September 2013

SOCIETY Hostile Takeover: Stealing a Successful Business HISTORY Flag Still Flying: China's Own-brand Limousine

$4.99 www.newschinamag.com

Volume No. 061 September 2013

SPECIAL REPORT Graft Work: Inside the Corruption Cycle

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 Writer: Yu Xiaodong Editors: Wang Yan, Yuan Ye, Xie Ying, Sun Zhe, Li Jia 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 Marketing Office China Newsweek Corporation President: Wang Xiaohui Chief Executive: Fred Teng 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

CN11-5826/G2

NEWSCHINA I September 2013

Addressing the air pollution problem will not necessarily sacrifice economic growth

W

ith recent studies on the impact of air of sectors, including the oil, traffic, chemical, printing, pollution on health, including one construction, and automobile industries. that concluded that air pollution has A major concern among officials and economists reduced life expectancy for is the potential impact of people in northern China these measures on economic by 5.5 years, public outcry growth. Can the government’s To a large extent, over air pollution has been coffers afford them in the long environmental pollution rekindled. The issue has berun? Will it lead to inflation? has resulted from what come one of the major chalResearch led by Ma Jun, economists call market lenges facing China’s new chief economist of Deutsche failure. leadership.

Bank (Greater China), conTo fundamentally address cludes that these measures can this problem would require a sustain a growth rate of 6.8 systemic policy shift encompercent, while lowering levels passing energy, automobiles, of PM2.5 (particulate matter taxation, public subsidies and 2.5 micrometers in diameter public transport. To implement these policy changes or smaller) in major Chinese cities from the current would mean major economic restructuring. level of 65 micrograms per cubic meter to 30 microAt the core of the issue is the energy pricing mecha- grams by 2030. nism. To a large extent, environmental pollution has Although some traditional industries may experesulted from what economists call market failure. The rience a slowdown or even recession, the loss can be price of energy is determined by supply and demand, made up by growth in other industries. For example, but disregards the external cost of air pollution. with these measures, the coal industries will surely Currently, coal burning and emissions from traffic come under serious pressure, but the gas and wind enaccount for 65 percent of all China’s air pollution. To ergy industries will be boosted. China’s rapidly-growaddress the problem, the government should raise taxes ing automobile industry will be affected, which may on the coal and automobile industries, in order to sup- give a boost to electric cars. The number of electric cars press demand. is estimated to reach several million by 2020 if relevant More specifically, tax rates on coal should rise to be- measures are put in place. tween five and nine times their current level, emission Raising taxes on coal and relevant industries can standards for sulfur dioxide and nitrogen oxide should offset the decrease in corporate tax. Energy prices will double or triple, auctions should govern the issuance inevitably increase, but the impact on inflation will be of private car license plates in major cities, and the an- limited. Ma Jun’s team estimates that these measures nual growth rate in automobile numbers should be will only increase inflation a marginal 0.1 percent. controlled at less than 10 percent.

Economic restructuring is more likely than the Moreover, more efforts should be taken to increase economic slowdown or recession that officials energy efficiency by centralizing government-con- fear. This will not only decrease the level of air trolled central heating, doing away with high-emis- pollution, but will also help to make the Chinese sions vehicles, and increasing standards in a wide range economy more sustainable. 

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Contents

Victims of Society

Photo by CFP

Will China’s scattered animal rights NGOs be able to change prevailing attitudes, or will China continue to be one of the world’s worst places to be born a beast?

Editorial

politics

Cover Story

society

01 Addressing the air pollution problem will not necessarily sacrifice economic growth 10 Administrative Litigation :

In Whose Court?

14 Animal Welfare :

Saving Nature/“Many Chinese scientists are more opposed to

animal protection than the general public.”

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26

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Temporary Workers : The Expendables Private Property : The Perils of a Red Hat Oil Theft : Refined Criminals “Suspended Meals” : Free Dinners, No Takers Child Protection : The Kids Aren’t Alright

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P32 NEWSCHINA I September 2013

Contents

P60

P48 special report

32 Corruption :

Can’t Beat ’Em? Promote ’Em/

Graft Breeds Graft

visual report

outside in

40 Credit Crunch :

Tough Love

Yan’an : On a Red Hill Flavor of the Month : Chairman Bao

Commentary

Environment

44 Environmental Lawyers :

The Voice of the Polluted history

48 Hongqi Cars :

The Old Red Flag culture

52 Nature Documentarian : Under One Roof 55 Youth Writer :

From Books to Bucks 58 Online Music :

Going for a Song NEWSCHINA I September 2013

P28

60 Call Me Obsessive 64

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economy

P64

72 China needs to overhaul its growth model 04 MEDIA FOCUS 05 What They Say 06 NEWS BRIEF 08 Netizen Watch 43 China by numbers 66 real chinese 68 ESSAY 70 CULTURAL LISTINGS

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NewsChina Chinese Edition

Oriental Outlook

July 8, 2013

June 28, 2013

Closer Relations for Seoul and Beijing

Confused Appraisal of Cultural Relics

South Korea’s President Park Geun-hye visited China from June 27 to June 29, impressing leaders with her emphasis on developing a closer friendship with Asia’s biggest power. Proficient in Mandarin and with a strong knowledge of Chinese culture, Park’s pro-China stance is reflected in her choice to prioritize China over Japan in her diplomatic agenda, a first for a South Korean president since World War II. China reportedly “welcomed” Park’s call to promote mutual trust on the Korean peninsula, and spoke highly of the South’s efforts to ease tensions with North Korea. The friendly talks also produced economic agreements, with both sides pledging to further promote free trade negotiations and to increase their annual trade volume to US$300 billion by 2015, beginning a second 20-year cycle of bilateral trade.

China Economic Weekly

Although China leap-frogged the US to become the world’s biggest art and antiques market in 2011, China’s valuation of what it officially terms “cultural relics” still remains highly disorganized. A rapidly growing number of counterfeits are flooding the market, with some regional economies making the production of imitation antiques a pillar industry. Meanwhile, many antiques experts, including some well-known institutions, have been caught accepting bribes to issue fraudulent certificates of authenticity. Drawn up decades ago, when China’s art market was in its infancy, China’s current law on cultural relics protection is powerless to control the market. In order to standardize its domestic antiques trade, the Beijing government recently issued a list of five officially approved antiques evaluation organizations – however, the public has expressed doubt over the qualifications of these government-appointed bodies.

Insight China July 2, 2013

Red Cross Forced to Reform The Red Cross Society of China has been caught in a growing trust crisis since an alleged employee Guo Meimei flaunted her wealth on the web in 2011. The charity only collected little over US$20,000 in donations on the first day of this year’s Lushan earthquake, several hundred times less than the amount collected on the first day of the 2008 Wenchuan earthquake. Appeals for donations are usually met with cynicism and even profanity from netizens. Early this year, the Red Cross tried to improve its image by establishing a third-party supervision committee, provoking the public to question whether or not the committee was financially connected to the charity. Analysts have said the Red Cross Society may be unable to win back public trust unless it fully discloses details of its donations and minimizes its government connections. However, powerful vested interests will make this difficult to achieve.

July 2, 2013

China’s Crop Shortage Due to shrinkage in both the population of farmers and total arable land resources, China is facing a growing problem just feeding its people. According to China’s Land Resource News, while China saw an accumulative 33 percent increase in food production from 2003 to 2011, consumption grew even faster, seeing a 44 percent increase over the same period. Media warned that more than half of China’s regions cannot fully feed themselves, with some industrial cities like Shanghai and Beijing having to import nearly 90 percent of their crops from neighboring provinces.

China now has 13 major crop-producing provinces, most of which, however, are struggling with poverty due to the dwindling profitability of farming. There are now calls to control food security by adjusting national urbanization policy.

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Xinmin Weekly July 5, 2013

China Polluted by Heavy Metals Hunan, one of China’s major agricultural provinces, has been caught in a sales crisis since media exposed that its rice contained excessive amounts of cadmium. This is just one example of the extent of China’s heavy metal pollution which, according to experts, stems from the unrestricted dumping of waste gases and residue by chemical plants. According to China’s Ministry of Land and Resources, China sees about 12 million tons of crops polluted with heavy metals each year. This June, China’s Ministry of Environmental Protection claimed that it had completed a survey on land pollution, but refused to publish its findings, leading the public to question whether the data were too shocking to be made public.

Experts warned that after decades of accumulation, heavy metal pollution in soil is soon to explode, and a cover-up would only exacerbate the problem.

NEWSCHINA I September 2013

Illustration by Wu Shangwen

“’Quick journey, slow enjoyment’is the best way to enjoy a vacation. However, Chinese people do the opposite – after a long journey, they see it as a waste of money to lie sunbathing on a beach reading a book.”

Professor Qiao Xinsheng of Zhongnan University of Economics and Law, on the habits of Chinese tourists.

“It is a bold move for CCTV to make me the director of the Chinese New Year Gala. I hope all the writers will deliver their most expressive and amusing works, without limiting or censoring themselves. And I beg the censors to take pity, and stay their hands.”

Director Feng Xiaogang on his appointment as director of next year’s installment of the much-anticipated CCTV Chinese New Year Gala.

“The economic relationship between China and the US is like that of a romantic couple. A divorce, like Wendi Deng and Rupert Murdoch, would cost far too much.”

China’s Vice-Premier Wang Yang on Sino-US relations, at the fifth round of strategic and economic talks between the two countries.

“Although I have been criticized for my close relations with the mainland, I should have the courage to keep moving forward. A pioneer mustn’t fear being made a pariah.”

Frank Hsieh, former chairman of the Democratic Progressive Party of Taiwan, on his dealings with the Communist Party.

“I’ve heard there are four most embarrassing departments in the world, and that China’s Ministry of Environment Protection is one of them. Our data are always inconsistent with what the people feel. In fact, the data is real, as is the public’s distrust.”

Environment Minister Zhou Shengxian on his ministry’s unconvincing attempts at pollution control.

NEWSCHINA I September 2013

“I have to leave [State broadcaster CCTV] to broaden my life experience. Otherwise, I would feel ashamed for having wasted my life.”

Former CCTV anchor Bai Yansheng explaining his recent resignation from his job at the State broadcaster.

“Chinese farmers flood to the cities for a better future for their children, just as pregnant Chinese women trick visa officers in order to have their babies in the US.” Writer Jiang Fangzhou on migrant workers.

“Enemies with computer keyboards are more of a threat to national security than those with guns.”

People’s Liberation Army Colonel Dai Xu warning of the dangers of cyber warfare.

“The gutter oil problem is a tough nut to crack. Restaurants have been re-using oil from the gutters since the Qing Dynasty. It’s not something we can fix overnight.”

Xi Qingyang, head of the urban management bureau of Kunming, Yunnan Province, defending his department’s handling of the gutter oil problem.

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Top Story

Former Railway Minister Sentenced to Death with Reprieve (2003-2011), focus on his use of his influence to help Ding Shumiao, a female entrepreneur, embezzle 3.98 billion yuan (US$646m) through her various railways ministry contracts.

Many have cast doubt on Liu’s apparent “generosity” in allowing Ding to acquire four billion yuan while taking only

On July 8, Liu Zhijun, China’s former railways minister, was sentenced to death with a two-year reprieve (a sentence generally commuted to imprisonment) on charges of abuse of power and accepting 64.6 million yuan (US$10.5m) in bribes.

The accusations against Liu, who had supervised China’s multi-billion yuan highspeed rail development during his tenure

64.6 million yuan in bribes, little more than 1 percent of Ding’s total gains. According to court documents, the confiscated four billion yuan of assets, including stocks, hotels and hundreds of other real estate holdings,

are registered under the names of various friends and relatives of Ding – many believe that Liu controls these assets in reality.

Besides property, Liu has also admitted to having received bribes in the form of sexual services, paid for by Ding, on at least three occasions between 2003 and 2009. However, given that Chinese law has not yet defined the provision of sexual services as a form of bribery, Liu’s use of prostitutes was not factored into the charges brought against him, further infuriating the public.

Since being placed under investigation over two years ago, Liu was widely expected to be swiftly executed for his alleged massive embezzlement and acceptance of bribes.

However, the court disappointed the public by bringing the less serious charge of “abuse of power” rather than “embezzlement,” and recommending a lighter punishment since Liu “confessed to his crimes before the prosecutor had obtained evidence.”

In China, death sentences with reprieve are, in many cases, commuted to less than 20 years imprisonment. The public have expressed frustration that Liu’s case may reassure officials that no matter how much money they embezzle, they will never pay the ultimate price.

Business

GSK in Bribery Scandal London-based GlaxoSmithKline (GSK), the world’s third largest pharmaceutical company, has come under investigation in China for its alleged involvement in massive bribery.

According to China’s Ministry of Public Security, since 2007 GSK has paid direct or indirect bribes amounting to three billion yuan (US$480m) to government officials, hospitals, medical committees and various other organizations, allegedly using false invoices from travel agencies in many cases.

Four senior GSK executives, all of them Chinese nationals, have been detained. According

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to police, at least one is suspected of “sexual bribery.” Steve Nechelput, a British GSK finance executive based in Shanghai, has been placed under a travel ban that prevents him from leaving the mainland.

In response, GSK has stated that it will not tolerate bribery, and that it fully supports China’s anti-corruption efforts.

Media speculation is rife that more companies may come under suspicion following the case.

NEWSCHINA I September 2013

Laws

Politics

Shanshan

Xinjiang

Victims: 24, including 16 Uygurs and two policemen Suspects shot dead by police: 11 Apprehended alive: 5

50%+ gains

10%-50% gains

The Chinese stock market fell by 13.97 percent this June, the sharpest fall within one month for the past four years, causing anxiety among many Chinese investors.

Data from a report published by jrj.com.cn, a Chinese finance website, indicated that the pressure faced by the average Chinese stock market investor had reached an index of 66, falling into the range of “general anxiety.”

By surveying nearly 9,300 stock investors, 27 percent of them professionals, the report found that nearly 60 percent of respondents were “quite anxious” (with a pressure index over 60), with 23 percent “under extremely high pressure.” About 50 percent also claimed that they were “ashamed to admit that they are stock investors.”

The “disorganized investment environment,” “huge losses” and “unclear government policies” are believed to be the three major causes of the high pressure, according to the report.

-10%-10%:

Chinese Investors under High Pressure

Gains and Losses

10%-50% losses

Economy

50%+ losses

A group of 16 suspected terrorists launched an attack in Lükqün, a town in Shanshan County, Xinjiang, on June 26, leaving 24 dead and another 21 injured.

The attack is reported to have begun with an assault on a local police station at around 5:50 AM. The suspects then allegedly stormed government buildings, a construction site, a beauty salon and a small store located along the town’s main artery, attacking a number of bystanders with axes. They are also thought to have set fire to multiple cars and motorcycles.

The police shot 11 of the attackers dead, and arrested another four, with the final suspect apprehended four days later.

Two policemen lost their lives in the attack.

According to the investigation team, the attack was plotted by a group of religious extremists. China’s central government has sent a team to Xinjiang to bolster its anti-terrorism campaign.

Source: www.jrj.com.cn

China’s legal system has once again come under fire after a local court in Changsha, capital city of Hunan Province, was revealed to having executed a criminal without notifying his family.

The case was made public after Zeng Shan, daughter of the executed construction contractor Zeng Chengjie, tweeted on the evening of July 12 that her father had been killed by lethal injection that morning, without being granted a final meeting with his family.

The court replied that they had informed Zeng that he had the right to see his family before his execution, but Zeng had declined the opportunity.

The court’s explanation, however, did little to ease public outrage. The court was criticized for being “too cold-hearted to respect the human rights of a criminal.”

According to lawyers, China’s criminal law does not mandate advance notice of executions, to prevent the families of criminals from causing a disruption.

Zeng Chengjie was sentenced to death on June 14 for illegal fundraising and fraud, a charge that many believe to have been bogus – much of the funds Zeng raised went towards government projects.

Society

Money-oriented Marriage Prevalent In the face of growing competition and a widening income gap, Chinese graduates, especially women, have an increasingly material perspective on love and marriage, according to a survey by the All-China Women’s Federation.

The survey shows that over 66 percent of female graduates agreed with the statement “It is better to marry a good man than find a good job,” and over 50 percent regarded “finance” a crucial consideration when picking a husband, saying that they would prefer a man with a house and a car. Around 75 percent claimed that they would not consider any suitor who did not offer an apartment, a car and a diamond ring.

This attitude is believed to be a major reason behind the rising rate of college sweethearts who break up after graduation. While more and more students are finding romance on campus, they are more likely to look for a potential spouse on matchmaking websites, where a greater emphasis is placed on material considerations.

NEWSCHINA I September 2013

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Photo Credit: Business, CFP; Law, IC

Alleged “Secret” Execution in Changsha

24 Dead in Xinjiang Attack

What’s Moving China ?

After 22-year-old Liao Jingwen completed her college graduation trip, a cycle ride that took her across 1,200 kilometers from Xi’an, Shaanxi Province to her hometown in Jiangxi Province, she found out that her father had been escorting her the whole way. Without informing the young woman, Liao’s father drove all way from Jiangxi to Xi’an and back, to ensure his daughter’s safety. He kept his distance to avoid disturbing her trip, but telephoned her repeatedly to confirm her location.

Poll the People What do you think of eating dog meat?

What’s Amusing China ?

Understandable – it’s tradition.

42.63% 2,833 Barbaric – it should be banned.

21.43% 1,424 It’s a health risk.

17.63% 1,172 It might encourage theft of pet dogs.

10.22% 679 I don’t care.

6.47% 430 None of the above 1.63% 108

In a local soccer tournament, the mayor of Bengbu, Anhui Proince, scored four goals in a single game. While netizens understood the goalkeeper had not dared to block the mayor’s shots, many joked that perhaps the mayor could be the savior of the ailing national soccer team. A few months ago, the mayor of Guangzhou, Guangdong Province won a dragon-boat race, and the Party secretary of Wuhan coasted to victory in a cycling race.

Source: www.weibo.com

Most Circulated Post Retweeted: 133,010 times

What’s Shocking China ?

While on a date in a local park, a woman from Zhuzhou, Hunan Province told her boyfriend: “If you really love me, prove it.

Jump into that lake.” Eager to prove his sincerity, the man, who couldn’t swim, threw himself into the lake, and drowned. The woman’s family paid 50,000 yuan (US$8,150) in compensation.

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When a farmer from Linwu, Hunan Province was killed following a dispute with local urban management officials on the morning of July 17, Li Chengpeng, a writer and celebrity blogger, posted on his Weibo account:

The farmer Deng Zhengjia just wanted to grow sweeter watermelons, reap a better harvest, sell his stock quickly, and get home early for lunch – this was his Chinese dream. Don’t talk to us about the Chinese dream when you can’t even protect the dreams of a farmer. Be good to your people.

NEWSCHINA I September 2013

Top Five Search Queries On

over the week ending July 16 How to Pick Up Pretty Girls 187,816 A Chinese pick-up manual from 1989 caused much amusement.

WHO’S

HOT? WHO’S

Ceiling Fan Fall 185,329 A whirling fan fell from the ceiling of a college classroom in Shandong, injuring a girl.

School Builders 30 college students raised one million yuan (US$163,000) to build an elementary school in an improverished mountain village in Guizhou Province.

Diors Man 112,971 The week’s hottest micro-movie.

Beijing Subway Price Hike 51,633 The Beijing government is considering raising its heavily subsidized subway ticket price.

Top Blogger Profile Yu Ying: Super-physician Followers: 2,321,623 The former emergency physician at Beijing Concord Hospital gained fame by posting inside stories from her workplace, such as the ossified management of public hospitals that requires clinicians to publish academic papers in order to get promoted, and the unequal distribution of medical resources that ensures superior wards and medical care for senior government officials. She has also called for the marketization of the healthcare industry to allow more private hospitals to enter the market. Yu quit her job at Concord Hospital, and aims to establish her own medical practice.

NEWSCHINA I September 2013

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

Top Four Furnaces 60,778 Fuzhou, Chongqing, Hangzhou and Haikou are said to be the current hottest cities in China.

Safe Hands Eight delivery couriers from Ningbo, Zhejiang Province caught a toddler falling from a fourth-floor window.

The child survived, and the men ended up with minor sratches.

NOT? Henan Hothouse An elementary school in Yuzhou, Henan Province announced it would expel students with poor academic performance.

Dodgy Developer When one Suzhou family refused to leave their home to make room for a new property development, the developer simply built around them. The family now have to cross a man-made river in order to leave the house.

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politics

Administrative Litigation

In Whose Court?

The failure of the country’s administrative litigation system has prompted calls to set up a separate administrative court system

By Shen Xinwang

S

ince Chinese president Xi Jinping vowed to fight corruption and “contain power within a cage of regulation” earlier this year, there has been much speculation about what, if any, concrete measures Xi and his government will take in the following years.

It is in this context that the Standing Committee of the National People’s Congress, China’s highest legislative body, recently called two high-level seminars on China’s administrative litigation, the process of suing the government, in Beijing and Fujian Province. A meeting of leading legal experts, administrative legislation judges and central and provincial government leaders, many see the meeting as foreshadowing a major policy change regarding China’s administrative litigation.

“It is now the time to overhaul the existing administrative litigation system,” Professor Ma Huaide, chairman of the China Administrative Law Association, told the media. According to Ma, the leadership is contemplating institutional reform to make government agencies subject to the rule of law.

Failure

The current administrative litigation mechanism was established in 1989, when the administrative procedure law was passed. Allowing ordinary citizens to sue government agencies for the first time, the law was hailed as a legislative milestone – a much-needed system for keeping government power in check.

However, under China’s political system, the judiciary depends on executive agencies for both financial and HR support, and is firmly under the directive of the Party’s legal committee, making ruling against government agencies extremely difficult.

Legal experts and

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NEWSCHINA I September 2013

judges have long complained about the routine intervention of Party officials and government agencies who exert pressure on courts and judges when a lawsuit is filed against them.

