (top, center) and her family

I ever thought I would. It was a roller-coaster ride; with loops, twists, turns, and jerks, but eventually ended with a big smile on everyone’s face – happy, but ready to get off.” She told NewsChina that she felt it was really important for her to have her own children, because she had grown up without biological relatives. “I want that connection, because I never had it,” she said. Ricki has remained in touch with her birth mother through regular phone calls. Despite the language barrier, she says, they can communicate “happily.” “It’s actually quite amazing, she can understand very complex topics that I talk about,” Ricki smiles, acknowledging that her Chinese still has a long way to go. Zoe, meanwhile, said she really learned how much her adoptive family meant for her after she began attending college in China. After graduation, she wants to stay in China and work with orphans, believing it would be “a little selfish” to focus on having children herself. “I’m more than willing to adopt a child,” she said. “I know how much I meant to my family.” 

history

China’s Titanic

The Forgotten Wreck On Chinese New Year’s Eve 1949, a steamship packed with refugees fleeing the mainland for Taiwan collided with another ship, leaving almost no survivors. NewsChina revisits one of China’s worst ever maritime disasters By Xie Ying

he Taiping, a large steamship dubbed the “Titanic of the East” which sank in 1949, has returned to the public consciousness after the release of the first installment of Hong Kong director John Woo’s The Crossing, set against the background of the disaster. Audiences were left cold by Woo’s use of grandiose Chinese Civil War battle scenes and romantic subplots, instead focusing on the sinking of the Taiping itself, a disaster few on the mainland are aware of. According to contemporary records, the Taiping left Shanghai bound for Keelung, a Taiwanese port city, on January 27, 1949, one day before Chinese New Year’s Eve. At the time, forces controlled by the Kuomintang were rapidly losing ground to the communist onslaught, leading to an exodus of politicians, businesspeople, civil servants, military officers and wealthy families to Taiwan, widely expected to become the last stronghold of the Nationalist government, and a refuge. At 11:45 PM on January 27, the Taiping, sailing without lights to avoid curfew, collided with a cargo ship, the Chienyuen, and sank less than half an hour later. Only around 40 passengers and seamen were rescued by pass-

ing ships, with the remainder either drowning or freezing to death in the frigid waters of the North Pacific. The ship’s manifest included many celebrities, including musician Wu Po-ch’ao, the governors of Shanxi and Liaoning provinces, the grandson of China’s first Republican president Yuan Shikai, and many other wealthy and influential individuals hoping to start a new life in Taiwan. Until today, the high death toll and the ship’s rapid demise have remained subject to speculation. The number of passengers on board is disputed – while the ship was rated to carry under 600 souls, some estimates put the total number of passengers at over 1,000. The bloody Chinese Civil War eclipsed the Taiping in the news cycle and the disaster, particularly on the mainland, faded for all but a handful of historians and the families of those lost.

The Wreck

The US-built Taiping entered service as a cargo steamer, when being leased to shipping firm Shanghai Chunglien, which had provided maritime resources to the Kuomintang military since 1947. As demand for an escape

route from the war-torn mainland grew, the Taiping, like many cargo ships, was converted to carry passengers. Refugee numbers rocketed in 1948 as major cities were encircled and captured by Communist forces. On her final voyage, the Taiping’s decks were crowded with people who had bought their ticket with gold bullion or had bribed crewmen. Most historians believe over 1,000 passengers and crew were aboard when she left Shanghai. In the Taiping’s hold were 18 crates containing records from China’s central bank, an entire printing press, a number of Kuomintang archives and the personal fortunes of a number of wealthy businesspeople. The ship even reportedly took on 600 tons of steel girders immediately prior to sailing, a cargo which, according to maritime researchers, should have been loaded first to prevent the weight from overbalancing the ship. “There were people and goods as far as you could see, and I saw the ship sink fast,” Keh K’o, a Kuomintang military officer and a survivor of the sinking later told an inquest. He blamed the speed with which the Taiping sank on overloading. Keh’s views were echoed by his fellow surNEWSCHINA I February 2015

Photo by Carl Mydans

The Taiping sets sail for Keelung, traveling down the Whampoa River in early 1949

vivor Chau Ch’i-hsiu, the daughter of Shanghai Chunglien shareholder Chau Ch’ingyün. “The deck was packed solid with people when I boarded. I had to tiptoe around the crowds,” she told NewsChina. In his testimony to the inquest following the disaster, Loo Ch’ao, uncle of one of those lost in the sinking, revealed that when he waved his relatives off at the docks in Shanghai, he saw that the Taiping lay so low in the water that one could step directly from the wharf onto the deck without the need for a stepladder. However, Chen Huancheng, a ship investigator from the Association of International Chemical Manufacturers, denied the claims the Taiping was overloaded. In a documentary about the wreck made by the Shanghai NEWSCHINA I February 2015

Television Station (STS), he told an interviewer that it is possible for a floating dock to draw level with the deck of a ship, as the removal of goods from the dock onto the ship would cause their surfaces to align. Ma Ssu-ts’ai, deputy manager of Shanghai Chunglien, told the court that the Taiping’s cargo on January 27 fell below the ship’s maximum load of 2,050 tons. A contributing factor in the crash were accounts that the Taiping was sailing with no lights, due to the blackout enforced by the Shanghai municipal government at the time of the sinking. Crew negligence was also cited – many crew members were participating in Chinese New Year celebrations – survivor Wong Chao-lan, for example, testified that she saw seamen, including the ship’s First Of-

ficer, drinking and gambling on deck. Ship’s cook Chang Shun-lai, who also survived the disaster, revealed in his testimony that he found the Third Officer had left the bridge early on the night of January 27, without waiting for his relief. He later recanted his claims, which led some media outlets to speculate that Chang had been paid hush money by the ship’s operators. Whatever the causes, the Taiping collided with the Chienyuen, itself loaded with around 2,700 tons of coal and wood, just off the island town of Baijieshan, Zhejiang Province, 70 nautical miles from Shanghai. The Chienyuen sank in minutes, followed soon after by the Taiping. Captain Yang Chün-k’uei, according to STS, attempted to land at a nearby light-

Courtesy of Chau Ch’i-hsiu

history

Photo by Carl Mydans

Chau Ch’ing-yün, a shareholder of Shanghai Chunglien

A porter guards gold bullion, Shanghai, 1949

house once he discovered his ship was doomed. However, the ship was mortally breached, and seawater soon caused her boilers to explode. “When I climbed into the lifeboat, the ship had already stopped,” survivor Lee Shuwen wrote in his memoirs. “She was going down by the head and also listing heavily to port. Suddenly, there came a huge bang, and all the passengers, including my lifeboat, were pitched into the sea.” The explosion awakened fishermen in Baijieshan, but they knew the Taiping was too far out for a rescue to be successful, and the dark conditions made any rescue attempt highly dangerous. “Through my spyglass I saw people running about on the deck like ants, screaming for help, kowtowing in prayer,” a fisherman Zhou Wenshan told NewsChina. “We launched our fishing boats at first light to save the people in the water, but I found nothing except three trunks of clothes.” “My ears were filled with all kinds of sounds,” recalled Chau Ch’i-hsiu to STS. “People were hurled into the sea before they had a chance to react. The tragedy was exactly the same as that shown in [the movie] Titanic.” Chau and the other passengers did not know that dry land was merely 500 meters away. Apparently overcome with guilt over his fatal error, Yang committed suicide by jumping from a floating barrel, according to Chang Shun-lai. His body was not recovered.

Struggle

According to records kept by the Baijieshan lighthouse keepers, in the four hours after the Taiping sent out her SOS signals, a total of five vessels, including one steamship,

simply sailed past the disaster area. None stopped to attempt a rescue of survivors in the water. “We waved and screamed for help when we would see a ship’s lights approaching, but they did not stop,” said Chau Ch’i-hsiu. “The yells would subside as the lights disappeared into the distance.” “Many more people could have been saved if those ships had stopped,” she added, tearfully. Survivor Yeh Lun-ming also told the media that the conditions in the water were pitiful, with people struggling with armfuls of valuables, attempting to barter for pieces of floating driftwood. Keh K’o claimed that he even saw one man wrest another’s life raft away from him at gunpoint. Chau Ch’i-hsiu watched as fellow passengers, including his cousin, succumbed to cold or simply sank below the waves. Only hours after the sinking did an Australian warship, the only major vessel to respond to the Taiping’s distress call, arrive to help. 36 survivors were rescued by the Australians, though one woman died of a heart attack brought on by exposure and cold shortly afterwards. Local fishermen accounted for the remaining survivors rescued, but most of the ship’s passengers and crew either drowned below decks or froze to death.

Memories

On January 30, the day the Taiping was scheduled to land in Keelung, the dock was crowded with relatives expecting to greet the passengers and crew. The news of the sinking did not appear in the newspapers until the following day. Many families lost their sole sources of support and all their possessions in

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the catastrophe. “I did not realize what my father’s death truly meant until my family suddenly could no longer support my study,” detective Lee Ch’ang-Yu, whose father perished on the Taiping, told media decades after the tragedy. “To lighten my mother’s burden, I transferred to police school, which didn’t charge tuition.” Hwang Shih-lan, who lost her mother in the disaster, found herself suddenly orphaned. She had to return alone to Canton, now Guangzhou, where her “capitalist” origins made her a target for communist hatred in the newly-founded People’s Republic of China. Survivor Yeh Lun-ming was returned to the mainland, which soon fell entirely to the communists, causing all contact between Yeh and his wife to be cut off. When they finally reconnected 40 years later, he found that she had remarried the year after the shipwreck. Keh K’o was much luckier. He met his future wife in the wake of the disaster, as she was the daughter of another victim. The sinking of the Taiping also irrevocably changed the fate of its owner Tsai Tien-to, another of Shanghai Chunglien’s five shareholders. His son, Kevin Tsai, went on to become a popular TV anchor in Taiwan. According to Tsai’s article “My Family’s Titanic” in his childhood biography, the Taiping, unlike most commercial vessels in China at the time, was insured with a domestic rather than a foreign insurance company. The insurance company announced bankruptcy immediately after the sinking, ruining Tsai’s father. Shanghai Chunglien had all its ships confiscated after the company filed for bankruptcy. According to Chau Ch’i-hsiu, her family

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Poster art for The Crossing

had to sell all of their houses, gold and other properties to pay the compensation demanded by the families of the victims, but the huge loss of life meant most never received their dues. Chau’s parents resorted to selling their blood to commercial blood banks in order to cover their debts. Given the chaotic situation in China at the time of the sinking, the Taiping quickly faded from public memory, though a monument was set up in Keelung two years later. However, no details of the sinking are included on the memorial – even the names of the victims are in dispute.