As there is no separate administrative court, if a private individual wants to sue a government agency of a locality, they need to file the lawsuit in the court of that same locality. But as the court reports to the Party’s local legal committee, there is not much a court can do if Party chiefs, often leaders of government agencies, intervene.

For example, in a case in Guangdong Province, local residents sued the urban planning bureau for approving a real estate project where the distance between two apartment buildings was less than what was required by law. The court was forced to drop the case after repeated requests from government leaders, including the city’s Party secretary, mayor and People’s Congress chairman. Officials feared that a ruling in the plaintiffs’ favor would result in more lawsuits, since the practice of breaking urban planning laws for higher profits is reportedly prevalent in the city.

A judge from a city in east China told NewsChina that his court had been forced to drop a case on the request of the city Party chief. The plaintiff later complained to the provincial court, which then directed the lower city court to review the case. Even so, the city court “dared not” accept the case.

Given the sensitivity of the issue, all of the judges speaking to NewsChina requested anonymity. Their fear of retribution is not without reason – in one case in northeast China, after the local county government lost a lawsuit in court, it launched a corruption investigation into the judges involved in the case. As it appealed the case to the provincial court, it threatened to take further action if the provincial court did not overrule the earlier decision of the county court.

The result is that most lawsuits filed against government agencies never reach the courtroom, and when they do, government agencies almost always win. Another senior judge

NEWSCHINA I September 2013

told NewsChina that in the first a couple of years after China’s administrative procedure law came into effect in 1990, as much as 60 percent of administrative lawsuits in many localities were ruled in favor of ordinary people.

Now, the proportion is less than 10 percent.

Since common people typically lose administrative cases in local courts, they usually take their cases higher up the system. The result is a disproportionally high percentage of administrative cases among all appeals – while administrative cases only account for 1-2 percent of all legal cases, they account for 19 percent of appeals.

A more damaging consequence is the erosion of public faith in the judiciary. The failure of the administrative litigation system is considered a major reason behind the rising number of petitions to the central government and mass public protests, as it is becoming clear that there is little chance of reversing an administrative decision through legal procedure.

Solutions

In recent years, some of those working in the judicial system have tried to find solutions within their jurisdiction. For example, in 2002, the middle court of Taizhou city of Zhejiang Province launched a program to swap cases involving government agencies. Instead of having the court review cases involving government agencies of the same county, the higher court would designate a court from another county to review the case. The policy seems to have worked so far. Around the same time, courts within the jurisdiction of Taizhou city ruled on 45 administrative lawsuits, 29 of which local governments lost, or 64.4 percent – almost five times the tally in the previous year.

In 2007, the middle court in Lishui City, Zhejiang Province adopted a similar policy.

After the reform, the number of administrative cases filed in Lishui increased from 111 in 2007 to 201 in 2009, an increase of 81 percent. Meanwhile, the chance of losing a lawsuit for local government agencies increased to 26.9 percent, the highest re-

corded rate in Zhejiang Province.

But according to Professor Ma Huaide, despite this limited success, these experiments can only be considered stop-gap measures, as they fail to address the fundamental problem. As many local leaders often chair prefecture governments, a higher court cannot be completely immune from political intervention. “There is no way out without overhauling the existing system,” said Ma. According to Ma, the Supreme People’s Court is currently contemplating the idea of setting up a three-tiered administrative court, making it independent from both the current judicial system and government agencies. Financed entirely from the central government’s coffers, the administrative courts would be composed of a supreme administrative court, appeals courts at the provincial level and a number of circuit courts.

The proposal seems to follow the model of China’s maritime courts, which have a much lower appeal rate and are considered less corrupt.

Ma suggests that the judges should be nominated by the Supreme People’s Court, and appointed directly by the National People’s Congress, to make it independent from the State Council.

So far, the Supreme People’s Court has not made any official response to inquiries regarding reform on administrative litigation.

But many legal experts have warned that institutional design alone will not be sufficient to make administrative courts immune to political intervention. Nor can people rely on the relative success of maritime courts, as the political and legal environment would be very different for administrative courts.

Professor Liu Xin from the Chinese University Political Science and Law warns that a separate administrative court system may be able to make the court independent from government agencies, but not from Party leaders. “The key to success is figuring out how to rein in the intervention of Party leaders,” said Liu. 

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cover story

Tooth an Can grassroots activism overcome mainstream contempt in China for the concept of animal rights? NewsChina investigates

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NEWSCHINA I September 2013

nd Claw

NEWSCHINA I September 2013

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T

he death on July 5 of a well-known stray cat nicknamed “Curator” at Tsinghua University shocked the campus and quickly became national news.

On July 13, a seminar chaired by Associate Professor Jiang Jinsong of Tsinghua University was held in memory of the cat, calling for “proper education on animal welfare” and “legislation on the protection of animal rights in China.”

After the seminar, Jiang and a dozen fellow animal lovers gathered under the ginkgo tree in front of the library to pay their respects at Curator’s graveside.

Curator, once a stray cat, had been reportedly living in the Tsinghua library for three years, roaming the collections freely and sleeping on the stacks, even on students’ open textbooks. The animal was called “China’s Dewey,” and became an unofficial mascot for Tsinghua. However, Curator was found dead on the lawn outside the library July 5.

Those who discovered the corpse said the cat seemed to have been tortured to death.

Animal Cruelty

Animal abuse is commonplace in China, despite a growing legion of animal lovers committed to naming and shaming those who torture and kill animals for sport. On February 23, 2002, allegedly aiming to prove that bears have a keen sense of smell, Liu Haiyang, a senior student from Tsinghua University threw liquid sulfuric acid directly into the faces of bears at Beijing Zoo. Nobody lifted a finger to stop him.

In recent years, videos featuring the torture of dogs, cats and other pets have surfaced online, with some of the more extreme examples resulting in “human flesh searches” aiming to track down and punish the perpetrators (see “Human Flesh Search Orgy,” NewsChina, March 2009).

In 2005, a postgraduate student at Shanghai’s Fudan University tortured to death over 30 stray cats on campus. According to Liu Yanli, founder of a Beijing-based animal aid NGO, in 2012 alone there were at least four publicized cases of the torture and killing of stray animals on the country’s college campuses.

NEWSCHINA I September 2013

“Since there is no animal abuse law in China, student Liu, the bear torturer, was put into custody for one month on the preposterous charge of ‘suspected intentional criminal damage to property’,” Professor Jiang told the audience at Curator’s memorial seminar.

“This indicates the embarrassing situation in our judiciary. In China’s legal system, since there is no punishment for animal abuse… animals cannot gain the legal protection that they deserve as living beings.”

“Without legislation, there is no way to curb such behavior,” continued Jiang.

This line of argument – that it is down to the judiciary to prevent animal abuse – is a common one among China’s animal protection activists. In a joint letter drafted by 64 animal rights organizations across China obtained by Jiang, Su Peifen, executive director of ACT Asia for Animals said that witnesses to animal cruelty are likely to become perpetrators themselves. “We look forward to the Chinese government passing a law on animal protection, and putting a stop to animal abuse.”

In the letter, Professor Tian Song from Beijing Normal University said: “Cruelty to animals is the manifestation of a person’s inner void, aloofness and fear. If a person loses the ability to care for other lives, he loses the ability to get along with others. Frequent animal cruelty cases are a reflection of the severe defects in the mental state of young people, even the flawed psychological state of Chinese society.”

Yu Fengqin from the China Wild Animal Protection Association also believes that the root of China’s animal cruelty problem lies in society, not the courts. “It is a top priority for anima protection activists to go into schools and teach our children about healthy attitudes towards animals and life,” he told NewsChina.

Activists

Animal cruelty is an increasingly prominent feature of China’s online media. From dog fighting (see: “Dog Soldiers,” NewsChina, February 2013), the commercial farming of bears and rhinos (see: “Too Much to Bear,” NewsChina, May 2012 and “No Introduc-

tion Necessary?” NewsChina, June 2013), as well as the practice of eating dog meat (see: “Keeping Dogs off the Menu,” NewsChina, June 2011), China’s developing love affair with pets has seen support grow for measures to protect furry friends from exploitation.

Even the government’s usually draconian restrictions on the establishment of NGOs seem to be softened when it comes to animal protection.

“In the past decade, a total of over 1,000 animal rights organizations on various scales were set up across the whole country,” Qin Xiaona, the director of the Capital Animal Welfare Association (CAWA) told NewsChina. In Beijing alone, she claimed, there are already over 100 animal aid groups.

CAWA has over 60 active members and has set up links with the Beijing municipal authorities, even campaigning to prevent the introduction of bull fighting to the capital in 2011. In mid April 2011, CAWA members forced a truck carrying over 500 caged dogs off a highway in eastern Beijing, rescuing the animals which had been destined for slaughterhouses in Jilin Province.

A coalition of over 40 domestic animal rights organizations also derailed the Canadian government’s 2010 bid to sell seal products to China, and has thwarted subsequent attempts to reopen negotiations.

“If the deal is signed between China and Canada, there would be an increase of the annual cull of 300,000 seals, and 500,000 would be killed,” said Qin Xiaona. The campaign against Canada’s seal exports to China continues, and so far over 95 animal protection organizations have joined the nationwide movement calling for consumers’ awareness in banning seal products. On July 17, a three-hour formal dialogue between Canadian Ambassador to China Guy SaintJacques and animal activist representatives was held in the Canadian Embassy in Beijing.

Even major Chinese celebrities such as Yao Ming, Jet Li and Jackie Chan have thrown their weight behind campaigns to ban certain animal products such as shark’s fin, ivory and tiger bones from the Chinese food and pharmaceutical market. The concerted

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Animal Testing

Many argue, however, that China’s scientific and political authorities continue to set a poor standard when it comes to attitudes toward animals and life in general. The widespread habitat loss caused by logging and construction, the pollution of China’s waterways, and a continued fondness among the rich for controversial products such as elephant ivory, turtle shell and medicines derived from wild animal parts are all particular bugbears of the activist community. One area of particular concern is vivisection, which has boomed in China even as it has faded from many overseas markets.

Animal testing, a sensitive issue strictly regulated in most developed countries, is a legal requirement for any company wishing to market a drug or cosmetic product in China, with even international giants falling in line.

“While there are written guidelines for animal experimentation in China, scientists rarely put the globally adopted ‘Three Rs Principle’ [Replacement, Reduction, and Refinement], standards relating to the care and management of laboratory animals, into practice,” Jiang Jinsong told our reporter, “Due to a lack of awareness, most Chinese scientists do not obey these principles at all and thus have become leading opponents of the animal welfare movement.”

Laboratory animal farming has even been hailed by the government as a pillar industry in some parts of China. Yunnan Province in particular, with its abundant wildlife, is looking to roll out a major expansion of its lab animal farming operations. According to research by the Yunnan Academy of Science and Technology Development, by mid-2010 a total of 35 private companies or research institutes in the province had been issued

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A bull elephant charged trash-throwing visitors to Wuhan Zoo, February 26, 2007

A caged dog en-route to a restaurant in Kunming, April, 2012

Photo by CFP

campaign against shark’s fin in particular, a delicacy prized for its expense that is obtained through the annual slaughter of hundreds of thousands of sharks simply de-finned and thrown back into the ocean to die, even resulted in the government banning shark’s fin from official banquets.

Photo byCFP

cover story

certificates to produce or utilize laboratory animals including macaques, guinea pigs, rabbits and dogs.

“Yunnan is a hotspot not only for animal testing but also for meeting demand from inside and outside of China,” Jiang told our reporter. In March 2013, after 30 years of campaigning, the European Coalition to End Animal Experimentation pushed through a ban on the use of animals in cosmetics testing in all European Union member states.

Israel enforced a similar ban in January 2013.

In late June this year, following intense public campaigning and legislative advocacy by the Humane Society’s Cruelty-Free India campaign, India banned cosmetics testing on animals. While the US and South Korea are staying “neutral,” neither requiring nor penalizing companies for conducting animal testing, animal rights groups are growing in strength in both countries, with many companies keen to publicly distance themselves

from all forms of vivisection.

All this has pushed up demand from developing countries for Chinese-farmed lab animals, while foreign companies are also outsourcing their animal testing to China.

China, the world’s fourth-largest cosmetics market, legally requires all cosmetics companies to test their products on animals. Nominally cruelty-free brands such as Estée Lauder, Mary Kay, Shiseido, Urban Decay and many more openly engage in animal testing in China simply to access this growing market, making a mockery of their proclaimed opposition to animal testing.

According to Troy Seidle from the Humane Society, hundreds of cosmetic companies worldwide have already phased out animal testing from production. “The industry estimates at least 5000 existing ingredients are safe to use,” said Troy. “They could simply use methods such as cell cultures and computer models.”

The China Food and Drug Administration (CFDA) launched a program titled “Alternative Methods to Cosmetic Animal Testing Research” in August 2011, yet so far no tangible progress has been made. He Zhengming, who chairs the official program, declined to be interviewed for this report.

Animal right organization PETA (People for the Ethical Treatment of Animals) is financially supporting the efforts of the Institute for In Vitro Sciences (IIVS), which is putting together a coalition of corporate experts to provide training for scientists in China in the use of non-animal testing methods, and working with officials to promote the acceptance of methods already used in the US, the European Union, and much of the world. However, it is slow going.

According to Brian Jones from IIVS, the institute has provided training to scientists from related government organs including General Administration of Quality Supervision, Inspection and Quarantine (AQSIQ), Chinese Center for Disease Control and Prevention (CDC), and the China Food and Drug Administration (CFDA). “So far, we have given basic laboratory training NEWSCHINA I September 2013

Photo by CFP

to approximately 70 Chinese scientists and students,” Dr Jones told NewsChina in early July. Tens of thousands of scientists currently work in China’s vast cosmetics industry.

Jones told NewsChina that China is still lagging behind in terms of equipment and expertise, and that many Chinese scientists resist the notion that animals should not be used for non-essential scientific experimentation. “An area that has been slowing the process is that there have been frequent changes in the cosmetics regulatory and few ‘champions’ for non-animal-testing within the Chinese regulatory community.”

So far, only one non-animal testing method has been submitted for approval from the CFDA, however no response has been forthcoming. Jones hopes the process, a photoxicity test, will be approved sometime this year, however he admits this is only a small step forward in an ongoing fight.

Stolen pet dogs freed by animal rights activists were sent to a rescue center funded by the China Small Animal Protection Association in Beijing on April 16, 2011

Despite years of calls for legislation on animal protection and animal cruelty law, no real progress has been made. Even as pet ownership has soared, pets are viewed as property, and it is rare to see anyone step in to prevent animal abuse – though plenty continue to record incidents on smartphones and post them online.

Pet owners even feel targeted by legislation – a recent ban on “fierce” dogs and all dogs exceeding 35cm in height from Beijing’s city center, has provoked fierce opposition from the capital’s dog lovers, despite the action being a response to an alleged rise in the number of dog attacks and rabies infections in the city. However, no government program to mandate vaccinations for household pets or issue pet-owners with an animal license has been tabled, with some critics claiming that the government continues to see animals, at best, as a potential problem.

“The mainstream ideology of the government still regards animal abuse as simply a fact of life for animals, rather than a reflection on society,” said Qin Xiaona. “On the one hand, there are more and more animal NEWSCHINA I September 2013

Photo by Huo Yu

Awareness

“Curator” in the Tsinghua college library, in happier times

activists, but on the other, more and more animal abuse cases – some of them part of high-profile commercial enterprises such as the forcible extraction of bear bile and the slaughter of dogs for meat.”

For years, an underground network of people stealing pet dogs and cats for slaughter and processing into meat products has persisted in China, yet no official ban has been issued against this practice, preventing

any legal action from being taken against those responsible.

Liu Yanli from the Together Animal Aid Center, a Beijing-based NGO that finds homes for stray dogs and cats told the reporter that the center has established contacts with potential foster homes in the US. “People outside China know the cruelty these animals are going to face, thus they want to save their lives.”

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A caged monkey in Shifeng Zoo, Hunan Province

Photo by Chen Zheng/CFP

cover story

Animal Welfare

“Many Chinese scientists are more opposed to animal protection than the general public.”

NewsChina talks to Jiang Jinsong, associate professor of the Institute of Science, Technology and Society of Tsinghua University and one of China’s most prominent animal rights activists

By Wang Yan

F

or years, apart from lecturing on courses including Philosophy of Science, Natural Dialectics and the Philosophical Trends of Western Postmodernism, Jiang Jinsong has chaired a forum at Tsinghua University entitled “Animal Ethics and the Culture of Protection for Living Beings.”

In Jiang’s point of view, animal activists in China lack the theoretical knowledge system to effectively champion animal protection.

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Instead, he argues, there is undue focus on “rescuing” animals or launching uncoordinated single-issue campaigns. He believes these tactics are fruitless as, in his own words, “academics, grounded in theory, do not care about animal welfare.”

Jiang’s aim, therefore, is to establish a forum as a platform to exchange information and create the theoretical knowledge base to truly create a focused movement to support

animal welfare. He has also invited dozens of researchers and animal rights activists to Tsinghua to give lectures.

The Saturday afternoon on July 13, NewsChina caught up with Jiang after he led a group of students in a memorial for the recently-deceased informal mascot of the Tsinghua University Library, a stray known as Curator who was allegedly tortured to death.

NEWSCHINA I September 2013

NC: Along with the boom in domestic animal rights NGOs and rising awareness among the general public, the incidence of animal abuse also seems to have risen. Why do you think this is?

Jiang: Animal abuse can be profitable.

There are commercial pornographic websites depicting animal abuse. Without an animal protection law, China can easily become an ethical low pressure zone, feeding the global demand for animal cruelty. For example, animal testing has been strictly controlled in many countries, so Yunnan [Province] has stepped up to fill demand.

Another example is the dog meat trade.

Only a few places in China used to have this tradition. Now, driven by the market economy and the obvious profits, other places have established dog meat festivals simply to draw revenue.

Animal NGOs can reflect the animal welfare awareness among the general public. Yet the problem they face, like most Chinese NGOs, is that 95 percent of them cannot officially register, thus making them unable to receive donations.

NC: Is it true that the campaign to introduce animal protection legislation in China has struggled?

Jiang: A nationwide animal welfare law is difficult to pass. However, it is possible to create similar laws at the local level. One county in Hebei has already banned the selling of dog meat. In my opinion, Beijing, which authorities call China’s ‘top philanthropist,’ can and should be the first to regulate animal protection as an example to the rest of NEWSCHINA I September 2013

the country.

The Ministry of Agriculture issued a circular on April 22 requesting local governments strengthen quarantine regulations applied to cats and dogs. The regulation requires all domestic dogs and cats to be quarantined prior to transportation, with serious punishments for violators. Why can’t this be turned to combat the illegal cat and dog meat trade?

NC: To raise awareness of animal welfare, which is more important, education or legislation?

Jiang: In China, law is very important in regulating human behavior. However, it is

festivals or if a natural disaster struck, animal slaughter would be halted for similar reasons.

Confucianism is less explicit, yet it does advocate a “live and let live” philosophy of virtue which warns against excessive animal slaughter out of ecological concerns. Confucians would often refrain from slaughtering animals in spring and summer, as these were the key times for breeding and bearing new life.

Since our traditional culture was lost, these traditions have been largely abandoned. At the same time, the concept of animal rights as it is broadly understood in the West has yet to fully permeate the Chinese mindset. As a result, China lags behind most of the world in its attitude to animal protection.

Photo by CFP

NewsChina: Is the root cause of animal abuse the same in China as elsewhere?

Jiang: Yes, there is animal abuse in other parts of the world, however, the only difference between China and many other countries or regions is legislation. For example, in Taiwan, abusing a dog can land you with a seven-year prison sentence. Nobody would dream of abusing an animal in public. In Chinese mainland, however, animal abusers might even brag about their cruelty online.

As long as there are no laws restricting this behavior, it is hard to control.

A lab rat in the Shaanxi Animal Testing Center, August 17, 2011

still a short-term solution. Academics need to be patient in educating and enlightening people, so I think both are equally important.

NC: Does China lack a culture of animal protection?

Jiang: Confucianism, Buddhism and Taoism, the three pillar philosophies of China, all emphasize husheng - protection for living beings. Devout Buddhists and Taoists also practice vegetarianism in line with this principle. Historically, even ordinary people traditionally were vegetarian on the first and fifteenth day of the lunar month, as a mark of respect to living things. In the Tang Dynasty (618-907) in particular, during important

NC: There are rooster fighting and dog fighting traditions in China. Is this just another face of animal cruelty?

Jiang: Yes, such traditions have existed throughout history. However, in traditional society, they have always been perceived as barbaric “street cultures” despised by the intelligentsia. The same attitudes were formed towards eating dog meat, which has never been a mainstream practice.

NC: How do you perceive the general public’s awareness of animal welfare?

Jiang: As people’s own lives have improved, their attitudes have changed. More people keep pets and there are signs of a revival of traditional culture, as well as increasingly positive influences from the transmission of Western culture.

Yet every step forward often comes with a step back, such as the recent crackdown on large dog ownership in Beijing. One particular area I want to address is the lack of respect afforded to animals in the scientific community. To my mind, many Chinese scientists are more strongly opposed to animal welfare than the general public.

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A temporary traffic policeman (front) works a shift with a “regular“ colleague (rear, left)

Photo by IC

society

Temporary Workers

The Expendables Despite a recent change in China’s labor law, “temporary workers” in the public sector may still be a long way from gaining employment equality

By Sun Zhe

W

Temporary urban management workers violently assault a store owner, Yan’an, Shaanxi Province, May 31, 2012

20

hile a “temporary” job with the Chinese government doesn’t necessarily mean short-term employment, there are a few things it certainly does imply: lower pay, harder work, and the risk of being fired at any time.

Under China’s current labor laws, an employee at a government organization or a State-owned company can still be considered “temporary” even after serving 15 consecutive years, as long as he or she has never been incorporated into the employer’s bianzhi, or “regular staff,” authorized by the State’s rigid employment mechanism.

Although regular workers often carry out similar work to their temporary colleagues, they enjoy higher pay, more benefits, and the guarantee of life employment, only risking dismissal if they are convicted of a crime.

Meanwhile, temporary employees in government departments, public institutions and State-owned companies, estimated to NEWSCHINA I September 2013

number 60 million nationwide, are cheap to employ, and easy to dismiss.

Signs of change were heralded recently when an amendment to the country’s labor law came into force on July 1, decreeing that any temporary State worker employed for longer than six months should be given regular employee status. However, given the widespread use of temporary workers, many have expressed doubt about the prospect of implementation.

Second-class Employees

The term first came into use in the 1950s, when State enterprises mushroomed across the nation as a result of the industrialization drive launched shortly after the founding of the People’s Republic in 1949. Under these circumstances, short-term workers, outside of the strict personnel quotas enforced by the State’s employment department, became necessary.

In China’s planned economy era from the 1950s to the 1970s, regular State employees enjoyed secure pay, a job for life, and many other benefits, even being permitted to pass their employment status onto their children when they retired.

But although China has undergone market-oriented reforms over the last three decades, the country’s employment system has failed to keep up – the gap between regular and temporary public sector employees remains essentially the same.

In addition to lifelong employment, known colloquially as the “iron rice bowl,” today’s regular State employees usually enjoy subsidized or free housing, and a steady career and payscale trajectory in accordance with their length of service, retiring with a generous government pension.

Temporary workers enjoy none of these benefits, yet are ubiquitous in central and local governments. In many township governments, the number of regular workers averages 50 to 60. But the real number of staff on the payroll, including temporary workers, could be 10 or 20 times as much, according to Wang Yukai, deputy director of the China Society of Administrative Reform.

NEWSCHINA I September 2013

The situation is similar in public institutions, such as hospitals, public schools and research centers. In some hospitals directly under the jurisdiction of the Ministry of Health, more than 60 percent of staff are temporary workers, and one in every five workers at China’s top 100 universities is temporary. State-owned enterprises are also among the biggest employers of temporary staff, often as tellers in State banks.

According to a survey by the Beijing News, three out of four State employees surveyed confirmed that temporary workers were employed in their workplace.

Due to government personnel quotas, public institutions and governments at various levels need to bring in temporary workers to cope with their workload, according to Zhu Lijia, a professor at the National School of Administration.

Power Outsourcing

Employment of temporary workers in China’s law and regulation enforcement apparatus has caused widespread criticism of the temporary employment system, with many calling it “outsourcing of government authority.” Though the country’s labor laws mandate that temporary workers must only be employed in temporary and auxiliary positions, in many cases their responsibilities are identical to those of their regular-worker counterparts.

In some government departments, temporary workers make up the majority of the workforce. Temporary workers, despite their lack of authority to enforce regulations, are widely employed in China’s urban management force, helping to generate revenue for the local government by imposing off-thebooks fines on unlicensed cab drivers and street hawkers, according to Wang of the China Society of Administrative Reform.

“A clear distinction needs to be drawn between the purchase of public services from outside the government, and the illegal outsourcing of public authority,” said Zhu of the National School of Administration.

In one of the most notorious cases of outsourcing public authority, petitioners who

came to Beijing to lodge local grievances with higher authorities were detained and tortured in an illegal prison run by a private security company paid for by the petitioners’ local government (see “Halfway House of Horrors ,” NewsChina March 2013, ).

“Outsourcing government authority to a private institution could incur human and civil rights infringements, since all legal procedures are discarded,” said Zhang Qianfan, a law professor at Peking University.

In recent years, temporary law- and regulation-enforcement workers have often served as convenient scapegoats for government scandals – wrongdoing is blamed on temporary workers, who are dismissed immediately following the scandal. In a recent case, six urban management officers (later identified as temporary workers) were fired after being caught on film viciously assaulting a bicycle seller in Yan’an, Shaanxi Province.

China’s Internet users have joked that since governments at various levels appear to be largely staffed by temporary workers, they should be known as “temporary governments.”

While many express dissatisfaction with the government’s employment methods, jobs in the public sector and State companies by far the most sought after positions in the job market. The annual civil service examination remains one of the single most competitive tests in the country, with thousands of candidates often vying for a single job opening.

Earlier this year, when 450 street sweepers (a regular position within the national employment quota) were to be recruited in Harbin, Heilongjiang Province, more than 3,000 university graduates, 25 of them with master’s degrees, turned up to take the entry test for the job.

Currently, reforms aimed at stripping public sector jobs of excessive benefits are being piloted in a small number of cities. But as long as State employers continue to offer security and exclusive benefits to a small group of people, temporary workers are expected to retain their uncertain status.

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society

Private Property

The Perils of a Red Hat For 16 years, private entrepreneur Hou Ruichang has been trying to wrestle ownership of his business back from the State, exposing the shaky foundations on which the country’s earliest private companies are built

Hou Ruichang

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Photo by Li Qiang

By Han Yong

NEWSCHINA I September 2013

H

ou Ruichang is now in his sixties. 25 years ago, he was among the first cohort of Chinese private entrepreneurs to get rich in the wake of the country’s economic reform.

Seventeen years later, an unexpected State backlash left him penniless.

This May, Beijing’s Second Intermediate People’s Court heard how the significant private assets amassed by Hou’s company, built on a flimsy joint venture with a government department, had come to be defined as State property. Prior to the trial, Hou had filed an appeal to the court via video link, demanding he be entitled to “open, fair and just” judicial process.

Thirteen years ago, in the very same court, the same case had been deemed groundless, and was thrown out. This time, Hou was determined to prove his ownership of the business he had built.

An Ill-Fitting Hat

In 1988, ten years into Reform and Opening-up, Hou Ruichang quit his job at a State-owned construction company, and prepared to register his own civil engineering business.

However, officials at the Beijing Administration for Industry and Commerce told him that a private individual could not register a public works company – only organizations at ministerial level or above were authorized to enter this heavily monopolized sector.

Although the government professed to be pursuing market economy at the time, there still existed many barriers to private entrepreneurship. In rural areas, private enterprises only existed in the form of collectively-owned “township” enterprises, and in cities, private companies were usually directly affiliated with State entities. At the time, this kind of relationship was known as “wearing a red hat.”

Hou Ruichang had no choice but to find one of these precious hats. After contacting various institutions, he chose to hitch his business to the construction department of the Beijing Municipal Bureau of Civil Affairs, and in March 1988, the two parties reached a verbal agreement.

According to the agreement, the two parties were to jointly establish a public works company. The construction department was responsible for obtaining a license for the business, and Hou was to take care of matters including investment and technology, and the securing of construction contracts. Hou would manage the company independently, and be responsible for all of its profits and losses. He also agreed to pay the construction department 100,000 yuan (about US$27,000 at the time) per year as an “administration fee,” a sum that was to increase by 10 percent annually. After the deduction of tax and an array of supplemental fees, the remainder, in theory, was Hou’s to keep.

However, to Hou’s dismay, this agreement was found to be worthless in court. Since the wearing of a red hat was almost always NEWSCHINA I September 2013

intended to be temporary, the parties concerned hardly ever signed written agreements. Hou has confessed that it was impatience that drove him into such a non-legally binding agreement.

Marriage of Convenience

After reaching his agreement with the construction department, Hou rented 2,000 square meters of land on the eastern outskirts of Beijing as his company’s base, brought in personnel, technology and equipment, and injected 120,000 yuan (about US$32,400 then) into the undertaking as an initial investment.

Hou Ruichang is a graduate of the Beijing University of Civil Engineering and Architecture, a school whose alumni were scattered throughout the construction industry in Beijing, providing Hou and his company with a plentiful source of construction projects. With high demand for construction and Hou’s strong management skills, business was booming. In seven years, he paid 4.6 million yuan (roughly US$800,000) in taxes and turned over 2.13 million yuan (roughly US$400,000) to the construction department. Around 1,000 people were employed by the venture, whose net assets amounted to 15.4 million yuan (US$1.9m in 1995).

In the meantime, however, the construction department failed to uphold its side of the deal – Hou’s company was still lacking the license promised in the verbal agreement. At the time, China was cutting down on construction projects in an effort to curb inflation, and licenses were becoming scarce.

Faced with restrictions, the construction department, Hou’s partner, came up with a stop-gap measure. Prior to the company’s formal registration, according to the arrangement, the construction department would allow Hou to use the business license and company seal of the Fourth Engineering Department of the Beijing Civil Construction and Installation Engineering Co, a State-owned enterprise also attached to the construction department, allowing Hou to do business using the seal and license (actually a copy) while pressing forward with his own license application. From then on, Hou’s company was referred to as the “Fourth Engineering Department.”

However, this planted a seed that was to grow into a bitter dispute with the construction department. At the court hearing in May this year, the argument revolved around this issue. If, as agreed in the verbal agreement, the company was not considered a part of the construction department, then Hou Ruichang would be defined as its owner, provided taxes were paid to the State and fees turned over to the construction department. However, if the company was deemed to be a part of the Beijing Civil Construction and Installation Engineering Co., then it would belong entirely to the State.

It was 1995 before Hou’s license finally materialized, a wait that caused much unease for all associated with the company. At one

23

society

point, Hou told his key staff members that once the license was secure, he would carry out shareholder reform and allocate one-third of the company’s assets to his close associates as options.

Yet on August 4, 1995, Ding Jingyi, the new director of the construction department, came to visit the company, and announced that Hou would be removed from his position as chief. Ding accused Hou of planning to turn State assets into private ones with his shareholder reform, claiming that the company’s assets were owned by the State.

According to the construction department, the two sides had never entered into a joint agreement, and that, rather than quitting his old job, Hou had been officially transferred to the Fourth Engineering Department of the Beijing Civil Construction and Installation Engineering Co. Ding went on to declare that since the Fourth Engineering Department was a part of the Beijing Civil Construction and Installation Engineering Co., all its assets were State-owned.

Fatted Pigs

From 1995 to 1997, many Chinese “red hat” enterprises saw their private property become State assets – a trend that became known as “slaughtering fatted pigs.” A number of red hat entrepreneurs who dared to sue the government ended up in jail.

Believing he had little chance of defeating the establishment in court, Hou decided not file a lawsuit. According to his wife Liu Menghua, Hou would lock himself in the bathroom all day, banging his head against the wall.

Zhao Keqiang, an entrepreneur from Harbin, had a similar experience. Zhao had invested more than 30 million yuan (US$4.9m) in founding a pharmaceutical factory in the late 1970s, and had also attempted to affiliate his factory with a State-owned enterprise.

After the 15th National Congress of the Chinese Communist Party in 1997, which declared that the goal of the economic reform was to establish a market-oriented economic system, Zhao hoped his factory would finally be clearly defined as a private business. However, at a general convention of the factory’s staff, he was removed from his post before being taken into custody for his alleged involvement in economic crimes, and was eventually executed.

In June 1996, Hou Ruichang read a newspaper report about the confiscation of a red hat private enterprise – the first media report on the topic he had ever seen. A lawyer advised Hou that since the media had begun reporting on the topic, the time had come for him to file a case.

The fear of ending up in prison discouraged Hou for almost a year, but on August 5, 1997, he finally decided to sue the construction department of the Beijing Civil Affairs Bureau at the Second Intermediate People’s Court of Beijing. He requested that owner-

24

ership of the property of the Fourth Engineering Department be restored to him, embarking on what was to be a 14-year lawsuit.

A Long Road

After continually refusing to accept the lawsuit for two years, the court tentatively decided to hear Hou’s case, but rejected it a further four times.

In 1999, the suit went to trial for the first time at the Second Intermediate Court of Beijing. When the court convened, the judge remarked: “The crux of this case is the question of who made the initial investment.” Hou, who had almost given up hope, suddenly became optimistic.

However, at the second trial, the same judge announced that the Fourth Engineering Department was, in fact, a State-owned enterprise. If Hou wanted the courts to decide whether or not the Fourth Engineering Department belonged to him, the matter should be settled according to the procedure of definition of property rights, a procedure outside of the jurisdiction of civil litigation.

On these grounds, the court rejected the case.

Hou Ruichang’s case attracted the attention of various legal experts. In December 2001, well-known legal academics Jiang Ping, Ying Songnian, Wang Liming, Wang Jiafu and Liang Huixing jointly voiced their opinion on the matter, pointing out that the case was a contract dispute between two equal parties, and should be tried in court.

In September 2004, Hou applied to the Supreme People’s Court for a retrial. In December 2005, the Supreme People’s Court ruled that the Beijing High Court had failed to clarify the facts, and had not cited the correct law. The Supreme Court ordered the Beijing High Court to retry the case.

However, in a rare challenge to a Supreme Court directive, the Beijing court asserted that there was nothing wrong with its original ruling, and stuck with the judgment it had handed down in the second trial.

In May 2009, Hou once again applied to the Supreme Court for a retrial, and in October that year, the Supreme Court determined that the Beijing High Court’s decision in the second trial should be overturned, as well as that reached in the first trial. It also stated that Hou’s lawsuit conformed with regulations on civil litigation, and that the People’s Court should accept the case. The Supreme Court ordered the Second Intermediate Court to accept the retrial, and to make a substantive judgment on the joint venture’s ownership.

Now, the case is entering its final phase, and judgment is soon to be passed. After 16 years of wrangling, Hou Ruichang waits to find out whether or not his hard work and business acumen are, and always have been, property of the State. NEWSCHINA I September 2013

NEWSCHINA I September 2013

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society

Oil Theft

Refined Criminals

Supported by vast networks of vested interests, China’s oil bandits are fueling a highly lucrative market in stolen crude

By Wang Quanbao and Li Jia

C

hinese people aren’t too fond of rodents. In old Chinese tales, rats are portrayed as sneaky, cunning creatures, often stealing rice or oil in the dead of night. This may be why China’s notoriously devious oil thieves, some of them powerful and well-connected enough to avoid serious investigation from the authorities, are known colloquially as “oil rats.”

“Oil rats” operate around many of China’s major oilfields, and along oil pipelines and highways. And as with many kinds of crime in China, it is not rare for government officials, police officers and oil company supervisors to be complicit in their heists. While more and more incidents of oil theft have been exposed in recent years, many go unresolved, revealing the entangled web of interest networks supporting this kind of crime in China.

In early June, 45 suspects were arrested in a sweeping police operation in the northeastern province of Heilongjiang. It was discovered that more than 10,000 tons of crude oil had been stolen from PetroChina’s Daqing Oilfield, before being transported across four provinces to Cangzhou, Hebei Province. But even though the Daqing police appeared to have solved the crime, their efforts to return the stolen oil to the

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Daqing Oilfield have been consistently obstructed by the local authorities in Cangzhou.

Illegal refineries are thought to be the biggest buyers of this oil. Despite complaints of pollution from local residents and frequent nationwide crackdowns over the years, these refineries have survived, and thrived, around the country.

For local governments, they are important generators of tax revenue.

Fat Rats

It took the Daqing police half a year to crack the case. Before crossing into Liaoning Province, which borders Hebei, the trucks carrying the stolen oil were shielded from inspection at police checkpoints. Bribes were paid to ensure safe passage, with cargo inspectors receiving the equivalent of US$4,500 per truck to look the other way. After a certain distance, protection was no longer even necessary – the oil, destined for two companies based at the Nandagang Industrial Park in Cangzhou, was partly processed at small refineries along the way.

Months later, China National Petroleum Corporation (CNPC), the parent company of the Daqing Oilfield, was still struggling to retrieve their oil from the compound in Cangzhou. At the gates, their trucks were blocked,

and their drivers threatened by families of the suspects and a number of other locals who the Daqing police claim were hired thugs paid by the two companies. Various local authorities with jurisdiction over the industrial park, including the courts and government departments in charge of production safety and environmental protection, attempted to sieze the companies’ assets from Daqing police, making it even more difficult for the latter to reclaim the stolen oil.

Senior officials with the Daqing police appealed to their counterparts in Cangzhou for cooperation, but were repeatedly referred to the local government, and, bizarrely, asked to appease the suspects’ families. According to Sun Huacheng, director of the Daqing police, it is the responsibility of any police force to cooperate with their counterparts from other areas.

The way the Cangzhou police and government handled the case was “irresponsible” and showed “contempt for the law,” Sun complained.

Cangzhou, a city notorious for its “oil rats,” is home to a booming stolen oil market, its many illegal refineries being the major buyers. And the Daqing oilfield is just the most recent victim – oil bandits operating in other major oilproducing provinces around the country, such as Shaanxi and Shandong, also provide stolen NEWSCHINA I September 2013

Photo courtesy of Daqing police

Oil slick in a river in the Nandagang Industrial Park, Cangzhou, Hebei Province, June 2013

crude. Nearly all major oilfields in China have been plagued by oil bandits, whose networks extend across the country.

Highways are another battlefield in China’s oil wars. Oil truck drivers often park their vehicles by the roadside to nap, leaving their cargo unprotected. In Wenzhou, Zhejiang Province this March, five people were arrested on suspicion of stealing oil from tankers on several occasions over the past two years. The gang was allegedly so skilled and well-equipped that its members were able to siphon off 60 liters of diesel within 14 seconds, according to local media. They then sold the oil to the owners of excavators on nearby construction sites, raking in the equivalent of tens of thousands of US dollars from such deals.

In China, oil theft first became a problem in the 1990s, when villagers living on the perimeter of oilfields began stealing crude for their own daily use. Since then, oil thieves have formed large, organized operations, and are becoming increasingly rampant. China’s Ministry of Public Security disclosed in 2010 that 39,000 cases of oil theft had been uncovered since 2002, involving a volume of oil worth hundreds of millions of dollars. In 2003, the only oil pipeline into Beijing was damaged by oil thieves attempting a heist, cutting off the supply for 10 hours. In NEWSCHINA I September 2013

2006, a seabed oil pipeline belonging to the Shandong Shengli Oilfield was damaged by thieves, causing tens of millions dollars in damage, much of it due to severe marine pollution.

Black Gold, Blacker Market

Often, oil company staff and local police, either in the area where the oil was stolen or at the stolen oil’s destination, are found to have had a hand in heists. In 2009 and 2011, staff members at the Shanghai and Shandong offices of Sinopec, China’s largest oil refinery company, were convicted of stealing oil worth millions of US dollars. In 2011, scores of senior police officers in Daqing were arrested for protecting a gang that had been buying and selling stolen oil under the guise of an oil company.

“This year’s tax revenue will likely fall short of targets, because the Daqing police are cracking down on oil theft, and many refineries have been shut down,” a local government official in Cangzhou said.

The local government apparently benefits more from oil crime than from crackdowns.

“The population of the Nandagang Industrial Park is 40,000, roughly the same as a town. But the annual tax revenue contributed by the park, thanks to its refineries, is as much as that of sev-

eral towns combined,” the official said.

Even in the localities of oilfields, some local governments are reluctant to suppress oil crime. The enormous tax revenue paid by State-owned companies, including the State energy oligopolies, is piped directly to the central government, benefiting local governments only by creating jobs and boosting their service industries. Most local governments are uncomfortable with this imbalance, especially when State energy giants tap natural resources that local governments consider to be their own.

Over the past few years, many local governments have been more eager than ever to invite oil and gas giants to invest in local enterprises, but at the same time, they are warier than ever of the power at the disposal of these Stateowned enterprises (SOEs).

If State-owned oil companies want local governments to be more motivated to crack down on oil theft, they should serve the local economy better, said an official with the Daqing Oilfield.

But for the public, this illicit oil business often does more harm than good.

With shabby facilities and backward technology, illegal refineries are engaged in very dangerous and dirty oil production. Since the late 1980s, several campaigns have aimed to close down illegal refineries. None has succeeded in keeping them closed for very long.

Walking into the Nandagang Industrial Park, the air is thick with the heavy stench of oil being processed. “The tap water is red in the mornings, so we have to buy bottled water. The air smells so bad that we can’t open the windows, even in summer,” a local resident told our reporter. Since the refineries were built, he said, cancer rates in the village have skyrocketed, as has the rate of birth defects.

Pan Zhiguo, a man from another village in the area, showed our reporter a petition letter signed by more than 800 villagers, protesting the toxic air and water pollution caused by the refineries. At the end of May, the Ministry of Public Security held a meeting in Cangzhou to launch another inter-provincial crackdown on oil crime, resulting in the closure of many refineries. “This is only the second time in decades that air quality here has improved. The last time was during the 2008 Beijing Olympics, when all refining activities were suspended,” said Chi Huaiyu, another local resident.

It will likely take more than a single crackdown to clean the oil stains from Cangzhou.

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society

“Suspended Meals”

Free Dinners, No Takers A restaurant owner’s scheme to encourage charity in the local community has been met mostly with disbelief

By Chen Wei in Xi’an

T

wo months after restaurateur Kao Wen-chih began asking his customers to donate meals to the needy, he found the scheme suffering from a surprising lack of interest – no-one seemed to want a free lunch.

In April, Kao had begun a “suspended meals” scheme, whereby customers could donate a free meal that could be

claimed by any diner who wanted it.

By the end of June, the restaurant had taken payment for a total of 265 donated meals, of which only 65 had been claimed.

A former journalist and teacher, 50-year-old Kao was born in Taiwan and came to the mainland in 1999, freelancing as a writer and publisher. In 2012, partnering with a few friends, he opened a restaurant in Xi’an, capital of Shaanxi Province, offering simple Taiwanese-style meals.

Good Samaritan Spirit

The concept of a “suspended meals” system was first publicly advocated in China

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on April 12 this year, by Shaanxi Provincial Public Security Bureau Deputy-Director Chen Li, a popular blogger with more than 10 million followers on Weibo, China’s Twitter equivalent.

Kao was the first to respond to the idea, promising that as of the following day, his store would offer a free-meal donation service, and he himself would kick off the program by offering five free meals for customers in need.