Only in the early 21st century did people begin to rediscover the Taiping tragedy. In May 2010, a group of survivors and the descendants of some victims held a memorial ceremony off Baijieshan, throwing flowers into the sea in the area where the Taiping went down. “My father never talked about the Taiping,” Kevin Tsai remarked in his memoirs. “Our only relics were an armchair and a wireless set once used on the ship.” Xu Tian and Yang Min also contributed reporting

economy

Online Video

Video Killed the Video Stars Facing cutthroat competition for content and tightening government regulation, China’s fast-growing online video services are still far from profitable By Sun Zhe

hile officially licensed episodes of imported TV shows like Breaking Bad have kept Chinese Internet users glued to their computer screens over the past couple of years, China’s online video platforms that host such high-profile content have been more concerned with breaking even. Since online video giant Youku-Tudou listed on the Nasdaq in 2010, it has racked up accumulative losses of about 2 billion yuan (US$323m). A deal signed late November 2014, which gave Tencent Video the exclusive rights to distribute HBO dramas like Game of Thrones and The Newsroom, caused a stir among rivals like Youku-Tudou, Sohu Video and iQIYI. Given these shows’ immense popularity in China, these worries are not unfounded. Only a week before Tencent’s deal was inked, Youku-Tudou posted a loss of 180 million yuan (US$30m) in the third quarter, triggering the resignation of its chief financial officer. However, this failed to discourage the company from pledging to spend even more money on licensing content in the next year. Copyright purchase now accounts for more than forty percent of Youku-Tudou’s operating costs.

Content Competition

Online video is one of the fastest growing sectors in China’s tech industry. The user base of China’s online video platforms grew by more than a third in 2013, totaling 428 million, or 80 percent of all Chinese Internet users, by the end of that year. This figure is expected to top 700 million by 2017, according to industry consultancy firm iResearch, at which time the market is expected to be worth 40 billion yuan (US$6.5bn). While the majority of content on China’s video portals is uploaded by users themselves, the majority of viewers watch professionally produced TV series and movies, with American and Korean dramas among the most popular. The average online video website user is

younger, better educated and wealthier than other Internet users, and platforms rely on advertising revenue from companies eager to reach this sought-after demographic, allowing users to access the majority of content for free. As advertising revenues are determined by traffic, video platforms must attract users by offering popular shows, and competition for exclusive rights to host the hottest content – particularly foreign-produced TV shows – is becoming expensive. American drama series are most popular among those with a college education, while Korean soap operas are popular among Chinese females of almost all age groups – China imported 15 times more Korean soap operas in 2014 than in 2013. In early November 2014, Youku-Tudou became the exclusive China licensee for Korean soap opera Pinocchio for a record fee of US$280,000 per episode, or US$5.6 million for the whole season. In addition to big-name foreign content, partnerships with certain domestic entertainment shows have also proven effective in driving traffic. Video platforms’ financial reports show that so far, few content purchases have generated much of a return on investment. In 2013, Sohu Video purchased the rights to The Voice of China – the Chinese version of Dutch reality singing competition franchise The Voice – for 100 million yuan (US$16.2m). However, the company only generated 200 million (US$32.4m) in advertising revenue from the show, barely enough to cover the operating costs incurred by hosting it. To make matters worse, the Chinese government has recently tightened up its regulation of the online video market – a move many interpreted to be in defense of China’s ailing State-funded television networks. In recent years, Chinese television stations, all of them State-owned, have been steadily losing advertising revenues to online video services NEWSCHINA I February 2015

as many people, particularly the young, are watching fewer hours of television in favor of online video. Analysts attribute this trend to the heavy sanitization and censorship of content on State television channels. In late 2014, China’s television regulator, the State Administration of Press, Publication, Radio, Film and Television (SAPPRFT), issued an order prohibiting video platforms from transmitting to television set-top boxes. Video platforms are required to enter into partnerships with one of the seven Internet television content services licensed by the regulator itself, all of which are controlled by large State-owned television stations, on the grounds that Internet content should be monitored and only “healthy” online videos may be played on the nation’s television sets. The seven licensed services then take a portion of the revenues from their video partner platform. When the latest SAPPRFT regulations were issued in June 2014, the share price of LeTV, a major video portal, dropped 20 percent over the next two days of trading.

Photo by xinhua

Produce What You Play

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Though the major market players are yet to see any profit from their online video hosting businesses, investment in the industry has continued to increase, driven mostly by competition between China’s three Internet giants Baidu, Alibaba and Tencent. In April 2014, Jack Ma, president of e-commerce giant Alibaba, acquired about 20 percent of Youku-Tudou’s stock to become its second largest shareholder. Baidu, China’s dominant search engine, acquired iQIYI, another major video portal, in 2012. Social media giant Tencent’s well-monetized online gaming ecosystem provides it with funds to purchase the rights to TV shows, movies and documentaries owned by companies like HBO, Time Warner and National Geographic. However, there is evidence to show that Chinese Internet giants are not satisfied with relying on expensive content to generate traffic for their video websites – some have begun to move upstream in the industry. After setting up a film production fund in early 2014, Alibaba was also in investment discussions with Hollywood companies shortly after its recordbreaking IPO on the New York Stock Exchange in September 2014. Tencent is also reported to have been investing in content production. Diors Man, a series of online comedy shorts produced by Sohu Video, starring a number of celebrities, has so far been viewed more than 3 billion times. Meanwhile, Morning Call, a lecture-style talk show series on a wide variety of topics hosted by a popular folk singer, attracts an average of more than one million views per episode on Youku-Tudou. However, efforts to produce strong original content have been undermined by scandal. In one recent case, Youku-Tudou allegedly duped a team of young artists into revealing the techniques involved in the production of a video uploaded to Youku-Tudou’s platform, in which a small video camera attached to a hot air balloon was used to shoot photographs of the Earth from the stratosphere. Unbeknownst to the artists, the Youku-Tudou production team used the information to re-shoot the video without crediting the original creators. While Youku-Tudou has since removed the offending video and apologized for the wrongdoing, its public image – like its business model – remains uncertain.

economy

E-commerce Imports

When Pigs Fly

China’s embracing of e-commerce is bringing global brands to Chinese consumers, but can it successfully integrate itself into the global supply chain online? By Li Jia and Chen Jiying

hile US retailers saw a decline in the numbers of shoppers, and their total spending, over the Black Friday weekend, across the Pacific, history was being made. Within 48 hours of the launch of its first ever Black Friday promotion in China, Amazon saw five times as much sales value on its newlylaunched Chinese-language website as it saw during a trial run two weeks before. It currently offers some 150,000 products delivered directly from the US. This milestone was reached in a market home to more consumers than a combination of the US and two EUs. Nearly all its Chinese competitors, Alibaba, JD and Suning, which are dominating the domestic e-commerce market, immediately joined the fray by partnering with US department stores and doling out coupons to Chinese customers. All these Chinese retailers are currently scrambling to build a logistics network overseas. The year 2014 was even dubbed in the Chinese media as the dawn of China’s era of “buying international.”

Chinese consumers, emerging and smaller foreign brands, e-commerce service providers and growth-oriented policymakers are all welcoming this new age of e-retail. Nielsen, a market research company, estimated in a report commissioned by PayPal in September that 18 million Chinese “hai tao zu,” a slang term for online shoppers making international purchases, spent a total of US$35 billion in 2013. The report predicted that China would be home to twice as many hai tao zu in 2018, spending 4.6 times as much on international purchases. Hai tao zu represent a very small percentage of Chinese shoppers online, with many seeing this sector as a major area of potential growth. PayPal’s October survey projected growth of 52 percent in cross-border online shopping by Chinese consumers for the next 12 months. Chinese regulators have also underwritten these rosy predictions. Since October 2013, bonded areas facilitating faster delivery and customs clearance have been established in a total of seven cities to provide consumers with easier access to cross-border e-commerce. NEWSCHINA I February 2015

Photo by CFP

An imports warehouse at a demonstration base for cross-border e-commerce in the Port of Tianjin bonded area

Analysts warned interested groups not to lose their minds in this apparent e-trading frenzy, with risks and uncertainties in mind.