The idea was inspired by the century-old tradition of “suspended coffee” in Naples, Italy, whereby coffee shop customers will pay for an extra cup of coffee or two, to be claimed by those less fortunate.

According to Kao, he had witnessed a similar kind of “mini-charity” in action during his childhood Taiwan. Speaking to our reporter, Kao said that when he was eight years old, while he ate with his mother at a local wonton restaurant, a beggar stopped by and asked the owner for some free food. When the owner refused, Kao’s mother offered to buy a meal for the beggar. She told the owner to serve a free bowl of wontons to anyone who asked for one, and promised to settle the bill every week. The owner went on to offer a discounted price for suspended meal donors.

Now, Kao has followed suit, reducing the price of a meal of stewed meat and rice to 10 yuan (US$1.60) from 11 yuan, to make payment more convenient for donors.

In designing the scheme’s publicity, Kao avoided using vocabulary that might hint at charity, in an effort to protect the pride of meal recipients. He never asks their names, or why they need a free lunch.

Kao said that on one occasion, an obNEWSCHINA I September 2013

Suspended Disbelief

On the morning of April 13, Kao put up a notice on a small chalkboard in his restaurant: “We offer free suspended meals, please come and take one.” The word “free” was highlighted in red.

As news of the scheme began to spread, a number of journalists came to the restaurant to interview Kao. They were most interested to know who would supervise the suspended-meal scheme. “Why does everyone presume that things will go badly unless there is supervision?” replied Kao. He explained that the scheme operated purely on trust, and that any restaurant that cheated meal donors would risk ruining its reputation. Kao said he would keep a record of each purchase and consumption of a suspended meal. The record was open to public scrutiny, making any other third-party auditing unnecessary, he told the media.

The first suspended meal was not claimed until the next day, by an elderly man in worn-

NEWSCHINA I September 2013

Photo by Hu Yijin

noxious man using an expensive Samsung smartphone came to the restaurant to claim a suspended meal, buying himself a soda while eating. When the waiter complained to Kao that the man was not likely in need of a free meal, Kao responded that even if the man had arrived in a Mercedes, he would still be entitled to a free meal as long as he asked for one.

“It seemed that the man was at least psychologically needy,” said Kao. The man never came to the restaurant again.

Kao was prepared for difficulties in starting the free meal scheme, as he was well aware that on the Chinese mainland, trust between strangers is rare. Kao said that once, in Beijing, he had witnessed a man fall from his bicycle attracting a crowd of onlookers, none of whom extended a helping hand.

At the railway station in Suzhou, Jiangsu Province, he was stopped by a woman who claimed to have lost her purse, who begged him to give her 63 yuan (US$10) to buy a ticket home. He gave her the money, but was later mocked by his friends, who believed he had been cheated by a professional swindler.

Kao Wen-chih at his restaurant

out but clean clothes, who said that he had read about the scheme in the newspaper and had come to see if it was genuine. After finishing his meal, he paid for two more suspended meals, explaining that there were likely many people more in need of the meals than him.

Most of the earliest free meal recipients came only to confirm the news reports. According to Kao, these customers were easy to identify, because they never seemed embarrassed and would usually donate two or three meals after finishing their free one.

But it was those genuinely in need who surprised Kao the most. Once, a haggard man, carrying a large nylon sack on his shoulder – likely a migrant worker, by Kao’s estimation – made sure to verify four or five times that the lunch was free before entering the restaurant.

He finished the meal cautiously, and left.

When he showed up again the next day, he asked: “Are the meals really free?”

A few days later, an old man came in for a free meal, but to Kao’s dismay, he insisted on presenting his government-issued disability certificate. Kao was speechless.

“He did not believe that I trusted him,” said Kao. Though the suspended meal scheme has been a hot topic online and in the media, many of those most in need have no access to the Internet, TV or newspapers, and many of China’s poorest people are illiterate.

A group of local volunteers came up with the idea of distributing flyers about the scheme to out-of-towner patients and their relatives in nearby hospitals. They reasoned

that this group of people, away from their homes, might be in need of free meals. But to their frustration, most of these people either did not understand what the volunteers were offering, refused to believe them, or simply threw the flyers away. Some even accused the volunteers of being swindlers.

Kao sees the scheme as a mini-charity aimed at encouraging a sense of community between residents of the restaurant’s immediate neighborhood. Thus, he only accepts donations in person – no checks or bank transfers are allowed.

“The suspended meals are not just offering food to those in need.” Kao said. “It’s more about nurturing good will in the community.”

He has also mandated that an individual could purchase no more than three suspended meals at one time.

However, the rule is easily circumvented.

A number of people have come to the restaurant, thrown a handful of 100-yuan (US$16) bills onto the counter, and departed, leaving Kao no chance of refusing the donation.

At first, Kao was confounded by these “aggressive donations,” but he has since come up with a possible explanation – he reasons that given the widespread mistrust of many mainland charity organizations, particularly the largest ones, many Chinese people are in need of reliable outlets for acts of charity.

A number of restaurant owners have asked Kao which organization they should contact to join the scheme. Kao claims to have been rather taken aback by this, as he believed that anyone who liked the idea could just do it themselves – he did not see good will as something that needed the approval of any organization.

Kao believes that as long as individual suspended meal schemes remain independent from each other, no one unscrupulous restaurant owner can entirely ruin the concept’s reputation. In light of the crippling damage that the scandal-plagued Red Cross Society of China has inflicted on the country’s registered charities, he may be right. Given the Chinese government’s strict supervision of charitable organizations, remaining low-key is a wise decision.

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society

Child Protection

The Kids Aren’t Alright The tragic and preventable death of two young girls has led to a public outcry over the failure of China’s welfare system to protect the country’s children

I

n recent months, China has witnessed a spate of child abuse and neglect scandals. In one case, a father in Guizhou Province sewed his 11-year-old daughter’s mouth shut with fishing line, and the rescue of a newborn baby from the U-bend of a toilet made headlines worldwide.

But in terms of tragedy, nothing compares to the case of the two girls, aged one and three, found dead in Nanjing, Jiangsu Province on June 21. Initial investigation has shown that the girls had been locked inside their home by their drug-addicted mother, Le Yan, causing them to die of starvation.

However, given the authorities’ eagerness to label child abuse scandals as accidents or simply blame the parents themselves, the death of these two girls has exposed a vacuum in the country’s social welfare system in terms of child protection. Although Le has been arrested and charged with murder, many are blaming the authorities for failing to intervene at an earlier stage.

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A forensics officer arrives at the residence in Nanjing, Jiangsu, where the two children were found dead, June 21, 2013

Photo by Yutian/cfp

Nanjing residents left tributes on the apartment door of the two victims, June 26, 2013

Photo by cfp

By Yu Xiaodong

Tragedy

To any casual observer, Le’s ability to care for her two daughters would have been, at best, questionable. Both Le and her husband are drug addicts. In 2012, Le was detained for using drugs, but was pardoned on the grounds that she was still breastfeeding her younger daughter. After Le’s husband was sentenced to six months in prison for complicity in drug taking in February, Le, jobless and with no family support, became the sole guardian of their two children.

Legal experts argue that given Le’s situation, the authorities should have revoked her guardianship. China’s Law on the Protection of Minors stipulates that the court has the right to revoke and reassign parental guardianship if it judges parents unfit to care for their children, but does not specify the conditions under which the law can be invoked. In reality, as long as a child’s parent is alive, it is very rare for a court to revoke their guardianship.

In March, after being left home alone for several days, Li Mengxue, NEWSCHINA I September 2013

the elder of the two girls, managed to escape from her home. When the two were found, Li was covered with feces. Her one-year-old sister Li Menghong was suffering from malnutrition, and was quickly hospitalized.

But even with this clear evidence of Le’s incompetence as a guardian, local police decided to return the two girls into her care. “Le cried a lot when she came to pick up the girls,” Wang Pingyuan, a local police officer later told the media. “We believed she still cared for them.”

The only action taken by local authorities was to provide the family with a monthly allowance of 800 yuan (US$130), and mandated that Wang, the police officer, visit the home regularly. Le’s neighbors said that they seldom saw the mother or her children again.

Wang Pingyuan admitted that he wasn’t able to see the girls every time he delivered the allowance to Le. On June 8, Wang lost contact with Le. On June 20, Wang decided to break into Le’s home, where he found the bodies of the two girls.

Institutional Failure

The tragedy, which appears to have been completely avoidable, immediately led to a public outcry over what experts have called an institutional failure of the legal system to protect minors.

On June 28, five female lawyers from different provinces filed a legal request to four local authorities, including the Civil Affairs Bureau, the Subdistrict Office, the Public Security Bureau and the Jiangning District Women’s Federation, to disclose relevant information to clarify whether or not there had been any dereliction of duty.

By press time, none of the authorities had responded to the request.

According to Zhang Xuemei, director of Beijing Youth Legal Aid and Research Center, China faces both cultural and institutional challenges in child protection.

In Chinese culture, children are generally considered to be the property of their parents, who are seen to have an inalienable right to guardianship.

China’s Law on the Protection of Minors, the only law that regulates child safety, also sets strict conditions for revoking this guardianship. For example, the law stipulates that it is the duty of unfit parents themselves to seek a suitable guardian. Moreover, a parent’s guardianship can only be revoked by the court, and when a parent’s guardianship is revoked, he or she is required to continue supporting the child financially. These rules have made revoking guardianship almost impossible.

In reality, as long as a child is not orphaned, the authorities are very reluctant to get involved in the issue of guardianship. According to Ding Chunxiu, great-grandmother of the two girls, she had pleaded with local authorities to send them to a local children’s home or orphanage, a request rejected on the grounds that their mother was still alive.

Given this attitude, many child neglect cases are dismissed as isolated accidents. For example, on June 29, a five-year-old girl in Chengdu barely escaped death after falling from the balcony of her sixth-floor NEWSCHINA I September 2013

home, her fall broken by a passing adult. Her father was away from home, playing mahjong.

On July 1, two girls, aged seven and five, died after falling from their 13th-floor home in Shanghai – their parents were busy working in the family restaurant at the time. No legal action was taken against the parents in either case.

In another case on July 6, a eight-month-old boy in Xuzhou was hospitalized after being stabbed 90 times by his mother, whose family said she was “slightly” mentally ill. When urged to revoke the mother’s guardianship, local authorities responded that they had to confirm the mental status of the mother, and their priority was to transfer guardianship to the child’s uncles, who lived with the mother in the same household, as the boy’s father had died.

According to the 2012 China Childhood Injury report, about 50,000 children aged 0 to 14 were killed in accidents in the country every year, 44.5 percent of which occurred in the home. Experts believe that many of these cases were due to child abuse and neglect.

According to another report by the China Philanthropy Research Institute of Beijing Normal University, by the end of 2011, China had an estimated total of 580,000 children with no competent guardian, including children whose parents were both disabled. The figure is only slightly lower than the estimated number of orphans (615,000).

Wrong Direction

In response, the Ministry of Civil Affairs pledged on June 26 that it will pilot serious child protection measures in 20 cities. According to a tentative program to be rolled out in four counties, the authorities will extend welfare coverage beyond orphans to other groups, including “children in difficulty,” children of families in poverty,” and “ordinary children.”

But experts argue that the program, which continues to focus on monetary support, fails to address the key problem. “What China needs is a separate child protection framework that focuses on supporting, managing and supervising guardianship,” said Zhang Xuemei, at a seminar on child safety held in Beijing on July 3. Such a system should include and cover social work service, and temporary and permanent guardianship support, which simply does not exist under the current institutional arrangement.

Zhang’s opinion was echoed by Gao Huajun, vice-director of the China Philanthropy Research Institute. According to Gao, the existing child protection mechanism is so fragmented that no agency can be held accountable. To effectively protect minors, China needs a national strategy. Instead of pilot efforts at ministry level, an entirely new legal framework coordinating efforts between different authorities such as the police, the courts and the welfare agencies will be required.

Unfortunately, despite the national outpouring of grief over the tragic and utterly preventable death of two young girls, no serious efforts have been made to alleviate the problems that led to their deaths.

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SPECIAL REPORT

Corruption

Can’t Beat ’Em? Promote ’Em

NewsChina investigates why so many known corrupt officials in Fuyang, Anhui Province continue to be promoted to higher ranks

By Xie Ying and Han Yong

T

he Party’s disciplinary inspection commission of Fuyang City, Anhui Province, confirmed on May 9 that Liu Jiakun, former vice chairman of the Fuyang People’s Congress, had been detained for “violation of laws and Party discipline.”

According to the commission, the investigation into Liu, which began in February this year, found that he had taken bribes and misused power in various construction and real estate projects, personally siphoning 60 million yuan (US$9.5m) into his own pocket.

Liu was promoted to his present post in 2010. The corruption that would ultimately convict him, however, went on during his tenure as Party secretary of Taihe County, a prefecture under the jurisdiction of Fuyang City, though he began embezzling public funds during his first major political appointment – to the local branch of the Bureau of Land and Resources. The investigation revealed that Liu had been taking sizeable bribes from 2002 onwards.

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Liu is just one more name on the list of Fuyang officials who have been promoted even when their crimes has already come to light. Behind this growing list lies Fuyang’s bureaucratic culture, in which corrupt officials collude with each other and bribery has become the norm. To some, Fuyang is a microcosm of China’s entire political system – one in which unaccountable public figures can abuse their position and thrive as career politicians, with impunity.

Pandora’s Box

Fuyang’s ongoing corruption scandal originated with an investigation into Wang Zhaoyao, the former deputy Party secretary of Anhui Province who in 2005 was accused of corruption and selling official posts.

The court tried to explain Wang’s corruption as a result of him being “psychologically thrown off balance” in 1990, his second year as deputy Party secretary of Fuyang, then a boom town in the vanguard of Chinese economic growth.

NEWSCHINA I September 2013

NEWSCHINA I September 2013

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SPECIAL REPORT

Fierce competition for local resources turned any government positions associated with resource allocation into highly lucrative enterprises. Wang Zhaoyao, as one of the most powerful local officials, found the temptation to simply sell posts to the highest bidder too alluring to resist.

“Why do other people get rich by doing business, and I, who works hard throughout the year, get so little?” Wang told investigators. “I felt I deserved some compensation.”

Wang accepted nearly 80,000 yuan (US$13,000), from a Linquan County deputy Party secretary in exchange for promoting him to Party secretary and appointing him to the Fuyang Politics and Law Committee.

Bribe bred bribe, and soon Wang was setting up all those closest to him with influential posts. By the time he became deputy provincial Party secretary, Wang’s wife, two brothers-in-law and his son were all in positions of power.

From 1990 to his arrest in 2005, Wang was taking bribes for 15 years, during which time he received four promotions.

Cycle

Wang Zhaoyao’s sentence to death with a two-year reprieve, however, did little to stem the tide of corruption at the heart of Fuyang’s political culture.

From 1999 to 2002, the mayor of Fuyang, Xiao Zuoxin, and deputy governor of Anhui Province Wang Huaizhong were detained for corruption and for taking bribes.

In addition to bribery in construction projects and land sales, both Xiao and Wang were accused of abusing their power to control official recruitment and promotion. For example, during Wang Huaizhong’s tenure as Party chief of Fuyang (1993-1999), he illegally approved or supported the enrollment of more than 12,000 public servants across the province, leading to a 50 percent excess of staff. The media revealed that Wang could

34

arbitrarily determine transfers or promotions regardless of a candidate’s suitability or qualifications.

Wang’s prosecution triggered the fall of over 160 officials implicated in 47 separate corruption cases, which had collectively resulted in the embezzlement of some 300 million yuan (US$47.6m) of public funds, or around US$290,000 per official.

Similar “chain reactions” occurred during the investigation into Liu Jiakun. The media said another five senior officials from local construction or land resources authorities were put under investigation at the same time, many of whom had close ties to Liu. According to court documents relating to corruption cases in Fuyang since 1999, NewsChina counted a total of 26 middleand high-level local officials charged with violation of laws and discipline, at least 23 of whom had been promoted even though the Party and government agencies were aware of their illegal activities.

“Corrupt officials prefer to promote other corrupt officials,” a retired official from the disciplinary inspection commission of Fuyang, speaking on condition of anonymity, told NewsChina. “Once these officials got promoted, they would have more chances to embezzle, which would give them more funds with which to bribe people,” he continued.

“This is the cycle of power in Fuyang.”

Protection

Thanks to the scale of corruption and complicity of corrupt officials in covering up their crimes, it is easy for offenders to thrive.

NewsChina found that the 23 Fuyang officials “in disgrace” over corruption allegations had remained immune from prosecution for an average of nine years. One was only arrested after 17 years on the take.

Before Liu Jiakun was promoted to the

post of Party secretary of Taihe County, rumor had it that he kept a mistress who received favorable business opportunities through her association with him. In order to pave the way for promotion, Liu later asked a subordinate to help him to divorce his wife.

In exchange, he gave the green light to a real estate project his subordinate was struggling to get off the ground.

Ironically, Liu’s promotion was largely attributed to his image as a “Mr Clean” in a disreputable political culture. He first became widely known for his bold statements of support for the anti-corruption program sponsored by the local discipline inspection commission – the program that would ultimately take him to court. In 2004, three years after the fall of deputy governor Wang Huaizhong, he published a commentary in a local newspaper calling for checks on political power and an end to behind-the-scenes deals.

“As Fuyang was in the shadow of Wang Huaizhong’s case, it was the best choice to promote a Mr Clean. That was why few people opposed Liu’s nomination as Party secretary of Taihe County,” a local official told NewsChina.

Liu, like many other corrupt officials, used a high-profile stance against corruption to draw attention away from his own shady dealings. Other officials simply seek to avoid scandal by turning corruption into a highly strategic art form.

For example, Han Xipeng, former head of the Fuyang Party Organization Department, adopted a “Four Nots” tactics to shield him from exposure. He would not accept bribes given simultaneously by two persons; he would not accept bribes from higher officials; he would not accept bribes to do anything outside his jurisdiction; and he would not accept bribes for anything he had failed to do.

Han’s system failed him when he was charged with taking bribes in 2003.

With anti-corruption agencies directly NEWSCHINA I September 2013

The luxurious government buildings of Yingquan district, Fuyang City, Anhui Province

controlled by the Party, it is often only due to a political misstep that corrupt officials are even investigated. If Liu Jiakun had not overplayed his hand by appropriating too much of the revenue allocated to development projects, he may never have been caught – he had been promoted three times before being put under investigation.

Even if a whistleblower dares to speak out against a corrupt official, they are often facing down a deeply-entrenched network of connections and lackeys who stand to lose just as much as the official in question. For example, after Wang Huaizhong was put under investigation, a local businessman who had benefited from Wang’s patronage pledged that he would “save Wang at any cost.”

A more extreme case was Zhang Zhi’an, a district-level Party secretary in Fuyang, who was sentenced to death with a two-year reprieve in 2010 for taking bribes and “retaliating against” his subordinate Li Guofu. Li NEWSCHINA I September 2013

reported Zhang’s corruption to the higher authorities in a letter, only to find that a secretary of the authority forwarded his letter to Zhang. Zhang promptly had Li thrown in prison, where he would later commit suicide.

“Zhang actually had not expected that his wrongdoing would be widely reported in the media, since it was not rare for would-be whistleblowers to be handed directly over to the person they were reporting,” said a report in Southern Weekend newspaper.

Amnesty

In China, disciplinary inspection commissions at various levels take charge of supervising and investigating the officials. These commissions are completely subordinate to their relevant Party committees, essentially giving the local Party secretary the right to determine who is investigated and who is promoted. Interestingly, of all the corruption cases reported in Fuyang, not a single Party

secretary has been put under investigation.

“The Party secretary always has the final say. Official recruitment and promotion are always decided upon by the Party chief, in spite of all the ‘democratic’ formalities,” revealed Han Xipeng, the fallen head of the Party Organization Department in Fuyang.

“Thank the committee. Each time they investigated me, I would get promoted... Fuyang is Wang’s kingdom,” Wang Haizhong reportedly said. Xiao Zuoxin revealed that on the very day he was made mayor of Fuyang he received gifts worth around one million yuan (US$163,000). Wang Huaizhong also gave investigators a list of more than 1,000 officials who had bribed him during his career.

By 2008, about 900 officials in Fuyang had been implicated in bribery cases, about one-twentieth of the entire government. Yet few were ever charged.

“In order to appease Fuyang’s officialdom following Xiao and Wang’s fall, the Central Disciplinary Inspection Commission of the CPC pledged to give a lighter punishment or amnesty to any of those implicated who made a voluntary confession,’” an anonymous official in Fuyang told NewsChina.

Such policies have made local officials believe that “there’s no shame in bribery.” In 2010, 13 officials were removed from their posts for bribing Zhang Zhi’an, the districtlevel Party chief, but within one month they were reinstated, with some even earning promotions.

Liu Jiakun reportedly “complained” that he could not get used to his new post for a long time: “The power kept growing, the lure kept increasing, while the pressure from supervisors was negligible.”

In a political climate that actively seems to reward the corrupt and ignore or even punish the innocent, Fuyang is yet another example of how far China has to go to combat its corruption addiction.

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SPECIAL REPORT

Corruption

Graft Breeds Graft The gap between the investigation and prosecution of official corruption cases casts doubt on the government’s ability to bring the bad to book

By Han Yong

36

NEWSCHINA I September 2013

Photo byCFP

An anti-corruption “wall of shame” in Guizhou, Guiyang Province

F

ollowing Xi Jinping’s pledge in January to “fight tigers and swat flies” – meaning corrupt officials at all levels – a handful of high-profile prosecutions have indeed given a modicum of weight to his words. However, political scientists warn that the sheer extent of corruption in China continues to outpace all attempts at a crackdown.

NEWSCHINA I September 2013

Toxic Legacy

According to a recent study conducted

by Professor Tian Guoliang, director of the Central Party School’s publishing house, the average “latency period” between a corrupt official’s first offense and their exposure has increased dramatically, from less than a year in the 1980s to an average of 4.2 years in the 1990s. The average is, ac-

cording to Tian, currently 8.9 years.