Difficulty

In the 1980s and 1990s, Chinese consumers, denied access at home, made shopping a priority in overseas trips. The trend has continued; however, now it is fueled less by scarcity in China and more by concerns over domestic product safety and quality, along with lower prices abroad. An explosion in e-commerce platforms has made it possible to do this online; but a number of barriers have prevented this habit from going fully mainstream. Zhang Yulin, a 32-year-old accountant with a one-year-old baby, regularly buys Japanese diapers, American cosmetics, and Dutch or German infant formula powder from foreign websites. As direct delivery to China is either not provided by many e-commerce platforms, or is prohibitively expensive, Zhang, like most such shoppers, has to

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find a “third-party buyer,” typically an overseas Chinese, to take delivery from a foreign seller and arrange shipping. She has to wait nearly a month before her delivery reaches her, with no access to after-sales services. Besides all these inconveniences, few third-party buyers will accept responsibility for lost, damaged or incorrectly delivered packages. Lu Haiping profits from helping those who struggle to search English-language websites or to make time to shop online. “I buy something from the US for US$80, say, then sell it on to domestic consumers for a little more, but still much less than they’d pay in a store in China,” he told our reporter. Despite a good deal being on offer from such third-party sellers, not all customers are completely confident that they’re getting what they’re paying for. Buyers like Zhang and Lu don’t declare their purchases to customs, preferring to take a chance. If they are unlucky enough to be stopped and searched at the border, and their goods are ruled to be for retail and not for personal use, they could be fined or even charged

economy

with smuggling. Several sales agents active on Taobao, Alibaba’s main online retail platform, were jailed for smuggling in 2013. Foreign brands are also reluctant to get in too deep in China’s cutthroat e-retail market. International luxury brands can retail goods at much higher prices in their entity stores in China than in other markets – partly due to most customers happily paying a premium for status symbols. In a report published in July 2014, Trefis, a securities research team founded by MIT engineers and former Wall Street analysts, explained that the unsuccessful adaptation to Chinese consumer habits by US retailers already in China, including Wal-Mart, Home Depot and Best Buy, had turned bulk purchase giant Costco off the Chinese market. As a result, people like Zhang and Lu continue to rule the Chinese marketplace.

Think Big

Cross-border e-commerce focusing on imports suddenly began to gain momentum in 2014, with large corporations and major investors suddenly wading in. Alibaba’s Tmall.hk, which manages international purchases for Chinese consumers, launched in February, with nearly all Alibaba’s competitors following suit in the subsequent months. S.F. Express, a Shenzhen-based courier company, and the Industrial Bank, a joint stock commercial bank listed in Shanghai, also joined in. Amazon entered the China market by acquiring joyo.com, a Chinese online bookstore, in 2004. It was not until the end of October 2014, however, that Amazon began offering direct delivery to the Chinese mainland from distribution centers in the US, Britain, Spain, Germany, France and Italy. Costco finally linked up with Tmall.com that month. In early November 2014, metao.com, a cross-border e-commerce platform founded the previous year, received a US$30 million investment from a venture capital consortium, the largest single investment in the e-commerce sector so far. While US$30 million is not a big amount for a major Internet company, the immediate media attention that the Metao deal attracted is a barometer of the current zeal in this particular market. “Today, it is not difficult for any half-decent international e-commerce platform to attract million-dollar investors,” claimed Zeng Bibo, founder and CEO of China’s original cross-border shopping platform ymatou.com in an article published on ebrun.com in June 2014. Chinese consumers have welcomed the explosion in online crossborder trade. Li Hao, a white collar worker in Beijing, recently made his first purchase directly from Amazon’s US website. Before that, he had relied on friends and colleagues to bring his most coveted consumer goods back from their travels abroad. He told NewsChina he had little confidence in those overseas “third party buyers” or re-sellers like Lu. This current enthusiasm for cross-border e-commerce could also prove a boon to those brands seeking recognition in China that lack

the resources of Gucci and Louis Vuitton. Mid-range and smaller scale brands are the very products that both Tmall and Amazon are trying to promote to Chinese consumers. Li’s order from Amazon, for example, included a pair of running shoes for his four-year old daughter made by a company with no presence in China. He also ordered a second pair of shoes that would have cost him much more in his local department store, as well as a cheap knife sharpener made by a company he’d never heard of. An annual survey by the China National Network Information Center (CNNIC) shows that in 2013 a majority of Chinese online shoppers were middle-income, a demographic reflected in the most popular purchases that year – baby products and electronics. Consequently, analysts are expecting drastic changes in market structure, with middlemen like Lu losing their businesses to ecommerce giants with advantageous positioning in the international supply chain. Foreign giants, it is expected, will utilize their already well established international logistics networks to win business from Chinese competitors who, while dominant in the domestic arena, still struggle to compete on a global scale.

Flying Pigs

It is widely agreed that favorable policies combined with market potential have piqued the interest of corporations and investors. However, going forward, neither factor is a given. “When the wind’s blowing right, even pigs can fly.” These widelycited words from Lei Jun, a prominent Chinese venture capitalist and founder of IT and smartphone company Xiaomi, have become something of a mantra among Chinese investors and business start-ups. In the case of cross-border e-retailing, “while the wind is right, it’s hard to find the right pig,” said Zeng Bibo in his recent article. He reminded e-retailers that an e-retailer has to prove itself a proper pig for investors by making real efforts on building a global supply chain for itself. A global supply chain can take years to establish, and is always vulnerable to the changing marketplace. It has taken decades for foreign players to seriously attempt entry into China’s e-commerce market. In the US, resistance to foreign players in e-commerce, particularly those originating in China, has made it hard for Chinese companies to make a dent in a crucial overseas marketplace. “The fight for e-fairness is now a war,” declared the US Alliance for Main Street Fairness in a statement on October 30, 2014. This group of brick-and-mortar shop owners is lobbying Congress to pass the Marketplace Fairness Act, a law which would grant individual states the authority to order online and catalog retailers to collect sales taxes locally. While claiming victory over their recalcitrant “single biggest threat” – Amazon – which finally endorsed the Marketplace Fairness Act, the UAMSF singled out Alibaba in its statement for seeking to “exploit online loopholes to poach sales from America’s local retailers.” In December 2013, the US Supreme Court rejected Amazon’s petition for a hearing after New York State demanded that the company NEWSCHINA I February 2015

Amazon China CEO Doug Gurr launches the first Thanksgiving Black Friday promotion in China, November 28, 2014

properly collect online sales tax. If other states follow New York’s lead, or Congress passes the Marketplace Fairness Act, US brands could become even less keen to enter e-retail for fear of increased costs and frustration of their unhappy distribution agents and retailers. Given the important role e-commerce is playing in achieving the government’s goal of a consumer society, Chinese regulators have generally been more receptive to internationalized e-retail than their US counterparts. A new policy from the State Council issued in November described e-commerce for the first time as part of China’s effort to expand its imports and reduce a massive trade surplus which has fueled domestic inflation and led to a series of international trade disputes. Before more measures to encourage the cross-border e-retail can be adopted, however, the new “bonded areas” in Shanghai, Chongqing, Ningbo, Hangzhou, Zhengzhou, Guangzhou and Shenzhen, all launched in 2013, need to show more profit. Customs policies on consumer goods also need to be clarified. Based on their own data, nearly all major Chinese e-retailers have imported popular products and stored them in bonded warehouses in the seven pilot cities. The volume and value of such orders is also linked to China’s customs clearance system, facilitating the efficient collection of relevant taxes. This system, if expanded to cover a broader area, reassures cross-border shoppers who are currently at risk of violations of their consumer rights and even criminal prosecution. However, only brand names with the resources and reputation to gain a foothold in China’s bonded cities can benefit from these NEWSCHINA I February 2015

new arrangements. Moreover, there remains much debate over the fairness of China’s import taxes for personal use, which rank among the world’s highest. Imports for personal use are currently subject to import duty of between 10 to 50 percent, and the minimum taxable value was lowered in 2010, expanding the tax to include even more international purchases, in recognition of the rising popularity of cross-border online shopping by Chinese consumers. Under China’s free trade agreements with some economies and the WTO, many imported products are now subject to much lower, or no, taxation, one example being IT products. However, China’s customs agency has long argued that imports for personal use should not be equated with imports for trade in terms of taxation. Chinese analysts and even government agencies have questioned whether this current distinction blocking Chinese consumers from lower customs taxes is in line with WTO rules, and, even if it is, if China should consider lowering its import duty to align itself with other major economies. Quality controls and quarantine checks, when relating to products purchased online from abroad, are also under scrutiny. China’s bonded areas have adopted measures to streamline the screening process. However, each zone is free to determine what its quality control and quarantine procedures should be. So far, only Zhejiang Province has published detailed guidelines regarding its customs inspection procedures. According to these guidelines, aquatic products, meat and dairy (except infant formula) entering Zhejiang do not have to be supplied exclusively by foreign companies registered with China’s Certification and Accreditation Administration. Moreover, foreign-made home appliances imported into Zhejiang are not subject to the China Compulsory Certification mark. This has simplified business for e-retailers and foreign producers, as few foreign companies without a China presence manage to secure the relevant certification. However, without unified regulatory policies, e-retailers in China still struggle to compete on an even playing field. This is why almost all industry analysts are calling on China’s General Administration of Quality Supervision, Inspection and Quarantine for a single policy applied equally to all. China’s e-commerce “pigs,” it seems, need more than just the right gust of wind to take flight. 

economy

Index Link

Bears Meet Bulls

While some declared the hotly-anticipated windfall from the linking up of the Shanghai and Hong Kong stock exchanges over before it began, others argue that it is vital to focus on the scheme’s long-term goals By Li Jia

hinese stock market investors have joked that they should have put their money into heart attack pills, simply to turn a profit on the anxiety they have endured. On December 5, 2014, China’s stock markets reported the world’s largest transaction values, closing at a five-year high. The same markets broke this record in morning trading the following day, before stock prices plummeted that afternoon. The following days saw prices rally, triggering strongly bullish forecasts for 2015. The trading spree, however, seemed to have little to do with the muchhyped Shanghai-Hong Kong Stock Connect, a mutual market access point between the Chinese mainland and overseas investors. For mainland and Hong Kong investors, mutual market access has held strong appeal since the government’s plans to link the two exchanges were revealed in April 2014. Every announcement concerning the deal caused prices to fluctuate based on the assumption that a greater influx of capital would ultimately push prices up. For China’s policymakers, linking the country’s two largest stock exchanges was an important bid to inject momentum into the country’s growth and reform agenda by further opening up China’s markets. Hong Kong’s well-established and international-

ized trading floor was expected to lend rationality and more efficient regulation to the mainland’s chaotic investment environment. Moreover, making the mainland’s premium A-shares more accessible to international investors and the further internationalization of the Chinese yuan could cement Hong Kong’s position as a leading international financial hub. However, the huge influx of foreign capital into the mainland anticipated after the linkup simply failed to materialize, leading to pessimism that the linking of the two stock exchanges would, in the long term, prove to be a white elephant, and fail to revitalize China’s chaotic stock market. The madcap purchase of A-shares a few days later was attributed to an unexpected interest rate cut by China’s central bank on November 21, 2014, and had little to do with greater international appetite for Chinese assets. The flow of money into Hong Kong from the mainland has been even more underwhelming than the volume of assets traveling the other way. Now, the naysayers are finally being listened to.

Action

When Premier Li Keqiang announced the index link plan at the annual Boao Asia Forum on April 10, 2014, it came as a surprise.

Barely three hours after the announcement, before analysts could respond to the breaking news, a joint statement on an operational framework for the scheme, including a schedule and an outline of its potential scale, was issued by China Securities Regulatory Commission (CSRC) and the Hong Kong Securities and Futures Commission (SFC). It later emerged that the scheme had been in the pipeline for over two years, but kept secret by its masterminds. This carefully cloistered preparation has been interpreted as an attempt to avoid the failure of the abortive bid to link the two markets in July 2007. At that time, a liquidity bubble was believed to be threatening China’s economy, while Hong Kong’s underperforming stock market was in dire need of capital. Chinese mainland investors’ access to Hong Kong’s stock market could, the theory went, redirect some foreign exchange reserves, a major source of liquidity on the mainland, and at the same time bail out the territory’s stock market. Four months after the announcement sent share prices rocketing in Hong Kong, the scheme was shelved over government fears of massive capital flight from the mainland. The advent of the global financial crisis also saw governments turn inward in an attempt to shore up financial defense mechanisms. NEWSCHINA I February 2015

Glossary A-share market: the mainland stock market, including the two main boards at the Shanghai and Shenzhen stock exchanges, and the smaller SME and techoriented ChiNext boards at the Shenzhen Stock Exchange

Photo by xinhua

H-shares: shares of companies incorporated on the Chinese mainland and listed and traded in Hong Kong

A gong is struck at the launch of the Shanghai-Hong Kong Stock Connect by Han Zheng (fifth from right), secretary of the CPC Shanghai Municipal Committee, and Xiao Gang (fourth from right), chairman with the China Securities Regulatory Commission, Shanghai, November 17, 2014

While the imminent resurrection of the link-up project has been mooted in some quarters since 2007, economic planners have been careful to manage expectations for fear of a return to the instability of that infamous summer. As a result, until now, only institutional Chinese and international funds could access one another’s capital markets through QDII (Qualified Domestic Institutional Investor) and QFII (Qualified Foreign Institutional Investor) schemes. In 2011, RQFII, the yuan-denominated incarnation of the QFII scheme, was initiated. Investor involvement in these schemes is largely restricted to fund managers, and thus they only tap a fraction of the potential market.

Wish List

The new more sophisticated scheme is part of Premier’s Li’s Boao pledge to combine the further reform and opening-up of mainland markets. Zeng Gang with the research center of the Shanghai Stock Exchange (SSE) explained at a November 20, 2014 forum sponsored by the State Council website gov.cn and the Renmin University of China, that linking the Shanghai index with a Hong Kong market dominated by foreign blue chip investors could bring positive change to the mainland

NEWSCHINA I February 2015

market, where the bulk of capital originates with retail investors speculating on the volatile share prices of generally underperforming companies. Zeng also argued that the link-up would provide pressure and incentives to improve corporate and regulatory governance in the mainland, seen as a major turn-off for investors. The other purpose of the scheme is to facilitate the internationalization of the Chinese yuan, a process which has gathered unprecedented momentum in the last few years. Stock transactions which take place between the two markets will be settled in yuan as opposed to Hong Kong dollars. Once a closed currency, the yuan is now becoming an increasingly preferred denomination in China-related international trade. A report by Deutsche Bank in July estimated more than US$400 billion in Chinese yuan had been deposited offshore by the end of 2014, and most of it in Hong Kong. Now, many are clamoring for these reserves to be invested in the Chinese mainland, the world’s largest market for yuan-denominated transactions. As of November 17, 2014, Hong Kong residents have had a former daily foreign exchange limit of 20,000 yuan (about US$3,270) waived, in the words of the Hong Kong Monetary Authority, with regard to

Red Chip shares: shares in Hong Kong listed companies incorporated outside the Chinese mainland, but controlled by Chinese government entities China-related stocks: H-share and Red Chip assets Hang Seng China AH Premium Index: a share price index comparing A- and H-shares for the largest and most liquid duallisted mainland companies MSCI Indexes: benchmark indicators followed by global securities investors issued by the NYSE-listed MSCI Inc. Northbound trading: investment in Shanghai-listed A-shares by Hong Kong and other overseas investors under the Shanghai-Hong Kong Stock Connect Southbound trading: investment in Hong Kong-listed shares by Chinese mainland investors under the Shanghai-Hong Kong Stock Connect

economy

Photo by IC

“the development of the hausted the Northbound offshore [yuan] market and quota, trading has remained the launch of the Shanghaiwell below the governmentHong Kong Stock Conapproved limits. Generally, analysts believe nect.” that it will take investors In terms of its architectime to warm up to this unture, the new scheme is a usual way of doing business, two-way track open to both and that an initial “silly seainstitutional and retail invesson” was inevitable. In a Notors, with more convenient vember 23, 2014 article on protocols and better-dethe HKEx web site, the exsigned risk control. There is The launch of the Shanghai-Hong Kong Stock Connect in Hong Kong, November 17, 2014 change’s CEO Charles Li ata threshold of US$81,700 tributed the particularly cold minimum balance applied reception from mainland into securities and cash accounts belonging to mainland retail inves- ing Markets Indexes, a benchmark followed vestors to account balance requirements aptors, while no restrictions are imposed on by global asset investors. Wang Qing, CEO plied to mainland retail investors, a continmainland institutional investors or overseas of China’s largest private hedge fund manag- ued lack of access to Hong Kong’s small-cap investors. ment firm Shanghai Chongyang Investment stocks, and the fact that the approval process In addition, investors can place orders Management, estimated at the gov.cn forum for mainland institutional investors has yet to and obtain settlements through local inter- that the inclusion would bring thousands of be launched. mediaries based on their home market, thus billions of US dollars of foreign capital into Indeed, even the total quota for the whole eliminating the need to deal with unfamiliar the mainland capital market. Glowing fore- trial project represented only 1.5 percent overseas brokers and clearance houses. Quo- casts like this further fueled expectations of of the tradable A-share market, and 1 pertas are set for daily and total net buying, with the Shanghai-Hong Kong Stock Connect. cent of what was available on Hong Kong’s more quotas applied to the mainland market, main board. Gui Haoming, chief analyst of though no limits are placed on daily selling. Precision Strikes Shenyin Wanguo Securities, is one of the few Capital gains from the sale of shares are imSince July 2014, the Hang Seng China analysts who has repeatedly urged caution mediately repatriated to minimize unwanted AH Premium Index, a comparative index regarding foreign capital influx, arguing that impact in the host markets. On November of dual-listed shares, has shown increased investor tastes do not change overnight. In a pre-launch interview with the Com14, 2014, China’s Finance Ministry con- convergence, with some A-share prices even firmed that profits made by foreign investors creeping up to premium levels. Relevant munist Party mouthpiece the People’s Daily, on China’s capital market would no longer be Hong Kong stocks also rose in price, many in Gui said that net capital flow into the marsubject to Chinese taxation from November defiance of overall share performance. How- ket was “negligible,” adding that many for17 that year. ever, when progress deviated from the sched- eign investors, already enjoying a presence in Short-term profits remain the primary ule set by economic planners, both markets China through QFII and RQFII, wouldn’t see many advantages in getting involved with concern of stock traders. So far, mid-range immediately dropped. Given the already evident market enthu- this new scheme. The new link-up, Gui told and big-cap stocks, including 569 A-shares in Shanghai and 273 in Hong Kong, are on siasm and the significance of the project in NewsChina, would not be “the decisive facsale to international investors, representing terms of China’s broader reform agenda, tor” in whether China’s A-shares would be 90 percent and 82 percent of their respective many have argued that the quota system is included in international MSCI indexes in markets’ value. A-share investors were hoping unworkable. However, in practice, the four 2015. For the same reasons, financial commentathat a foreign preference for blue chips would weeks preceding December 12, 2014 saw boost the value of such stocks in Shanghai, an average of only 25 percent of the daily tor Ye Tan, writing in the National Business particularly those also listed in Hong Kong, capital quota used by overseas investors in Daily on November 17, 2014, does not beas their A-share prices have failed to maintain their Hong Kong – Shanghai trading, and an lieve the link-up will dramatically alter the even lower percentage in transactions head- behavior of mainland investors in the near parity with their alternatives since 2010. A more internationalized A-share market ing the other way, according to HKEx data. future. The quota undershoot seems to have unwill also increase the chances that all A -shares Aside from one short, lopsided trading frenzy will be included on the MSCI list of Emerg- on November 17, 2014, which quickly ex- dermined analyst confidence, with many

NEWSCHINA I February 2015

china

bynumbers

NEWSCHINA I February 2015

2.9m

Sectors with biggest growth in incorporation, January – October 2014

The number of enterprises incorporated in China in the first ten months of 2014, a 53 percent increase on the same period in 2013