Tian blames this discrepancy on the increasingly sophisticated methods by which officials can abuse their positions for material gain. “In the 1980s and 1990s, the rules were pretty simple – cash and services,” Tian told our reporter. “To crack a corruption case, you just needed to find and open an offending official’s safe, and all the

37

SPECIAL REPORT

Liu Jiayi, Liu Jiakun’s brother, was sentenced to 17 years in prison for taking bribes, 2007

Liu Jiakun prior to his detention

money would be there.”

Nowadays, anti-corruption campaigners and investigators have revealed, few officials take cash bribes. Instead, they prefer stocks, discounted real estate holdings, free luxury cars, expensive “gifts” for their families or vouchers redeemable at luxury stores. Few of these items leave a paper trail, and even real estate holdings are rarely listed under an official’s name.

Repeated calls for officials to fully disclose their assets have led nowhere, even when those calls have come directly from the Party leadership. As a result, anti-corruption agencies have resorted to piecemeal measures to rein in official extravagance.

For example, the Central Commission for Disciplinary Inspection this year issued a decree that demanded all officials and Party cadres give up all business membership accounts acquired in an official capacity by June 20.

Professor Zhang Tao from Shenzhen University argues that, rather than the methods of corruption, it is precisely the ineffectual anti-corruption mechanisms within the Party and the government that are at fault. After reviewing the 35 cases of both provincial and ministerial-level officials prosecuted for corruption between

38

1987 and 2011, Zhang found that only four cases (11.4 percent) were exposed by the Central Disciplinary Inspection Commission. 24 cases, or 68.6 percent of the total, were exposed only as a byproduct of other investigations, and five were the result of whistleblowing.

According to data released in 2010 by the Supreme People’s Procuratorate, China’s intermediary legal authority responsible for approving cases for trial, 70 percent of corruption cases in recent years were exposed by whistleblowers and the media. “This means that China’s anti-corruption authorities play a very passive role when compared to other countries,” said Zhang Tao, adding that in countries with low levels of corruption, anti-corruption agencies typically take the lead in exposing officials.

Just as it is taking longer and longer to bring corrupt Chinese officials to justice, the quantities of material assets these officials are able to illegally acquire have increased exponentially since the 1980s.

What is fueling public fury is that the sentences being handed out for corruption are also seemingly becoming lighter.

In 2002, Wang Huaizhong, former deputy governor of Anhui Province, and Cheng Kejie, former vice-chairman of the Na-

tional People’s Congress, were executed for embezzling public funds and taking bribes worth 9.97 million yuan (US$1.62m) and 41.1 million yuan (US$6.67m) respectively.

More recently, Cheng Tonghai, former general manager of PetroChina, was charged with illegally acquiring 196 million yuan (US$31.8m) through abuse of his position. This month, former railways minister Liu Zhijun was convicted of taking bribes of 65 million yuan (US$10.6m).

Both men received a suspended death sentence – which in the case of officials is almost always commuted to a minimum 20 year prison sentence.

‘Promotion in Disgrace’

Many political scientists agree that the apparent impotence of China’s anti-corruption authorities is a direct result of their lack of independence. All anti-corruption organizations at various levels, right up to the Central Commission for Discipline Inspection, are subordinate to their relevant Party committees. In the end, Party chiefs have the final say on who is investigated, who is charged with corruption, who is ultimately convicted and the severity of their sentence. This creates a huge blind spot for NEWSCHINA I September 2013

Photo by CFP

Some of the gifts given to Wang Huaizhong as bribes, including fox furs and jade carvings, at a public auction

anti-corruption investigators – essentially, any official under the protection of the Party committee is out-of-bounds.

“As a result, a Party chief can effectively decide on who to investigate, and who to let go,” said Professor Ren Jianming, a governance expert from Beijing University of Aeronautics & Astronautics.

This flawed system also helps to make corruption self-sustaining. “A corrupt official tends to promote other corrupt officials on the understanding that if everyone is corrupt, then everyone is safe,” Ren told our reporter. “To promote a clean official is to sit yourself beside a ticking time bomb.”

The longer a corrupt official goes unpunished, according to Liu Jiulong, a doctoral student at the Hong Kong Institute of Education, the more likely he or she is to promote corrupt underlings. Liu’s research has shown that corruption-tainted officials, rather than being prosecuted, are typically transferred to other posts at the same level or simply promoted out of hot water, a phenomenon he has termed “promotion in disgrace.”

Reviewing the career history of all 43 high-ranking corrupt officials named in his study, all of them exposed between 2002 and 2012, Liu found that 36 of them (84 NEWSCHINA I September 2013

percent) had been promoted after their first offense.

“When a corrupt official stays in the same place for a long time, a wide-covering and entangled web of corruption would take shape,” Liu told NewsChina.

A similar study by Professor Tian Guoliang spanning the period 1980 to 2013 showed that 63 percent of corrupt officials were promoted while engaging in corruption. Another study by Professor Zhang Tao covering the period 1987 to 2011 put the ratio at 67 percent. One disturbing feature becomes clear from these unrelated studies – the more recent a corruption case, the more likely it is that the official in question was promoted while engaging in corrupt activities.

Professor Ren warns that the trickledown effect of corruption means that this trend is very dangerous. Corruption at the highest levels can easily pollute an entire government department or ministry. This may explain the chain reaction that results when a high-ranking official is put under investigation for corruption, whereby large numbers of their colleagues are also implicated in rapid succession.

Following the high-profile fall last year of Politburo member Bo Xilai and his deputy

Wang Lijun, deputy mayor of Chongqing Municipality, dozens of mid-ranking local officials were removed from their posts and indicted under corruption charges relating to the case.

More recently in Guangzhou, 81 officials in the city’s Baiyun district, including the district’s Party chief, governor and their major deputies were put under investigation, paralyzing the district government.

According to Professor Ren, given that corruption is a fundamental part of the political culture in officialdom, no isolated institutional reform can engender significant and substantial changes. Various pilot projects aimed at checking the power of Party chiefs have been designed and implemented in various localities, but none have borne fruit simply because the political will does not exist. At the core of these projects were the introduction of competitive elections and democratic nominations – both anathema to those with the power to effect such sweeping changes to the political system.

“As unspoken rules become the only rules that really count, Party chiefs can always have their way,” Ren told our reporter.

“Only an overhaul of the current system can ultimately resolve the problem.”

39

economy

Credit Crunch

Tough Love The central bank is trying to bring naughty commercial banks in line.

Will it work?

By Li Jia

Photo by afp

“

40

7 percent! The Minsheng Bank has offered a much higher yield rate than ever for its new 30-day-plus wealth management product. Other banks are doing the same. It’s a shame my cash is locked up elsewhere,” said Mr Zhang, a 40-year old Beijing resident who has sunk one-third of his personal assets into financial products.

To get around mandatory deposit rate caps and limits on both the quantity and destination of loans, Chinese banks have invented a plethora of wealth management products (WMPs) to attract short-term funding from small-scale investors to shore up their offbalance-sheet lending.

The recent love-in between banks and investors like Zhang was a result of jitters in China’s banking sector. This could herald an oncoming financial crisis which many hope will spur those in charge of the country’s economic governance into acting on pledges to reform the increasingly unruly banking sector.

Since the end of May, the Shanghai Interbank Offered Rate (Shibor), China’s answer to the London Interbank Offered Rate (LiNEWSCHINA I September 2013

Boat Festival in June increases demand for ready cash from depositors.

While in previous years demand could easily be fueled by the purchase of US dollars or other foreign currency, this summer has seen this former source of ready cash begin to dry up. China’s central bank uses yuan to buy foreign currency from commercial banks, with the resulting yuan liquidity – funds outstanding for foreign exchange – used to stabilize the yuan. On June 19, US Federal Reserve Chairman Ben Bernanke announced that the Fed would moderate quantitative easing (QE3) later this year and may terminate it altogether by mid-2014 if the US recovery is as strong as forecast. In response to the announcement, short-term capital flooding into emerging markets like China quickly reversed its flow.

Over the first four months of 2013, China’s funds outstanding for foreign exchange tripled the figure for the whole of 2012. In May Chinese regulators strengthened scrutiny of hot money entering China through international trade. This, combined with the capital outflow triggered by Bernanke’s remarks, saw funds outstanding for foreign exchange fall off a cliff in the summer.

None of these events were unprecedented.

What took the markets by surprise proved to be the reaction of the central bank. With ample deposit reserves and moderate inflation, there was no reason for the PBoC to play dead when commercial banks began to cry out for capital injections. With China’s eco-

bor), began to rise sharply. After the central bank failed to step in and ease liquidity as expected, panic spread. On June 20, the overnight Shibor rate, which usually ticks along at two to three percent, soared to a historic high of more than 13 percent.

Rumors that some banks had already defaulted began to circulate, with some international analysts muttering about China’s “Lehman Brothers moment.” Contagion quickly hit China’s already unstable stock and bond markets while capital-hungry banks posted abnormally high WMP rates to attract investment. It was not until July 2 that the overnight Shibor rate fell below 4 percent.

In the aftermath of this micro-crisis, analysts began to ask why Chinese banks, some of the most profitable financial institutions in the world, had stood idle along with the powerful People’s Bank of China (PBoC), the central bank, when in theory these institutions could have easily rescued the system.

Was it incompetence? Inertia? Or tough love?

Hungry Babies

June is always the spending season for Chinese banks. As the PBoC explained via State news agency Xinhua on June 25, banks rush to lend more in June to improve their mid-year reports. June is when China’s banks submit corporate tax to the national treasury.

Banks also need capital to put aside for deposit reserves with the central bank. The consumption spree during the national Dragon

nomic forecasts looking more gloomy by the minute, analysts expected the central bank to step in to ease monetary policy.

Instead, it did the opposite. On June 20, the PBoC drained US$320 million from the market through an open market operation, exacerbating the effects of the existing credit crunch. Despite a belated attempt to reassure the markets with a Xinhua press release announcing that it had “provided conditional liquidity to some banks,” no systematic action was taken to rescue struggling lenders.

On June 27, Ji Zhihong, a senior PBoC official, admitted this “tough love” policy at a forum in Shanghai.

Behave, Or Else

In the first five months of 2013, the Chinese economy raised 52 percent more funds from the finance industry, with the money supply growing faster than the central bank had planned. On the interbank market, overnight rates spiked more sharply than mid- or long-term rates. Steven Xu, Financial Services Partner of Ernst and Young Greater China, told our reporter that this shows there is currently plenty of liquidity to go around.

That a money shortage happened in the context of sufficient liquidity in both the wider economy and interbank markets was, to the PBoC, a clear indicator that existing capital was being mismanaged.

Borrowing on the interbank market is intended to fill short-term liquidity gaps during normal operations, however, banks are using

Overnight Shanghai Interbank Offered Rate (May 30-July 2, 2013) 150000 120000 90000 60000 30000

5.30 5.31

6.3

6.4

6.5

6.6

6.7

6.8

6.9

6.13

6.14 6.17

6.18 6.19

6.20 6.21

6.24 6.25 6.26

6.27 6.28

7.1

7.2

Source: National Interbank Funding Center NEWSCHINA I September 2013

41

Photo by cfp

economy

The Shanghai Composite Index closes at 1963.24 on June 24, 2013, down 5.3 percent on the previous day, its biggest one-day slump since August 31, 2009

this less restricted channel to regulations to invest recklessly in unstable financial products such as trust contracts or notes. Often this is made possible through complicated arrangements involving WMPs. Only funds raised on the interbank market appear on the balance sheet – the credit stays off the books, putting the entire system at risk.

Both interbank borrowing and WMPs mature within less than a year. 65 percent of WMPs issued in 2012 matured in under 3 months, according to statistics from financial data provider Wind cited in an April report by the Chinese Academy of Social Sciences (CASS). It says this line of credit eventually goes to three groups who are unlikely to be approved for legitimate loans - developers, local governments and small and medium-size enterprises (SMEs).

Developers and governments in particular frequently invest this short-term credit in long-term projects, meaning that banks have to issue new WMPs to cover old WMP obligations, leading to a vicious cycle of borrowing that is potentially endless. In a China Daily article published in October 2012, Xiao Gang, former Bank of China chairman and now chairman of the China Securities Regulatory Commission, warned of the “possibility of a liquidity crisis being triggered if the markets were to be abruptly squeezed.”

42

This is precisely what happened in June.

When excess capital bouncing around in financial institutions is finally invested, Xu told our reporter, an inflated interest rate is a foregone conclusion. This means developer and local government debts are even less manageable, and life is made even harder for solvent SMEs seeking loans. The massive debts outstanding in China’s non-banking sectors are one of the important factors prompting Fitch to downgrade China’s currency rating.

As credit is squeezed throughout the economy, even less funding is available for the crucial industrial upgrading and necessary infrastructure projects seen as essential to China’s future prosperity. Manufacturers, disillusioned with the lack of progress, simply join the club and start bulk-buying WMPs instead of manufacturing the goods that fuel China’s growth.

The People’s Daily published several editorials stressing that the central bank’s refusal to rescue financial institutions is a “strategic decision” to “force” banks not to speculate excessively.

Ripple Effect

In early July, the State Council, which governs the PBoC, unveiled a raft of new financial policies to divert excess capital back

through legitimate channels. The lifting of an 18-year suspension on treasury bond futures trading along with key barriers to launching privately funded banks as well as introducing new financial tools such as asset securitization, venture capital and bond issuance are all being touted as catalysts for renewed growth of the “real economy.”

If this package can be implemented, said Mr Chen, a machine trader in southeast Fujian Province, it will be a much-needed boon to private businesses. His company has until now relied on borrowing from a large Stateowned company, entitled to cheap loans, but Chen hopes he may one day be able to apply for an independent loan.

However, implementation of these new policies will not be easy. Many are fuming at the central bank for employing shock-andawe tactics to engender more irresponsible behavior in the State’s already-unpopular financial institutions. While Xu argues that if the central bank always moves in line with market forecasts then the speculators will always be ahead of it, others have warned that the central bank’s stubbornness over shadow banking, an issue it has had no small part in creating, could inadvertently spark a financial crisis and wreck the economy.

Even if barriers to the establishment of private banks are indeed removed, these institutions will have to be responsible for their own risk. With no deposit insurance system and no law governing insolvency in the case of Chinese banks, it is hard to imagine how a private institution might hope to attract depositors. With the commercial banking sector completely dominated by the State, being late to the party could prove fatal to any banking startup.

Part of the problem facing China’s financial authorities is that their carefully coddled commercial banks simply won’t listen. A few days before the June credit crunch, the central bank issued a notice reminding State-owned commercial banks to “manage liquidity,” a call which went unheeded. Since assuming office, Chinese Premier Li Keqiang has repeatedly highlighted the importance of better use of existing capital, shifting focus away from credit expansion. However, media kept NEWSCHINA I September 2013

china

bynumbers such remarks out of the news until after the crunch, indicating that old habits continue to be a barrier to genuine reform.

There is also widespread concern that tightened liquidity, as with the rolling-out of unsupported, off-the-books lending, will primarily hurt SMEs. This is certainly the view of Qu Hongbin, China Chief Economist & Co-chair of Asian Economic Research at HSBC, who warned in a June press release for PMI that SMEs will likely face even tighter restrictions on potential sources of funding. This has led some economists to call for official recognition of the positive role of shadow banking in China’s all-important private sector.

“If small businesses are not as safe and strong as developers, local governments and big companies, then of course financiers won’t favor them. Is that our fault?” A trust company manager, who chose to remain anonymous, asked our reporter.

With property and infrastructure loans highly restricted by regulators, the single best choice for banks looking for a return on their investment are still State-owned enterprises (SOEs) or at least medium-sized private companies well connected with the government.

Xu noted that there is excessive competition among banks to win big enterprise contracts, but the huge potential of financial services for SMEs is yet to be tapped.

The result is overcapacity in sectors such as iron and steel, solar power and shipbuilding. Worse still, banks have been required to continue lending to them simply to stave off bankruptcy, leading to a further squeezing of credit for more efficient SMEs and a mounting risk that, if a large enough company defaults, it could take the banking sector with it. At the same time, private manufacturing, the service sector and other growth industries are stagnating.

“Government monopolies on upstream industries such as finance, energy, logistics and information has left private enterprise struggling in an overcrowded downstream,” said economist Gu Shengzu in a recent interview with Xinhua. “Only when small businesses make reasonable profits will financiers be happy to chase them.” NEWSCHINA I September 2013

US$1.8tn

Outbound FDI: US$524bn 9.8% Portfolio investment: US$244bn 4.5% Foreign exchange: US$3516bn 65.6% Trade credit: US$332bn 6.2% Foreign lending: US$297bn 5.5% ForeignCurrencyandDeposits:US$352bn 6.6% Others: US$99bn 1.8%

China’s net overseas assets by the end of March, 2013 China’s total overseas assets Source: State Administration of Foreign Exchange

85

7.6%

The number of Chinese mainChina’s GDP growth rate for the first half of land companies on the 2013 2013. CPI has risen by 2.4 percent year-on-year. consumption Fortune Global 500 list, 12 Power Rail cargo transportation: Growth of Economic Indicators (secondary industry) more than in 2012. 30 Power consumption Rail cargo transportation:

25 Private companies from Chinese mainland on 2013 Fortune20Global 500 15

Ping An Insurance 10 181

5 0 Huawei 315 -5 -10 -15 Group Jiangsu Shagang 318 -20 -25 Lenovo Group-30 329 Amer International

387

Shandong Weiqiao Pioneering 388 China Minsheng Banking Corp 411 Zhejiang Geely Holding 477 Source: Fortune

(secondary industry)

30 25 20 15 10 5 0 -5 -10 -15 -20 -25Mid- and long-term credit -30 (non-financial sectors)

H1-2012

H1-201

H1-2013

H1-201 Mid- and long-term credit (non-financial sectors)

Source: National Bureau of Statistics/National Energy Administration/People’s Bank of China/Ministry of Transport

1.5%

Increase in central government revenue for the first half of 2013, compared with a 13.5 percent increase in local revenue. Total government fiscal revenue reached US$1.1 trillion, up 7.5 percent on the first half of 2012.

Source: China Ministry of Finance

1/3 Share of a total of US$224bn in digital consumer spending represented by e-commerce transactions in the first five months of 2013.

Source: China Mnistry of Industry and Information Technology

43

environment

ronmental NGOs and lawyers came together to discuss possible approaches to the issue.

Yu and Wei’s cases were opened in Zhongxiang City Court on April 26 and 27 respectively. Two months later, no verdict has yet been announced.

“We predict the Zhongxiang city court will find them guilty. Nevertheless, we will continue to appeal, and I firmly believe the final result will be ‘not guilty,’” said Zeng.

Photo by CFP

the Ministry of the Environment, was set up in 2005 with financial support from the Chinese government and sporadic funding from international organizations such as the United Nations Environment Programme, ACEF provides legal aid to victims of pollution and offers training to volunteer environmental lawyers. Ma Yong, ACEF’s chief litigator, said : “A three-day training program for environmental lawyers has been held twice every year since 2006 in different parts of the country, and so far a total of 233 lawyers have undergone training.” According to Ma, lawPro Bono Crusaders yers from various different provZeng cooperates with the inces in China have formed a well-known domestic envilarge network with the necessary ronmental NGO, Friends of training to work pro bono on Nature (FON – not affiliated environment pollution lawsuits. with the Austrian NGO of the ACEF receives an average 200 same name), and acts as its legal complaints every year, and so far representative. The Zhongxiang it has taken on 560 cases with case was not his first attempt at 298 resolved either through filing an environmental public mediation or lawsuits. Since interest lawsuit. In 2011, Zeng, Ma’s resources are limited, he representing FON, filed a lawgives priority to cases that have suit against Luliang Chemical A villager, surnamed Wang, in the Xi’an suburbs blames a nearby chemical plant “caused severe damage to locals’ Industry, a company accused of for his ruined crops, January 5, 2012 health, widespread pollution in dumping more than 5000 metthe region or even mass unrest,” ric tons of highly toxic chromisending “suggestion letters” to um waste in three townships of Qujing, in southwest China’s Yunnan local governments or environmental protection departments in less province. The case was regarded as a landmark suit, since according serious cases. to the Civil Procedure Law at the time, social groups without governZhao Jingwei, a lawyer with Yingke Law Firm in Beijing, seeks to ment accreditation could not independently file environmental litiga- cooperate with ACEF in providing pro bono services to victims of tion in the public interest. pollution. In late 2011, he represented 107 fishermen from Hebei Three decades of rapid economic development in China has left Province who filed a lawsuit against ConocoPhillips, the US company much of the nation’s countryside – the source of China’s food sup- involved in the devastating Bohai Bay oil spill. ply – contaminated with toxic chemicals, and 80 percent more ChiAccording to Zhao Jingwei, after ACEF receives a complaint from nese people suffer cancer than 30 years ago. Chemical emissions from pollution victims and decides to sue the polluter, the organization will factories are often blamed for particular cancers among residents in ask for his help or the help of other volunteer lawyers. He then begins affected areas and “cancer villages” have become a widely reported the lengthy process of evidence collection and accreditation, before filphenomenon in recent years. ing the lawsuit. Zhao said that environmental lawsuits can take years As environmental pollution incidents have become more numer- to be resolved, sometimes being postponed indefinitely. ous and complex over the past two decades, so have the environmenZhou Ke, a professor at the Law School of Beijing’s Renmin Unital disputes dealt with by the legal system. This has also stimulated the versity, pointed out that placing all hope of solving environmental emergence of professional legal aid organizations providing legal aid problems in litigation highlights the failure of the government to adto people and communities injured by pollution across the country. dress environmental problems with administrative measures.