250 200 150 100 50

Source: China State Administration of Industry and Commerce

nternet and IT

-8%

Culture andsport

R&D

3.5%

Fall in China’s net coal imports for the first ten months of 2014, the first decrease since the country became a net coal importer in 2009 China’s net coal imports, 2010 – 2014 300

Share of wealth management products denominated in foreign currencies held by commercial Chinese banks in 2013, down from 7.6 percent in 2012

250 200 150 100 50 0 -50

1-10, 2010

1-10, 2011

1-10, 2012

1-10, 2013

1-10, 2014

Source: China General Administration of Customs

11.2%

Y-o-y growth in social retail sales on the Chinese mainland in November 2014, the highest rate that year. Price-weighted growth of China’s social retail sales, January – November 2014

Source: China Banking Association

US$134.1bn

Deficit in China’s service sector for the first ten months of 2014, more than the US$124.5bn recorded for the whole of 2013 Main sources of China’s service sector deficit, US$bn, January – October 2014

12.0

40 10.5

10.0

1-2

Source: China National Bureau of Statistics

Transportation

11.0

Insurance

11.5

Patent loyalties and license fees

100

Tourism

now refocusing on long-term goals. Ye is more optimistic when it comes to the scheme’s potential impact on the internationalization of the yuan, while Gui told NewsChina that the project’s initial operational stability is proof that it is “basically sound,” predicting a bright future. Indeed, quotas for existing link-ups with overseas markets like QFII, QDII and RQFII have all been loosened after a few years’ steady operations. Though the scale of net buying has so far been limited, HKEx statistics show active buying and selling for most stocks, indicating robust liquidity. When the new scheme, along with other existing link-ups, scales up, Gui said, it could help drive forward reforms on several fronts, particularly by granting easier market access to innovative start-ups, giving domestic institutional investors better opportunities to learn from their international counterparts, and making the domestic market big enough for a robust integration into the risk-ridden global capital market. He argued that too much attention has been focused on short-term performance in the early stages of the link-up, causing observers to “miss the real purpose” of the project. Hu Zhanghong, CEO of Hong-Kong based investment bank CCB International, which is fully owned by the Construction Bank of China, said at a December 10, 2014 forum in Hong Kong that H-shares belonging to mainland companies listed on the HKEx did not attract much interest from international investors early on. Now, 53 percent of total HKEx capitalization comes from mainland stocks, according to HKEx data. Gui and other analysts generally agree that a similar outcome can be expected for the Shanghai-Hong Kong Stock Connect. There are some long wish lists being drawn up for China’s further integration into the global marketplace. However, the sheer size of China’s internal market ensures that no external driving force can outmatch that constituted by local investors and regulators who, more than any other interest groups, desperately need to see change.

Source: China State Administration of Foreign Exchange

culture

Lou Ye

Unrepentantly Underground Director Lou Ye’s latest offering has given Chinese audiences an unusual insight into a national institution – the blind massage center By Chen Tao and Yang Shiyang

lose your eyes and try to listen to the world – that is the message director Lou Ye claims he wants to communicate in his latest film Blind Massage. The sound of wind chimes, rain, murmured conversations between blind and partially-sighted massage therapists, erotic heavy breathing and the chaotic sounds of China’s overcrowded streets combine to create a rich and diverse soundscape designed to focus the audience’s ears as much as their eyes. Sound, according to Lou, is “the light in the sightless world,” and Blind Massage elevates its many soundscapes to an almost visible state. This film portrays the loves and dreams of sight-impaired massage therapists – people frequently overlooked despite their ubiquity. Adapted from writer Bi Feiyu’s novel Blind Massage, the movie explores the marginalized existence of blind and partially-sighted massage therapists from an unsentimental angle. In 2014 the movie received the Silver Bear for Outstanding Artistic Contribution at the Berlin International Film Festival and has collected top honors at Taiwan’s Golden

Horse Film Awards. Despite international accolades, however, Blind Massage, lacking the glamor and star power of most domestic releases, only made 2 million yuan (US$330,000) on the mainland in its opening weekend.

No Surprises

Lou was previously best known for his politically-charged love story Summer Palace, which led to a five-year ban on filmmaking after it screened at the Cannes Film Festival without government approval in 2006. Now in his fifties, Lou, despite his notoriety, has remained one of the key figures among China’s so-called Sixth Generation of film directors. Prior to Blind Massage, the Chinese government has only approved two of Lou’s movies for domestic exhibition – Purple Butterfly in 2003, and Mystery in 2012. With investment of over 20 million yuan (US$3.2m), the movie’s production company Shaanxi Culture Industry NEWSCHINA I February 2015

Group did not expect much of a return from the domestic market, which tends to prefer foreign blockbusters and bigbudget action films. Always concentrating on artistic merit over commercial draw, Lou continues to be labeled an “underground director” by the movie industry. “This movie, once again, does not try to cater to the market,” said Lou, referring to Blind Massage. Executive producer Nai An defined the movie as another “art experiment.” “We were prepared for a hard sell,” Nai told NewsChina. Lou himself, when asked about his audience, said the movie would be screened only in “a few selected theaters.” Lou has also created a narrated version for the benefit of the visually impaired. It took a year and a half to finish the final edit of Blind Massage. Lou was taken by surprise when the State Administration of Press, Publication, Radio, Film and Television, China’s de facto censorship board, approved the screening of the movie with only minor tweaks to the content. “The domestic and NEWSCHINA I February 2015

Photo by Dong Jiexu

Lou Ye

international versions are almost identical,” Lou enthused. “The only part cut [for the China edit] was a shot in which a character vomited blood.”

No Difference

Blind Massage’s cast included many of Lou’s go-to regulars, including Guo Xiaodong, (Summer Palace, Reign of Assassins) and Qin Hao (Mystery, Spring Fever), along with a number of blind and partially-sighted amateur actors. According to star Guo Xiaodong, Blind Massage required the professional cast to “match the performances” of the amateur actors, all of them trained massage therapists. “This is a movie about their own lives,” Lou said of his cast of newcomers. The movie’s source material has been lauded for avoiding patronizing the disabled – a common problem in cultural representations of minority groups in China. Reviewers generally felt that Lou “maintained his integrity” through dedicated

culture

use of visual and acoustic effects, echoing the perspective of its subjects who live in the dark. “I adopted special shooting techniques including filters, tilt shift, and interference shots to represent visual obstacles,” said Lou. Lou fleshed out the visible world of sighted viewers with his imaginative use of cinematic technique and, more importantly, showed the blind and partially-sighted as three-dimensional human beings, with life pursuits, sexual desires and, in a few cases, peculiar kinks. The movie also highlighted the feelings of the blind towards fully-sighted people, many of whom are described as “a completely different species.” A lack of compassion towards the disabled and rigid social prejudices is summed up in a line from partially-sighted masseuse Xiao Kong, who at one point declares that “my parents will not allow me to marry a blind man.” Screenwriter Ma Yingli recalls, “It took us a very long time to adapt the novel’s ending so as to leave people with hope.”

One lead character is Xiao Ma, who lost his sight in infancy as the result of a traffic accident that killed his mother. As a teenager he attempts suicide, and after he fails, his parents send him to a school for the blind where he learns to read Braille and studies massage therapy. By the end of the movie, Xiao Ma has teamed up with Xiao Man, a sassy sex worker, to run their own massage center. The novel has a less clear ending for Xiao Ma – he vanishes shortly after he recovers his sight. At a press conference following the film’s debut in Beijing in late November 2014, Lou Ye described the experience of visiting a vocational school for the blind before shooting commenced. Lou was surprised by the “agility” blind and partially-sighted students demonstrated when overcoming routine life problems. Lou found many of his prejudices challenged by active and boisterous blind youngsters who would run and jump down the school’s staircases. “The so-called ‘gap’ between ‘them and us’ is completely imagined by the fully-sighted,” said Lou.

NEWSCHINA I February 2015

Gloom

Lou Ye was well-prepared for his new movie’s lukewarm reception at the domestic box office. His 2003 movie Purple Butterfly, starring Zhang Ziyi, Liu Ye and Li Bingbing alongside Japanese actor Tōru Nakamura and shot for 30 million yuan (US$4.9m) only recouped 6 million yuan (US$973,000) at the box office. Mystery (2012) was even less successful. Lou told NewsChina that Mystery, despite bombing in China, was well-received at the 2012 Cannes Film Festival. “Within three days, the copyright of the movie was sold to a total of 40 countries and regions,” he recalled, “this to a certain extent helped recoup some of the costs of shooting.” The reason that Lou participates frequently in international film festivals, he revealed to NewsChina, was to make both commercial and critical gains on movies that would always be tough to sell to the mainland Chinese market. Seen as box office poison by mainstream production com-

NEWSCHINA I February 2015

panies, Lou prefers to stick to his own style. “Different directors make different choices,” he told NewsChina.” “Some choose to shoot commercial movies for the sake of making money.” Lou eschews the heavily-lit, “clean and bright” settings of commercial Chinese movies, instead preferring gloomy weather to communicate mood, and grimy, violent plot devices to elicit strong audience reactions. However, being a commercial outsider has taken its toll. Limited screening arrangements for Blind Massage in most movie theaters angered Lou. “It is indisputable that movie theaters arrange more screenings for blockbuster commercial movies to maximize profits.” “This is suicidal behavior,” he continued. “My work may not suit mainstream culture, and might only appeal to select audiences, but lacking variety and failing to cater to different demand is disastrous for the domestic movie industry.” “This reality has forced me to be an ‘underground’ director.’”

visual REPORT

decades of decay I

n central Chinaâ&#x20AC;&#x2122;s Shaanxi Province, century-old houses can still be spotted in a number of villages along the Yellow River. Like much of Chinaâ&#x20AC;&#x2122;s countryside, the two villages of Donggong and Sanji in Bailiang, Heyang County, have become populated with clusters of new concrete buildings. Now, these old brick-and-wood houses, many of them occupied by the elderly, are rapidly decaying.

1. Traditional architecture in Lingquan village, Heyang, Shaanxi province 2. This couple have lived for more than half a century in Donggong village 3. Villagers pass old buildings on a motor tricycle

NEWSCHINA I February 2015

1 2

NEWSCHINA I February 2015

visual REPORT

1 2 3

NEWSCHINA I February 2015

5 6 1. A traditional ancient courtyard 2. The living room of an old house in Donggong village 3. Local children make their own entertainment outside an entrance gate 4. The remains of an ancient â&#x20AC;&#x153;tiger headâ&#x20AC;? wall in Donggong village 5, Grandparents with their grandson in their family home in Donggong village 6. Two villagers chat on a traditional bed in Sanji village

NEWSCHINA I February 2015

OUTSIDEIN perspectives from within China

Sacred Shaanxi

Brushing Fingers with the Buddha

While the pursuit of tourist dollars has eroded the serene rural setting of the Famen Temple in Shaanxi Province, descending into its underground palace allows even the casual visitor to step onto genuinely hallowed ground By Alexa MacDonald

Photo by IC

he smooth but terrifyingly fast minivan ride from downtown Xi’an to Famen Temple in Fufeng County was the first time I’d received a bona fide history lesson from a cab driver. Mr Zhang, a lifelong Xi’an resident, was understandably proud of the long and complex heritage of his home province. Every village, field and landmark we passed on the way to our destination seemed to evoke a specific reminiscence of such clarity it was easy to imagine that our garrulous 30-something driver had been present for every major event that had taken place in the region from the Han Dynasty onwards. It was from Mr Zhang that I learned the potted history of the Famen Temple, one of the world’s foremost sacred Buddhist shrines and, for Xi’an’s residents, up there in terms of his-

The underground palace

torical importance with the nearby Terracotta Army and the tomb of the First Emperor. Archeologists may debate such claims, but Mr Zhang was adamant that the temple’s origins lay in the Zhou Dynasty, in the sixth century AD. However, he did admit that nothing of

this original structure remained above ground, indeed, I later discovered that the bulk of the temple’s “ancient complex” was restored in the last thirty years after decades of neglect and a 1981 mudslide caused the exterior of the main buildings and its famous pagoda to collapse. Mr Zhang was at pains to stress, however, that the restoration was “sensitive,” and had successfully preserved the temple’s original esthetic.

Shock

When something my companions called the “Famen Temple” was pointed out to me minutes later, however, my heart sank. I was horrified to behold an immense, upended, bronzed rhomboid emerge from the morning haze. This behemoth, 56 stories high, had at its center a diminutive-looking dagoba NEWSCHINA I February 2015

Other Attractions Qianxian County is particularly rich in history, and sites like the Qianling Mausoleum – the grand hillside tomb of the empress Wu Zetian, plus those of her children (most of whom she had murdered) are just a short drive away. Beware the area’s handful of knock-off “attractions” – poorlyresearched tourist traps which at their most brazen promise a glimpse of Tang Dynasty mummies (actually badly-made waxworks). Official heritage sites will have uniformed staff and well-appointed ticket offices – your driver will be able to alert you to scams. Some of the larger tombs even have attached museums displaying Tang-era grave goods, including spectacular porcelain figurines.

dwarfed utterly by its burnished architectural “frame.” My companions informed me that the superstructure was meant to resemble a “namaste” hand gesture. “That’s the Famen Temple?” I asked in disbelief. “Yes,” came the reply. “But, you said it had been restored sensitively,” I began, addressing our driver. “Oh, that’s not the restored part,” came the reply. “That’s the new temple.” What I was looking at, it turned out, was the “Famen Temple Cultural Scenic Area,” a 150acre landscaped park, at its heart a 148-meter construction designed by Taipei 101 architect C.Y. Lee. My travels had hardened me to these gaudy and pointless follies built on top of already glorious cultural artifacts. I decided long NEWSCHINA I February 2015

Photo by IC and Alexa Macdonald

Getting There The Famen Temple is 120 kilometers from downtown Xi’an and is easily accessed via a new highway, with the journey taking around two hours by car. Most hotels in the city can arrange a driver for a day, at a cost of around 700 yuan (US$113). Public buses also run to the Famen Temple from Xi’an’s main terminal, but timetables vary. The “Namaste Dagoba”

ago I would never understand the seeming need to turn every remaining outpost of ancient Chinese cultural heritage into the architectural equivalent of a Michael Bay movie. It’s like the planning committees don’t trust visitors to be sufficiently awed by the actual attractions of history, and so they have to be wowed with blunt scale just to feel they’ve gotten their money’s worth. These pointless monuments to the tourist buck can also seriously hamper the visitor who just wants to get to the good stuff. After disembarking from our minivan, it took us almost 30 minutes to walk up the vast “spirit way,” as broad as a six-lane highway and peppered with concealed loudspeakers through which a syrupy looped voice informed us of just how important this place was, to reach the “Namaste Dagoba.” “You used to be able to park right outside the temple gate,” complained one friend. “I should have worn better shoes.” My companions, all of whom were fairweather Buddhists returning to the Famen Temple to give thanks for having wishes granted on a previous visit, then took the elevator up to the new dagoba’s viewing platform. I asked them why they were even bothering to waste time on a building they themselves were describing as “having no class,” and looking “tacky.” Their answers were all in the general area of “we’re here now, we might as well.” Staff informed us we couldn’t enter the reliquary below the dagoba, supposedly built to house artifacts discovered during excavations in the 1980s and 90s. “Closed today,” we were told by a rather huffy local woman who was clearly miffed at having to chaperone the dagoba’s few visitors.

Awe

The only thing to recommend the Namaste Dagoba is that its summit provides a great van-

The Famen Temple stupa allegedly houses a finger bone from Sakyamuni, founder of Buddhism

tage point for not only the local area, a patchwork of arable fields and tiny villages, but the actual Famen Temple complex itself, with its lovely cream-colored pagoda and low-slung, Han-style prayer halls. It was to this legitimately ancient site that we gratefully headed, just glad that the local government hadn’t plonked a giant shopping mall directly on top of it. As Chinese temples go, the Famen Temple, at least above ground, is modest. However, there is a lot more to this rather nondescript cluster of prayer halls, albeit set in beautifully landscaped classical gardens, than meets the eye. Beneath the temple’s restored Ming-style True Relic Pagoda is an underground palace, the foundations of which date from the Tang Dynasty, China’s cultural golden age, which had its capital at Chang’an, close to modern Xi’an. Many relics from this era are on display at the Famen Temple’s small museum, including a solid gold staff belonging to a former abbot, stunning jades, incense burners in wrought silver and some spectacular sacred garments woven from gold thread intended to be placed on a statue of the Bodhisattva. However, most pilgrims have only one destination in mind – the underground palace. Visitors descend into a cool, marble-lined chamber, with recesses set into the walls holding shrines to various Buddhist deities. Beautiful reliefs complete this magnificent interior, mercifully protected from prodding fingers by glass screens, including many inscriptions in Sanskrit. The palace’s centerpiece is its multi-sided marble reliquary, within which the Buddha’s finger bones supposedly lie in state. I couldn’t get even remotely close – the entire area was thronged with more pilgrims and tourists than I’d seen all day, every one jostling to kowtow to this most sacred of relics. Within this vast marble coffin, one friend whispered, were actual

finger bones from the Sakyamuni, also known as the Gautama Buddha. While the mood was far from hushed, the awe with which my companions slowly elbowed their way to the head of the pack was palpable, and all of them fell to their knees in sincere thanks to the deity that had, they all assured me later, previously granted their wishes. All of them felt it was their responsibility to return to thank the Buddha in person. Buddhism in China, currently undergoing a renaissance, has been alternately lauded and repressed by various governments, and the Famen Temple has been closed down more than once. The complex, most of which is constructed from wood, has also succumbed to fire on several occasions, and was leveled in its entirety by an earthquake during the reign of the Ming Dynasty’s Longqing Emperor. The underground marble reliquary, however, has survived virtually undamaged, its very existence kept a secret by the temple’s monks, many of whom chose exile or death rather than reveal the treasure they guarded. During the Cultural Revolution, when marauding Red Guards sought to loot the Famen Temple, its abbot allegedly self-

Photo by IC

travel

The four deva-kings inside the underground palace

immolated at the entrance to the underground palace. The superstitious Red Guards didn’t dare step over his charred remains, which still lay at the entrance to the reliquary when it was rediscovered by workmen in the 1980s. This poignant episode was related to me by Mr Zhang, who continued to regale us with tales from Shaanxi’s lavish history as our minivan hurtled away from the darkening skies over

Famen Township and towards the glittering lights of Xi’an. As C.Y. Lee’s impressively ugly Namaste Dagoba faded in the rear view mirror, I found myself wondering how any architect, no matter how grand their vision, could hope to improve on the indefinably powerful sense of history that still endures at the heart of the Famen Temple in defiance of the rigors of history.