In 1998, Wang Canfa, a professor at the China University of Political But Zhao Jingwei remains optimistic: “The participation of lawyers Science and Law, established the Beijing-based Center for Legal Assis- in environmental public interest lawsuits has gained recognition from tance to Pollution Victims (CLAPV), the first of its kind. The center the political system, and since 2007, over 90 local environmental prohas handled more than 280 cases, and Wang was included in TIME tection courts have been established in China.” magazine’s “Heroes of the Environment” list in 2007.

Aside from NGO-sponsored legal assistance, since mid-2000 Toxic Profession Environment lawyers who offer pro bono services often need to there has been a continued acceleration in the implementation of government-sponsored legal aid programs for environmental law- cooperate with environmental organizations, who provide them with suits. The All China Environment Federation (ACEF), affiliated with funding for basic expenditure and personnel such as scientists, lab

46

NEWSCHINA I September 2013

Photo by Zhou didi

technicians, and PR staff.

This official recognition of environmental public interest lawsuits Due to the scarcity of funds, environmental lawyers cannot make was hailed as a dramatic step forward achieved through the joint efa living through environmental protection lawsuits. Zhang Jingjing, forts of environmental protection activists. former deputy director of the China chapter of PILnet (a global pubHowever, recent proposals for a new environmental protection law, lic interest law network), said in early July that in the US, environ- still under discussion at press time, move to hand over the right to ment NGOs like NRDC and Earth Justice employ a large number public litigation entirely to ACEF and its member associations at the of professional lawyers focusing on environmental lawsuits. “But in provincial and municipal levels. Were this new proposal to pass, it China, there are hardly any lawwould prevent other grassroots yers who work full-time for doenvironmental organizations mestic NGOs. Overall, Chinese and individual citizens from suNGOs are weak in numbers ing polluters. and influence, and lack funds.”

“To limit the rights for enAlthough more and more vironment public interest lawenvironmental lawyers are willsuits to a single organization is ing to join the nationwide camprejudicial towards other social paign, few can expect to make groups, and I would not agree a career out of their endeavors. with it,” commented Wang Xi, “As far as I know, there are only director of the Environmental a dozen [environmental] lawyers and Resources Law Institute at driven purely by personal idealShanghai Jiaotong University. ism who are actively involved in Xu Xin, law professor at Beienvironmental public interest jing Institute of Technology, has affairs in China,” said Zhang Chemical or mining companies often secretly dump their sometimes toxic publicly claimed that legally waste into soil or rivers, making the source of pollution difficult to trace Jingjing. registered environmental groups While more and more comand all related public interest orpanies are polluting the environganizations should enjoy equal ment, environmental lawyers complain that it is becoming even more rights to file environmental lawsuits. difficult to win justice for their clients, or even file a lawsuit against a “Why is the government-backed ACEF allowed to represent the local polluter. For most lawyers, the biggest frustration is interference people, while NGOs like FON cannot?” said Zeng Xiangbin. “The in the judicial process from local officials, in order to protect local revised content may have been drafted by the Ministry of Environindustries. ment in order to endow its own agency with more power.”

“Environment public interest lawsuits cannot change the curAfter the issue became known, both the public interest lawyers’ rent situation of excessive pollution. Unfortunately, since victims of coalition and FON immediately wrote open letters urging the Standpollution are unable to file ‘private interest’ lawsuits, there are more ing Committee of the National People’s Congress to reconsider the and more of these kinds of lawsuits appearing,” said Zeng Xiang- amendment to the Environment Protection Law. Zeng is now conbin. “Anger over unchecked environmental destruction is one of the centrating all his efforts on the Zhongxiang case, hoping that it will main sources of rural unrest in China, often causing environmental be the first of many successes, and that the public interest lawyer comass protests against the local government’s approval of constructing alition will be able to encourage pollution management, as well as chemical plants. Ironically, the largest of these protests are often suc- the transfer of certain responsibilities from the local government and cessful.” environmental protection bureau to private organizations.

As environment cases are increasing in the public eye, environment Since April, Zeng Xiangbin’s environmental public interests lawyer public interest lawsuits are also beginning to gain weight in China’s coalition has received more than ten requests from different parts of justice system. the country, seeking legal assistance in filing environmental public inBefore 2012, by China’s Civil Procedure Law, the plaintiff must be terest lawsuits. someone whose personal or property rights have been directly dam“The current situation for environmental lawsuits is awkward – aged by “illegal behavior.” Thanks to many years of effort on the part on one hand, most lawyers do not want to take environment case of environmental lawyers, the Civil Procedure Law was revised and since they are hard to win, rarely lucrative, and in most circumformally implemented on January 1, 2013, including rules for “public stances, attract pressure from the local government. On the other litigation”: in cases involving environmental pollution, violation of hand, surging numbers of pollution victims are in urgent need of consumers’ legal rights and other behavior that damages social and legal aid,” Zeng said. “The result of the Zhongxiang case will be public interests, legally stipulated bodies and related organizations can a crucial one for the future of environmental pollution civil rights file litigation through China’s court system. protection.” NEWSCHINA I September 2013

47

history

The Old Red Flag Hongqi Cars

Hongqi, a 55-year-old Chinese luxury car brand, is trying to make a comeback after almost 30 years of entropy

48

Deng Xiaoping rides in a Hongqi limousine during the 1984 National Day parade

Photo byCFP

By Xie Ying

NEWSCHINA I September 2013

A

n official blog post claiming that Foreign Minister Wang Yi had chosen the new Hongqi H7 sedan as his official limousine has drawn attention to China’s only indigenous luxury car brand.

Despite strong government backing since its inception in the late 1950s, Hongqi (whose name means Red Flag in Chinese) has fared poorly on the auto market since the 1980s due to the influx of more reliable, affordable and desirable imported brands such as Volkswagen, Mercedes, Toyota, Honda, Ford and GM. Despite an early preference for the Hongqi among China’s elite officials, foreign brands have long displaced the former homegrown sedan-of-choice.

Now, the new H7, a high-end marquee claimed by manufacturer FAW (First Automobile Work Group) to “have the edge” over similar-grade Audi and Mercedes sedans, is shouldering the expectations of those who would prefer China to innovate rather than simply import.

“Independently designed and developed

by FAW, the H7 series is of a much higher quality than previous Hongqi models,” Xu Xianping, FAW’s general manager, told a press conference on May 30.

According to Xu, FAW has invested over five billion yuan (US$790m) in the development of the H7 series since 2008, and the company will increase this investment to over 10 billion yuan (US$1.6bn) in the coming years in anticipation of more orders for Hongqi sedans.

Thanks to the unofficial endorsement from the country’s foreign minister, the H7 saw a surge in sales even before Wang was photographed riding in one. Zhang Xiaojun, FAW’s sales manager, revealed to the media that they have received over 1,000 orders from various government departments since the blog post first appeared online. Could this 55-year-old brand, long mocked for imitating foreign luxury cars, be on the verge of a comeback?

Car of Honor

In the eyes of the Chinese people, the Hongqi is more an icon than a practical vehicle. For decades, the Hongqi was the only luxury car seen on China’s roads, and only

NEWSCHINA I September 2013

ever carried the most senior government officials.

“Nobody had seen a luxury car then, let alone made one,” remarked retired Hongqi auto engineer Liu Jingchuan in an interview with Auto People magazine. “What we had was enthusiasm and passion as we were answering Chairman Mao’s call.”

That “call” was a quotation attributed to Mao Zedong: “We should have a brandname car of our own.”

“This was during the Great Leap Forward in 1958, when the Chinese people believed nothing was impossible,” Liu told Auto People. China was on the verge of severing relations with the former Soviet Union – its main source of much-needed aid – and about to embark on economic, agricultural and industrial reforms that would wreak havoc across the nation, leading to a catastrophic famine and an almost total collapse of domestic industry. Nevertheless, the Hongqi plant was festooned with banners proclaiming “With the East wind and flying red flags, let’s make a car to go see Chairman Mao.” Having seized an old Chrysler sedan, the task facing the Hongqi engineers was to replicate the foreign car without producing an exact copy. “The factory disassembled the sample car and exhibited the parts one by one in the display window for various workshops to study,” Hua Fulin, a retired Hongqi designer, told Auto Business Review. “The workshops would then call for the part they thought they could handle and copied it.”

An amalgam of the old Chrysler and several other foreign luxury cars donated by Party leaders, FAW people turned out the Hongqi CA72 car within six weeks. The brand soon became well known when a fleet of 10 CA72s made their debut during National Day celebrations on October 1, 1959, ten years to the day since the founding of the People’s Republic of China.

“The car (CA72) was purely made by hand, including the bodywork. We invited a dozen or so senior panel beaters over from Shanghai, though they’d only ever worked on household utensils,” said Liu Jingchuan.

“You can imagine how difficult the task was.”

As per FAW’s instructions, the CA72 had strong Chinese features: the radiator’s fan-

shaped grille; the moiré-patterned bumpers; the lantern-like taillights; Hangzhou silk brocade upholstery; and a carpeted interior.

Most overt was the Hongqi logo, one red banner on the hood symbolizing Mao Zedong Thought, with a supplementary logo of three red banners on the wheel-arch panels representing the General Line for Socialist Construction, the Great Leap Forward and the People’s Communes – the “Three Red Banners” of Party doctrine that would ultimately be abandoned in the early 1980s.

“The Hongqi car is China’s Rolls-Royce,” remarked one Italian commentator when the CA72 was displayed at the Leipzig International Expo in 1960. In the following years, FAW developed more Hongqi models, reducing the seating from three to two abreast and designing bulletproof models.

The Hongqi even came up with an ambulance, though most popular were its sedans, used for high-level diplomatic events.

The Hongqi’s world renown was cemented in 1972 when one was used to ferry US President Richard Nixon around Beijing, rather than the customary presidential limousine. Nixon set the standard, and in the early 1970s, all foreign diplomats saw a ride in a Hongqi limousine as one of the three “must-do” parts of an official visit – the other two being a stay at the Diaoyutai State Guesthouse and a meeting with Mao Zedong.

Halted

“Is Hongqi better than [Soviet brand] Volga?”

“Yes.” “Is it superior to [Soviet brand] Jim?” “Yes.” “Good. You may make more Hongqi cars.

Don’t worry about fuel consumption. Use any alcohol except Moutai liquor as the alternative fuel. Anyway, we have enough sweet potatoes to make alcohol.”

This transcript of a conversation between Deng Xiaoping and then FAW head engineer Rao Bin during an official visit to the FAW factory in 1958 was later held up as an example of Party support for building the Hongqi brand. Deng himself, rehabilitated and resurgent as paramount Party leader after the death of Mao, rode in a Hongqi when

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reviewing PLA troops in 1984.

However, even Deng’s endorsement couldn’t prevent production at the Hongqi plant from being halted.

“From this June, the production of Hongqi will be stopped due to high fuel consumption,” read a notice in the People’s Daily in 1981.

“This dealt a heavy blow to us Hongqi workers... When we witnessed the disused and disassembled manufacturing equipment, we were too heartbroken even to weep,” former Hongqi plant worker Zhi Bainian, wrote in his memoirs.

While a fuel shortage was the official reason that production was halted, FAW workers knew that the real reason was the massive losses sustained by its parent company. By the time production was halted, FAW had made a total of 1,540 Hongqi cars at a total loss of over 60 million yuan (US$9.5m). “The cars cost 60,000-200,000 yuan (US$9,52431,746) each, but the government rarely paid more than 50,000 yuan (US$7,937) per unit. The more we sold, the greater our losses were,” said Han Yulin, a retired Hongqi worker, in his memoirs.

Moreover, quality control issues on the largely manpower-based production line also meant Hongqi sedans were losing out to foreign competition. Little automation meant most of the cars were still engineered and assembled by hand, meaning that they were often unreliable, inefficient and prone to break down without warning.

When then Foreign Minister Chen Yi first rode in a Hongqi car, he found he could not open the door to get out, ultimately having to make an undignified exit by removing the windshield. When Romanian dictator Nicolae Ceauşescu visited China in 1971, the brakes failed on his Hongqi limousine, and the driver resorted to crashing into a roadside mound of lime to stop the vehicle.

Such embarrassing malfunctions led FAW to adopt a unique “parallel systems” approach to design – ensuring each system in one of their vehicles had a backup in case of a failure. “We cannot abandon [Hongqi], but we have to improve its quality,” an unnamed senior official reportedly told FAW leaders in

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Photo by IC

history

US President Richard Nixon and First Lady Pat Nixon traveled in Hongqi cars on a visit to Beijing’s Forbidden City, February 25, 1972

1983. “We can import foreign technologies to fill this [quality] gap.”

Trailing Behind

According to Li Jun, FAW’s current chief designer, the extent of this “gap” was not revealed until China began to see vehicles from countries beyond the Iron Curtain. While Soviet brands had looked sophisticated, those in the developed world were impossibly far ahead of FAW’s best efforts.

“We felt as though we were on another planet,” Li Jun said of his first overseas factfinding mission. “I could not even understand what [foreign technicians] were saying at the very beginning.”

Relying on imported technology, in 1995 FAW launched its new Hongqi car, the CA7220, popularly known as the “little Hongqi” and essentially a piecemeal rip-off of the Audi 100. “People saw no difference except for the logo,” said Sheng Wei, an auto promotion director in Beijing. “Some customers told me they could even see Audi logos on certain parts of the car. We did not know how to promote it - Chinese features were non-existent.”

Despite the low price tag, the Little Hongqi recorded falling sales year on year, while imports surged in popularity. By 2005, FAW had only sold 12,000 units, less than one-

10th the sales of the Jetta, a popular low-end brand launched in 1991 by the company’s joint venture FAW-Volkswagen.

In an attempt to claw back some of its market share, in 2006 FAW launched the luxury HQ3, but its shameless imitation of the Toyota Crown soon made the new vehicle an object of ridicule. Officials had long since switched to Audi, Lexus and BMW, and only nostalgic collectors were interested in the old Hongqi.

According to media reports, FAW sold only two Hongqi cars in 2011, while at the same time, the Chinese car market, especially the high-end market, was booming, dominated by foreign and joint-venture brands. The media has revealed that in 2012, domestically-made cars accounted for merely 0.2 percent of total auto sales in China in the price category of 200,000 yuan (US$32,000) and above.

A Way Out?

While Hongqi faded, however, two government documents opened up a path to its revival. In 2009, the State Council issued a plan to reinvigorate the domestic auto industry by encouraging the development of domestic brands. Three years later, the Ministry of Industry and Information Technology published a catalog of domesticallyNEWSCHINA I September 2013

Red Flag Car Models engineered vehicles approved for government use to test the public’s response.

At the same time, French President Francois Hollande found himself met on the tarmac by a Hongqi L9. 20 Hongqi H7 cars were also donated to the Fijian government as a goodwill gesture and a bid for publicity. “[Government officials] should gradually replace foreign cars with domestic alternatives,” remarked Xi Jinping during a meeting in December 2012. “Now that we have our own technology and design, it is not good for us to always ride in foreign cars.”

It is domestic innovation that FAW seems to believe may salvage its brand. On May 28, Hongqi opened its new exhibition hall on Beijing’s lush Jinbao Street. The brand is in good company – Jaguar, Land Rover, Ferrari and Lamborghini all have outlets on the same block.

However, Sheng Wei admits that the brand’s future “depends on whether or not Hongqi can restore its former image.” The H7 is already attracting controversy, with many car enthusiasts claiming that the H7 has borrowed extensively from existing foreign models. Even Hongqi designer Jia Yanliang is not sure just how Chinese they can claim the H7 to be. “[FAW] invited foreign designers over to redesign the car and then partly revised the design,” he told the 21st Century Business Herald. “Now the front of the new car looks like the old Hongqi, but its rear half looks like an Audi.”

“My biggest concern is whether the H7 can win over the market by shedding the old Hongqi genes,” he added.

A survey by auto.china.com earlier this year showed that more than half of respondents believed FAW remained dependant on foreign designers, and over 30 percent of those surveyed said they neither care about the brand nor would buy a Hongqi car. A 2012 survey by gasgoo.com, a popular online auto forum, returned similarly dismal results.

“The government does not represent the market. The imperative for FAW now is to make ordinary customers re-acknowledge a brand. That is the only way to have a renaissance,” Sheng Wei told our reporter. NEWSCHINA I September 2013

May 1958: FAW produces East Wind (Dong Feng), China’s first domestically-manufactured car

August 1958-Sept.

1959: First Hongqi CA72 sedan

1965-1969: Three six-seater CA772 and CA770 limousines, four-seater CA771 limousine and compact six-seater CA773 limousine

1967: 5.5 ton CA772B bulletproof limousine equipped with a Chinesedesigned 8 liter 300 horsepower engine

1970s: CA770w ambulance, then China’s most advanced emergency vehicle

1976: Six-door, 10.08-meter Estate, equipped with a refrigerator, color TV set, air conditioning and a car phone

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H

eavy trucks roar across the loess plateau, leaving in their wake a pall of thick dust that threatens to obliterate the dens of hares and wild rodents. An antelope desperately tries to struggle free from a farmer’s wire fence.

These are scenes from Lost, a short documentary cut together with no additional narration. The film documents the violent deaths of wild animals; a relentless montage of bleeding beaks, broken necks, devastated dens, parched and cracked land, and looming smokestacks.

Qiao Qiao, the 28-year-old director of Lost, condensed 2,000 hours of footage shot in China’s wilderness over the past five years into a 12 minute short. By June 17, his finished film had racked up 2.5 million views on Internet video sites.

With no commercial sponsorship, Qiao funded his documentary by selling his car and his apartment in Beijing, earning him a total of 2 million yuan (US$31,700). Since then, he has been living in tents and huts on China’s remotest frontiers.

Jack Ma, founder of e-commerce giant Alibaba and chairman of The Nature Conservancy (China), remarked, “Wildlife shares our homeland. Spreading this documentary is tantamount to saving lives.

I’m deeply moved by the devotion and perseverance of Qiao and his team.”

Nesting Instinct

Qiao was born in 1985 into a family of practitioners of traditional Chinese medicine in Henan Province. He chose a completely different path to that of his parents, and enrolled in a screenwriting course at the Beijing Film Academy (BFA). There, he went on to explore documentary filmmaking, specializing in nature documentaries – a genre neither of his parents had ever seen or heard of.

A year before his graduation, Qiao was working on a comedy film about village life. While he was location scouting in a rural village, he witnessed a pair of swallows building a nest under the eaves of a recently married couple’s home. His director’s instinct told him the juxtaposition of the swallows and the newlyweds constructing new lives under one roof would be a good subject for a documentary.

Qiao shot his new movie, titled Nesting, over the next three months.

His favorite scene is one in which the young husband and wife took care of a baby swallow that had suffered heatstroke. His experiences fueled a belief that animals share the same emotions as human beings.

However, Qiao struggled to find Chinese-made wildlife documentaries that explored this idea. He became determined to construct a documentary from the perspective of the animals themselves.

When Qiao graduated from the BFA in 2008, he assembled a sixperson crew and started shooting on wetlands in the middle and lower reaches of the Yellow River. Qiao’s plan was fairly simple: First, he would gather an enormous pool of footage; then, create his narrative.

His idea failed spectacularly. His actors, in this case wild waterfowl, weren’t inclined to take direction, and hours of shooting time were wasted in a futile attempt to capture utterly unpredictable behavior.

NEWSCHINA I September 2013

Often, even if an opportunity presented itself, the stars of the show would have flown away long before the crew was in position.

More worryingly, while wildlife documentaries are notoriously expensive to shoot, Qiao had no source of funding. Few Chinese production companies are willing to invest in factual entertainment when there is little prospect for a return. China has a long tradition of simply importing foreign-made wildlife documentaries – a method that works out far cheaper than sinking millions into the kind of high production values and long shooting schedules the genre requires.

Even after Qiao had sold his car and his home, he barely had enough funding to cover his labor costs. If it hadn’t been for a single stroke of luck, he may have abandoned his project altogether.

In the spring of 2010, while aimlessly rooting through scrubland for birdlife, Qiao noticed some abnormal movement beneath a mossy bank. He confirmed his suspicions through his viewfinder – Qiao had spotted a rare gray crane. This endangered wading bird would typically migrate north to its summer breeding grounds at this time of year, yet here it was. As Qiao watched, he saw another gray crane sitting alongside the first. He realized that this second bird was nursing its injured mate.

“That sight touched the softest place in my heart,” Qiao told our reporter.

Vanishing World

Qiao spent his childhood in a picturesque rural village, spending his days swimming in the clean, fish-laden rivers looking for giant salamanders. However, he told our reporter, rapid urbanization and industrialization has destroyed the places he remembers from his childhood, with smog replacing blue skies and chemical contaminants conquering the waterways. “There are no longer any fish in the river,” he said.

Fearing the total loss of China’s wildlife to the march of “development,” Qiao claims to have created a new genre – the “eco-doc,” sticking to tried-and-true shooting methods: filming in camouflage; resisting the temptation to disturb or attract animals for better shots; keeping locations a secret; and withholding footage of rare animal lairs until those lairs are abandoned.

Due to ever-present funding issues, Qiao’s six-person crew has been downsized to just Qiao and a single assistant. Together, they have traveled across the country, sleeping on camp beds and often going for days on survival rations. They sometimes stay in guesthouses, but often camp in open fields.

As the range of locations has grown (Qiao claims he and his assistant claim to have visited all China’s major highlands and wetlands), so has the list of environmental catastrophes Qiao is witnessing first hand. They’ve seen rich pasture turned to a contaminated wasteland in the mining region of Ordos, Inner Mongolia. They have smelled the stench of toxic waste dumps in the Tengger Desert. They’ve seen people skinning dogs alive while others use nets to capture rare birds.

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culture

descended the cliff in a harness, and fed the heron with fish laced with antibiotics. Upon returning the next day, Qiao found the heron to be on the way to recovery.