real chinese

bào

liào

baoliao breaking news

In the Internet era, breaking a story – baoliao in Chinese – can confer instant celebrity, with news junkies glued to China’s domestic twittersphere in the hope of being the first to retweet the country’s next big scoop. With bao meaning “expose” or “bring to light,” and liao meaning “materials,” baoliao was originally a term applied to whistleblowers revealing the misdeeds of government departments. The Chinese government’s nationwide anti-corruption campaign has emboldened a huge number of these whistleblowers to report wrongdoing by public servants to the Communist Party’s internal inspection departments, with mixed results

for all concerned. As the Internet has become a dominating force in public life, with both individuals and media organizations competing for clicks, the term baoliao is increasingly used to describe the person or organization responsible for breaking a particular scandal, with many media outlets even launching their own public access “baoliao hotlines” simply to give them a better chance at securing a scoop. When Jaycee Chan, son of international movie star Jackie Chan, was detained by the police for drug abuse, netizens fought tooth-and-nail to break details relating to the emerging scandal, particularly those

concerning Chan’s personal life. Similarly salacious revelations followed in the wake of the government’s announcement that former security czar Zhou Yongkang was under investigation for corruption. When it comes to consumers, the veracity of baoliao information is seldom important – what matters most is whether the details are eye-catching or not. This is why a homonym for the term baoliao, the first character of which means “explode” rather than “expose,” is beginning to gain ground – it seems that the reading public is increasingly interested in “explosive” news – whether true or untrue. NEWSCHINA I February 2015

flavor of the month

Feed a cold By Sean Silbert

NEWSCHINA I February 2015

ber may soothe, but is unlikely to remove, unsightly hives. Nor do these largely unsubstantiated folk beliefs hold up when applied to life-threatening illnesses, though quack TCM doctors will tell you that eggplant and mung beans can cure cancer. While some principles of TCM have shown to be effective through empirical testing, the “science” behind them has been roundly debunked in the West. However, today, even cynical Western medical practitioners are placing greater emphasis on nutrition. Some concepts, however, mesh better with esthetic than medical principles. It’s difficult to take seriously the idea that diversifying different colored foods will result in nutritive balance. And if you’re a fan of salads, TCM eating is not for you – raw foods are entirely prohibited, as are methods of cooking believed to diminish nutritional values. Traditional ideas die hard in modern China. When pollution rates skyrocketed in Harbin in November 2013, news media recommended residents add pears to their diet, as the fruit is considered to be beneficial to the lungs. Large meals often pair a cold dish appetizer with a hot main course at banquets – to balance the two elements, even though guests may be, by any assessment, binge eating. And anyone who has complained of any discomfort in China, no matter how small, surely has heard the comically infuriating suggestion: “drink hot water,” a beverage imbued with all the magical restorative properties that the English associate with a cup of tea. My approach to eating in China has largely revolved around stuffing myself until I practically burst, not carefully moderated nutrition, but even I agree with the concept that a balanced diet is the best one. Put alongside today’s diet packed with fats and carbohydrates, the Chinese obsession with nutritional variety looks like the far more sensible option. Photo by xinhua

hat do you eat when you’re not feeling so hot? The Chinese have an answer. One interesting element of Traditional Chinese Medicine (TCM), a system of folk beliefs based on how the human body works, is its focus on nutrition. Treating ailments by eating right has been at the heart of Chinese food culture for millennia. But the system does more than treat the sniffles. The dietary restrictions specified for various physiological and even mental complaints are meant to work holistically, curing whatever ails you from head to toe. While the initial literature on the topic – dating back to the 7th century, right after the Library of Alexandria burned down – was derived from texts on how to live forever, the ideas on first turning to food rather than medicine have endured into the present day. The basic concepts are based on hundreds of years of observing what food does to the body. That means more than just a simple nutritional analysis, but also the food’s inherent “temperature.” Every foodstuff is considered to have its own particular heat value, ranging from hot to cold, with some more obvious than others. This is when things get a little tricky. Fruits and green vegetables like broccoli or apples are reputed to have a cooling effect on the body, while watermelon and tomatoes are just downright cold – and consequently to be enjoyed in moderation. Spicy foods – think chili and black pepper – are, predictably, hot, as are most alcoholic beverages, while most meats and seafood products are considered warming. Many mushrooms, starches and nuts have a neutral heat value, and can thus be enjoyed more frequently. Not all values are so straightforward: tea, served piping hot, should be considered hot, right? Nope. The value is registered in the food’s effects on the body, not its objective temperature, so, because your body begins to cool off after a few sips, hot tea is considered a cooling beverage.

Not only does a food’s heat value affect its medicinal value, but flavor also plays a part. Pungent foods like mint or mustard promote blood circulation. Sweets slow down reflexes, while bitterness boosts digestion. Salty foods lubricate the organs and nourish the blood, while sour elements have the opposite result, promoting fluid retention – good if you’re overheated or feverish. The most important element of harmonious dining is to attain a sense of balance, which fits right in to the Taoist concepts of Yin and Yang, which demand equilibrium in all things. When it comes to food, Yin represents cooling, while Yang represents heat, but healthy bodies need both to stay on an even keel. This makes sense – think about how good a chilled glass of ice cold lemonade would taste on a swelteringly hot day, or how nourishing a bowl of hot soup can be after coming in from the cold. But, like medicinal herbs, foods can be carefully utilized to treat a wide variety of conditions. Feeling constipated? You’ve got too little Yin energy, which can be fixed by tucking in to moisture-rich foods like spinach or seaweed. A stuffy nose or a muscle ache can be patched up by replenishing your Yang energy, perhaps through munching on some ginger. If you’ve ever cleared out your sinuses with a fiery meal, you’ve already been self-medicating. Of course, this isn’t an exact science. Cinnamon or black pepper alone is unlikely to cure your arthritis, and the judicious use of cucum-

essay

Night Rider By Anna Lykkeberg

Desperation does funny things to even the streetwise tourist

Illustration by Liu Xiaochao

It did not take long to realize this particular trip would not go too smoothly. It began with a long wait at an overcrowded gate. I was catching a short-hop flight from the preserved historic town of Lijiang, Yunnan to the laid-back forest region of Xishuangbanna. Our flight had been delayed by four hours in Lijiang, so we were touching down after 3 AM in an eerily deserted rural airport. Collecting our luggage, my friend and I exited the terminal in search of a taxi. About a thousand delayed Chinese travelers had had the same idea, and we found ourselves floating above a morass of black-haired heads at the vehicle-free taxi rank. The airport clock ticked, cicadas chirped, but not a single cab appeared to lessen the scrum. After an hour or so, little groups of irate, exhausted passengers began to peel off from the main group, disappearing into the dark-enshrouded parking lot. A group of college-age girls simply plumped down on their luggage, resigned to wait until morning. I, however, couldn’t face a night sleeping on asphalt, and so ducked back into the terminal just before its doors closed for the night. I approached a security guard and pleaded, in broken Chinese, for some assistance. He apologetically informed me that no, there was no number I could call that would secure me a taxi, but he could try and help us find a ride. He then asked what hostel we were staying at, and offered to call and see if they could send a car to rescue us. By this point my sleep-deprived brain was causing me to behave in an increasingly manic fashion, and as my newfound friend painstakingly exhausted every avenue, to no avail, the realization dawned that I would spend the rest of the night in a bed. The security guard went on his way, his warmth and generosity appreciated even though his efforts had been entirely in vain. Our discernible options had dwindled to virtually zero. Rather than hunker down at the taxi rank, we decided, we would take the initiative and

walk to town. Off we went, past a roundabout landscaped with tropical flora, tottering along roads that hissed with the drone of insect life. A number of trucks roared past these two incongruous Westerners, and we began to feel foolish, tiny, and alone. About half an hour along the road, a van pulled up beside us, and the driver rolled down his window. While our brains screamed caution, exhaustion was beginning to dictate our response to this unusual behavior from a casual driver. “Where are you going?” he asked in a brusque and very Chinese manner. My addled mind could only muster one response. “Town.” The driver nodded, and said, “Good, I’ll be

back after I pick up some other people at the airport,” and drove off, leaving us with the cicadas. With hindsight, climbing into a stranger’s van in the dead of night pretty much goes against everything in the smart traveler’s guidebook. Desperation does funny things to even the streetwise tourist, though we weren’t so frazzled as to fail to decide on a fair price for our ride before he returned “Black cab” protocol is Chinese tourism 101. Our savior duly returned, his van now stuffed with vaguely familiar fellow passengers. In the end, once costs were split, our ride worked out cheaper than a legitimate taxi. Our ordeal was not over, however. Our hostel’s address was unfamiliar to the driver, and once he had dropped off our Chinese fellow travelers, a search had to be mounted to find our lodgings. After combing the backstreets, we finally pulled up outside a colorfully decorated youth hostel. Our driver, visibly proud of his rendering assistance to two damsels in distress, then helped us with our bags, awoke a recalcitrant, dozing security guard to demand he check us in, and, when it turned out we were at the wrong place, bundled us back into the van to take us to the correct hostel. For no extra charge! Our hero saw us off at our final destination with a smile and a wave, clearly pleased the night was over. He even saw us to the door and made sure we would be looked after by the begrudging staff who had, earlier that evening, refused to arrange a ride for us. Such was our welcome to Xishuangbanna, a chilled-out jungle town and the gateway to Tibet, the Roof of the World. None of our subsequent adventures were quite as alarming as our ride from the airport, but to have encountered such warmth and generosity in a country said to have a cool attitude to strangers, our driver’s attitude more than made up for the inconvenience. Indeed, I have never felt more welcomed to an unfamiliar place! NEWSCHINA I February 2015

Playing the Game By Alec Ash

NEWSCHINA I February 2015

You are most suitable to pick up girls in a café. You can go up to them and ask how this Chinese character is read