While actively intervening to prevent the death of animals would likely earn Qiao few friends in zoological or documentarian circles, his work in spreading awareness of the human threats to wildlife habitats has earned him widespread acclaim. While on the Qinghai-Tibetan Plateau, Qiao discovered that enclosed meadows had severed ancient migration routes. He suggested to the local government that they remove the fences, as well as advising them to construct some underground reservoirs to combat drought. He was amazed to see both suggestions implemented within a year.

Loner

As time has passed, Qiao has matured as both a filmmaker and conservationist. In 2011, he launched a young director’s program called “Protect the Environment with your Camera,” charging participants to produce five to ten wildlife documentaries each year.

When Jong Lin, a well-regarded Taiwanese nature photographer, learned about Qiao’s undertakings, he custom-built a multifunctional rig for Qiao’s exclusive use. In the field, three or four cameras set at varying angles are often needed simultaneously for close-up, medium-range, and panoramic shots. Three cameras can be mounted on the rig, which Lin personally delivered, along with ample advice on how Qiao could improve his shots.

In 2012, Qiao called on an Internet friend to help him promote Lost on a crowd-sourcing website. Qiao set a funding target of 150,000 yuan (US$24,450), which was swiftly met by 435 donors. After Lost became an online hit, Qiao’s microblog attracted 180,000 followers, and he has been featured in the official media. Qiao’s parents had been largely unaware of his success until they saw a China Central Television (CCTV) report on their son.

Despite his newfound celebrity, Qiao remains a loner. He told our reporter that filming in the wilderness is a lonely experience. “What I film are animals, but what I’m actually trying to save are human beings,” he said. photo Courtesy of Qiao Qiao

On the shores of Lake Qinghai, Qiao watched locals defy a fishing ban by building fish traps specifically to capture endangered species.

One particularly heart-rending scene in Lost shows a rare Asian redcapped lark lose its tidal flat home after the opening of the Xiaolangdi dam on the Yellow River.

Soon, Qiao found himself unable to stand by and watch humans wreak destruction upon the animals he cared so much about. This has led him to deviate from the traditional role of passive onlooker, and stray into controversial territory.

Once when shooting in the Yellow River’s shrinking wetlands, Qiao rescued a tern’s nest from an incoming flood caused by nearby dredging, along with two baby terns and an unhatched egg which Qiao incubated in his armpit. Ultimately, only the eldest baby tern survived, and Qiao named it Little Gull. Little Gull ultimately became a companion to Qiao, following him home and allowing him to bathe it. He finally released it after Little Gull reached adulthood, and Qiao did not allow his final farewell to be filmed.

On another occasion, while shooting in the Shanxi section of the

A wild bird trapped on barbed wire on the Qinghai Plateau

Yellow River on a 104 degree day, Qiao came across an injured heron.

The bird was trying to crawl up a steep escarpment but kept falling back down. With the help of his assistant and several villagers, Qiao

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NEWSCHINA I September 2013

Youth Writer

From Books to Bucks NewsChina meets millionaire teen author Guo Jingming, who is, depending on who you ask, either China’s very best or very worst bestselling writer

Guo Jingming NEWSCHINA I September 2013

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Photo by Jing Rong

By Yuan Ye and Chen Tao

culture

I

n 2001, 18-year-old Guo Jingming left his home in Fushun County, Sichuan, and traveled to Shanghai to participate in the third annual New Concept Writing Contest – the most prestigious youth writing contest in China. That year, Guo won first prize with an essay titled “What if the Sun Doesn’t Rise Tomorrow,” in which he noted his love for the “pronounced flavor of Nestlé coffee.”

Seven years later, Guo published the first book in what would become the trilogy Tiny Times, in which he shifted focus from campus life to broader urban life. Modestly wealthy Nestlé coffee drinkers are replaced by out-and-out elites – the nouveau riche kids of modern China. These are the platinum customers of Chanel, Louis Vuitton, Dior, Gucci, Cartier, Bvlgari and Kenzo. They employ housemaids, own villas and limousines, and frequent luxurious clubs. People from lower social orders, once the only characters Chinese mainland writers were permitted to flesh out, are definitely not center stage.

It seems people want to read about how the one percent lives. Since publishing Tiny Times in 2008, Guo and his company of contracted writers have published novels that currently account for more than half the revenue of China’s youth literature market.

Guo’s novels are particularly popular among middle and high school students, as well as having a strong following on college campuses.

The real star of Guo’s writing could be said to be materialism, with the class system a close second. He flaunts the excesses of China’s rich while painting a pitiable picture of the country’s “struggling youth,” commonly referred to as the diaosi.

By the end of 2011, all three books in the Tiny Times trilogy had been published.

At the end of 2012, shooting began on the screen adaptation of the Tiny Times trilogy – written and directed by Guo himself. The movie was released nationwide at the end of June 2012, to coincide with the start of the summer break. The movie raked in 73 mil-

56

lion yuan (US$11.6m) on its first day of release, breaking the Chinese box-office record for a 2D film. Within a week, ticket sales had hit 320 million yuan (US$51m).

Criticism

Yet, profits and popularity do not always equate to critical acclaim. In its first week, Tiny Times received an average rating of only five out of ten by nearly 90,000 voters on Douban, China’s largest arts and culture social networking site. Another aggregator showed that 30 percent of people had awarded the movie one star out of five.

Much of the criticism leveled at the movie did not concern its storytelling or technical quality, but more its depiction of daily life.

Countless reviews and microblog entries commented that the movie showed a lifestyle and characters that were both artificially extravagant and unrealistically vain. Many commentators attacked the way that luxury was depicted as utterly pretentious and that no distinction was made between a love of fine things and callous materialism.

Guo isn’t too concerned. If anything, to him, this means he has achieved his aim.

“This is the fact,” he told NewsChina. “This is the severe polarization of our age. Some people are born with a silver spoon in their mouths, and others cannot even afford their college tuition.”

Guo believes he is better at telling the stories of the rich. Of the diaosi generation, he says “I am not very familiar with them.” He believes his skill lies in exposing the social stratification that is impossible to ignore in today’s China, and that this resonates with his readership.

In his novel City of Fantasies, published in 2003, Guo constructs a virtual kingdom of magic and fantasy inhabited by different classes of magicians, warriors, citizens, and aristocrats, with a princess as the heroine.

City of Fantasies topped bestseller lists in China for two years after publication.

One year after the novel’s release, Guo established a studio where he edited and pub-

Poster art for the movie adaptation of Tiny Times

lished the works of other youth writers. As more writers signed contracts with Guo, his business grew. In 2006, Guo turned his studio into a fully-fledged company. Four years after that, he incorporated his former studio into the Zuibook Company, naming himself CEO and chairman of the board. Currently, the company employs more than fifty contract writers, some twenty graphic artists and ten photographers, churning out a steady stream of novels, comics and magazines.

Zuibook has its offices on Wuding Road, in Shanghai’s Jing’an District, but a passerby wouldn’t know it. Sealed off with heavy iron doors, with only the building number as a NEWSCHINA I September 2013

sign, few would know that the DreamWorks of China’s youth literature is located in this neighborhood. Behind the gates are three former colonial villas serving as the company’s office, library, and Guo Jingming’s private residence. The complex is valued at 100 million yuan (US$16m). Guo also has a separate address in Tomson Riviera, the most expensive waterfront apartment complex in Shanghai, valued at 160,000 yuan (US$25,400) per square meter.

Guo does indeed seem to be living the lifestyle of some of his best-loved characters.

He employs an assistant to manage his real estate, another as his housekeeper, a third to NEWSCHINA I September 2013

manage his company’s copyright property, a fourth to accompany him on movie shoots, and a final person to care for his dog.

“I have not failed,” Guo told our reporter.

He added that he had 12 hours of interviews lined up on that day. NewsChina met with him in his company’s huge lounge, beneath a Baccarat crystal chandelier. Sitting on a Fendi sofa, between Kenzo endtables, a vast oil painting behind him, Guo is unfazed when our reporter asks him if his extravagance might be considered excessive.

“If these things are affordable, then why not?” he remarks. While shooting the screen adaptation of Tiny Times, he says, he donated some of his collection of designer bags to the set for use as props.

While his tastes may be grandiose, Guo Jingming stands at just over five feet tall, and his diminutive physique has become a popular source of mirth among his many detractors. Others, particularly established literary critics, dismiss him as a panderer who has devoted his energies to commercial literature without any attempt to develop his skill as a writer.

Guo Jingming casually dismisses his critics. “At first, I cared about what others said,” he told NewsChina. Despite having 20 million followers on Twitter equivalent Weibo, Guo intentionally keeps his distance from them. “Why bother contacting them? When you run your own business, you can’t chase your fans. All they need to do is to buy my books,” he said.

Business is everything to Guo. He laughs about “not having the time to fall in love.”

“My sole focus is my work,” he told our reporter.

Businessman

While Guo Jingming’s critics sometimes seem to outnumber his fans, few have slammed his shrewd approach to business.

He has also remained at the heart of his company, continuing to determine and create content, with even his production journal from the Tiny Times shoot going into

publication. The latest edition of his magazine Zuibook featured the movie’s poster on its cover.

In 2006, Guo ended his cooperation with Chunfeng Wenyi Publishing House, switching for the Changjiang Literature and Art Publishing House (CJLAP)’s Beijing office.

“According to our contract, we take care of advertising, publication and sales, while they [Zuibook] provide content,” said Li Bo, vice director of CJLAP. In 2009, Guo Jingming became deputy editor-in-chief of the CJLAP’s Beijing office, before being promoted to editor-in-chief last year, essentially putting him in exclusive charge of content. “We have expanded youth literature,” Li Bo told NewsChina. “We need young people like Guo Jingming to judge whether a book will perform well on the market.”

Today, CJLAP’s youth publishing division has recorded 200 million yuan (US$32m) in annual sales revenue. “If there are ten thousand youth literature titles, more than half of the top 100 will be ours,” said Li Bo. Zhao Meng, editor of Tiny Times and also CJLAP’s Beijing director of sales and marketing, said, “Guo Jingming was made for the culture industry. I think he would be an amazing salesman if he hadn’t chosen to be a writer.”

Since the success of the screen adaptation of Tiny Times, Guo has also further expanded his business. “Some of our contract writers’ works are suitable for movie adaptation, so we have contacted movie companies,” said Hen Hen, deputy manager of Zuibook. ”Adaptation rights for two books, one by writer Luo Luo and another by writer Di An, have already been sold.”

After our interview, Guo Jingming left the room to play with Awkward, his golden husky, for a couple of minutes before heading into yet another promotional interview for Tiny Times. Awkward returned to the arms of Guo’s assistant, as his boss, the doyen of marketing materialism, returned to his vocation.

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culture

Online Music

Going for a Song

China’s free music websites are under increasing pressure to charge for downloads. But do they have the courage to take on their own users?

By Ma Haiyan

E

ver since Internet connections became fast enough to share music, record companies around the world have been struggling to protect their profits from websites offering free downloads. In China, where copyright law is notoriously weak, this challenge has been particularly tough.

In late 2012, rumor had it that as of January 1, 2013, free music downloads would be a thing of the past. The rumor later turned out to be false. Then, earlier this year, Gao Xiaosong, a prominent musician in China, quoted anonymous sources high up in the legal and entertainment circles, who had apparently assured him that from July 2013, China’s music industry would move into an era of full copyright protection. His comments sparked a public discussion about whether or not it was time to start paying for music again.

Previous reports had quoted industry insiders as saying that a series of basic agreements had been reached between major online music sites, such as Baidu, QQ Music and Xiami Music, and international record companies, such as Warner Music Group, Sony Music Entertainment, and Universal Music Group. According to these reports, Chinese music websites plan to pay royalties and share a percentage of the profits with the international music companies.

Yet by July, the hype once again turned out to have been false – free music download sites were still up and running, and only a tiny

58

proportion of total music downloads are being paid for. Sources told NewsChina that discussions between industry players to begin charging in July had stalled – musicians, record companies, Internet service providers, and government authorities continue to argue over the issue, and charging for online music has once again been postponed.

Fees Feasible?

Over the past few years, the number of Chinese websites offering free music downloads has shrunk significantly as a result of tightened regulations. Many music websites still offer free downloads, but now require users to complete various tasks on the website in order to access them. Most users simply stream music rather than downloading it.

However, this will probably not be the case for long. Facing pressure from all sides, music websites are adjusting their services in preparation for implementing large-scale payment schemes.

Xiami and QQ Music, two of the largest online music service providers, offer online streaming for free, and charge for downloads. Kugou Music has monthly packages that cost five or ten yuan (80 US cents or US$1.60). Baidu and Duomi are still offering free downloads for songs of average audio quality, but charge for high-quality downloads.

Music producer Song Ke, who is also managing director of domestic NEWSCHINA I September 2013

record company Evergrande Music, told NewsChina that it will take time to implement large-scale fee-paying systems for online music in China. He added that lawmakers needed to step up regulations on intellectual property rights, but website operators also need time to get used to these regulations. He thinks that implementation may not be straightforward, but that it is the direction in which the industry is heading.

Song said that since downloadable music files are relatively small in size and easy to make available, it is difficult to safeguard copyright.

However, he believes that netizens are slowly getting used to paying for online music and movies. Thanks to the development of the music industry and discussion of copyright law in the media, consumers are coming to understand that good music may not come for free.

At the end of last year, an investigation into 500 online music websites by the Ministry of Culture found that 237 of them were unregistered and illegally allowing online music streaming and downloading.

Many music companies saw this move as an indication of the government’s intention to crack down on music piracy.

Last April, Yan Xiaohong, deputy secretary of the National Copyright Administration, said charging for music downloads was an inevitability. Insiders like Song Ke believe that the general environment is maturing.

What Websites Want

Yan Xiaohong also said that websites can waive user fees, as long as they themselves have paid for copyright. In other words, website operators are faced with two options: charge users directly, or use advertising revenue to foot the bill themselves.

Currently, the latter model is more attractive to websites, since many have already been paying large music companies copyright fees for years. Websites can buy extensive song libraries for an annual payment of around 200 million to 300 million yuan (US$33m to 49m), which users can download and listen to for free.

But since copyright royalties are continuing to rise, the sustainability of this model is being called into question. Wang Hao, general manager of Xiami Music, told NewsChina that royalties have been skyrocketing for all websites – both those who charge customers and those who don’t. Free music websites are facing a greater challenge, as they hope to do away with the current system, in which websites pay a lump sum to a record company for the use of its library, and thus precipitate a fee-paying system Wang Hao does not agree with the package payment model, since the payments that websites make to record companies are not proportionate to the popularity of the songs they pay buy. A drawback of this method is that releasing a hit song will not necessarily earn any more money for the artist. Wang believes this model does not encourage originality.

Charging users has always been a thorny problem – many websites are hesitant to introduce small all-access fees, for fear that their hit rates will suffer, as free alternatives will likely remain available.

Universal Music has been perhaps the most ardent proponent of charging. Its marketing officer, Lin Na, believes that profits will inNEWSCHINA I September 2013

crease for both websites and music companies when online songs are no longer free. Lin told NewsChina that the cumulative length of time that a website’s customers listen to music is longer than the length of time they spend watching videos, and that if online music can go above-board, it will be a bigger market than online video.

Music companies and websites remain in constant negotiations. Lin Na implied that while the general relationship between the two players will remain the same, many details will be changed. In recent years, the rapid growth of mobile Internet has encouraged Universal Music to grant permissions to more websites, and Lin claims that Universal’s profits have grown as a result. She believes the online music download market will grow in the future, and that legalization is inevitable.

The massive music libraries of Universal, Sony and Warner are a huge bargaining chip for these companies and give them leverage in dealings with small and medium-sized websites.

Songwriter Cui Shu also operates a small music company. However, he is usually denied royalties from music websites, who argue that they are promoting his music for free – since websites rely primarily on music from big companies, they prefer to stop hosting songs owned by small companies rather than pay royalties. This is a common practice for large websites, and has forced small and medium-sized companies to give up begging for money.

So how can small and medium-sized companies receive revenue for the music they produce? Lin Na admits that major artists and companies must lead the industry in forming regulations, but at present, she is not confident that such regulations would help the development of the industry. She believes there must be a cost for downloading songs, and that the rights of recording artists must be respected.

Still Distant

Although negotiations over the minutiae of fee-paying music download schemes are underway, it is still unclear when charging will become a reality.

Wang Hao told NewsChina that by June 2013, Xiami had been providing fee-based services for five years, attracting users with highquality music streaming and a personalized recommendation system.

Now, Xiami has 18 million users, but the proportion of fee paying users is only 1 percent – far from the minimum 5 percent Xiami claims to need to break even. So when will music downloading and streaming be charged services? Optimistic analysts say three to five years, but others say this is unlikely.

Lin Na told NewsChina that change will have to be initiated by websites. Even though record companies are unanimously pushing for a change, websites still need time to adjust their payment systems, profit models and website frameworks.

Currently, the Chinese music market is valued in the hundreds of millions of yuan, but insiders agree that if the transition to fee-paying services is implemented, it will be a billion-yuan industry. ”CDs are dead,” Song Ke once said, “but music is eternal.” “Pagers are now dead, but phones are alive, and telecommunications will never die. It is pretty much the same in the music industry. Whatever form it takes, music will not perish,” he said.

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visual REPORT

Call Me Obsessive 60

NEWSCHINA I September 2013

A modern Chinese saying has it that people are “more intimate with their cell phones than with their spouses.”

Cell phone obsessives claim the saying is unjust: “We feel empty, pressured to face the unbearable heaviness of life, but we have nothing but cell phones. This is our true love!”

According to official statistics, by the end of March 2013, there were a total of 1.146 billion mobile communication service users in China, spanning most age demographics. People in Beijing were found to spend the most time out of any province using their cell phones, clocking up an average of over 6.72 hours a day. Once a luxury item and status symbol, cell phones are now ubiquitous in China, with Chinese people struggling to tear themselves away from the gaming, shopping, music, video and many other applications now at their fingertips.

Photo by CFP

Obsessive NEWSCHINA I September 2013

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visual REPORT

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NEWSCHINA I September 2013

NEWSCHINA I September 2013

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OUTSIDEIN perspectives from within China

Yan’an

On a Red Hill The small city of Yan’an, the cradle of China’s communist revolution, is steeped in modern history

By James Kingston

Y

ellow and vacant as the eye sockets of a skull, the many abandoned cave dwellings of Shaanxi’s loess plateau are curiously haunting. The train journey to Yan’an from Datong, a somewhat bleak industrial town, passes many such sights, speaking eloquently of both the age and poverty of this land.

Many of these yaodong, however, remain inhabited to this day. With their low arches and wood and glass facades buried in the hillsides, they perhaps bespeak associations not of absence and decay, but more of a dustier, Chinese version of Tolkien’s Shire. Yan’an, cradle of the Chinese Revolution, is full of them.

Walking through Yan’an, the traveller is first struck by two things – the dust and the stares. Dust, because we are in the famous loess plateau, the silt which gives the Yellow River its defining characteristic; and stares because here, a foreigner is a rare thing indeed. The looks come in all varieties: the covert, the unabashed, the slack-jawed, and the amazed double-take. Entire streets of lounging tradesmen merrily chorus “hallo, hallo, hallo” as one passes by. Photos are taken, and one is given an intimation of life as a beautiful woman – privileged, yet irritatingly suffused with unsolicited attention. Proudly, a cabbie told me the town had one resident foreigner: a black American, at the local university, “but his Chinese is not good.” One can only imagine the loneliness of such an existence.

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It was here that an exhausted Red Army found its rest following the Long March, turning this dusty and forgotten corner of Shaanxi province into the Red capital of China. During the long Sino-Japanese War, thousands of patriotic young intellectuals braved hardship and death to make their way here, fired by the dream of a better, fairer China and of resisting Japan. It was to this town that Edgar Snow journeyed, braving Nationalist patrols and marauding bandits, writing in his Red Star Over China about the “Revolution of youth” taking place here in the 1940s, of the idealism and hope surrounding the first chapters of the Communist Revolution, and interviewing such luminaries as Mao Zedong, Zhou Enlai and Zhu De. Here grew the myth of the “Yan’an way,” that of a supposed perfect period in Chinese Communism founded on principles of egalitarianism, democracy, and popular participation within which a new form of political community was created. The truth, of course, was somewhat more complicated – episodes such as the “Yan’an Rectification Campaign,” where cadres were denounced and purged, highlights that even in this Communist arcadia, Mao’s quest for personal supremacy remained center stage.

The city lies along the now nearly dry middle reaches of the Yellow River, where the current has cut away the soft rock to form a sharp valley. With the exception of its iconic “Baota” Pagoda, Yan’an NEWSCHINA I September 2013

HOW TO GET THERE: Trains to Yan’an can be caught from Xi’an and Datong. Your humble correspondent recommends discarding your Lonely Planet en route, and making it up as you go along. Ignorance is bliss, and why be a boy scout when you can imitate the Red Guards?

WHERE TO STAY: Many hotels cater to the burgeoning Red Tourism market, and range in price from the simply exorbitant to the frankly sluttish. Little English is spoken. However, given the Culture Ministry’s recent efforts to dub and export propaganda films (now featuring an Alabama-accented Mao Zedong and “stuffy Brit” Zhou Enlai), perhaps one day Yan’an too will cater to the Western sightseer.

Photo by CFP

Photo by CFP

Baota Pagota

Mao’s residence in Yangjialing, Yan’an

was razed to the ground by Japanese and, later, Nationalist bombing raids. Today, its buildings are thus a mixture of begrimed tower blocks and, closer to the valley walls, low cave dwellings in the cliff face. A profusion of Revolutionary sites may nevertheless be found awaiting the Red Tourist. In Yanjiling Village, three miles from the center, the erstwhile cave homes of the Communist leadership can be found dug into the cliffs, protective cover from air raids. Communist elders such as Mao Zedong, Zhou Enlai, Zhu De, and Liu Shaoqi had their residences here. In these Spartan homes can be found the stone beds and NEWSCHINA I September 2013

simple wooden furniture upon which revolutionary change was once plotted. Many display rooms and pictures can also be found – captions and exhibits, alas, require proficiency in Mandarin.