Illustration by Liu Xiaochao

Having failed to find a match in the marriage market, I indulged my curiosity and went to a meeting of a professional Pick Up Artist group in Beijing. They’re known as PUACirl, or just “Bad Boys,” and teach their disciples “techniques for chasing girls and dating,” from talks to a fortnightly outing to MIX club in Beijing (450 yuan for expert wingmen). Maybe they could hook me up too. The theme of the session was “Male God plan development.” In a private room at a café in central Beijing, fourteen future Male Gods – ranging from chubby graduates to men in their late thirties with a look of faint desperation in their eye, and me – waited for their deity-in-chief to arrive. Enter Chen Guang, a soft-spoken 22-year-old charmer, dresshed like a kung fu master. “The characters for my name mean bright sunlight in the morning,” he introduced himself. “Do you know why? People say it’s because my smile is like that.” “Do you use that line with the ladies?” I asked. “Yes. It’s very effective.” Chen Guang gave us a powerpoint presentation, sharing the best places to pick up girls: on the street, in nightclubs, on social networking apps, and through your own social network. “On the street,” he said, “you can talk to maybe ten girls in a day. On your phone, you can talk to one hundred in a day.” Other trade secrets included going to student clubs, where “the difficulty is lower.” I even got some tailored advice as a foreigner: “You are most suitable to pick up girls in a café. You can go up to them and ask how this Chinese character is read.” During his talk, a smartly-dressed young guy with slicked-back hair had been watching us through the glass walls of the meeting room. After half time, he burst open our door and peacocked up to the front. His hair gleamed, his shoes clinked. His white shirt was so crisp you could feel the iron’s edge, tucked in behind a large Dolce and Gabbana belt. Accessories: a snazzy tie, rings on his fingers, two earrings in his left ear, and an oversized watch. Without saying a word, this mystery man reached into his back pocket, took out a paper

napkin and lighter, and lit the napkin. As the flame flared, his hands moved in a swirl and out of the ashes – a lollipop! He bent down and gave it to the only female in the group. “My name is Cirl,” he told us, chewing gum. “CI-R-L. You can Baidu it.” Cirl showed us a couple of videos to begin with. They all involved slick young Chinese men wearing eyeliner picking up hot girls. Subtitles flashed

on screen with the requisite jargon (“opener,” “negative,” “stock-spill”). And, of course, there was a montage, in which a nerd sheds his glasses, dyes his hair blond, trims a pencil moustache over his upper lip, miraculously conjures six-pack abs, and applies that all-important eyeliner to transform himself into a clubbing legend. Our master also condescended to give us a few tips. Approach a lady from an angle, not directly. Find an excuse to touch her, such as brushing some dirt off her clothes. Don’t ask boring questions (“What do you do? How old are you? Where is your hukou from?”). He even taught us a magic trick, where you hide a coin behind your shirt collar, then put another coin in your mouth, and pretend with choking noises that it has pushed out the back of your throat, miraculously unbloody. Tried and tested techniques, Cirl told us. But don’t take his word for it. A dramatic pause. “Watch this.” To our admiring gasps, he walked out of the private room and into the café. As we watched through the glass, he looped around like a wolf on the prowl, hunting for targets. He spotted a young woman sitting alone directly in front of us, reading a science fiction book, and approached her (from an angle). Cirl straightened his back, switched on the charm, flashed a smile and sat down opposite her. Minutes later, he had whipped out his deck of cards and was plying her with his magic. She was captivated, all smiles and interest and phone number. Hallelujah! When Cirl came back into the room and winked at us, everyone applauded. The corner of his lips had that squinted half curl when you’re trying not to look smug. I talked to the girl outside after the session was over, and she admitted that she was a plant. Before I left, I asked Cirl for some personal advice. He looked me up and down, told me to shave my beard off and style my hair more (“it’s all hair, but no style”). I was dressing too “loosely” as well, it seemed. Ladies, watch out. I’ve been trained.

Cultural listings Cinema

Disaster Movie, Disastrous Box Office In January 1949 as the Chinese Civil War drew to its end, the steamer Taiping, with nearly a thousand people aboard, among them many high-ranking Kuomintang officials and socialites, sank while crossing the Taiwan Strait. The disaster was dubbed “China’s Titanic.” Veteran director John Woo mixed themes of war, romance and troubled times into his latest work, The Crossing, based on the Taiping disaster, which was released in China in December 2014. Featuring a glittering line-up including Zhang Ziyi, Huang Xiaoming, Takeshi Kaneshiro and Korean actress Song Hye-kyo leading the cast, with a total investment of nearly 400 million yuan (US$65m), the movie was banking on a positive reception. However, after half a month in cinemas, The Crossing has taken a mere 167 million yuan (US$27m) at the box office, a figure dwarfed by the 450 million yuan (US$73m) made by Fleet of Time, a nostalgic adaptation of a popular Chinese novel, in just 10 days. While the latter was made on a far smaller budget, viewers gave both movies an average rating of around 5.5 out of 10 on popular cultural social networking website Douban.

Music

Book

Farewell to the Summer After bursting onto the scene in 2007, Dear Eloise, a two-person band combining noisy guitars, atmospheric rhythms and catchy melodies, has gained a devoted following in the fast-paced Beijing music community. Farewell to the Summer, their third album in four years, was released in October 2014. The album retains the band’s signature “noisy-sweet” style, yet is more atmospheric and restrained than their previous efforts. One of a tiny number of popular noise-rock and shoegaze bands in China, the husband-and-wife pairing of Sun Xia and Yang Haisong, the lead singer of post-punk pioneers P.K. 14, are known by their underground followers as the “first couple of Chinese rock music.”

There is a God on the Mountain By Wang Xiaofeng

Exhibition

Asian Stream of Consciousness How do changes in social “consciousness” interact with artistic exploration? An exhibition held at Li Art Museum in Changsha, Hunan Province, from November to December 2014, tried to find an answer to this question. Titled “Oriental Stream of Consciousness,” the exhibition invited thirteen of China’s most popular modern artists including Shang Yang, Ye Yongqing and Su Xinping, along with prominent local artists such as Duan Jianghua and Kan Le. Influenced by Western modern art since the 1980s, these artists have also been exploring their own artistic expression from their Asian roots, trying to present a comparable cultural body in the increasingly noisy international art scene. The exhibition is also the first event to be held at Li Art Museum, the first large-scale private, non-profit art museum in Changsha area.

Popular Chinese music critic Wang Xiaofeng is not averse to using absurdity to make his point, although more often in his novels than his cultural musings. His latest work of fiction, There is a God on the Mountain, tells the story of a remote village, its leader and a purported “god” residing in a mountain. The backward village has little interest in communicating with the outside world due to the legend of the vicious mountain god. The new leader of the village, disbelieving the legend, leads the villagers to communicate and do business with the outside world, rapidly pushing forward the village’s development. However, the leader later decides to revive the legend, and blocks the villagers’ access to the outside world. In the book, Wang abandons his usually humorous style of narration, remaining deadpan throughout the overtly allegorical absurdist story. Critics say that Wang is trying to mix absurdity with reality, which often overlap in his work. NEWSCHINA I February 2015

NEWSCHINA I February 2015

Commentary

Reform of State-owned enterprises should focus on separating ownership and management When reforming State-owned enterprises, China should learn from the experience of Dongguan farmers in balancing fairness and efficiency By Ding Li

t was recently reported that the government has approved a The Dongguan farmers later tried yet another strategy. Instead plan to reduce the salaries of top executives at State-owned en- of insisting on holding a stake in the businesses established on their terprises (SOEs) directly controlled by the central government. land, they rented their land for a fixed price that could be reneExpected to become effective on January 1, 2015, the plan will see gotiated after a fixed term. By doing this, they could secure their pay cuts of up to 30 percent for those affected. The plan has been income, while their corporate partners could expect a fixed cost for met with skepticism from economists, the land and remain motivated to seek many of whom argue that it will lead to higher profits. The Chinese government further inefficiency within SOEs. The reform of State-owned enterprises must figure out how best On a smaller scale, the government’s should draw inspiration from this historcurrent dilemma in reforming SOEs is ical example. Instead of resorting to adto manage the massive analogous to the one that faced farmers ministrative means to slash senior execunational assets under its in Dongguan, Guangdong Province in tives’ salaries, the reform should focus on control the 1990s, who had to decide how best separating the ownership and manageto manage their collectively owned rural ment of national assets. The State can land in order to maximize their interests. consider the approach of levying a fixed The Chinese government must figure out fee on each SOE and allowing managehow best to manage the massive national assets under its control. ment to enjoy the additional profits they earn, ultimately reaching Initially, Dongguan farmers resorted to selling their land either to an equilibrium of fairness and efficiency. While the State can generdevelopers or industry, but they soon found that due to their limit- ate stable revenue from SOEs, management are thus motivated to ed land resources, this approach was not sustainable. This approach work as hard as possible. is equivalent to the idea of privatization of State-owned enterprises, Of course, the issue of SOE reform is far more complex than the which many worry could lead to the loss of State control over the Dongguan farmers’ land sale dilemma. In many fields, such as pubeconomy, just as Dongguan farmers worried that selling off their lic utilities, State-owned enterprises should not seek to maximize land would lead to them losing control of it. profits. In these fields, the government should establish mechaTherefore, to ensure that they could draw a sustainable income nisms to allow national assets to change hands between different from their land, Dongguan farmers changed tack – instead of management organs, encouraging competition to maximize their selling their land, they offered it to corporations in exchange for effective use. stock options. However, as many of these corporations were mulBy establishing a system for the effective management of SOEs, tinationals, they were able to transfer their profits from the land the government can also use this as a macroeconomic policy instruto overseas subsidiaries in order to minimize the dividends payable ment, as with interest rates. By increasing or decreasing fees levied to the original owners. This scenario has certain parallels with the on SOEs, the government will have more tools with which to fine current problems embedded within SOEs – on the one hand, they tune the economy. But at the core of its approach, the government are criticized for not serving their owner, the people, but the manag- must not play a dominant role in the direct management of SOEs ers instead, since profits can be transferred into management costs, – this is the only way the government can balance fairness and leading to low efficiency and corruption within the State sector. On efficiency. the other hand, reforms to increase tax rates and the ratio of profits turned over to the State have been criticized for hurting efficiency The author is a senior commentator with NewsChina’s sister publicaand the morale of management, ultimately harming the economy. tion China Newsweek

NEWSCHINA I February 2015