Ducking the low door into Mao’s house, one quickly notices the numerous packets of Zhongnanhai cigarettes, the Chairman’s favorite brand, left scattered reverentially about the small rooms by today’s visitors. As when watching the flower-bearing, genuflecting tourists at Tiananmen Square’s Mao Zedong Memorial Hall, the observer is left wondering about the continued respect still so regularly exhibited towards the man. Aside from the ongoing effects of official propaganda, perhaps one answer lies in the contradictions of his character; he was responsible for catastrophic policies like Great Leap Forward and the Cultural Revolution, yet also was a celebrated poet. In the poem “Xue,” or “Snow,” he described the icy landscape he saw around

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travel

him in the local winter – snow-capped mountains dancing like silver snakes, highlands as wax elephants vying with the sky. This northern land, he writes, has produced many a hero – the first emperor, Genghis Khan; but to Mao, none of them had poetry in their soul. For truly great men, “look to today” – a stunning declaration of confidence at a time when the Red Army was close to defeat.

Yan’an remains dominated by the mythology of his epic victory. A huge statue of Mao, arm uplifted in benediction, commands the square around the city’s Revolutionary Museum, and dotted around the city are the sights of revolutionary remembrance. For a small fee, Communist uniforms may be purchased at many of these, all the better to pose. Everywhere billboards advertise “red” shows of revolutionary song and dance, servicing the “red yuan” of domestic tourists. As might be expected, the Revolutionary Museum contains the triumphalist account of Yan’an’s past. Showcasing the remarkable story of Communist ascendancy in China the exhibits are once again largely in Chinese, with only brief English introductions. Pictures, however, give eloquent testimony of the privations endured here, on the Long March, and during the Civil War. Pointing to a picture of Zhang Xueliang, the northern warlord whose 1936 capture and manipulation of Chiang Kai-shek forced a détente between the Communists and Nationalists, thus changing the course of China’s history, I created a minor

stir by using the word “pantu” (“traitor”), to describe his relationship to Chiang. No, I was told – “aiguozhe,” “patriot.” I felt it best not to press the point.

Sightseeing in Yan’an is not without its perils. I was hunted through parks and squares, the white whale to an army of petite Ahabs, wielding their cameras as harpoons. Young couples, teenagers, and children with their mothers all came sprinting after me demanding pictures of this pink, glistening foreigner.

I soon found myself in a night market, searching for roast meat skewers. The proprietor, a small man with an oddly proportioned body, hobbled over beaming, assuming me to be a friend of our lonely American, and offered to call him for me.

Gently rejecting his offer, I sat instead with a genial and thoroughly drunk oil worker and his children. We toasted each other with variously slurred platitudes and downed crates of fizzy Qingdao beer, thus lending a highly uncomfortable quality to my ascent of the Baota Pagoda the day after.

Yan’an saw fit to keep a memento of me at my departure. My camera, filled with photos of me lying coquettishly upon Mao’s bed, was plucked from my pocket on the bus to the train station – a cheering note of proof, perhaps, that even in this age of capitalism run rampant, the solid citizenry of Mao’s lands still, from time to time, favor a bit of old-fashioned resource distribution.

real chinese

qí

pā

qipa Freakish

A local museum in Hengshui, Hebei Province recently became a bit of a joke after it was exposed that most of its “priceless” exhibits were such egregious fakes that it was inconceivable they could have accidentally been put on display. Netizens dubbed the museum “China’s most qipa – freakish - museum.”

With “qi” meaning “strange” and “pa” meaning “flower,” the word qipa dates back to ancient times when it would be used to refer to something ethereally beautiful – usually a woman.

Today, the term has been extended to de-

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scribe an exceptional person with a special talent or a particularly eye-catching work of art. For example, Marie Curie might be referred to as a qipa, as might the unusual architecture of traditional Hakka roundhouses.

However, as with many terms, overuse has turned qipa into a pejorative used to satirize someone or something seen as freakish or unnatural. “Sister Feng,” a singularly plain girl who shocked the Chinese blogosphere by distributing thousands of personal ads seeking her dream man in which she set extremely high requirements

to candidates and declared she would only lower her standards for Barack Obama, is seen as the archetypal qipa.

The term has also been used to describe CCTV’s new Beijing headquarters, a building known to locals as the “underpants” due to its two-legged structure.

Less plugged-in elements of China’s media are now hurrying to amend their personal vocabulary, as sincere use of the word qipa in its original context can easily turn a commentator, along with whatever or whomever they are describing, into a figure of ridicule.

NEWSCHINA I September 2013

flavor of the month

Chairman Bao

By Stephy Chung

G

ua bao, traditional pork belly buns, are peculiar to Taiwan’s night markets and have always been rather niche. Nevertheless, given Beijing’s diverse range of cuisines, I’m still surprised I have never come across one of these suckers.

It seems if you want a good one, you still have to head to Taipei. Or, in my case, New York, where they enjoy a healthy fan following.

The evidence of the bao’s staying power – a mobile Asian food cart, aptly named Fun Buns, nearly rolled into me the other day in Midtown, the braised pork snack topping their menu. I had to pass as, ironically, I was headed to Baohaus, a fixed joint in the East Village, which has offered gua bao since 2009.

It’s had some renewed interest of late, with its chef, Eddie Huang, starring in “Fresh Off the Boat,” a riotous Vice web series that takes on food and culture from an Asian American’s perspective.

The restaurant is a largely stand-up affair, though a few stools and benches may accommodate lucky early birds. However, there’s really no need to sit, as these buns are on the micro side and therefore easy to demolish in minutes.

I felt I had trespassed into some underground university hangout, with walls scrawled in graffiti and a general stickiness to the floors and seats. Baohaus resembles a dive bar that’s well past its last call and is in the process of shooing out sloppy patrons.

The open kitchen has a simple layout. A deep fryer, an oven to steam the buns, a few refrigerators, and a foul display of fried chicken intended for the Birdhaus Bao on the menu (avoid). “All natural fried chicken brined 24 hours” was what the menu said. Two turns through the fryer just might make the pale flesh edible, but my stomach didn’t care to make room.

Instead I went for the awesomely named Chairman Bao, the signature dish. A small chunk of braised pork belly was sandwiched in steamed Chinese bread. The bun was stuffed with pickled vegetables, NEWSCHINA I September 2013

Taiwanese red sugar, crushed peanuts and cilantro.

Wedged into the palm of my hand, and made to be eaten tacostyle, the bun resembled a Venus fire trap from Super Mario. The bite was underwhelming – the flavors could have been bolder. Those pickled veggies could have been saltier and sourer. The pork belly itself was decent but could have been juicier and slightly more fatty. I mean, we don’t eat pork belly for its health properties, do we?

I preferred the Uncle Jesse Bao. Thinly sliced organic tofu was lightly fried and assembled with a sweet sauce, peanuts, and cilantro – a flavor close to a Pad Thai.

The beverages were an assortment of Taiwanese favorites. The Ai Yu Jelly Lemonade sounded promising – a blend of fig jelly, hand squeezed lemons, and rock candy.

But, the drink was overly sweet and only had the very faint whiff of lemon.

The Fresh Homemade Soy Milk was much better – a bit too sweet to my liking but still a smooth and creamy treat. And, whenever I see Apple Sidra on a menu, I get pretty ecstatic. The apple soda is great with its extremely fine carbonation and slightly dry taste.

I appreciated the creative approach to fries on the menu – which was Sweet Bao Fries and Taro Fries. I chose the Sweet Bao Fries – these were diced buns, deep-fried and doused with a condensed milk glaze.

They are a guilty pleasure at its best.

The dense coating of black sesame and coconut was decadent, and had a delicious street fair vibe to it. I glanced around for deep-fried Oreos to go with it.

Despite some pleasant points, however, my NYC brush with gua bao felt a little underwhelming. I decided I would not return – but then, after a heavy night out, these flaccid, fatty fellows might just be the best midnight snack a gal could hope for!

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essay

Red Glass over China

By Sean Silbert

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To many, baijiu is for drinking, wine is for show.

Illustration by Xiang Zhaohui

Ever since leaving America, I’ve had to acclimatize myself by learning to use a different standard of, well, stuff. I use Chinese soybean oil to cook Chinese food, Chinese detergent in my Chinese washing machine to wash my Chinese-brand jeans, and I’ve even been known to watch Chinese movies in a Chinese movie theater. How different my life is now from my previous existence – a time when the only “Chinese” thing I’d experience would be a rare drunken late night take-out. This proved especially so when I attended a Chinese wine tasting.

I’ve always found wine tastings to be an exercise in ego-stroking. A lot of crusty types in business casual throwing around words like “character” and “finish” despite, one suspects, nursing the secret knowledge that wine actually just comes in colors, not flavors, and the brain does the rest.

Sampling Chinese wine wasn’t high on my Bucket list: I can remember my first bottle of Great Wall, a brand you can find in any supermarket, which I stupidly took aboard a longdistance train to ease the boredom. By the time I felt the hangover cruising towards my cranium, we hadn’t even gotten halfway through the sugary, acidic beverage. This experience flashed before my eyes as I took a seat between a large, loud journalist and a gaunt French man with a disapproving grimace. This was going to be fun.

People have been getting sloshed on wine for a long time in the West. Hell, there’s even a verse in Genesis about Noah’s relationship with the fruit of the vine after he reached dry land.

But Chinese have downed domestic spirits for dynasties: a banquet dinner will normally consist of a case of weak beer followed by numerous toasts of firewater sorghum distillate baijiu.

But as more money fills the pockets of the Chinese elite, there’s a growing demand for wine: though, unfortunately, most of the purchases end up as gifts stored on the shelf. To many,

baijiu is for drinking, wine is for show. Improperly stored and frequently re-gifted, even a vintage Chateau Margaux quickly loses its charm.

But Chinese wine is becoming recognized as something beyond a novelty, even if the market is ranked among the top 10 in the world for imports. That’s a promising sign for multiple reasons. For the guzzler, this means more op-

tions at a lower price. China has long been a sink for mediocre foreign wine, a place where a flood of French Château Quelquechose can be sold at a ridiculous markup. A bottle of Spanish or Portuguese wine might be sold for a song back in Europe, but once you’ve factored in shipping and an astonishingly high import duty of nearly 50 percent, wine isn’t as great of a dinner-party option when you have to shell out for something of a quality you’d usually find in a box with a spigot attached.

Added to the fact that many wines suffer in transit – a quality Chilean or Australian label will have to cross the equator in a ship’s hold, a restaurant here must put on a particularly cunning face when an aficionado orders their best bottle. An improvement in domestic quality and reputation not only saves the punters money, it also serves to change perceptions.

So it proceeded, glass after glass, mostly of wines hailing from the arid climates of Shanxi and Ningxia provinces. The table conversation after our first glass turned to a fake château located in the Beijing suburbs and surrounded by miles of vineyards. While I used most of my cognitive faculties trying to decipher the etiquette of whether to spit out the samples or just intoxicate myself, I began to notice: this was some pretty good red.

The bottle, some grape from notable Shanxi label Grace Vineyard, could easily pass muster on a Western dinner table. The same went for the next few bottles, hailing from vintners in Xinjiang and Ningxia.

It wasn’t all gold. Many of the wines had a thinner, weaker body than most imported reds. One even had a foul, acidic bite that caused me to gag. But many of the wines I had were downright drinkable, an affordable option that might be able to compete on a global scale within a few years. Indeed, as I staggered home, suitably sozzled, I began to wonder if perhaps Chinese wine might be my new favorite tipple. NEWSCHINA I September 2013

Arrivederci, Beijing

By David Green

NEWSCHINA I September 2013

I bear no grudges, Beijing has been a more than welcoming host, but change is refreshing and necessary.

Illustration by Xiang Zhaohui

Three men sit beneath a flyover practicing brass instruments. Construction sounds of iron and steel, crunching gears, out-of-town accents. Hawkers sing their wares, voices echoing through corridors of concrete. Others squawk into streets where money talks, often about itself.

A speaker blares sales-speak on repeat, another plays music for couples to swirl and dance. The slap of a Chinese chess piece, the tap of cards tossed casually. The clickety-clack of the mahjong rack.

The accelerating hum of electric trikes, curses muttered as taxis make a turn. Eerie creaks as big winds pass through. Thunder cracks and rain buckets, eking down a grimy pane. Pocket-sized dogs growl and yap. The sizzle of barbecue and bubble of vat.

Cackles of laughter peal off of baijiu bottles.

Gaudy ringtones complement dubious fashions.

Lovemaking and blind-eyed domestics seep through walls. Subways snore, buses hiss. Traffic crawls.

An old cyclist enlightens with a song. A grandmother scolds a gaggle of screaming young. The little dears still do no wrong. Whispered love vows.

Shouted remonstrations invite the crowd. The traffic report, the nightly news, the morning exercises, the unspoken views.

After nearly six years in Beijing it is time to depart for pastures new. It has been an assault on the senses, as I hope the above free verse homage to the city’s soundscape does something to suggest. I have thoroughly enjoyed myself and will miss it dearly. Many other expats have recently departed China, and some have been more vocal than others about their reasons for doing so.

I bear no grudges, Beijing has been a more than welcoming host, but change is refreshing and necessary.

On sitting down to write this, I found myself trying to conjure pithy comments on the state of reporting on China, its economy and credit availability, capital markets and political reform.

But those are topics better addressed elsewhere in this magazine, and not in keeping with the riotous experiences that will live longest in my

memory of the city.

Instead, I asked an array of old hands how I should best spend my remaining time, and while suggestions including “get into a fight with a taxi driver” and “swim across Houhai Lake in winter” have been discounted for I hope obvious reasons, the following did make the cut.

The journey would begin at a point within spitting distance of Beijing: the Tsingtao brewery in Qingdao. Here I would test the oft-posited theory that the beer brewed on-site tastes much better than that found elsewhere before catching a ride to the outskirts of Beijing. Here I’d rendezvous with friends and enjoy a night camping in or near one of the Great Wall’s many abandoned towers. Marshmallows and ghost stories optional.

On returning to the city proper, a stroll

through the hutongs around the Drum and Bell towers came highly recommended, not least because it is more than likely they will have disappeared by the next time I visit, as they are earmarked to be torn down and redeveloped.

This would be a travesty on par with the recent destruction of an ancient pyramid in Peru, if only it were accidental.

Another reason to revel in a last evening in Gulou District is the proximity of the Beijing Qianding Old Baijiu Museum, which I have yet to visit but am told does plenty with China’s tipple of choice. Choosing a venue for the inevitable follow-up knees-up presents another tough decision, but Mr Shi’s Dumplings would probably fit the bill, for old time’s sake if nothing else.

After getting properly sozzled, the mood may well be right to stay up through the night, perhaps with a visit to the Beijing institution that is Maggie’s Bar, the city’s most infamous pick-up joint (again strictly for old time’s sake), before heading to Tiananmen Square to witness the national flag being raised at dawn. A final farewell to the Great Helmsman and his magnificent mausoleum should round off the morning nicely.

After sleeping off the hangover, it’ll be time to mosey over to the Emperor Hotel, Beijing’s unofficial Press Club, the roof of which offers fine sunset-dappled views over the Forbidden City.

Those in search of a cheaper option can hit the hill in Jingshan Park, which itself offers a grand vista across the glowing golden eaves of the imperial palace. I’d finish the evening with dinner for two at Temple Restaurant or The Courtyard, luxuriating in the grounds of a 600-year-old Buddhist temple or the molecular creations of chef Brian McKenna.

I’d finish off a perfect finale by collecting my fee from the local Beijing tourist bureau, and fulfilling my China Dream by treating all the wonderful people I’ve met during my time in the city to dinner and drinks.

Cheers!

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Cultural listings Cinema

Summer Song and Dance In July, singer-songwriter and muscle-bound pin-up Jay Chou released his second movie, The Rooftop, on the Chinese mainland. Directed by and starring Chou, the movie tells the story of a rag-tag crew of indigent people living on a roof, and features song-and-dance numbers penned by Chou along with bittersweet romantic subplots and a few belly laughs.

Musicals have been largely absent from Chinese theaters since the days of the Revolutionary Model Opera (1960s-70s), and some are hoping that Chou’s latest feature will revive a popular but long-dormant genre.

Music

Book

Reality TV War

Lu Xun Photo Biography

In August 2012 The Voice of China, a televised singing contest, smashed ratings and led to a string of thinly-disguised copycat reality shows.

This summer, however, the competition is reaching fever pitch, with all China’s major networks releasing their own reality TV singing contests in direct competition in the schedules.

These include Chinese Idol, The Voice of China, The X Factor and homegrown hit Superboy.

This glut of reality TV singing contests has been blamed for the decline in caliber of the contestants, with viewers complaining that this year’s performances are not up to earlier standards. At the same time, more and more singers are becoming “career” competition singers, participating in a series of reality shows in a bid to win stardom by default. However, many of the “stars” featured on these shows quickly sink back into obscurity even after achieving victory, with few able to garner the support needed to launch careers as professional recording artists.

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By Huang Qiaosheng

Exhibition

New Explorations of Abstract Art Modern abstract art in China does not have a well-defined scope. Yet with over 30 years of history, it has slowly developed its own distinctive character. Heavily influenced by international modern art as well as classical Chinese paintings, the domestic art scene is now embracing daring mixed media works. From July to August, a new abstract art exhibition entitled “Corresponding Heart and Hand” is being held in Beijing’s Pifo New Art Gallery. Over ten artists of different generations are exhibiting their abstract works, hoping to reveal a new movement, of varied and cooperative art production in the Chinese market.

A collection of 114 photos not only form an portrait of Lu Xun (1881-1936), but also of his life. As one of China’s contemporary literary pioneers, often named the father of modern Chinese literature, Lu Xun witnessed China’s protracted and painful transition from semi-feudal monarchy to colonial possession to war-torn would-be world power.

His judgment of the era he lived in and the people in it has left its mark throughout the canon of Chinese contemporary literature.

The recently published Lu Xun Photo Biography describes the life of Lu Xun through a series of photos that accompany written commentaries on this legendary writer’s life and experiences. Previously unnoticed events that occur in Lu Xun’s written works, as well as characters who inspired him, are introduced to readers, giving a richer and more naturalistic perspective on a man who is rarely seen as less than a sacred figure.

NEWSCHINA I September 2013

NEWSCHINA I September 2013

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Commentary

China needs to overhaul its growth model China’s investment-driven growth model has reached its limit, and the country’s economic system has become a crisis risk

By Wu Jinglian

I

n June, China’s financial market was struck by a so-called “money GDP growth. In some provinces, annual investment in fixed assets is shortage,” as the central bank refused to inject cash into strug- astonishingly high, reaching 120 percent of GDP in some cases. gling State banks. Although the central bank eventually relented, Many of these investment projects, aimed at boosting growth rates, pumping in capital to ease the shortage, the standoff exposed China’s now have a very low or even negative return, manifested in the widely vulnerability to financial crises. But while a bailout from the central bank reported phenomenon of “ghost towns” – uninhabited real estate develcan solve a short-term liquidity problem, it cannot solve the long-term opments – in various places around the country. All these efforts only distortion of the economy, nor can it alter China’s investment-driven increased the growth rate in the fourth quarter of 2012 by 0.9 percent. growth model.

In the first quarter of 2013, growth Although the central government has fell again.

The four trillion yuan (US$652bn) long been aware of the problems inherAs the economy slows down, stimulus package issued in 2009 was another problem has become worent in its growth model, and pledged to “restructure” as early as 1995, the bulk ryingly acute – thanks to massive inonly able to buoy up the economy of China’s growth has continued to vestment in recent years, as the degree for a year, after which China saw come from boosting investment. This of financial leverage of China’s Statefive quarters of continuous economic model has been pushed to the extreme, owned enterprises, banks, and local slowdown. creating a range of problems including governments reaches dangerous level. overissuance of paper currency, swollen With massive debt and poor returns, debt, and macroeconomic instability, the financial system has become vulall of which have contributed to the nerable, as insolvency of individual current economic slowdown. financial institutions can spread to the entire financial system, and lead In recent years, whenever China has found itself with economic wor- to a financial crisis. Currently, a major concern is that a stronger US dolries, the government has resorted to boosting growth with vast injections lar may trigger an exodus of hot money, precipitating a financial crisis of investment, a method dubbed “the Chinese Model.” As an authori- similar to the Asian Financial Crisis of the late 1990s. tarian government, China is able to mobilize resources to stimulate the To solve the problem, it is necessary for China to overhaul the ineconomy. Following the global financial crisis, the government unveiled stitutional foundations of its investment-driven growth model. At the a four trillion yuan (US$652bn) stimulus package and rolled out 10 tril- core of the Chinese model is the existence of authoritarian government, lion yuan (US$1.6bn) in loans, helping China to succeed in maintain- which dictates the distribution of resources. In order to adjust with its ing a growth rate of 8 percent. growth model, China’s political system is in need of reform. Otherwise, Under the surface, the various problems embedded in this model have the government could find itself unable to steer away from its current become more and more serious, not only in the form of problems like path, even when it eventually realizes that it can no longer depend on environmental pollution and the over-exploitation of natural resources, stimulus plans to ensure economic growth. but also in the economy itself.

Unfortunately, China’s society and leadership remain divided on One direct result of the frequent use of stimulus plans is that their some of the basic questions about China’s future, including the issue of effectiveness begins to diminish. For example, the four trillion yuan what kind of system the country should adopt. It may take a long time stimulus package issued in 2009 was only able to buoy up the economy before a consensus is reached – in the meantime, China is left to face a for a year, after which China saw five quarters of continuous economic looming crisis. slowdown.

Since May 2012, many local governments have again been resorting (The author is an economist with the Development and Research Center to increasing investment in real estate and industrial projects to ensure of the State Council)

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NEWSCHINA I September 2013